[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2004 Edition]
[From the U.S. Government Printing Office]



[[Page i]]



                    7


          Parts 210 to 299

                         Revised as of January 1, 2004

Agriculture





          Containing a codification of documents of general 
          applicability and future effect
          As of January 1, 2004
          With Ancillaries
          Published by:
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register

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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2004



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[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 7:
    Subtitle B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter II--Food and Nutrition Service, Department 
          of Agriculture                                             5
  Finding Aids:
      Material Approved for Incorporation by Reference........     969
      Table of CFR Titles and Chapters........................     971
      Alphabetical List of Agencies Appearing in the CFR......     989
      List of CFR Sections Affected...........................     999

[[Page iv]]





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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume, use title, 
                       part, and section number. 
                       Thus,  7 CFR 210.1 refers 
                       to title 7, part 210, 
                       section 1.

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

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
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    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2004), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

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Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
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Code a note has been inserted to reflect the future effective date. In 
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inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
volumes. For the period beginning January 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
containing that incorporation. If, after contacting the agency, you find 
the material is not available, please notify the Director of the Federal 
Register, National Archives and Records Administration, Washington DC 
20408, or call (202) 741-6010.

CFR INDEXES AND TABULAR GUIDES

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separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
and parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

[[Page vii]]


REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
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register. The NARA site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2004.

[[Page ix]]



                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 2004.

    The Food and Nutrition Service current regulations in the volume 
containing parts 210-299, include the Child Nutrition Programs and the 
Food Stamp Program. The regulations of the Federal Crop Insurance 
Corporation are found in the volume containing parts 400-699.

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199. Part 900--General Regulations is carried as a note in the 
volume containing parts 1000-1199, as a convenience to the user.

[[Page x]]




[[Page 1]]



                          TITLE 7--AGRICULTURE




                  (This book contains parts 210 to 299)

  --------------------------------------------------------------------
                                                                    Part

  SUBTITLE B--Regulations of the Department of Agriculture (Continued)

chapter ii--Food and Nutrition Service, Department of 
  Agriculture...............................................         210

[[Page 3]]

  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



    CHAPTER II--FOOD AND NUTRITION SERVICE, DEPARTMENT OF AGRICULTURE




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


  Editorial Note: Nomenclature changes to chapter II appear at 59 FR 
60062, Nov. 22, 1994; 60 FR 19490, Apr. 19, 1995; and 63 FR 9727, Feb. 
26, 1998.

                 SUBCHAPTER A--CHILD NUTRITION PROGRAMS
Part                                                                Page
210             National School Lunch Program...............           7
215             Special Milk Program for Children...........          68
220             School Breakfast Program....................          83
225             Summer Food Service Program.................         114
226             Child and Adult Care Food Program...........         159
227             Nutrition Education and Training Program....         250
235             State administrative expense funds..........         260
240             Cash in lieu of donated foods...............         271
245             Determining eligibility for free and reduced 
                    price meals and free milk in schools....         277
246             Special Supplemental Nutrition Program for 
                    Women, Infants and Children.............         304
247             Commodity Supplemental Food Program.........         390
248             WIC Farmers' Market Nutrition Program (FMNP)         411

    SUBCHAPTER B--GENERAL REGULATIONS AND POLICIES--FOOD DISTRIBUTION
250             Donation of foods for use in the United 
                    States, its territories and possessions 
                    and areas under its jurisdiction........         433
251             The Emergency Food Assistance Program.......         481
252             National Commodity Processing Program.......         493
253             Administration of the Food Distribution 
                    Program for households on Indian 
                    reservations............................         502
254             Administration of the Food Distribution 
                    Program for Indian households in 
                    Oklahoma................................         531

         SUBCHAPTER C--FOOD STAMP AND FOOD DISTRIBUTION PROGRAM
271             General information and definitions.........         534
272             Requirements for participating State 
                    agencies................................         552
273             Certification of eligible households........         608

[[Page 6]]

274             Issuance and use of coupons.................         782
275             Performance reporting system................         823
276             State agency liabilities and Federal 
                    sanctions...............................         861
277             Payments of certain administrative costs of 
                    State agencies..........................         870
278             Participation of retail food stores, 
                    wholesale food concerns and insured 
                    financial institutions..................         904
279             Administrative and judicial review--food 
                    retailers and food wholesalers..........         930
280             Emergency food assistance for victims of 
                    disasters...............................         933
281             Administration of the Food Stamp Program on 
                    Indian reservations.....................         933
282             Demonstration, research, and evaluation 
                    projects................................         940
283             Appeals of quality control (``QC'') claims..         940
284

Provision of a nutrition assistance program for the Commonwealth of the 
Northern Mariana Islands (CNMI) [Reserved]

285             Provision of a nutrition assistance grant 
                    for the Commonwealth of Puerto Rico.....         959

                    SUBCHAPTER D--GENERAL REGULATIONS
295             Availability of information and records to 
                    the public..............................         963
296-299         [Reserved]

[[Page 7]]



                  SUBCHAPTER A_CHILD NUTRITION PROGRAMS





PART 210_NATIONAL SCHOOL LUNCH PROGRAM--Table of Contents




                            Subpart A_General

Sec.
210.1 General purpose and scope.
210.2 Definitions.
210.3 Administration.

 Subpart B_Reimbursement Process for States and School Food Authorities

210.4 Cash and donated food assistance to States.
210.5 Payment process to States.
210.6 Use of Federal funds.
210.7 Reimbursement for school food authorities.
210.8 Claims for reimbursement.

     Subpart C_Requirements for School Food Authority Participation

210.9 Agreement with State agency.
210.10 What are the nutrition standards and menu planning approaches for 
          lunches and the requirements for afterschool snacks?
210.11 Competitive food services.
210.12 Student, parent and community involvement.
210.13 Facilities management.
210.14 Resource management.
210.15 Reporting and recordkeeping.
210.16 Food service management companies.

          Subpart D_Requirements for State Agency Participation

210.17 Matching Federal funds.
210.18 Administrative reviews.
210.19 Additional responsibilities.
210.20 Reporting and recordkeeping.

    Subpart E_State Agency and School Food Authority Responsibilities

210.21 Procurement.
210.22 Audits.
210.23 Other responsibilities.

                     Subpart F_Additional Provisions

210.24 Withholding payments.
210.25 Suspension, termination and grant closeout procedures.
210.26 Penalties.
210.27 Educational prohibitions.
210.28 Pilot project exemptions.
210.29 Management evaluations.
210.30 Regional office addresses.
210.31 OMB control numbers.

Appendix A to Part 210--Alternate Foods for Meals
Appendix B to Part 210--Categories of Foods of Minimal Nutritional Value
Appendix C to Part 210--Child Nutrition Labeling Program

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

    Source: 53 FR 29147, Aug. 2, 1988, unless otherwise noted.



                            Subpart A_General



Sec.  210.1  General purpose and scope.

    (a) Purpose of the program. Section 2 of the National School Lunch 
Act (42 U.S.C. 1751), states: ``It is declared to be the policy of 
Congress, as a measure of national security, to safeguard the health and 
well-being of the Nation's children and to encourage the domestic 
consumption of nutritious agricultural commodities and other food, by 
assisting the States, through grants-in-aid and other means, in 
providing an adequate supply of food and other facilities for the 
establishment, maintenance, operation, and expansion of nonprofit school 
lunch programs.'' Pursuant to this act, the Department provides States 
with general and special cash assistance and donations of foods acquired 
by the Department to be used to assist schools in serving nutritious 
lunches to children each school day. In furtherance of Program 
objectives, participating schools shall serve lunches that are 
nutritionally adequate, as set forth in these regulations, and shall to 
the extent practicable, ensure that participating children gain a full 
understanding of the relationship between proper eating and good health.
    (b) Scope of the regulations. This part sets forth the requirements 
for participation in the National School Lunch and Commodity School 
Programs. It specifies Program responsibilities of State and local 
officials in the areas of program administration, preparation and 
service of nutritious lunches, payment of funds, use of program funds, 
program monitoring, and reporting and recordkeeping requirements.



Sec.  210.2  Definitions.

    For the purpose of this part:

[[Page 8]]

    Act means the National School Lunch Act, as amended.
    Afterschool care program means a program providing organized child 
care services to enrolled school-age children afterschool hours for the 
purpose of care and supervision of children. Those programs shall be 
distinct from any extracurricular programs organized primarily for 
scholastic, cultural or athletic purposes.
    Attendance factor means a percentage developed no less than once 
each school year which accounts for the difference between enrollment 
and attendance. The attendance factor may be developed by the school 
food authority, subject to State agency approval, or may be developed by 
the State agency. In the absence of a local or State attendance factor, 
the school food authority shall use an attendance factor developed by 
FNS. When taking the attendance factor into consideration, school food 
authorities shall assume that all children eligible for free and reduced 
price lunches attend school at the same rate as the general school 
population.
    Average Daily Participation means the average number of children, by 
eligibility category, participating in the Program each operating day. 
These numbers are obtained by dividing (a) the total number of free 
lunches claimed during a reporting period by the number of operating 
days in the same period; (b) the total number of reduced price lunches 
claimed during a reporting period by the number of operating days in the 
same period; and (c) the total number of paid lunches claimed during a 
reporting period by the number of operating days in the same period.
    Child means--(a) a student of high school grade or under as 
determined by the State educational agency, who is enrolled in an 
educational unit of high school grade or under as described in 
paragraphs (a) and (b) of the definition of ``School,'' including 
students who are mentally or physically disabled as defined by the State 
and who are participating in a school program established for the 
mentally or physically disabled; or (b) a person under 21 chronological 
years of age who is enrolled in an institution or center as described in 
paragraphs (c) and (d) of the definition of ``School;'' or (c) For 
purposes of reimbursement for meal supplements served in afterschool 
care programs, an individual enrolled in an afterschool care program 
operated by an eligible school who is 12 years of age or under, or in 
the case of children of migrant workers and children with disabilities, 
not more than 15 years of age.
    CND means the Child Nutrition Division of the Food and Nutrition 
Service of the Department.
    Commodity School Program means the Program under which participating 
schools operate a nonprofit lunch program in accordance with this part 
and receive donated food assistance in lieu of general cash assistance. 
Schools participating in the Commodity School Program shall also receive 
special cash and donated food assistance in accordance with Sec.  
210.4(c).
    Days means calendar days unless otherwise specified.
    Department means the United States Department of Agriculture.
    Distributing agency means a State agency which enters into an 
agreement with the Department for the distribution to schools of donated 
foods pursuant to part 250 of this chapter.
    Donated foods means food commodities donated by the Department for 
use in nonprofit lunch programs.
    Fiscal year means a period of 12 calendar months beginning October 1 
of any year and ending with September 30 of the following year.
    FNS means the Food and Nutrition Service, United States Department 
of Agriculture.
    FNSRO means the appropriate Regional Office of the Food and 
Nutrition Service of the Department.
    Food component means one of the four food groups which comprise 
reimbursable meals planned under a food-based menu planning approach. 
The four food components are: meat/meat alternate; grains/breads; 
fruits/vegetables; and milk.
    Food item means one of the five foods offered in lunches under a 
food-based menu planning approach: meat/meat alternate; grains/breads; 
two servings of fruits/vegetables; and milk.
    Food service management company means a commercial enterprise or a 
nonprofit organization which is or may

[[Page 9]]

be contracted with by the school food authority to manage any aspect of 
the school food service.
    Free lunch means a lunch served under the Program to a child from a 
household eligible for such benefits under 7 CFR part 245 and for which 
neither the child nor any member of the household pays or is required to 
work.
    Lunch means a meal service that meets the applicable nutrition 
standards and portion sizes in Sec.  210.10 for lunches.
    Menu item means, under Nutrient Standard Menu Planning or Assisted 
Nutrient Standard Menu Planning, any single food or combination of 
foods. All menu items or foods offered as part of the reimbursable meal 
may be considered as contributing towards meeting the nutrition 
standards provided in Sec.  210.10, except for those foods that are 
considered as foods of minimal nutritional value as provided for in 
Sec.  210.11(a)(2) which are not offered as part of a menu item in a 
reimbursable meal. For the purposes of a reimbursable lunch, a minimum 
of three menu items must be offered, one of which must be an entree (a 
combination of foods or a single food item that is offered as the main 
course) and one of which must be fluid milk. Under offer versus serve, a 
student shall select, at a minimum, an entree and one other menu item. 
If more than three menu items are offered, the student may decline up to 
two menu items; however, the entree cannot be declined.
    National School Lunch Program means the Program under which 
participating schools operate a nonprofit lunch program in accordance 
with this part. General and special cash assistance and donated food 
assistance are made available to schools in accordance with this part.
    Net cash resources means all monies, as determined in accordance 
with the State agency's established accounting system, that are 
available to or have accrued to a school food authority's nonprofit 
school food service at any given time, less cash payable. Such monies 
may include, but are not limited to, cash on hand, cash receivable, 
earnings on investments, cash on deposit and the value of stocks, bonds 
or other negotiable securities.
    Nonprofit, when applied to schools or institutions eligible for the 
Program, means exempt from income tax under section 501(c)(3) of the 
Internal Revenue Code of 1954, as amended; or, in the Commonwealth of 
Puerto Rico, certified as nonprofit by the Governor.
    Nonprofit school food service means all food service operations 
conducted by the school food authority principally for the benefit of 
schoolchildren, all of the revenue from which is used solely for the 
operation or improvement of such food services.
    Nutrient Standard Menu Planning/Assisted Nutrient Standard Menu 
Planning means ways to develop lunch menus based on the analysis for 
nutrients in the menu items and foods offered over a school week to 
determine if specific levels for a set of key nutrients and calories 
were met in accordance with Sec.  210.10(i)(5). However, for the 
purposes of Assisted Nutrient Standard Menu Planning, lunch menu 
planning and analysis are completed by other entities and must 
incorporate the production quantities needed to accommodate the specific 
service requirements of a particular school or school food authority in 
accordance with Sec.  210.10(j).
    OIG means the Office of the Inspector General of the Department.
    Point of Service means that point in the food service operation 
where a determination can accurately be made that a reimbursable free, 
reduced price or paid lunch has been served to an eligible child.
    Program means the National School Lunch Program and the Commodity 
School Program.
    Reduced price lunch means a lunch served under the Program: (a) to a 
child from a household eligible for such benefits under 7 CFR part 245; 
(b) for which the price is less than the school food authority 
designated full price of the lunch and which does not exceed the maximum 
allowable reduced price specified under 7 CFR part 245; and (c) for 
which neither the child nor any member of the household is required to 
work.
    Reimbursement means Federal cash assistance including advances paid 
or payable to participating schools for lunches meeting the requirements 
of Sec.  210.10 and served to eligible children.

[[Page 10]]

    Revenue, when applied to nonprofit school food service, means all 
monies received by or accruing to the nonprofit school food service in 
accordance with the State agency's established accounting system 
including, but not limited to, children's payments, earnings on 
investments, other local revenues, State revenues, and Federal cash 
reimbursements.
    School means: (a) An educational unit of high school grade or under, 
recognized as part of the educational system in the State and operating 
under public or nonprofit private ownership in a single building or 
complex of buildings; (b) any public or nonprofit private classes of 
preprimary grade when they are conducted in the aforementioned schools; 
or (c) any public or nonprofit private residential child care 
institution, or distinct part of such institution, which operates 
principally for the care of children, and, if private, is licensed to 
provide residential child care services under the appropriate licensing 
code by the State or a subordinate level of government, except for 
residential summer camps which participate in the Summer Food Service 
Program for Children, Job Corps centers funded by the Department of 
Labor, and private foster homes. The term ``residential child care 
institutions'' includes, but is not limited to: homes for the mentally, 
emotionally or physically impaired, and unmarried mothers and their 
infants; group homes; halfway houses; orphanages; temporary shelters for 
abused children and for runaway children; long-term care facilities for 
chronically ill children; and juvenile detention centers. A long-term 
care facility is a hospital, skilled nursing facility, intermediate care 
facility, or distinct part thereof, which is intended for the care of 
children confined for 30 days or more.
    School food authority means the governing body which is responsible 
for the administration of one or more schools; and has the legal 
authority to operate the Program therein or be otherwise approved by FNS 
to operate the Program.
    School week means the period of time used to determine compliance 
with the nutrition standards and the appropriate calorie and nutrient 
levels in Sec.  210.10. Further, if applicable, school week is the basis 
for conducting Nutrient Standard Menu Planning or Assisted Nutrient 
Standard Menu Planning for lunches as provided in Sec.  210.10(i) and 
Sec.  210.10(j). The period shall be a normal school week of five 
consecutive days; however, to accommodate shortened weeks resulting from 
holidays and other scheduling needs, the period shall be a minimum of 
three consecutive days and a maximum of seven consecutive days. Weeks in 
which school lunches are offered less than three times shall be combined 
with either the previous or the coming week.
    School year means a period of 12 calendar months beginning July 1 of 
any year and ending June 30 of the following year.
    Secretary means the Secretary of Agriculture.
    7 CFR part 3015 means the Uniform Federal Assistance Regulations 
published by the Department to implement OMB Circulars A-21, A-87, A-
102, A-110, and A-122; and Executive Order 12372. (For availability of 
OMB Circulars referenced in this definition, see 5 CFR 1310.3.)
    7 CFR part 3017 means the Department's regulation to implement 
Executive Order 12549, covering governmentwide rules on suspension and 
debarment as well as The Drug Free Workplace Act of 1988.
    7 CFR part 3018 means the Department's Common Rule regarding 
Governmentwide New Restrictions on Lobbying. Part 3018 implements the 
requirements established by section 319 of the 1990 Appropriations Act 
for the Department of Interior and Related Agencies (Pub. L. 101-121).
    7 CFR part 3052 means the Department's regulations implementing OMB 
Circular A-133, ``Audits of State, Local Governments, and Non-Profit 
Organizations.'' (For availability of OMB Circulars referenced in this 
definition, see 5 CFR 1310.3.)
    State means any of the 50 States, District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, and, as 
applicable, American Samoa and the Commonwealth of the Northern 
Marianas.

[[Page 11]]

    State agency means (a) the State educational agency; (b) any other 
agency of the State which has been designated by the Governor or other 
appropriate executive or legislative authority of the State and approved 
by the Department to administer the Program in schools, as specified in 
Sec.  210.3(b); or (c) the FNSRO, where the FNSRO administers the 
Program as specified in Sec.  210.3(c).
    State educational agency means, as the State legislature may 
determine, (a) the chief State school officer (such as the State 
Superintendent of Public Instruction, Commissioner of Education, or 
similar officer), or (b) a board of education controlling the State 
department of education.
    Student with disabilities means any child who has a physical or 
mental impairment as defined in Sec.  15b.3 of the Department's 
nondiscrimination regulations (7 CFR part 15b).
    Subsidized lunch (paid lunch) means a lunch served to children who 
are either not eligible for or elect not to receive the free or reduced 
price benefits offered under 7 CFR part 245. The Department subsidizes 
each paid lunch with both general cash assistance and donated foods. 
Although a paid lunch student pays for a large portion of his or her 
lunch, the Department's subsidy accounts for a significant portion of 
the cost of that lunch.
    Yogurt means commercially prepared coagulated milk products obtained 
by the fermentation of specific bacteria, that meet milk fat or milk 
solid requirements and to which flavoring foods or ingredients may be 
added. These products are covered by the Food and Drug Administration's 
Definition and Standard of Identity for yogurt, lowfat yogurt, and 
nonfat yogurt, 21 CFR 131.200, 21 CFR 131.203, and 21 CFR 131.206, 
respectively.

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 12580, Mar. 28, 1989; 56 
FR 32939, July 17, 1991; 58 FR 42487, Aug. 10, 1993; 60 FR 31207, June 
13, 1995; 62 FR 10189, Mar. 6, 1997; 64 FR 50740, Sept. 20, 1999; 65 FR 
26912, May 9, 2000]



Sec.  210.3  Administration.

    (a) FNS. FNS will act on behalf of the Department in the 
administration of the Program. Within FNS, the CND will be responsible 
for Program administration.
    (b) States. Within the States, the responsibility for the 
administration of the Program in schools, as defined in Sec.  210.2, 
shall be in the State educational agency. If the State educational 
agency is unable to administer the Program in public or private 
nonprofit residential child care institutions or nonprofit private 
schools, then Program administration for such schools may be assumed by 
FNSRO as provided in paragraph (c) of this section, or such other agency 
of the State as has been designated by the Governor or other appropriate 
executive or legislative authority of the State and approved by the 
Department to administer such schools. Each State agency desiring to 
administer the Program shall enter into a written agreement with the 
Department for the administration of the Program in accordance with the 
applicable requirements of this part; part 235; part 245; parts 15, 15a, 
15b, and 3015 of Departmental regulations; and FNS instructions.
    (c) FNSRO. The FNSRO will administer the Program in nonprofit 
private schools or public or nonprofit private residential child care 
institutions if the State agency is prohibited by law from disbursing 
Federal funds paid to such schools. In addition, the FNSRO will continue 
to administer the Program in those States in which nonprofit private 
schools or public or nonprofit private residential child care 
institutions have been under continuous FNS administration since October 
1, 1980, unless the administration of the Program in such schools is 
assumed by the State. The FNSRO will, in each State in which it 
administers the Program, assume all responsibilities of a State agency 
as set forth in this part and part 245 of this chapter as appropriate. 
References in this part to ``State agency'' include FNSRO, as 
applicable, when it is the agency administering the Program.
    (d) School food authorities. The school food authority shall be 
responsible for the administration of the Program in schools. State 
agencies shall ensure that school food authorities administer the 
Program in accordance with the applicable requirements of this part;

[[Page 12]]

part 245; parts 15, 15a, 15b, and 3015 of Departmental regulations; and 
FNS instructions.



 Subpart B_Reimbursement Process for States and School Food Authorities



Sec.  210.4  Cash and donated food assistance to States.

    (a) General. To the extent funds are available, FNS will make cash 
assistance available in accordance with the provisions of this section 
to each State agency for lunches and meal supplements served to children 
under the National School Lunch and Commodity School Programs. To the 
extent donated foods are available, FNS will provide donated food 
assistance to distributing agencies for each lunch served in accordance 
with the provisions of this part and part 250 of this chapter.
    (b) Assistance for the National School Lunch Program. The Secretary 
will make cash and/or donated food assistance available to each State 
agency and distributing agency, as appropriate, administering the 
National School Lunch Program, as follows:
    (1) Cash assistance for lunches: Cash assistance payments are 
composed of a general cash assistance payment, authorized under section 
4 of the Act, and a special cash assistance payment, authorized under 
section 11 of the Act. General cash assistance is provided to each State 
agency for all lunches served to children in accordance with the 
provisions of the National School Lunch Program. Special cash assistance 
is provided to each State agency for lunches served under the National 
School Lunch Program to children determined eligible for free or reduced 
price lunches in accordance with part 245 of this chapter. The total 
general cash assistance paid to each State for any fiscal year shall not 
exceed the lesser of amounts reported to FNS as reimbursed to school 
food authorities in accordance with Sec.  210.5(d)(3) or the total 
calculated by multiplying the number of lunches reported in accordance 
with Sec.  210.5(d)(1) for each month of service during the fiscal year, 
by the applicable national average payment rate prescribed by FNS. The 
total special assistance paid to each State for any fiscal year shall 
not exceed the lesser of amounts reported to FNS as reimbursed to school 
food authorities in accordance with Sec.  210.5(d)(3) or the total 
calculated by multiplying the number of free and reduced price lunches 
reported in accordance with Sec.  210.5(d)(1) for each month of service 
during the fiscal year by the applicable national average payment rate 
prescribed by FNS. In accordance with section 11 of the Act, FNS will 
prescribe annual adjustments to the per meal national average payment 
rate (general cash assistance) and the special assistance national 
average payment rates (special cash assistance) which are effective on 
July 1 of each year. These adjustments, which reflect changes in the 
food away from home series of the Consumer Price Index for all Urban 
Consumers, are annually announced by Notice in July of each year in the 
Federal Register. FNS will also establish maximum per meal rates of 
reimbursement within which a State may vary reimbursement rates to 
school food authorities. These maximum rates of reimbursement are 
established at the same time and announced in the same Notice as the 
national average payment rates.
    (2) Donated food assistance. For each school year, FNS will provide 
distributing agencies with donated foods for lunches served under the 
National School Lunch Program as provided under part 250 of this 
chapter. The per lunch value of donated food assistance is adjusted by 
the Secretary annually to reflect changes as required under section 6 of 
the Act. These adjustments, which reflect changes in the Price Index for 
Foods Used in Schools and Institutions, are effective on July 1 of each 
year and are announced by Notice in the Federal Register in July of each 
year.
    (3) Cash assistance for meal supplements. For those eligible schools 
(as defined in Sec.  210.10(n)(1)) operating afterschool care programs 
and electing to serve meal supplements to enrolled children, funds shall 
be made available to each State agency, each school year in an amount no 
less than the sum of the products obtained by multiplying:

[[Page 13]]

    (i) The number of meal supplements served in the afterschool care 
program within the State to children from families that do not satisfy 
the income standards for free and reduced price school meals by 2.75 
cents;
    (ii) The number of meal supplements served in the afterschool care 
program within the State to children from families that satisfy the 
income standard for free school meals by 30 cents;
    (iii) The number of meal supplements served in the afterschool care 
program within the State to children from families that satisfy the 
income standard for reduced price school meals by 15 cents.
    (4) The rates in paragraph (b)(3) are the base rates established in 
August 1981 for the CACFP. FNS shall prescribe annual adjustments to 
these rates in the same Notice as the National Average Payment Rates for 
lunches. These adjustments shall ensure that the reimbursement rates for 
meal supplements served under this part are the same as those 
implemented for meal supplements in the CACFP.
    (c) Assistance for the Commodity School Program. FNS will make 
special cash assistance available to each State agency for lunches 
served in commodity schools in the same manner as special cash 
assistance is provided in the National School Lunch Program. Payment of 
such amounts to State agencies is subject to the reporting requirements 
contained in Sec.  210.5(d). FNS will provide donated food assistance in 
accordance with part 250 of this chapter. Of the total value of donated 
food assistance to which it is entitled, the school food authority may 
elect to receive cash payments of up to 5 cents per lunch served in its 
commodity school(s) for donated foods processing and handling expenses. 
Such expenses include any expenses incurred by or on behalf of a 
commodity school for processing or other aspects of the preparation, 
delivery, and storage of donated foods. The school food authority may 
have all or part of these cash payments retained by the State agency for 
use on its behalf for processing and handling expenses by the State 
agency or it may authorize the State agency to transfer to the 
distributing agency all or any part of these payments for use on its 
behalf for these expenses. Payment of such amounts to State agencies is 
subject to the reporting requirements contained in Sec.  210.5(d). The 
total value of donated food assistance is calculated on a school year 
basis by adding:
    (1) The applicable national average payment rate (general cash 
assistance) prescribed by the Secretary for the period of July 1 through 
June 30 multiplied by the total number of lunches served during the 
school year under the Commodity School Program; and
    (2) The national per lunch average value of donated foods prescribed 
by the Secretary for the period of July 1 through June 30 multiplied by 
the total number of lunches served during the school year under the 
Commodity School Program.

[53 FR 29147, Aug. 2, 1988, as amended at 58 FR 42487, Aug. 10, 1993; 60 
FR 31207, June 13, 1995; 65 FR 26912, May 9, 2000]



Sec.  210.5  Payment process to States.

    (a) Grant award. FNS will specify the terms and conditions of the 
State agency's grant in a grant award document and will generally make 
payments available by means of a Letter of Credit issued in favor of the 
State agency. The State agency shall obtain funds for reimbursement to 
participating school food authorities through procedures established by 
FNS in accordance with 7 CFR part 3015. State agencies shall limit 
requests for funds to such times and amounts as will permit prompt 
payment of claims or authorized advances. The State agency shall 
disburse funds received from such requests without delay for the purpose 
for which drawn. FNS may, at its option, reimburse a State agency by 
Treasury Check. FNS will pay by Treasury Check with funds available in 
settlement of a valid claim if payment for that claim cannot be made 
within the grant closeout period specified in paragraph (d) of this 
section.
    (b) Cash-in-lieu of donated foods. All Federal funds to be paid to 
any State in place of donated foods will be made available as provided 
in part 240 of this chapter.
    (c) Recovery of funds. FNS will recover any Federal funds made 
available to the State agency under this part

[[Page 14]]

which are in excess of obligations reported at the end of each fiscal 
year in accordance with the reconciliation procedures specified in 
paragraph (d) of this section. Such recoveries shall be reflected by a 
related adjustment in the State agency's Letter of Credit.
    (d) Substantiation and reconciliation process. Each State agency 
shall maintain Program records as necessary to support the reimbursement 
payments made to school food authorities under Sec.  210.7 and Sec.  
210.8 and the reports submitted to FNS under this paragraph. The State 
agency shall ensure such records are retained for a period of 3 years or 
as otherwise specified in Sec.  210.23(c).
    (1) Monthly report. Each State agency shall submit a final Report of 
School Program Operations (FNS-10) to FNS for each month. The final 
reports shall be limited to claims submitted in accordance with Sec.  
210.8 of this part. For the month of October, the final report shall 
include the total number of children approved for free lunches, the 
total number of children approved for reduced price lunches, and the 
total number of children enrolled in participating public schools, 
private schools, and residential child care institutions, respectively, 
as of the last day of operation in October. The final reports shall be 
postmarked and/or submitted no later than 90 days following the last day 
of the month covered by the report. States shall not receive Program 
funds for any month for which the final report is not submitted within 
this time limit unless FNS grants an exception. Upward adjustments to a 
State's report shall not be made after 90 days from the month covered by 
the report unless authorized by FNS. Downward adjustments to a State's 
report shall always be made regardless of when it is determined that 
such adjustments are necessary. FNS authorization is not required for 
downward adjustments. Any adjustments to a State's report shall be 
reported to FNS in accordance with procedures established by FNS.
    (2) Quarterly report. Each State agency shall also submit to FNS a 
quarterly Financial Status Report (SF-269) on the use of Program funds. 
Such reports shall be postmarked and/or submitted no later than 30 days 
after the end of each fiscal year quarter.
    (3) End of year report. Each State agency shall submit a final 
Financial Status Report (SF-269) for each fiscal year. This final fiscal 
year grant closeout report shall be postmarked and/or submitted to FNS 
within 120 days after the end of each fiscal year or part thereof that 
the State agency administered the Program. Obligations shall be reported 
only for the fiscal year in which they occur. FNS will not be 
responsible for reimbursing Program obligations reported later than 120 
days after the close of the fiscal year in which they were incurred. 
Grant closeout procedures are to be carried out in accordance with 7 CFR 
part 3015.

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 12580, Mar. 28, 1989; 56 
FR 32939, July 17, 1991]



Sec.  210.6  Use of Federal funds.

    General. State agencies shall use Federal funds made available under 
the Program to reimburse or make advance payments to school food 
authorities in connection with lunches and meal supplements served in 
accordance with the provisions of this part; except that, with the 
approval of FNS, any State agency may reserve an amount up to one 
percent of the funds earned in any fiscal year under this part for use 
in carrying out special developmental projects. Advance payments to 
school food authorities may be made at such times and in such amounts as 
are necessary to meet the current fiscal obligations. All Federal funds 
paid to any State in place of donated foods shall be used as provided in 
part 240 of this chapter.

[53 FR 29147, Aug. 2, 1988, as amended at 58 FR 42487, Aug. 10, 1993]



Sec.  210.7  Reimbursement for school food authorities.

    (a) General. Reimbursement payments to finance nonprofit school food 
service operations shall be made only to school food authorities 
operating under a written agreement with the State agency. Subject to 
the provisions of Sec.  210.8(c), such payments may be made for lunches 
and meal supplements served in accordance with provisions of this part 
and part 245 in the calendar month preceding the calendar

[[Page 15]]

month in which the agreement is executed. These reimbursement payments 
include general cash assistance for all lunches served to children under 
the National School Lunch Program and special cash assistance payments 
for free or reduced price lunches served to children determined eligible 
for such benefits under the National School Lunch and Commodity School 
Programs. Reimbursement payments shall also be made for meal supplements 
served to eligible children in afterschool care programs in accordance 
with the rates established in Sec.  210.4(b)(3). Approval shall be in 
accordance with part 245 of this chapter.
    (b) Assignment of rates. At the beginning of each school year, State 
agencies shall establish the per meal rates of reimbursement for school 
food authorities participating in the Program. These rates of 
reimbursement may be assigned at levels based on financial need; except 
that, the rates are not to exceed the maximum rates of reimbursement 
established by the Secretary under Sec.  210.4(b) and are to permit 
reimbursement for the total number of lunches in the State from funds 
available under Sec.  210.4. Within each school food authority, the 
State agency shall assign the same rate of reimbursement from general 
cash assistance funds for all lunches served to children under the 
Program. Assigned rates of reimbursement may be changed at any time by 
the State agency, provided that notice of any change is given to the 
school food authority. The total general and special cash assistance 
reimbursement paid to any school food authority for lunches served to 
children during the school year are not to exceed the sum of the 
products obtained by multiplying the total reported number of lunches, 
by type, served to eligible children during the school year by the 
applicable maximum per lunch reimbursements prescribed for the school 
year for each type of lunch.
    (c) Reimbursement limitations. To be entitled to reimbursement under 
this part, each school food authority shall ensure that Claims for 
Reimbursement are limited to the number of free, reduced price and paid 
lunches and meal supplements that are served to children eligible for 
free, reduced price and paid lunches and meal supplements, respectively, 
for each day of operation.
    (1) Lunch count system. To ensure that the Claim for Reimbursement 
accurately reflects the number of lunches and meal supplements served to 
eligible children, the school food authority shall, at a minimum:
    (i) Correctly approve each child's eligibility for free and reduced 
price lunches and meal supplements based on the requirements prescribed 
under 7 CFR part 245;
    (ii) Maintain a system to issue benefits and to update the 
eligibility of children approved for free or reduced price lunches and 
meal supplements. The system shall:
    (A) Accurately reflect eligibility status as well as changes in 
eligibility made after the initial approval process due to verification 
findings, transfers, reported changes in income or household size, etc.; 
and
    (B) Make the appropriate changes in eligibility after the initial 
approval process on a timely basis so that the mechanism the school food 
authority uses to identify currently eligible children provides a 
current and accurate representation of eligible children. Changes in 
eligibility which result in increased benefit levels shall be made as 
soon as possible but no later than 3 operating days of the date the 
school food authority makes the final decision on a child's eligibility 
status. Changes in eligibility which result in decreased benefit levels 
shall be made as soon as possible but no later than 10 operating days of 
the date the school food authority makes the final decision on the 
child's eligibility status.
    (iii) Base Claims for Reimbursement on lunch counts, taken daily at 
the point of service, which correctly identify the number of free, 
reduced price and paid lunches served to eligible children;
    (iv) Correctly record, consolidate and report those lunch and 
supplement counts on the Claim for Reimbursement; and
    (v) Ensure that Claims for Reimbursement do not request payment for 
any excess lunches produced, as prohibited in Sec.  210.10(a)(2), or 
non-Program lunches (i.e., a la carte or adult

[[Page 16]]

lunches) or for more than one meal supplement per child per day.
    (2) Point of service alternatives.
    (i) State agencies may authorize alternatives to the point of 
service lunch counts provided that such alternatives result in accurate, 
reliable counts of the number of free, reduced price and paid lunches 
served, respectively, for each serving day. State agencies are 
encouraged to issue guidance which clearly identifies acceptable point 
of service alternatives and instructions for proper implementation. 
School food authorities may select one of the State agency approved 
alternatives without prior approval.
    (ii) In addition, on a case-by-case basis, State agencies may 
authorize school food authorities to use other alternatives to the point 
of service lunch count; provided that such alternatives result in an 
accurate and reliable lunch count system. Any request to use an 
alternative lunch counting method which has not been previously 
authorized under paragraph (2)(i) is to be submitted in writing to the 
State agency for approval. Such request shall provide detail sufficient 
for the State agency to assess whether the proposed alternative would 
provide an accurate and reliable count of the number of lunches, by 
type, served each day to eligible children. The details of each approved 
alternative shall be maintained on file at the State agency for review 
by FNS.
    (d) The State agency shall reimburse the school food authority for 
meal supplements served in eligible schools (as defined in Sec.  
210.10(n)(1)) operating afterschool care programs under the NSLP in 
accordance with the rates established in Sec.  210.4(b).

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 12581, Mar. 28, 1989; 56 
FR 32939, July 17, 1991; 58 FR 42487, Aug. 10, 1993; 60 FR 31207, June 
13, 1995; 65 FR 26912, May 9, 2000]



Sec.  210.8  Claims for reimbursement.

    (a) Internal controls. The school food authority shall establish 
internal controls which ensure the accuracy of lunch counts prior to the 
submission of the monthly Claim for Reimbursement. At a minimum, these 
internal controls shall include: an on-site review of the lunch counting 
and claiming system employed by each school within the jurisdiction of 
the school food authority; comparisons of daily free, reduced price and 
paid lunch counts against data which will assist in the identification 
of lunch counts in excess of the number of free, reduced price and paid 
lunches served each day to children eligible for such lunches; and a 
system for following up on those lunch counts which suggest the 
likelihood of lunch counting problems.
    (1) On-site reviews. Every school year, each school food authority 
with more than one school shall perform no less than one on-site review 
of the lunch counting and claiming system employed by each school under 
its jurisdiction. The on-site review shall take place prior to February 
1 of each school year. Further, if the review discloses problems with a 
school's meal counting or claiming procedures, the school food authority 
shall: ensure that the school implements corrective action; and, within 
45 days of the review, conducts a follow-up on-site review to determine 
that the corrective action resolved the problems. Each on-site review 
shall ensure that the school's claim is based on the counting system 
authorized by the State agency under Sec.  210.7(c) of this part and 
that the counting system, as implemented, yields the actual number of 
reimbursable free, reduced price and paid lunches, respectively, served 
for each day of operation.
    (2) School food authority claims review process. Prior to the 
submission of a monthly Claim for Reimbursement, each school food 
authority shall review the lunch count data for each school under its 
jurisdiction to ensure the accuracy of the monthly Claim for 
Reimbursement. The objective of this review is to ensure that monthly 
claims include only the number of free, reduced price and paid lunches 
served on any day of operation to children currently eligible for such 
lunches.
    (i) Any school food authority that was found by its most recent 
administrative review conducted in accordance with Sec.  210.18, to have 
no meal counting and claiming violations may:
    (A) Develop internal control procedures that ensure accurate meal 
counts. The school food authority shall submit any internal controls 
developed

[[Page 17]]

in accordance with this paragraph to the State agency for approval and, 
in the absence of specific disapproval from the State agency, shall 
implement such internal controls. The State agency shall establish 
procedures to promptly notify school food authorities of any 
modifications needed to their proposed internal controls or of denial of 
unacceptable submissions. If the State agency disapproves the proposed 
internal controls of any school food authority, it reserves the right to 
require the school food authority to comply with the provisions of 
paragraph (a)(3) of this section; or
    (B) Comply with the requirements of paragraph (a)(3) of this 
section.
    (ii) Any school food authority that was identified in the most 
recent administrative review conducted in accordance with Sec.  210.18, 
or in any other oversight activity, as having meal counting and claiming 
violations shall comply with the requirements in paragraph (a)(3) of 
this section.
    (3) Edit checks. (i) The following procedure shall be followed for 
school food authorities identified in paragraph (a)(2)(ii) of this 
section, by other school food authorities at State agency option, or, at 
their own option, by school food authorities identified in paragraph 
(a)(2)(i) of this section: the school food authority shall compare each 
school's daily counts of free, reduced price and paid lunches against 
the product of the number of children in that school currently eligible 
for free, reduced price and paid lunches, respectively, times an 
attendance factor.
    (ii) School food authorities that are identified in subsequent 
administrative reviews conducted in accordance with Sec.  210.18 as not 
having meal counting and claiming violations and that are correctly 
complying with the procedures in paragraph (a)(3)(i) of this section 
have the option of developing internal controls in accordance with 
paragraph (a)(2)(i) of this section.
    (4) Follow-up activity. The school food authority shall promptly 
follow-up through phone contact, on-site visits or other means when the 
internal controls used by schools in accordance with paragraph (a)(2)(i) 
of this section or the claims review process used by schools in 
accordance with paragraphs (a)(2)(ii) and (a)(3) of this section suggest 
the likelihood of lunch count problems. When problems or errors are 
identified, the lunch counts shall be corrected prior to submission of 
the monthly Claim for Reimbursement. Improvements to the lunch count 
system shall also be made to ensure that the lunch counting system 
consistently results in lunch counts of the actual number of 
reimbursable free, reduced price and paid lunches served for each day of 
operation.
    (5) Recordkeeping. School food authorities shall maintain on file, 
each month's Claim for Reimbursement and all data used in the claims 
review process, by school. Records shall be retained as specified in 
Sec.  210.23(c) of this part. School food authorities shall make this 
information available to the Department and the State agency upon 
request.
    (b) Monthly claims. To be entitled to reimbursement under this part, 
each school food authority shall submit to the State agency, a monthly 
Claim for Reimbursement, as described in paragraph (c) of this section.
    (1) Submission timeframes. A final Claim for Reimbursement shall be 
postmarked or submitted to the State agency not later than 60 days 
following the last day of the full month covered by the claim. State 
agencies may establish shorter deadlines at their discretion. Claims not 
postmarked and/or submitted within 60 days shall not be paid with 
Program funds unless otherwise authorized by FNS.
    (2) State agency claims review process. The State agency shall 
review each school food authority's Claim for Reimbursement, on a 
monthly basis, in an effort to ensure that monthly claims are limited to 
the number of free and reduced price lunches served, by type, to 
eligible children.
    (i) The State agency shall, at a minimum, compare the number of free 
and reduced price lunches claimed to the number of children approved for 
free and reduced price lunches enrolled in the school food authority for 
the month of October times the days of operation times the attendance 
factor employed by the school food authority in accordance with 
paragraph (a)(3) of this section or the internal controls

[[Page 18]]

used by schools in accordance with paragraph (a)(2)(i) of this section. 
At its discretion, the State agency may conduct this comparison against 
data which reflects the number of children approved for free and reduced 
price lunches for a more current month(s) as collected pursuant to 
paragraph (c)(2) of this section.
    (ii) In lieu of conducting the claims review specified in paragraph 
(b)(2)(i) of this section, the State agency may conduct alternative 
analyses for those Claims for Reimbursement submitted by residential 
child care institutions. Such alternatives analyses shall meet the 
objective of ensuring that the monthly Claims for Reimbursement are 
limited to the numbers of free and reduced price lunches served, by 
type, to eligible children.
    (3) Follow-up activity. The State agency shall promptly follow-up 
through phone contact, on-site visits, or other means when the claims 
review process suggests the likelihood of lunch count problems.
    (4) Corrective action. The State agency shall promptly take 
corrective action with respect to any Claim for Reimbursement which 
includes more than the number of lunches served, by type, to eligible 
children. In taking corrective action, State agencies may make 
adjustments on claims filed within the 60-day deadline if such 
adjustments are completed within 90 days of the last day of the claim 
month and are reflected in the final Report of School Program Operations 
(FNS-10) for the claim month required under Sec.  210.5(d) of this part. 
Upward adjustments in Program funds claimed which are not reflected in 
the final FNS-10 for the claim month shall not be made unless authorized 
by FNS. Except that, upward adjustments for the current and prior fiscal 
years resulting from any review or audit may be made, at the discretion 
of the State agency. Downward adjustments in amounts claimed shall 
always be made, without FNS authorization, regardless of when it is 
determined that such adjustments are necessary.
    (c) Content of claim. The Claim for Reimbursement shall include data 
in sufficient detail to justify the reimbursement claimed and to enable 
the State agency to provide the Report of School Program Operations 
required under Sec.  210.5(d) of this part. Such data shall include, at 
a minimum, the number of free, reduced price and paid lunches and meal 
supplements served to eligible children. The claim shall be signed by a 
school food authority official.
    (1) Consolidated claim. The State agency may authorize a school food 
authority to submit a consolidated Claim for Reimbursement for all 
schools under its jurisdiction, provided that, the data on each school's 
operations required in this section are maintained on file at the local 
office of the school food authority and the claim separates consolidated 
data for commodity schools from data for other schools. Unless otherwise 
approved by FNS, the Claim for Reimbursement for any month shall include 
only lunches and meal supplements served in that month except if the 
first or last month of Program operations for any school year contains 
10 operating days or less, such month may be combined with the Claim for 
Reimbursement for the appropriate adjacent month. However, Claims for 
Reimbursement may not combine operations occurring in two fiscal years. 
If a single State agency administers any combination of the Child 
Nutrition Programs, a school food authority shall be able to use a 
common claim form with respect to claims for reimbursement for meals 
served under those programs.
    (2) October data. For the month of October, the State agency shall 
also obtain, either through the Claim for Reimbursement or other means, 
the total number of children approved for free lunches and meal 
supplements, the total number of children approved for reduced price 
lunches and meal supplements, and the total number of children enrolled 
in the school food authority as of the last day of operation in October. 
The school food authority shall submit this data to the State agency no 
later than December 31 of each year. State agencies may establish 
shorter deadlines at their discretion. In addition, the State agency may 
require school food authorities to provide this data for a more current 
month if for use in the State agency

[[Page 19]]

claims review process under paragraph (c)(2) of this section.
    (d) Advance funds. The State agency may advance funds available for 
the Program to a school food authority in an amount equal to the amount 
of reimbursement estimated to be needed for one month's operation. 
Following the receipt of claims, the State agency shall make 
adjustments, as necessary, to ensure that the total amount of payments 
received by the school food authority for the fiscal year does not 
exceed an amount equal to the number of lunches and meal supplements by 
reimbursement type served to children times the respective payment rates 
assigned by the State in accordance with Sec.  210.7(b). The State 
agency shall recover advances of funds to any school food authority 
failing to comply with the 60-day claim submission requirements in 
paragraph (b) of this section.

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 12581, Mar. 28, 1989; 56 
FR 32940, July 17, 1991; 58 FR 42487, Aug. 10, 1993; 60 FR 31207, June 
13, 1995; 64 FR 50740, Sept. 20, 1999]



     Subpart C_Requirements for School Food Authority Participation



Sec.  210.9  Agreement with State agency.

    (a) Application. An official of a school food authority shall make 
written application to the State agency for any school in which it 
desires to operate the Program. Applications shall provide the State 
agency with sufficient information to determine eligibility. The school 
food authority shall also submit for approval a Free and Reduced Price 
Policy Statement in accordance with part 245 of this chapter.
    (b) Agreement. Each school food authority approved to participate in 
the program shall enter into a written agreement with the State agency 
that may be amended as necessary. Nothing in the preceding sentence 
shall be construed to limit the ability of the State agency to suspend 
or terminate the agreement in accordance with Sec.  210.25. If a single 
State agency administers any combination of the Child Nutrition 
Programs, that State agency shall provide each school food authority 
with a single agreement with respect to the operation of those programs. 
The agreement shall contain a statement to the effect that the ``School 
Food Authority and participating schools under its jurisdiction, shall 
comply with all provisions of 7 CFR parts 210 and 245.'' This agreement 
shall provide that each school food authority shall, with respect to 
participating schools under its jurisdiction:
    (1) Maintain a nonprofit school food service and observe the 
limitations on the use of nonprofit school food service revenues set 
forth in Sec.  210.14(a) and the limitations on any competitive school 
food service as set forth in Sec.  210.11(b);
    (2) Limit its net cash resources to an amount that does not exceed 3 
months average expenditures for its nonprofit school food service or 
such other amount as may be approved in accordance with Sec.  210.19(a);
    (3) Maintain a financial management system as prescribed under Sec.  
210.14(c);
    (4) Comply with the requirements of the Department's regulations 
regarding financial management (7 CFR part 3015);
    (5) Serve lunches, during the lunch period, which meet the minimum 
requirements prescribed in Sec.  210.10;
    (6) Price the lunch as a unit;
    (7) Serve lunches free or at a reduced price to all children who are 
determined by the school food authority to be eligible for such meals 
under 7 CFR part 245;
    (8) Claim reimbursement at the assigned rates only for reimbursable 
free, reduced price and paid lunches served to eligible children in 
accordance with 7 CFR part 210. Agree that the school food authority 
official signing the claim shall be responsible for reviewing and 
analyzing meal counts to ensure accuracy as specified in Sec.  210.8 
governing claims for reimbursement. Acknowledge that failure to submit 
accurate claims will result in the recovery of an overclaim and may 
result in the withholding of payments, suspension or termination of the 
program as specified in Sec.  210.25. Acknowledge that if failure to 
submit accurate claims reflects embezzlement, willful mis ap pli ca tion 
of funds, theft, or fraudulent activity, the penalties specified in 
Sec.  210.26 shall apply;
    (9) Count the number of free, reduced price and paid reimbursable 
meals

[[Page 20]]

served to eligible children at the point of service, or through another 
counting system if approved by the State agency;
    (10) Submit Claims for Reimbursement in accordance with Sec.  210.8;
    (11) Comply with the requirements of the Department's regulations 
regarding nondiscrimination (7 CFR parts 15, 15a, 15b);
    (12) Make no discrimination against any child because of his or her 
eligibility for free or reduced price meals in accordance with the 
approved Free and Reduced Price Policy Statement;
    (13) Enter into an agreement to receive donated foods as required by 
7 CFR part 250;
    (14) Maintain, in the storage, preparation and service of food, 
proper sanitation and health standards in conformance with all 
applicable State and local laws and regulations;
    (15) Accept and use, in as large quantities as may be efficiently 
utilized in its nonprofit school food service, such foods as may be 
offered as a donation by the Department;
    (16) Maintain necessary facilities for storing, preparing and 
serving food;
    (17) Upon request, make all accounts and records pertaining to its 
school food service available to the State agency and to FNS, for audit 
or review, at a reasonable time and place. Such records shall be 
retained for a period of 3 years after the date of the final Claim for 
Reimbursement for the fiscal year to which they pertain, except that if 
audit findings have not been resolved, the records shall be retained 
beyond the 3 year period as long as required for resolution of the 
issues raised by the audit;
    (18) Maintain files of currently approved and denied free and 
reduced price applications, respectively, and the names of children 
approved for free lunches based on documentation certifying that the 
child is included in a household approved to receive benefits under the 
Food Stamp Program, Food Distribution Program for Households on Indian 
Reservations (FDPIR) or Temporary Assistance for Needy Families 
(TANF).If the applications and/or documentation are maintained at the 
school food authority level, they shall be readily retrievable by 
school;
    (19) Retain the individual applications for free and reduced price 
lunches and meal supplements submitted by families for a period of 3 
years after the end of the fiscal year to which they pertain or as 
otherwise specified under paragraph (b)(17) of this section.
    (20) No later than March 1, 1997, and no later than December 31 of 
each year thereafter, provide the State agency with a list of all 
elementary schools under its jurisdiction in which 50 percent or more of 
enrolled children have been determined eligible for free or reduced 
price meals as of the last operating day the preceding October. The 
State agency may designate a month other than October for the collection 
of this information, in which case the list must be provided to the 
State agency within 60 calendar days following the end of the month 
designated by the State agency. In addition, each school food authority 
shall provide, when available for the schools under its jurisdiction, 
and upon the request of a sponsoring organization of day care homes of 
the Child and Adult Care Food Program, information on the boundaries of 
the attendance areas for the elementary schools identified as having 50 
percent or more of enrolled children certified eligible for free or 
reduced price meals.
    (c) Afterschool care requirements. Those school food authorities 
with eligible schools (as defined in Sec.  210.10(n)(1)) that elect to 
serve meal supplements during afterschool care programs, shall agree to:
    (1) Serve meal supplements which meet the minimum requirements 
prescribed in Sec.  210.10;
    (2) Price the meal supplement as a unit;
    (3) Serve meal supplements free or at a reduced price to all 
children who are determined by the school food authority to be eligible 
for free or reduced price school meals under 7 CFR part 245;
    (4) If charging for meals, the charge for a reduced price meal 
supplement shall not exceed 15 cents;
    (5) Claim reimbursement at the assigned rates only for meal 
supplements served in accordance with the agreement;

[[Page 21]]

    (6) Claim reimbursement for no more than one meal supplement per 
child per day;
    (7) Review each afterschool care program two times a year; the first 
review shall be made during the first four weeks that the school is in 
operation each school year, except that an afterschool care program 
operating year round shall be reviewed during the first four weeks of 
its initial year of operation, once more during its first year of 
operation, and twice each school year thereafter; and
    (8) Comply with all requirements of this part, except that, claims 
for reimbursement need not be based on ``point of service'' meal 
supplement counts (as required by Sec.  210.9(b)(9)).

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 12581, Mar. 28, 1989; 56 
FR 32941, July 17, 1991; 58 FR 42488, Aug. 10, 1993; 60 FR 31208, June 
13, 1995; 62 FR 901, Jan. 7, 1997; 63 FR 9104, Feb. 24, 1998; 64 FR 
50740, Sept. 20, 1999; 64 FR 72471, Dec. 28, 1999; 65 FR 26912, May 9, 
2000]



Sec.  210.10  What are the nutrition standards and menu planning 
approaches for lunches and the requirements for afterschool snacks?

    (a) What are the general requirements?
    (1) General nutrition requirements. Schools must provide nutritious 
and well-balanced meals to all the children they serve.
    (i) Requirements for lunch. For children age 2 or older, schools 
must offer lunches that meet, at a minimum, the nutrition standards in 
paragraph (b) of this section. Compliance with the nutrition standards 
and the appropriate nutrient and calorie levels is determined by 
averaging lunches planned to be offered over a school week. Under any 
menu planning approach, schools must plan and produce at least enough 
food to meet the appropriate calorie and nutrient levels for the ages/
grades of the children in the school (see paragraphs (c), (d), (i)(1) or 
(l) of this section, depending on the menu planning approach used). 
Also, if schools use one of the food-based menu planning approaches, 
they must plan and produce at least enough food to offer each child the 
minimum quantities under the meal pattern (see paragraph (k) of this 
section). Schools offering lunches to infants must meet the meal pattern 
requirements in paragraph (o) of this section.
    (ii) Requirements for afterschool snacks. Schools offering 
afterschool snacks in afterschool care programs must meet the meal 
pattern requirements in paragraph (n) of this section. Schools must plan 
and produce enough food to offer each child the minimum quantities under 
the meal pattern in paragraph (n) of this section. The component 
requirements for meal supplements served under the Child and Adult Care 
Food Program authorized under part 226 of this chapter also apply to 
afterschool snacks served in accordance with paragraph (n) of this 
section.
    (2) Unit pricing. Schools must price each meal as a unit. Schools 
need to consider participation trends in an effort to provide one 
reimbursable lunch and, if applicable, one reimbursable afterschool 
snack for each child every day. If there are leftover meals, schools may 
offer them to the students but cannot get reimbursement for them.
    (3) Production and menu records. Schools must keep production and 
menu records for the meals they produce. These records must show how the 
meals contribute to the required food components, food items or menu 
items every day. In addition, for lunches, these records must show how 
the lunches contribute to the nutrition standards in paragraph (b) of 
this section and the appropriate calorie and nutrient levels for the 
ages/grades of the children in the school (see paragraphs (c), (d), or 
(i)(1) or (l) of this section, depending on the menu planning approach 
used) over the school week. If applicable, schools or school food 
authorities must maintain nutritional analysis records to demonstrate 
that lunches meet, when averaged over each school week:
    (i) The nutrition standards provided in paragraph (b) of this 
section; and
    (ii) The nutrient and calorie levels for children for each age or 
grade group in accordance with paragraphs (c) or (i)(1) of this section 
or developed under paragraph (l) of this section.
    (b) What are the specific nutrition standards for lunches? Children 
age 2 and above must be offered lunches that meet the following 
nutrition standards for their age/grade group:

[[Page 22]]

    (1) Provision of one-third of the Recommended Dietary Allowances 
(RDAs) for protein, calcium, iron, vitamin A and vitamin C in the 
appropriate levels for the ages/grades (see paragraphs (c), (d), (i)(1) 
or (l) of this section, depending on the menu planning approach used);
    (2) Provision of the lunchtime energy allowances (calories) in the 
appropriate levels (see paragraphs (c), (d),(i)(1) or (l) of this 
section, depending on the menu planning approach used);
    (3) These applicable recommendations from the 1995 Dietary 
Guidelines for Americans:
    (i) Eat a variety of foods;
    (ii) Limit total fat to 30 percent of total calories;
    (iii) Limit saturated fat to less than 10 percent of total calories;
    (iv) Choose a diet low in cholesterol;
    (v) Choose a diet with plenty of grain products, vegetables, and 
fruits; and
    (vi) Choose a diet moderate in salt and sodium.
    (4) These measures of compliance with the applicable recommendations 
of the 1995 Dietary Guidelines for Americans:
    (i) Limit the percent of calories from total fat to 30 percent of 
the actual number of calories offered;
    (ii) Limit the percent of calories from saturated fat to less than 
10 percent of the actual number of calories offered;
    (iii) Reduce sodium and cholesterol levels; and
    (iv) Increase the level of dietary fiber.
    (5) School food authorities have several ways to plan menus. The 
minimum levels of nutrients and calories that lunches must offer depends 
on the menu planning approach used and the ages/grades served. The menu 
planning approaches are:
    (i) Nutrient standard menu planning (see paragraphs (c) and (i) of 
this section);
    (ii) Assisted nutrient standard menu planning (see paragraphs (c) 
and (j) of this section);
    (iii) Traditional food-based menu planning (see paragraphs (d)(1) 
and (k) of this section);
    (iv) Enhanced food-based menu planning (see paragraphs (d)(2) and 
(k) of this section); or
    (v) Alternate menu planning (see paragraph (l) of this section).
    (c) What are the levels for nutrients and calories for lunches 
planned under the nutrient standard or assisted nutrient standard menu 
planning approaches?
    (1) Required levels. The required levels are:
    [GRAPHIC] [TIFF OMITTED] TR09MY00.000
    
    (2) Optional levels. Optional levels are:

[[Page 23]]

[GRAPHIC] [TIFF OMITTED] TR09MY00.001

    (3) Customized levels. Schools may also develop a set of nutrient 
and calorie levels for a school week. These levels are customized for 
the age groups of the children in the particular school or school food 
authority.
    (d) What are the nutrient and calorie levels for lunches planned 
under the food-based menu planning approaches?
    (1) Traditional approach. For the traditional food-based menu 
planning approach, the required levels are:
[GRAPHIC] [TIFF OMITTED] TN17MY00.000

    (2) Enhanced approach. For the enhanced food-based menu planning 
approach, the required levels are:

[[Page 24]]

[GRAPHIC] [TIFF OMITTED] TR09MY00.003

    (e) Must schools offer choices at lunch? FNS encourages schools to 
offer children a selection of foods and menu items at lunch. Choices 
provide variety and encourage consumption. Schools may offer choices of 
reimbursable lunches or foods within a reimbursable lunch. Children who 
are eligible for free or reduced price lunches must be allowed to take 
any reimbursable lunch or any choices offered as part of a reimbursable 
lunch. Schools may establish different unit prices for each lunch 
offered provided that the benefits made available to children eligible 
for free or reduced price lunches are not affected.
    (f) What are the requirements for lunch periods?
    (1) Timing. Schools must offer lunches meeting the requirements of 
this section during the period the school has designated as the lunch 
period. Schools must offer lunches between 10:00 a.m. and 2:00 p.m. 
Schools may request an exemption from these times only from FNS.
    (2) Lunch periods for young children. With State agency approval, 
schools are encouraged to serve children ages one through five over two 
service periods. Schools may divide the quantities and/or the menu 
items, foods, or food items offered each time any way they wish.
    (3) Adequate lunch periods. FNS encourages schools to provide 
sufficient lunch periods that are long enough to give all students 
enough time to be served and to eat their lunches.
    (g) What exceptions and variations are allowed in meals?
    (1) Exceptions for medical or special dietary needs. Schools must 
make substitutions in lunches and afterschool snacks for students who 
are considered to have a disability under 7 CFR part 15b and whose 
disability restricts their diet. Schools may also make substitutions for 
students who do not have a disability but who cannot consume the regular 
lunch or afterschool snack because of medical or other special dietary 
needs. Substitutions must be made on a case by case basis only when 
supported by a statement of the need for substitutions that includes 
recommended alternate foods, unless otherwise exempted by FNS. Such 
statement must, in the case of a student with a disability, be signed by 
a physician or, in the case of a student who is not disabled, by a 
recognized medical authority.
    (2) Variations for ethnic, religious, or economic reasons. Schools 
should consider ethnic and religious preferences when planning and 
preparing meals. Variations on an experimental or continuing basis in 
the food components for the food-based menu planning approaches in 
paragraphs (k) or (n) of this section may be allowed by FNS. Any 
variations must be nutritionally

[[Page 25]]

sound and needed to meet ethnic, religious, or economic needs.
    (3) Exceptions for natural disasters. If there is a natural disaster 
or other catastrophe, FNS may temporarily allow schools to serve meals 
for reimbursement that do not meet the requirements in this section.
    (h) What must schools do about nutrition disclosure? To the extent 
that school food authorities identify foods in a menu, or on the serving 
line or through other available means of communicating with program 
participants, school food authorities must identify products or dishes 
containing more than 30 parts fully hydrated alternate protein products 
(as specified in appendix A of this part) to less than 70 parts beef, 
pork, poultry or seafood on an uncooked basis, in a manner which does 
not characterize the product or dish solely as beef, pork, poultry or 
seafood. Additionally, FNS encourages schools to inform the students, 
parents, and the public about efforts they are making to meet the 
nutrition standards (see paragraph (b) of this section) for school 
lunches.
    (i) What are the requirements for lunches under the nutrient 
standard menu planning approach?
    (1) Nutrient levels.
    (i) Adjusting nutrient levels for young children. Schools with 
children who are age 2 must at least meet the nutrition standards in 
paragraph (b) of this section and the preschool nutrient and calorie 
levels in paragraph (c)(1) of this section over a school week. Schools 
may also use the preschool nutrient and calorie levels in paragraph 
(c)(2) of this section or may calculate nutrient and calorie levels for 
two year olds. FNS has a method for calculating these levels in guidance 
materials for menu planning.
    (ii) Minimum levels for nutrients. Lunches must at least offer the 
nutrient and calorie levels for the required grade groups in the table 
in paragraph (c)(1) of this section. Schools may also offer lunches 
meeting the nutrient and calorie levels for the age groups in paragraph 
(c)(2) of this section. If only one grade or age group is outside either 
of these established levels, schools may follow the levels for the 
majority of the children. Schools may also customize the nutrient and 
calorie levels for the children they serve. FNS has a method for 
calculating these levels in guidance materials for menu planning.
    (2) Reimbursable lunches.
    (i) Contents of a reimbursable lunch. A reimbursable lunch must 
include at least three menu items. One of those menu items must be an 
entree, and one must be fluid milk as a beverage. An entree is a 
combination of foods or is a single food item offered as the main 
course. All menu items or foods offered in a reimbursable lunch 
contribute to the nutrition standards in paragraph (b) of this section 
and to the levels of nutrients and calories that must be met in 
paragraphs (c) or (i)(1) of this section. Unless offered as part of a 
menu item in a reimbursable lunch, foods of minimal nutritional value 
(see appendix B to part 210) are not included in the nutrient analysis. 
Reimbursable lunches planned under the nutrient standard menu planning 
approach must meet the nutrition standards in paragraph (b) of this 
section and the appropriate nutrient and calorie levels in either 
paragraph (c) or paragraph (i)(1) of this section.
    (ii) Offer versus serve. Schools must offer at least three menu 
items for lunches. Senior high (as defined by the State educational 
agency) school students must select at least two menu items and are 
allowed to decline a maximum of two menu items. The student must always 
take the entree. The price of a reimbursable lunch does not change if 
the student does not take a menu item or requests smaller portions. At 
the discretion of the school food authority, students below the senior 
high level may also participate in offer versus serve.
    (3) Doing the analysis. Schools using nutrient standard menu 
planning must conduct the analysis on all menu items and foods offered 
in a reimbursable lunch. The analysis is conducted over a school week. 
Unless offered as part of a menu item in a reimbursable lunch, foods of 
minimal nutritional value (see appendix B to part 210) are not included 
in the nutrient analysis.
    (4) Software elements.
    (i) The Child Nutrition Database. The nutrient analysis is based on 
the Child Nutrition Database. This database is

[[Page 26]]

part of the software used to do a nutrient analysis. Software companies 
or others developing systems for schools may contact FNS for more 
information about the database.
    (ii) Software evaluation. FNS or an FNS designee evaluates any 
nutrient analysis software before it may be used in schools. FNS or its 
designee determines if the software, as submitted, meets the minimum 
requirements. The approval of software does not mean that FNS or USDA 
endorses it. The software must be able to do all functions after the 
basic data is entered. The required functions include weighted averages 
and the optional combined analysis of the lunch and breakfast programs.
    (5) Nutrient analysis procedures.
    (i) Weighted averages. Schools must include all menu items and foods 
offered in reimbursable lunches in the nutrient analysis. Menu items and 
foods are included based on the portion sizes and projected serving 
amounts. They are also weighted based on their proportionate 
contribution to the lunches offered. This means that menu items or foods 
more frequently offered are weighted more heavily than those not offered 
as frequently. Schools calculate weighting as indicated by FNS guidance 
and by the guidance provided by the software. Through September 30, 
2003, schools are not required to conduct a weighted analysis.
    (ii) Analyzed nutrients. The analysis includes all menu items and 
foods offered over a school week. The analysis must determine the levels 
of: Calories, protein, vitamin A, vitamin C, iron, calcium, total fat, 
saturated fat, sodium, cholesterol and dietary fiber.
    (iii) Combining the analysis of the lunch and breakfast programs. At 
their option, schools may combine the analysis of lunches offered under 
this part and breakfasts offered under part 220 of this Chapter. The 
analysis is done proportionately to the levels of participation in each 
program based on FNS guidance.
    (6) Comparing the results of the nutrient analysis. Once the 
procedures in paragraph (i)(5) of this section are completed, schools 
must compare the results of the analysis to the appropriate nutrient and 
calorie levels, by age/grade groups, in paragraph (c) of this section or 
those developed under paragraph (i)(1) of this section. This comparison 
determines the school week's average. Schools must also make comparisons 
to the nutrition standards in paragraph (b) of this section to determine 
how well they are meeting the nutrition standards over the school week.
    (7) Adjustments to the menus. Once schools know the results of the 
nutrient analysis based on the procedures in paragraphs (i)(5) and 
(i)(6) of this section, they must adjust future menu cycles to reflect 
production and how often the menu items and foods are offered. Schools 
may need to reanalyze menus when the students' selections change and, 
consequently, production levels change. Schools may need to change the 
menu items and foods offered given the students' selections and may need 
to modify the recipes and other specifications to make sure that the 
nutrition standards in paragraph (b) and either paragraphs (c) or (i)(1) 
of this section are met.
    (8) Standardized recipes. If a school follows the nutrient standard 
menu planning approach, it must develop and follow standardized recipes. 
A standardized recipe is a recipe that was tested to provide an 
established yield and quantity using the same ingredients for both 
measurement and preparation methods. Any standardized recipes developed 
by USDA/FNS are in the Child Nutrition Database. If a school has its own 
recipes, they must be standardized and analyzed to determine the levels 
of calories, nutrients, and dietary components listed in paragraph 
(i)(5)(ii) of this section. Schools must add any local recipes to their 
local database as outlined in FNS guidance.
    (9) Processed foods. The Child Nutrition Database includes a number 
of processed foods. Schools may use purchased processed foods and menu 
items that are not in the Child Nutrition Database. Schools or the State 
agency must add any locally purchased processed foods and menu items to 
their local database as outlined in FNS guidance. Schools or the State 
agency must obtain the levels of calories, nutrients, and dietary 
components listed in paragraph (i)(5)(ii) of this section.

[[Page 27]]

    (10) Menu substitutions. Schools may need to substitute foods or 
menu items in a menu that was already analyzed. If the substitution(s) 
occurs more than two weeks before the planned menu is served, the school 
must reanalyze the revised menu. If the substitution(s) occurs two weeks 
or less before the planned menu is served, the school does not need to 
do a reanalysis. However, schools should always try to substitute 
similar foods.
    (11) Meeting the nutrition standards. The school's analysis shows 
whether their menus are meeting the nutrition standards in paragraph (b) 
of this section and the appropriate levels of nutrients and calories in 
paragraph (c) of this section or customized levels developed under 
paragraph (i)(1) of this section. If the analysis shows that the menu(s) 
are not meeting these standards, the school needs to take action to make 
sure that the lunches meet the nutrition standards and the calorie, 
nutrient, and dietary component levels. Actions may include technical 
assistance and training and may be taken by the State agency, the school 
food authority or by the school as needed.
    (12) Other Child Nutrition Programs and nutrient standard menu 
planning. School food authorities that operate the Summer Food Service 
Program (part 225 of this chapter) and/or the Child and Adult Care Food 
Program (part 226 of this chapter) may, with State agency approval, 
prepare lunches for these programs using the nutrient standard menu 
planning approach for children age two and over. FNS has guidance on the 
levels of nutrients and calories for adult lunches under the Child and 
Adult Care Food Program. However, afterschool snacks continue to use the 
appropriate program's meal pattern.
    (j) What are the requirements for lunches under the assisted 
nutrient standard menu planning approach? (1) Definition of assisted 
nutrient standard menu planning. Some school food authorities may not be 
able to do all of the procedures necessary for nutrient standard menu 
planning. The assisted nutrient standard menu planning approach provides 
schools with menu cycles developed and analyzed by other sources. These 
sources include the State agency, other school food authorities, 
consultants, or food service management companies.
    (2) Elements of assisted nutrient standard menu planning. School 
food authorities using menu cycles developed under assisted nutrient 
standard menu planning must follow the procedures in paragraphs (i)(1) 
through (i)(10) of this section. The menu cycles must also incorporate 
local food preferences and accommodate local food service operations. 
The menus cycles must meet the nutrition standards in paragraph (b) of 
this section and meet the nutrient and calorie levels for nutrient 
standard menu planning in paragraph (c) or paragraph (i)(1) of this 
section. The supplier of the assisted nutrient standard menu planning 
approach must also develop and provide recipes, food product 
specifications, and preparation techniques. All of these components 
support the nutrient analysis results of the menus cycles used by the 
receiving school food authorities.
    (3) State agency approval. Prior to its use, the State agency must 
approve the initial menu cycle, recipes and other specifications of the 
assisted nutrient standard menu planning approach. The State agency 
needs to ensure that all the steps required for nutrient analysis were 
followed. School food authorities may also ask the State agency for 
assistance with implementation of their assisted nutrient standard menu 
planning approach.
    (4) Required adjustments. After the initial service of the menu 
cycle developed under the assisted nutrient standard menu planning 
approach, the nutrient analysis must be reassessed and appropriate 
adjustments made as discussed in paragraph (i)(7) of this section.
    (5) Final responsibility for meeting the nutrition standards. The 
school food authority using the assisted nutrient standard menu planning 
approach retains responsibility for meeting the nutrition standards in 
paragraph (b) of this section and the calorie and nutrient levels in 
paragraph (c) or paragraph (i)(1) of this section.
    (6) Adjustments to the menus. If the nutrient analysis shows that 
the lunches offered are not meeting the nutrition

[[Page 28]]

standards in paragraph (b) of this section and the calorie and nutrient 
levels in paragraph (c) or paragraph (i)(1) of this section, the State 
agency, school food authority or school must take action to make sure 
the lunches offered meet these requirements. Actions needed include 
technical assistance and training.
    (7) Other Child Nutrition Programs and assisted nutrient standard 
menu planning. School food authorities that operate the Summer Food 
Service Program (part 225 of this chapter) and/or the Child and Adult 
Care Food Program (part 226 of this chapter) may, with State agency 
approval, prepare lunches for these programs using the assisted nutrient 
standard menu planning approach for children age two and over. FNS has 
guidance on the levels of nutrients and calories for adult lunches under 
the Child and Adult Care Food Program. However, afterschool snacks 
continue to use the appropriate program's meal pattern.
    (k) What are the requirements for lunches under the food-based menu 
planning approaches? There are two menu planning approaches based on 
meal patterns, not nutrient analysis. These approaches are the 
traditional food-based menu planning approach and the enhanced food-
based menu planning approach. Schools using one of these approaches 
offer food components in at least the minimum quantities required for 
the various grade groups.
    (1) Quantities for the traditional food-based menu planning 
approach--(i) Minimum quantities. At a minimum, schools must offer five 
food items in the quantities in the following table:
[GRAPHIC] [TIFF OMITTED] TR09MY00.004

    (ii) Use of Group IV quantities. Schools that are able to provide 
quantities of food to children solely on the basis of their ages or 
grade level should do so.

[[Page 29]]

Schools that cannot serve children on the basis of age or grade level 
must provide all school age children Group IV portions as specified in 
the table in paragraph (k)(1)(i) of this section. Schools serving 
children on the basis of age or grade level must plan and produce 
sufficient quantities of food to provide Groups I-IV no less than the 
amounts specified for those children in the table in paragraph (k)(1)(i) 
of this section, and sufficient quantities of food to provide Group V no 
less than the specified amounts for Group IV. FNS recommends that 
schools plan and produce sufficient quantities of food to provide Group 
V children the larger amounts specified in the table in paragraph 
(k)(1)(i) of this section. Schools that provide increased portion sizes 
for Group V may comply with children's requests for smaller portion 
sizes of the food items; however, schools must plan and produce 
sufficient quantities of food to at least provide the serving sizes 
required for Group IV. Schools must ensure that lunches are served with 
the objective of providing the per lunch minimums for each age and grade 
level as specified in the table in paragraph (k)(1)(i) of this section.
    (2) Quantities for the enhanced food-based menu planning approach. 
Schools must at least offer five food items in the quantities in the 
following table:
[GRAPHIC] [TIFF OMITTED] TR09MY00.005

    (3) Requirements for the meat/meat alternate component. The quantity 
of the meat/meat alternate component must be the edible portion as 
served. If the portion size of a food item for this component is 
excessive, the school must reduce that portion and supplement it with 
another meat/meat alternate to meet the full requirement. This component 
must be served in a main dish or in a main dish and only one other food 
item. Schools without daily choices in

[[Page 30]]

this component should not serve any one meat alternate or form of meat 
(for example, ground, diced, pieces) more than three times in the same 
week.
    (i) Enriched macaroni. Enriched macaroni with fortified protein as 
defined in appendix A to this part may be used to meet part of the meat/
meat alternate requirement when used as specified in appendix A to this 
part. An enriched macaroni product with fortified protein as defined in 
appendix A to this part may be used to meet part of the meat/meat 
alternate component or the grains/breads component but not as both food 
components in the same lunch.
    (ii) Nuts and seeds. Nuts and seeds and their butters are allowed as 
meat alternates in accordance with program guidance. Acorns, chestnuts, 
and coconuts must not be used because of their low protein and iron 
content. Nut and seed meals or flours may be used only as allowed under 
appendix A to this part. Nuts or seeds may be used to meet no more than 
one-half of the meat/meat alternate component with another meat/meat 
alternate to meet the full requirement.
    (iii) Yogurt. Yogurt may be used to meet all or part of the meat/
meat alternate requirement. Yogurt may be either plain or flavored, 
unsweetened or sweetened. Noncommercial and/or nonstandardized yogurt 
products, such as frozen yogurt, homemade yogurt, yogurt flavored 
products, yogurt bars, yogurt covered fruit and/or nuts or similar 
products are not creditable. Four ounces (weight) or \1/2\ cup (volume) 
of yogurt equals one ounce of the meat/meat alternate requirement.
    (4) Requirements for the vegetable/fruit component.
    (i) General. Full strength vegetable or fruit juice may be used to 
meet no more than one-half of the vegetable/fruit requirement. Cooked 
dry beans or peas may be counted as either a vegetable or as a meat 
alternate but not as both in the same meal.
    (ii) Minimum quantities for the enhanced food-based menu planning. 
Under the enhanced food-based menu planning approach, children in 
kindergarten through grade six are offered vegetables/fruits in minimum 
daily servings plus an additional one-half cup in any combination over a 
five day period.
    (5) Requirements for the grains/breads component.
    (i) Enriched or whole grains. All grains/breads must be enriched or 
whole grain or made with enriched or whole grain meal or flour.
    (ii) Daily and weekly servings. The requirement for the grain/bread 
component is based on minimum daily servings plus total servings over a 
five day period. Schools serving lunch 6 or 7 days per week should 
increase the weekly quantity by approximately 20 percent (\1/5\th) for 
each additional day. When schools operate less than 5 days per week, 
they may decrease the weekly quantity by approximately 20 percent (\1/
5\th) for each day less than five. The servings for biscuits, rolls, 
muffins, and other grain/bread varieties are specified in the Food 
Buying Guide for Child Nutrition Programs (PA 1331), an FNS publication.
    (iii) Minimums under the traditional food-based menu planning 
approach. Schools must offer at least one-half serving of the grain/
bread component to children in Group I and at least one serving to 
children in Groups II-V daily. Schools which serve lunch at least 5 days 
a week shall serve a total of at least five servings of grains/breads to 
children in Group I and eight servings per week to children in Groups 
II-V.
    (iv) Desserts under the enhanced food-based menu planning approach. 
Under the enhanced food-based menu planning approach, schools may count 
up to one grain-based dessert per day for children in grades K-12 
towards meeting the grains/breads component.
    (6) Offer versus serve. Schools must offer all five required food 
items. Senior high (as defined by the State educational agency) school 
students may decline up to two of the five food items. At the school 
food authority's option, students below senior high may decline one or 
two of the five food items. The price of a reimbursable lunch does not 
change if the student does not take a menu item or requests smaller 
portions.
    (7) Meal pattern exceptions for outlying areas. Schools in American 
Samoa, Puerto Rico and the Virgin Islands

[[Page 31]]

may serve a starchy vegetable such as yams, plantains, or sweet potatoes 
to meet the grain/bread requirement.
    (l) What are the requirements for lunches planned using an alternate 
menu planning approach?
    (1) Definition. Alternate menu planning approaches are those adopted 
or developed by school food authorities or State agencies that differ 
from the standard approaches established in paragraphs (i) through (k) 
of this section. There are two types of alternate approaches. First, 
there are specific modifications provided in paragraph (l)(2) of this 
section. Second, there are major changes to the standard menu planning 
approaches or new menu planning approaches developed by school food 
authorities or State agencies (see paragraph (l)(3) of this section).
    (2) Use of modifications. There are three modifications available to 
schools using one of the food-based menu planning approaches for 
lunches. State agencies may or may not require prior approval or may 
establish guidelines for using these modifications.
    (i) Modification to the meat/meat alternate component. The required 
minimum quantities of the meat/meat alternate component in the food-
based menu planning approaches may be offered as a weekly total with a 
one ounce (or its equivalent for certain meat alternates) minimum daily 
serving size. This modification does not apply if the minimum serving of 
meat/meat alternate is less than one ounce.
    (ii) Modification to age/grade groups under the traditional food-
based menu planning approach. Schools using the traditional food-based 
menu planning approach may:
    (A) For children in grades K-6, use the portion sizes in Group IV in 
the table in paragraph (k)(1) of this section and follow the nutrient 
levels for children in grades K-6 in paragraphs (c)(1) and (d)(2) of 
this section; and/or
    (B) For children in grades 7-12, use the portion sizes in Group IV 
in the table in paragraph (k)(1) of this section and follow the nutrient 
levels for children in grades 7-12 in paragraphs (c)(1) and (d)(2) of 
this section.
    (iii) Modification for the majority of children. Under the 
traditional or enhanced food-based menu planning approaches, if only one 
age or grade is outside the established levels, schools may follow the 
levels for the majority of children for both quantities (see paragraph 
(k)) and the nutrition standards in paragraphs (b) and (d) of this 
section.
    (3) Use and approval of major changes or new alternate approaches. 
Within the guidelines established for developing alternate menu planning 
approaches, school food authorities or State agencies may modify one of 
the established menu planning approaches in paragraphs (i) through (k) 
of this section or may develop their own menu planning approach. The 
alternate menu planning approach must be available in writing for review 
and monitoring purposes. No formal plan is required; guidance material, 
a handbook or protocol is sufficient. As appropriate, the material must 
address how the guidelines in paragraph (l)(4) of this section are met. 
A State agency that develops an alternate approach that is exempt from 
FNS approval under paragraph (l)(3)(iii) of this section must notify FNS 
in writing when implementing the alternate approach.
    (i) Approval of local level approaches. Any school food authority-
developed menu planning approach must have prior State agency review and 
approval.
    (ii) Approval of State agency approaches. Unless exempt under 
paragraph (l)(3)(iii) of this section, any State agency-developed menu 
planning approach must have prior FNS approval.
    (iii) State agency approaches not subject to approval. A State 
agency-developed menu planning approach does not need FNS approval if:
    (A) Five or more school food authorities in the State use it; and
    (B) The State agency maintains on-going oversight of the operation 
and evaluation of the approach and makes any needed adjustments to its 
policies and procedures to ensure that the appropriate guidelines of 
paragraph (l)(4) of this section are met.
    (4) Elements for major changes or new approaches. Any alternate menu 
planning approach must:
    (i) Offer fluid milk, as provided in paragraph (m) of this section;

[[Page 32]]

    (ii) Include offer versus serve for senior high students. Alternate 
menu planning approaches should follow the offer versus serve procedures 
in paragraphs (i)(2)(ii) and (k)(6) of this section, as appropriate. If 
these requirements are not followed, the plan must indicate:
    (A) The affected age/grade groups;
    (B) The number and type of items (and, if applicable, the quantities 
for the items) that constitute a reimbursable lunch under offer versus 
serve;
    (C) How such procedures will reduce plate waste; and
    (D) How a reasonable level of calories and nutrients for the lunch 
as taken is provided;
    (iii) Meet the Recommended Dietary Allowances and lunchtime energy 
allowances (nutrient levels) and indicate the age/grade groups served 
and how the nutrient levels are met for those age/grade groups;
    (iv) Follow the requirements for competitive foods in Sec.  210.11 
and appendix B to this part;
    (v) Follow the requirements for counting food items and products 
towards the meal patterns. These requirements are found in paragraphs 
(k)(3) through (k)(5) and paragraph (m) of this section, in appendices A 
through C to this part, and in instructions and guidance issued by FNS. 
This only applies if the alternate approach is a food-based menu 
planning approach;
    (vi) Identify a reimbursable lunch at the point of service;
    (A) To the extent possible, the procedures provided in paragraph 
(i)(2)(i) of this section for the nutrient standard or assisted nutrient 
standard menu planning approaches or for food-based menu planning 
approaches provided in paragraph (k) of this section must be followed. 
Any instructions or guidance issued by FNS that further defines the 
elements of a reimbursable lunch must be followed when using the 
existing regulatory provisions.
    (B) Any alternate approach that deviates from the provisions in 
paragraph (i)(2)(i) or paragraph (k) of this section must indicate what 
constitutes a reimbursable lunch, including the number and type of items 
(and, if applicable, the quantities for the items) which comprise the 
lunch, and how a reimbursable lunch is to be identified at the point of 
service;
    (vii) Explain how the alternate menu planning approach can be 
monitored under the applicable provisions of Sec.  210.18 and Sec.  
210.19, including a description of the records that will be maintained 
to document compliance with the program's administrative and nutrition 
requirements. However, if the procedures under Sec.  210.19 cannot be 
used to monitor the alternate approach, a description of procedures 
which will enable the State agency to assess compliance with the 
nutrition standards in paragraphs (b)(1) through (b)(4) of this section 
must be included; and
    (viii) Follow the requirements for weighted analysis and for 
approved software for nutrient standard menu planning approaches as 
required by paragraphs (i)(4) and (i)(5) of this section unless a State 
agency-developed approach meets the criteria in paragraph (l)(3)(iii) of 
this section. Through September 30, 2003, schools are not required to 
conduct a weighted analysis.
    (m) What are the requirements for offering milk?
    (1) Types of milk. (i) Under all menu planning approaches for 
lunches, schools must offer students fluid milk. The types of milk 
offered must be consistent with the types of milk consumed in the 
previous year. However, if a particular type of milk constituted less 
than one percent (1%) of the total amount of milk consumed in the 
previous year, a school does not need to offer this type of milk. This 
does not preclude schools from offering additional types of milk.
    (ii) All milk served in the Program must be pasteurized fluid milk 
which meets State and local standards for such milk. However, infants 
under 1 year of age must be served breast milk or iron-fortified infant 
formula. All milk must have vitamins A and D at levels specified by the 
Food and Drug Administration and must be consistent with State and local 
standards for such milk.
    (2) Inadequate milk supply. If a school cannot get a supply of milk, 
it can still participate in the Program under the following conditions:

[[Page 33]]

    (i) If emergency conditions temporarily prevent a school that 
normally has a supply of fluid milk from obtaining delivery of such 
milk, the State agency may allow the school to serve meals during the 
emergency period with an alternate form of milk or without milk.
    (ii) If a school is unable to obtain a supply of any type of fluid 
milk on a continuing basis, the State agency may approve the service of 
meals without fluid milk if the school uses an equivalent amount of 
canned milk or dry milk in the preparation of the meals. In Alaska, 
Hawaii, American Samoa, Guam, Puerto Rico, and the Virgin Islands, if a 
sufficient supply of fluid milk cannot be obtained, ``milk'' includes 
reconstituted or recombined milk, or as otherwise allowed by FNS through 
a written exception.
    (n) Supplemental food. Eligible schools operating afterschool care 
programs may be reimbursed for one meal supplement served to an eligible 
child (as defined in Sec.  210.2) per day.
    (1) Eligible schools mean schools that:
    (i) Operate school lunch programs under the National School Lunch 
Act;
    (ii) Sponsor afterschool care programs as defined in Sec.  210.2; 
and
    (iii) Were participating in the Child and Adult Care Food Program as 
of May 15, 1989.
    (2) Meal supplements shall contain two different components from the 
following four:
    (i) A serving of fluid milk as a beverage, or on cereal, or used in 
part for each purpose;
    (ii) A serving of meat or meat alternate. Nuts and seeds and their 
butters listed in program guidance are nutritionally comparable to meat 
or other meat alternates based on available nutritional data. Acorns, 
chestnuts, and coconuts are excluded and shall not be used as meat 
alternates due to their low protein content. Nut or seed meals or flours 
shall not be used as a meat alternate except as defined under appendix 
A: Alternate Foods for Meals of this part;
    (iii) A serving of vegetable(s) or fruit(s) or full-strength 
vegetable or fruit juice, or an equivalent quantity of any combination 
of these foods. Juice may not be served when milk is served as the only 
other component;
    (iv) A serving of whole-grain or enriched bread; or an equivalent 
serving of cornbread, biscuits, rolls, muffins, etc., made with whole-
grain or enriched meal or flour; or a serving of cooked whole-grain or 
enriched pasta or noodle products such as macaroni, or cereal grains 
such as rice, bulgur, or corn grits; or an equivalent quantity of any 
combination of these foods.
    (3) Snacks served to infants ages birth through 11 months must meet 
the requirements described in paragraph (n)(3)(iv) of this section. 
Foods included in the snack must be of a texture and a consistency that 
are appropriate for the age of the infant being served. The foods must 
be served during a span of time consistent with the infant's eating 
habits. For those infants whose dietary needs are more individualized, 
exceptions to the meal pattern must be made in accordance with the 
requirements found in paragraph (g)(1) of this section.
    (i) Breastmilk and iron-fortified formula. Either breastmilk or 
iron-fortified infant formula, or portions of both, must be served for 
the entire first year. Snacks containing breastmilk and snacks 
containing iron-fortified infant formula supplied by the school are 
eligible for reimbursement. However, infant formula provided by a parent 
(or guardian) and breastmilk fed directly by the infant's mother, during 
a visit to the school, contribute to a reimbursable snack only when the 
school supplies at least one component of the infant's snack.
    (ii) Fruit juice. Juice should not be offered to infants until they 
are 6 months of age and ready to drink from a cup. Feeding fruit juice 
only from a cup will help develop behaviors that may prevent early 
childhood caries. Fruit juice served as part of the meal pattern for 
infants 8 through 11 months must be full-strength.
    (iii) Solid foods. Solid foods of an appropriate texture and 
consistency are required only when the infant is developmentally ready 
to accept them. The school should consult with the infant's parent (or 
guardian) in making the decision to introduce solid foods. Solid foods 
should be introduced one at a

[[Page 34]]

time, on a gradual basis, with the intent of ensuring the infant's 
health and nutritional well-being.
    (iv) Infant meal pattern. Infant snacks must have, at a minimum, 
breastmilk or iron-fortified infant formula, or portions of both, in the 
appropriate amount indicated for the infant's age. For some breastfed 
infants who regularly consume less than the minimum amount of breastmilk 
per feeding, a serving of less than the minimum amount of breastmilk may 
be offered. In these situations, additional breastmilk must be offered 
if the infant is still hungry. Some infants may be developmentally ready 
to accept an additional food component. Snacks are reimbursable when 
schools provide all of the components in the meal pattern that the 
infant is developmentally ready to accept.
    (A) Birth through 3 months. 4 to 6 fluid ounces of breastmilk or 
iron-fortified infant formula--only breastmilk or iron-fortified formula 
is required to meet the infant's nutritional needs.
    (B) 4 through 7 months. 4 to 6 fluid ounces of breastmilk or iron-
fortified infant formula--only breastmilk or iron-fortified formula is 
required to meet the infant's nutritional needs.
    (C) 8 through 11 months. 2 to 4 fluid ounces of breastmilk, iron-
fortified infant formula, or full strength fruit juice; and 0 to \1/2\ 
slice of crusty bread (if developmentally ready) or 0 to 2 cracker type 
products (if developmentally ready), which are made from whole-grain or 
enriched meal or flour, and suitable as a finger food for an infant.
    (4) The minimum amounts of food components to be served as meal 
supplements as set forth in paragraphs (n)(2) and (n)(3) of this section 
are as follows. Select two different components from the four listed. 
(Juice may not be served when milk is served as the only other 
component.)

                        Snack Pattern for Infants
------------------------------------------------------------------------
                                   4 through through     8 through 11
     Birth through 3 months            7 months             months
------------------------------------------------------------------------
4-6 fluid ounces of formula \1\   4-6 fluid ounces    2-4 fluid ounces
 or breastmilk \2\ \3\.            of formula \1\ or   of formula \1\,
                                   breastmilk \2\      breastmilk \2\
                                   \3\.                \3\, or fruit
                                                       juice \4\; and
                                                      0-\1/2\ slice of
                                                       bread \5\ or 0-2
                                                       crackers \5\.
------------------------------------------------------------------------
\1\ Infant formula must be iron-fortified.
\2\ Breastmilk or iron-fortified formula, or portions of both, may be
  served; however, it is recommended that breastmilk be served in place
  of formula from birth through 11 months.
\3\ For some breastfed infants who regularly consume less than the
  minimum amount of breastmilk per feeding, a serving of less than the
  minimum amount of breastmilk may be offered, with additional
  breastmilk offered if the infant is still hungry.
\4\ Fruit juice must be full-strength.
\5\ A serving of this component must be made from whole-grain or
  enriched meal or flour. It is required only when the infant is
  developmentally ready to accept it.


[[Page 35]]


                                                                 Supplements for Infants
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Birth through 3 months                    4 through 7 months                     8 through 11 months
--------------------------------------------------------------------------------------------------------------------------------------------------------
Supplement (snack)...............  4-6 fl. oz. breast milk 2, 3 or         4-6 fl. oz. breast milk 2, 3 or         2-4 fl. oz breast milk 2, 3, formula
                                    formula \1\                             formula \1\                             1, or fruit juice \4\;
                                   ......................................  ......................................  0-\1/2\ bread \5\ or
                                   ......................................  ......................................  0-2 crackers \5\.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Infant formula shall be iron-fortified.
\2\ It is recommended that breast milk be served in place of formula from birth through 11 months.
\3\ For some breastfed infants who regularly consume less than the minimum amount of breast milk per feeding, a serving of less than the minimum amount
  of breast milk may be offered with additional breast milk offered if the infant is still hungry.
\4\ Fruit juice shall be full-strength.
\5\ Bread and bread alternates shall be made from whole-grain or enriched meal or flour. A serving of this component shall be optional.


[[Page 36]]

    (o) What are the requirements for the infant lunch pattern?
    (1) Definitions. (i) Infant cereal means any iron-fortified dry 
cereal especially formulated and generally recognized as cereal for 
infants which is routinely mixed with breast milk or iron-fortified 
infant formula prior to consumption.
    (ii) Infant formula means any iron-fortified formula intended for 
dietary use solely as a food for normal, healthy infants. Formulas 
specifically formulated for infants with inborn errors of metabolism or 
digestive or absorptive problems are not included in this definition. 
Infant formula, when served, must be in liquid state at recommended 
dilution.
    (2) Feeding lunches to infants. Lunches served to infants ages birth 
through 11 months must meet the requirements described in paragraph 
(o)(5) of this section. Foods included in the lunch must be of a texture 
and a consistency that are appropriate for the age of the infant being 
served. The foods must be served during a span of time consistent with 
the infant's eating habits. For those infants whose dietary needs are 
more individualized, exceptions to the meal pattern must be made in 
accordance with the requirements found in paragraph (g)(1) of this 
section.
    (3) Breastmilk and iron-fortified formula. Either breastmilk or 
iron-fortified infant formula, or portions of both, must be served for 
the entire first year. Meals containing breastmilk and meals containing 
iron-fortified infant formula supplied by the school are eligible for 
reimbursement. However, infant formula provided by a parent (or 
guardian) and breastmilk fed directly by the infant's mother, during a 
visit to the school, contribute to a reimbursable lunch only when the 
school supplies at least one component of the infant's meal.
    (4) Solid foods. For infants ages 4 through 7 months, solid foods of 
an appropriate texture and consistency are required only when the infant 
is developmentally ready to accept them. The school should consult with 
the infant's parent (or guardian) in making the decision to introduce 
solid foods. Solid foods should be introduced one at a time, on a 
gradual basis, with the intent of ensuring the infant's health and 
nutritional well-being.
    (5) Infant meal pattern. Infant lunches must have, at a minimum, 
each of the food components indicated, in the amount that is appropriate 
for the infant's age. For some breastfed infants who regularly consume 
less than the minimum amount of breastmilk per feeding, a serving of 
less than the minimum amount of breastmilk may be offered. In these 
situations, additional breastmilk must be offered if the infant is still 
hungry. Lunches may include portions of breastmilk and iron-fortified 
infant formula as long as the total number of ounces meets, or exceeds, 
the minimum amount required of this food component. Similarly, to meet 
the component requirements for vegetables and fruit, portions of both 
may be served.
    (i) Birth through 3 months. 4 to 6 fluid ounces of breastmilk or 
iron-fortified infant formula--only breastmilk or iron-fortified formula 
is required to meet the infant's nutritional needs.
    (ii) 4 through 7 months. Breastmilk or iron-fortified formula is 
required. Some infants may be developmentally ready for solid foods of 
an appropriate texture and consistency. Lunches are reimbursable when 
schools provide all of the components in the meal pattern that the 
infant is developmentally ready to accept.
    (A) 4 to 8 fluid ounces of breastmilk or iron-fortified infant 
formula; and
    (B) 0 to 3 tablespoons of iron-fortified dry infant cereal; and
    (C) 0 to 3 tablespoons of fruit or vegetable.
    (iii) 8 through 11 months. Breastmilk or iron-fortified formula and 
solid foods of an appropriate texture and consistency are required.
    (A) 6 to 8 fluid ounces of breastmilk or iron-fortified infant 
formula; and
    (B) 2 to 4 tablespoons of iron-fortified dry infant cereal; and/or 1 
to 4 tablespoons of meat, fish, poultry, egg yolk, or cooked dry beans 
or peas; or \1/2\ to 2 ounces (weight) of cheese; or 1 to 4 ounces 
(volume) of cottage cheese; or 1 to 4 ounces (weight) of cheese food or 
cheese spread; and
    (C) 1 to 4 tablespoons of fruit or vegetable.

[[Page 37]]

    (6) Infant meal pattern table. The minimum amounts of food 
components to serve to infants, as described in paragraph (o)(5) of this 
section, are:

                        Lunch Pattern for Infants
------------------------------------------------------------------------
   Birth through 3 months      4 through 7 months    8 through 11 months
------------------------------------------------------------------------
4-6 fluid ounces of formula1  4-8 fluid ounces of   6-8 fluid ounces of
 or breastmilk 2 3.            formula1 or           formula 1 or
                               breastmilk2 3; and    breastmilk 2 3; and
                              0-3 tablespoons of    2-4 tablespoons of
                               infant cereal 1 4;    infant cereal1; and/
                               and.                  or
                              0-3 tablespoons of    1-4 tablespoons of
                               fruit or vegetable    meat, fish,
                               or both 4.            poultry, egg yolk,
                                                     cooked dry beans or
                                                     peas; or
                                                    \1/2\-2 ounces of
                                                     cheese; or
                                                    1-4 ounces (volume)
                                                     of cottage cheese;
                                                     or
                                                    1-4 ounces (weight)
                                                     of cheese food or
                                                     cheese spread; and
                                                    1-4 tablespoons of
                                                     fruit or vegetable
                                                     or both.
------------------------------------------------------------------------
1 Infant formula and dry infant cereal must be iron-fortified.
2 Breastmilk or formula, or portions of both, may be served; however, it
  is recommended that breastmilk be served in place of formula from
  birth through 11 months.
3 For some breastfed infants who regularly consume less than the minimum
  amount of breastmilk per feeding, a serving of less than the minimum
  amount of breastmilk may be offered, with additional breastmilk
  offered if the infant is still hungry.
4 A serving of this component is required only when the infant is
  developmentally ready to accept it.


[60 FR 31208, June 13, 1995, 60 FR 57146, Nov. 14, 1995, as amended at; 
62 FR 10189, Mar. 6, 1997; 64 FR 61773, Nov. 15, 1999; 65 FR 26913, May 
9, 2000; 65 FR 31371, May 17, 2000; 65 FR 36317, June 8, 2000; 67 FR 
36783, May 28, 2002]



Sec.  210.11  Competitive food services.

    (a) Definitions. For the purpose of this section:
    (1) Competitive foods means any foods sold in competition with the 
Program to children in food service areas during the lunch periods.
    (2) Food of minimal nutritional value means: (i) In the case of 
artificially sweetened foods, a food which provides less than five 
percent of the Reference Daily Intakes (RDI) for each of eight specified 
nutrients per serving; and (ii) in the case of all other foods, a food 
which provides less than five percent of the RDI for each of eight 
specified nutrients per 100 calories and less than five percent of the 
RDI for each of eight specified nutrients per serving. The eight 
nutrients to be assessed for this purpose are--protein, vitamin A, 
vitamin C, niacin, riboflavin, thiamine, calcium, and iron. All 
categories of food of minimal nutritional value and petitioning 
requirements for changing the categories are listed in appendix B of 
this part.
    (b) General. State agencies and school food authorities shall 
establish such rules or regulations as are necessary to control the sale 
of foods in competition with lunches served under the Program. Such 
rules or regulations shall prohibit the sale of foods of minimal 
nutritional value, as listed in appendix B of this part, in the food 
service areas during the lunch periods. The sale of other competitive 
foods may, at the discretion of the State agency and school food 
authority, be allowed in the food service area during the lunch period 
only if all income from the sale of such foods accrues to the benefit of 
the nonprofit school food service or the school or student organizations 
approved by the school. State agencies and school food authorities may 
impose additional restrictions on the sale of and income from all foods 
sold at any time throughout schools participating in the Program.

[53 FR 29147, Aug. 2, 1988, as amended at 59 FR 23614, May 6, 1994]



Sec.  210.12  Student, parent and community involvement.

    (a) General. School food authorities shall promote activities to 
involve students and parents in the Program. Such activities may include 
menu planning, enhancement of the eating environment, Program promotion, 
and related student-community support activities. School food 
authorities are encouraged to use the school food service program to 
teach students about good nutrition practices and to involve the

[[Page 38]]

school faculty and the general community in activities to enhance the 
Program.
    (b) Food service management companies. School food authorities 
contracting with a food service management company shall comply with the 
provisions of Sec.  210.16(a) regarding the establishment of an advisory 
board of parents, teachers and students.
    (c) Residential child care institutions. Residential child care 
institutions shall comply with the provisions of this section, to the 
extent possible.



Sec.  210.13  Facilities management.

    (a) Health standards. The school food authority shall ensure that 
food storage, preparation and service is in accordance with the 
sanitation and health standards established under State and local law 
and regulations.
    (b) Food safety inspections.--(1) In general. Except as provided in 
paragraph (b)(2) of this section, schools shall, at least once during 
each school year, obtain a food safety inspection conducted by a State 
or local governmental agency responsible for food safety inspections.
    (2) Exception. Paragraph (b)(1) of this section shall not apply to a 
school if a food safety inspection of the school is required by a State 
or local governmental agency responsible for food safety inspections.
    (c) Storage. The school food authority shall ensure that the 
necessary facilities for storage, preparation and service of food are 
maintained. Facilities for the handling, storage, and distribution of 
purchased and donated foods shall be such as to properly safeguard 
against theft, spoilage and other loss.

[54 FR 29147, Aug. 2, 1988, as amended at 64 FR 50740, Sept. 20, 1999]



Sec.  210.14  Resource management.

    (a) Nonprofit school food service. School food authorities shall 
maintain a nonprofit school food service. Revenues received by the 
nonprofit school food service are to be used only for the operation or 
improvement of such food service, except that, such revenues shall not 
be used to purchase land or buildings, unless otherwise approved by FNS, 
or to construct buildings. Expenditures of nonprofit school food service 
revenues shall be in accordance with the financial management system 
established by the State agency under Sec.  210.19(a) of this part. 
School food authorities may use facilities, equipment, and personnel 
supported with nonprofit school food revenues to support a nonprofit 
nutrition program for the elderly, including a program funded under the 
Older Americans Act of 1965 (42 U.S.C. 3001 et seq.).
    (b) Net cash resources. The school food authority shall limit its 
net cash resources to an amount that does not exceed 3 months average 
expenditures for its nonprofit school food service or such other amount 
as may be approved by the State agency in accordance with Sec.  
210.19(a).
    (c) Financial assurances. The school food authority shall meet the 
requirements of the State agency for compliance with Sec.  210.19(a) 
including any separation of records of nonprofit school food service 
from records of any other food service which may be operated by the 
school food authority as provided in paragraph (a) of this section.
    (d) Use of donated foods. The school food authority shall enter into 
an agreement with the distributing agency to receive donated foods as 
required by part 250 of this chapter. In addition, the school food 
authority shall accept and use, in as large quantities as may be 
efficiently utilized in its nonprofit school food service, such foods as 
may be offered as a donation by the Department.

[53 FR 29147, Aug. 2, 1988, as amended at 60 FR 31215, June 13, 1995]



Sec.  210.15  Reporting and recordkeeping.

    (a) Reporting summary. Participating school food authorities are 
required to submit forms and reports to the State agency or the 
distributing agency, as appropriate, to demonstrate compliance with 
Program requirements. These reports include, but are not limited to:
    (1) A Claim for Reimbursement and, for the month of October and as 
otherwise specified by the State agency, supporting data as specified in 
accordance with Sec.  210.8 of this part;
    (2) An application and agreement for Program operations between the 
school food authority and the State agency,

[[Page 39]]

and a Free and Reduced Price Policy Statement as required under Sec.  
210.9;
    (3) A written response to reviews pertaining to corrective action 
taken for Program deficiencies;
    (4) A commodity school's preference whether to receive part of its 
donated food allocation in cash for processing and handling of donated 
foods as required under Sec.  210.19(b);
    (5) A written response to audit findings pertaining to the school 
food authority's operation as required under Sec.  210.22; and
    (6) Information on civil rights complaints, if any, and their 
resolution as required under Sec.  210.23.
    (b) Recordkeeping summary. In order to participate in the Program, a 
school food authority shall maintain records to demonstrate compliance 
with Program requirements. These records include but are not limited to:
    (1) Documentation of participation data by school in support of the 
Claim for Reimbursement and data used in the claims review process, as 
required under Sec.  210.8(a), (b), and (c) of this part;
    (2) Production and menu records and, if appropriate, nutrition 
analysis records as required under Sec.  210.10, whichever is 
applicable.
    (3) Participation records to demonstrate positive action toward 
providing one lunch per child per day as required under Sec.  
210.10(a)(2), whichever is applicable;
    (4) Currently approved and denied applications for free and reduced 
price lunches and a description of the verification activities, 
including verified applications, and any accompanying source 
documentation in accordance with 7 CFR 245.6a of this Title.

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 12582, Mar. 28, 1989; 56 
FR 32941, July 17, 1991; 60 FR 31215, June 13, 1995; 65 FR 26912, 26922, 
May 9, 2000]



Sec.  210.16  Food service management companies.

    (a) General. Any school food authority (including a State agency 
acting in the capacity of a school food authority) may contract with a 
food service management company to manage its food service operation in 
one or more of its schools. However, no school or school food authority 
may contract with a food service management company to operate an a la 
carte food service unless the company agrees to offer free, reduced 
price and paid reimbursable lunches to all eligible children. Any school 
food authority that employs a food service management company in the 
operation of its nonprofit school food service shall:
    (1) Adhere to the procurement standards specified in Sec.  210.21 
when contracting with the food service management company;
    (2) Ensure that the food service operation is in conformance with 
the school food authority's agreement under the Program;
    (3) Monitor the food service operation through periodic on-site 
visits;
    (4) Retain control of the quality, extent, and general nature of its 
food service, and the prices to be charged the children for meals;
    (5) Retain signature authority on the State agency-school food 
authority agreement, free and reduced price policy statement and claims;
    (6) Ensure that all federally donated foods received by the school 
food authority and made available to the food service management company 
accrue only to the benefit of the school food authority's nonprofit 
school food service and are fully utilized therein;
    (7) Maintain applicable health certification and assure that all 
State and local regulations are being met by a food service management 
company preparing or serving meals at a school food authority facility; 
and
    (8) Establish an advisory board composed of parents, teachers, and 
students to assist in menu planning.
    (b) Invitation to bid. In addition to adhering to the procurement 
standards under Sec.  210.21, school food authorities contracting with 
food service management companies shall ensure that:
    (1) The invitation to bid or request for proposal contains a 21-day 
cycle menu developed in accordance with the provisions of Sec.  210.10, 
to be used as a standard for the purpose of basing bids or estimating 
average cost per meal. If a school food authority has no capability to 
prepare a cycle menu, it may, with State agency approval, request that a 
21-day cycle menu developed in

[[Page 40]]

accordance with the provisions of Sec.  210.10, be developed and 
submitted by each food service management company which intends to 
submit a bid or proposal to the school food authority. The food service 
management company must adhere to the cycle for the first 21 days of 
meal service. Changes thereafter may be made with the approval of the 
school food authority.
    (2) Any invitation to bid or request for proposal indicate that 
nonperformance subjects the food service management company to specified 
sanctions in instances where the food service management company 
violates or breaches contract terms. The school food authority shall 
indicate these sanctions in accordance with the procurement provisions 
stated in Sec.  210.21.
    (c) Contracts. Contracts that permit all income and expenses to 
accrue to the food service management company and ``cost- plus- a- 
percentage-of-cost'' and ``cost-plus-a-percentage-of-income'' contracts 
are prohibited. Contracts that provide for fixed fees such as those that 
provide for management fees established on a per meal basis are allowed. 
Contractual agreements with food service management companies shall 
include provisions which ensure that the requirements of this section 
are met. Such agreements shall also include the following:
    (1) The food service management company shall maintain such records 
as the school food authority will need to support its Claim for 
Reimbursement under this part, and shall, at a minimum, report claim 
information to the school food authority promptly at the end of each 
month. Such records shall be made available to the school food 
authority, upon request, and shall be retained in accordance with Sec.  
210.23(c).
    (2) The food service management company shall have State or local 
health certification for any facility outside the school in which it 
proposes to prepare meals and the food service management company shall 
maintain this health certification for the duration of the contract.
    (3) No payment is to be made for meals that are spoiled or 
unwholesome at time of delivery, do not meet detailed specifications as 
developed by the school food authority for each food component specified 
in Sec.  210.10, or do not otherwise meet the requirements of the 
contract. Specifications shall cover items such a grade, purchase units, 
style, condition, weight, ingredients, formulations, and delivery time.
    (d) Duration of contract. The contract between a school food 
authority and food service management company shall be a of a duration 
of no longer than 1 year; and options for the yearly renewal of a 
contract signed after February 16, 1988, may not exceed 4 additional 
years. All contracts shall include a termination clause whereby either 
party may cancel for cause with 60-day notification.

[53 FR 29147, Aug. 2, 1988, as amended at 60 FR 31215, June 13, 1995; 65 
FR 26912, May 9, 2000]



          Subpart D_Requirements for State Agency Participation



Sec.  210.17  Matching Federal funds.

    (a) State revenue matching. For each school year, the amount of 
State revenues appropriated or used specifically by the State for 
program purposes shall not be less than 30 percent of the funds received 
by such State under section 4 of the National School Lunch Act during 
the school year beginning July 1, 1980; provided that, the State 
revenues derived from the operation of such programs and State revenues 
expended for salaries and administrative expenses of such programs at 
the State level are not considered in this computation. However, if the 
per capita income of any State is less than the per capita income of the 
United States, the matching requirements so computed shall be decreased 
by the percentage by which the State per capita income is below the per 
capita income of the United States.
    (b) Private school exemption. No State in which the State agency is 
prohibited by law from disbursing State appropriated funds to nonpublic 
schools shall be required to match general cash assistance funds 
expended for meals served in such schools, or to disburse to such 
schools any of the State revenues required to meet the requirements

[[Page 41]]

of paragraph (a) of this section. Furthermore, the requirements of this 
section do not apply to schools in which the Program is administered by 
a FNSRO.
    (c) Territorial waiver. American Samoa and the Commonwealth of the 
Northern Mariana Islands shall be exempted from the matching 
requirements of paragraph (a) of this section if their respective 
matching requirements are under $100,000.
    (d) Applicable revenues. The following State revenues, appropriated 
or used specifically for program purposes which are expended for any 
school year shall be eligible for meeting the applicable percentage of 
the matching requirements prescribed in paragraph (a) of this section 
for that school year:
    (1) State revenues disbursed by the State agency to school food 
authorities for program purposes, including revenue disbursed to 
nonprofit private schools where the State administers the program in 
such schools;
    (2) State revenues made available to school food authorities and 
transferred by the school food authorities to the nonprofit school food 
service accounts or otherwise expended by the school food authorities in 
connection with the nonprofit school food service program; and
    (3) State revenues used to finance the costs (other than State 
salaries or other State level administrative costs) of the nonprofit 
school food service program, i.e.:
    (i) Local program supervision;
    (ii) Operating the program in participating schools; and
    (iii) The intrastate distribution of foods donated under part 250 of 
this chapter to schools participating in the program.
    (e) Distribution of matching revenues. All State revenues made 
available under paragraph (a) of this section are to be disbursed to 
school food authorities participating in the Program, except as provided 
for under paragraph (b) of this section. Distribution of matching 
revenues may be made with respect to a class of school food authorities 
as well as with respect to individual school food authorities.
    (f) Failure to match. If, in any school year, a State fails to meet 
the State revenue matching requirement, as prescribed in paragraph (a) 
of this section, the general cash assistance funds utilized by the State 
during that school year shall be subject to recall by and repayment to 
FNS.
    (g) Reports. Within 120 days after the end of each school year, each 
State agency shall submit an Annual Report of Revenues (FNS-13) to FNS. 
This report identifies the State revenues to be counted toward the State 
revenue matching requirements specified in paragraph (a) of this 
section.
    (h) Accounting system. The State agency shall establish or cause to 
be established a system whereby all expended State revenues counted in 
meeting the matching requirements prescribed in paragraph (a) of this 
section are properly documented and accounted for.



Sec.  210.18  Administrative reviews.

    (a) Implementation dates. For the school year beginning July 1, 
1992, each State agency shall conduct administrative reviews as 
prescribed under this section. However, FNS will approve a State 
agency's written request if FNS determines that the State agency has 
demonstrated good cause to delay implementation of the provisions 
specified under this section to January 1, 1993. At State agency 
discretion, State agencies may begin implementation of the provisions of 
this section on August 16, 1991. FNS review responsibilities are 
specified under Sec.  210.29 of this part.
    (b) Definitions. The following definitions are provided in order to 
clarify State agency administrative review requirements:
    (1) Administrative reviews means the initial comprehensive on-site 
evaluation of all school food authorities participating in the Program 
in accordance with the provisions of this section. The term 
``administrative review'' is used to reflect a review of both critical 
and general areas in accordance with paragraphs (g) and (h) of this 
section, and includes other areas of Program operations determined by 
the State agency to be important to Program performance.
    (2) Critical areas means the following two performance standards 
described in

[[Page 42]]

detail in paragraph (g) of this section which serve as measures of 
compliance with Program regulations:
    (i) Performance Standard 1--Certification/Counting/Claiming--All 
free, reduced price and paid lunches claimed for reimbursement are 
served only to children eligible for free, reduced price and paid 
lunches, respectively; and counted, recorded, consolidated and reported 
through a system which consistently yields correct claims.
    (ii) Performance Standard 2--Meal Elements. Lunches claimed for 
reimbursement within the school food authority contain meal elements 
(food items/components, menu items or other items, as applicable) as 
required under Sec.  210.10.
    (3) Documented corrective action means written notification required 
of the school food authority to certify that the corrective action 
required for each violation has been completed and to notify the State 
agency of the dates of completion. Documented corrective action may be 
provided at the time of the review or may be submitted to the State 
agency within specified timeframes.
    (4) Follow-up reviews means any visit(s) to the school food 
authority subsequent to the administrative review to ensure corrective 
actions are taken.
    (5) General areas means the areas of review specified in paragraph 
(h) of this section.
    (6) Large school food authority means, in any State:
    (i) All school food authorities that participate in the Program and 
have enrollments of 40,000 children or more each; or
    (ii) If there are less than two school food authorities with 
enrollments of 40,000 or more, the two largest school food authorities 
that participate in the Program and have enrollments of 2,000 children 
or more each.
    (7) Participation factor means the percentages of children approved 
by the school for free lunches, reduced price lunches, and paid lunches, 
respectively, who are participating in the Program. The free 
participation factor is derived by dividing the number of free lunches 
claimed for any given period by the product of the number of children 
approved for free lunches for the same period times the operating days 
in that period. A similar computation is used to determine the reduced 
price and paid participation factors. The number of children approved 
for paid lunches is derived by subtracting the number of children 
approved for free and reduced price lunches for any given period from 
the total number of children enrolled in the reviewed school for the 
same period of time, if available. If such enrollment figures are not 
available, the most recent total number of children enrolled shall be 
used. If school food authority participation factors are unavailable or 
unreliable, State-wide data shall be employed.
    (8) Review period means the period of time covered by the 
administrative review or follow-up review. The review period is 
specified in paragraph (f)(2) of this section.
    (9) Review threshold means the degree of error in a critical area of 
review which, if exceeded during an administrative review or follow-up 
review of a school food authority, may trigger a follow-up review of 
that school food authority.
    (10) Small school food authority means, in any State, a school food 
authority that participates in the Program and is not a large school 
food authority, as defined in this section.
    (c) Timing of reviews. The first year of the first 5-year review 
cycle began on July 1, 1992, or as otherwise authorized under paragraph 
(a) of this section and shall end on June 30, 1994. For each State 
agency, the first 5-year review cycle shall end on June 30, 1998. 
Administrative reviews and follow-up reviews shall be conducted as 
follows:
    (1) Administrative reviews. At a minimum, State agencies shall 
conduct administrative reviews of all school food authorities at least 
once during each 5-year review cycle; provided that each school food 
authority is reviewed at least once every 6 years. The on-site portion 
of the administrative review shall be completed during the school year 
in which the review was begun.
    (2) Expanded review cycle. State agencies are encouraged to conduct 
administrative reviews of large school food authorities and of any 
school food authorities which may benefit from a

[[Page 43]]

more frequent interval than the minimum 5-year cycle required in 
paragraph (c)(1) of this section.
    (3) Exceptions. FNS may, on an individual school food authority 
basis, approve written requests for 1-year extensions to the 6-year 
review interval specified in paragraph (c)(1) of this section if FNS 
determines this requirement conflicts with efficient State agency 
management of the Program.
    (4) Follow-up reviews. The State agency is encouraged to conduct 
first follow-up reviews in the same school year as the administrative 
review; but in no event shall first follow-up reviews be conducted later 
than December 31 of the school year following the administrative review. 
Subsequent follow-up reviews shall be scheduled in accordance with 
paragraph (i)(5) of this section.
    (d) Scheduling school food authorities. The State agency shall use 
its own criteria to schedule school food authorities for administrative 
reviews; provided that the requirements of paragraph (c) of this section 
are met. State agencies are encouraged to take into consideration the 
findings of the claims review process required under Sec.  210.8(b)(2) 
of this part in the selection of school food authorities.
    (1) Schedule of reviews. To ensure no unintended overlap occurs, the 
State agency shall inform FNS of the anticipated schedule of school food 
authority reviews upon request.
    (2) Reporting follow-up review activity. At such time as the State 
agency determines that a follow-up review is needed, the State agency 
shall notify FNS of the names of those large school food authorities 
exceeding any one of the critical area review thresholds specified in 
paragraph (i) of this section.
    (3) Exceptions. In any school year in which FNS or OIG conducts a 
review or investigation of a school food authority in accordance with 
Sec.  210.19(a)(5) of this part, the State agency shall, unless 
otherwise authorized by FNS, delay conduct of a scheduled administrative 
review until the following school year. The State agency shall document 
any exception authorized under this paragraph.
    (e) Number of schools to review. The State agency is encouraged to 
review all schools meeting the school selection criteria specified in 
paragraph (e)(1) of this section. At a minimum, the State agency shall 
review the number of schools specified in paragraph (e)(1) of this 
section and shall select the schools to be reviewed on the basis of the 
school selection criteria specified in paragraph (e)(2) of this section.
    (1) Minimum number of schools. Except for residential child care 
institutions, the State agency shall review all schools with a free 
average daily participation of 100 or more and a free participation 
factor of 100 percent or more. In no event shall the State agency review 
less than the minimum number of schools illustrated in table A:

                                 Table A
------------------------------------------------------------------------
                                                         Minimum no. of
     No. of schools in the school food authority         schools to be
                                                            reviewed
------------------------------------------------------------------------
 1 to 5..............................................                  1
 6 to 10.............................................                  2
 11 to 20............................................                  3
 21 to 40............................................                  4
 41 to 60............................................                  6
 61 to 80............................................                  8
 81 to 100...........................................                 10
101 or more..........................................            \1\ 12
------------------------------------------------------------------------
\1\ Twelve plus 5 percent of the number of schools over 100. Fractions
  shall be rounded to the nearest whole number.

    (2) School selection criteria.
    (i) Selection of additional schools to meet the minimum number of 
schools required under paragraph (e)(1) of this section, shall be based 
on the following criteria:
    (A) Elementary schools with a free average daily participation of 
100 or more and a free participation factor of 97 percent or more;
    (B) Secondary schools with a free average daily participation of 100 
or more and a free participation factor of 77 percent or more; and
    (C) Combination schools with a free average daily participation of 
100 or more and a free participation factor of 87 percent or more. A 
combination school means a school with a mixture of elementary and 
secondary grades.
    (ii) When the number of schools selected on the basis of the 
criteria established in paragraph (A) through paragraph (C) of this 
paragraph are not

[[Page 44]]

sufficient to meet the minimum number of schools required under 
paragraph (e)(1) of this section, the schools selected for review shall 
be selected on the basis of State agency criteria which may include low 
participation schools, recommendations from a food service director 
based on findings from the on-site visits or the claims review process 
required under Sec.  210.8(a) of this part; or any school in which the 
daily lunch counts appear questionable, e.g., identical or very similar 
claiming patterns, and/or large changes in free lunch counts.
    (3) Pervasive problems. If the State agency review finds pervasive 
problems in a school food authority, FNS may authorize the State agency 
to cease review activities prior to reviewing the required number of 
schools under paragraph (e)(1) of this section. Where FNS authorizes the 
State agency to cease review activity, FNS may either conduct the review 
activity itself or refer the school food authority to OIG.
    (f) Scope of review. During the course of an administrative review, 
each State agency shall monitor compliance with the critical and general 
areas identified in paragraphs (g) and (h) of this section.
    (1) Review form. State agencies shall use the administrative review 
form prescribed by FNS for the critical areas of review specified in 
paragraph (g) of this section. State agencies may use their own 
administrative review form for the general areas of review specified in 
paragraph (h) of this section.
    (2) Review period.
    (i) The review period for administrative reviews and follow-up 
reviews shall cover, at a minimum, the most recent month for which a 
Claim for Reimbursement was submitted; provided that such Claim for 
Reimbursement covers at least 10 operating days.
    (ii) Subject to FNS approval, the State agency may conduct a review 
early in the school year, prior to the submission of a Claim for 
Reimbursement. In such cases, the review period shall be the prior month 
of operation in the current school year, provided that such month 
includes at least 10 operating days.
    (3) Audit findings. To prevent duplication of effort, the State 
agency may use any recent and currently applicable findings from 
Federally-required audit activity or from any State-imposed audit 
requirements. Such findings may be used only insofar as they pertain to 
the reviewed school(s) or the overall operation of the school food 
authority and they are relevant to the review period. The State agency 
shall document the source and the date of the audit.
    (g) Critical areas of review. The performance standards listed in 
this paragraph are deemed critical since compliance in these areas is 
directly linked to the service of a reimbursable lunch.
    (1) Performance Standard 1 (All free, reduced price and paid lunches 
claimed for reimbursement are served only to children eligible for free, 
reduced price and paid lunches, respectively; and are counted, recorded, 
consolidated and reported through a system which consistently yields 
correct claims.) The State agency shall determine that the free and 
reduced price eligibility determinations are correct. In addition, the 
State agency shall determine that for each day of operation for the 
review period, the number of free, reduced price and paid lunches 
claimed for each reviewed school is not more than the number of lunches 
served to children eligible for free, reduced price and paid lunches, 
respectively, in those schools for the review period. The State agency 
shall also determine that a lunch counting system is being used which 
accurately counts, records, consolidates and reports the reimbursable 
lunches served, by type.
    (i) For each school reviewed, the State agency shall:
    (A) Determine the number of children eligible for free, reduced 
price and paid lunches, by type, for the review period. To make this 
determination:
    (1) The State agency shall:
    (i) Review all approved free and reduced price applications for 
children in the reviewed schools back to the beginning of the school 
year to determine whether each child's application is complete and 
correctly approved in accordance with all applicable provisions of 7 CFR 
part 245; or
    (ii) Review all approved free and reduced price applications 
effective for the review period for children in the reviewed schools; or

[[Page 45]]

    (iii) Review all approved free and reduced price applications 
effective on the day(s) the review is conducted for children in the 
reviewed schools.
    (2) In lieu of reviewing all of the free and reduced price 
applications as required under paragraph (g)(1)(i)(A)(1) of this 
section, the State agency may review a statistically valid sample of 
those applications. If the State agency chooses to review a 
statistically valid sample of applications, the State agency shall 
ensure that the sample size is large enough so that there is a 95 
percent chance that the actual error rate for all applications is not 
less than 2 percentage points less than the error rate found in the 
sample (i.e., the lower bound of the one-sided 95 percent confidence 
interval is no more than 2 percentage points less than the point 
estimate). In addition, the State agency shall determine the need for 
follow-up reviews and base fiscal action upon the error rate found in 
the sample.
    (3) Evaluate whether the previous year's eligibility determinations 
are used after 30 operating days following the first day of school, or 
as otherwise established by the State agency; provided that the State 
agency-developed timeframe does not exceed the 30 operating day limit.
    (4) In the case where children are determined eligible for free 
lunches based on documentation from the local food stamp, Food 
Distribution Program on Indian Reservations (FDPIR) or Temporary 
Assistance for Needy Families (TANF) office which certifies that the 
children are currently members of households receiving benefits under 
the Food Stamp Program, FDPIR or TANF, determine that the certification 
from the Food Stamp Program, FDPIR or TANF is official; all the 
information required under Sec.  245.6 of this part is complete; and 
such children were enrolled in the school under review during the review 
period.
    (B) Evaluate the system for issuing benefits and updating 
eligibility status by validating the mechanism(s) the reviewed school 
uses to provide benefits to eligible children, e.g., master list. The 
State agency shall determine whether the system is adequate and, within 
the timeframes established in Sec.  210.7(c)(1)(ii)(B), reflects changes 
due to verification findings, transfers, reported changes in household 
size or income, or from a household's decision to decline school lunch 
benefits or any notification from the household that it is no longer 
certified to receive food stamp, Food Distribution Program for 
Households on Indian Reservations (FDPIR) or Temporary Assistance for 
Needy Families (TANF) benefits.
    (C) Determine whether the lunch counting system yields correct 
claims. At a minimum, the State agency shall determine whether:
    (1) The daily lunch counts, by type, for the review period are more 
than the product of the number of children determined by the school/
school food authority to be eligible for free, reduced price, and paid 
lunches for the review period times an attendance factor. If the lunch 
count, for any type, appears questionable or significantly exceeds the 
product of the number of eligibles, for that type, times an attendance 
factor, documentation showing good cause must be available for review by 
the State agency.
    (2) Each type of food service line provides accurate point of 
service lunch counts, by type, and those lunch counts are correctly 
counted and recorded. If an alternative counting system is employed (in 
accordance with Sec.  210.7(c)(2)), the State agency shall ensure that 
it provides accurate counts of reimbursable lunches, by type, and is 
correctly implemented as approved by the State agency.
    (3) All lunches are correctly counted, recorded, consolidated and 
reported for the day they are served.
    (ii) For each school food authority reviewed, the State agency shall 
review lunch count records to ensure that the lunch counts submitted by 
each reviewed school are correctly consolidated, recorded, and reported 
by the school food authority on the Claim for Reimbursement.
    (2) Performance Standard 2 (Lunches claimed for reimbursement within 
the school food authority contain meal elements (food items/components, 
menu items or other items, as applicable) as required under Sec.  
210.10. For each school reviewed, the State agency must:

[[Page 46]]

    (i) For the day of the review, observe the serving line(s) to 
determine whether all required meal elements (food items/components, 
menu items or other items, as applicable) as required under Sec.  210.10 
are offered.
    (ii) For the day of the review, observe a significant number of the 
Program lunches counted at the point of service for each type of serving 
line, to determine whether those lunches contain the required number of 
meal elements (food items/components, menu items or other items, as 
applicable) as required under Sec.  210.10.
    (iii) Review menu records for the review period to determine whether 
all required meal elements (food items/components, menu items or other 
items, as applicable) as required under Sec.  210.10 have been offered.
    (h) General areas of review. The general areas listed in this 
paragraph reflect major Program requirements. The general areas of 
review shall include, but are not limited to, the following areas:
    (1) Free and reduced price process. In the course of the review of 
each school food authority, the State agency shall:
    (i) Review the implementation of the free and reduced price policy 
statement to ensure it is implemented as approved.
    (ii) Evaluate whether the required minimum number of applications 
are verified with respect to the selection method used.
    (iii) Determine that applications for verification are selected 
through random or focused sampling in accordance with the provisions of 
Sec.  245.6a of this title and FNS Instructions, and that no 
discrimination exists in the selection process.
    (iv) Establish that verification is completed by December 15. If the 
administrative review occurs prior to the December 15 deadline, the 
State agency shall evaluate the verification activities that have 
occurred to date and assess whether these activities represent a good 
faith effort that will result in compliance with the requirements of 
Sec.  245.6a of this title.
    (v) Confirm that the verification process is complete for each 
application verified by or on behalf of the reviewed schools. 
Verification is considered complete either when a child's eligibility 
for the level of benefits for which he or she was approved is confirmed, 
changed to a higher level of benefit, or a letter of adverse action has 
been sent.
    (vi) Ensure that verification records are maintained as required by 
Sec.  245.6a(c) of this title.
    (vii) Determine that, for each reviewed school, the lunch count 
system does not overtly identify children eligible for free and reduced 
price lunches.
    (viii) Review a representative sample of denied applications to 
evaluate whether the determining official correctly denied applicants 
for free and reduced price lunches.
    (2) Food quantities. For each school reviewed, the State agency must 
observe a significant number of Program lunches counted at the point of 
service for each type of serving line to determine whether those lunches 
appear to provide meal elements (food items/components, menu items or 
other items, as applicable) in the quantities required under Sec.  
210.10. If visual observation suggests that quantities are insufficient, 
the State agency shall require the reviewed schools to provide 
documentation demonstrating that the required amounts of food were 
available for service for each day of the review period.
    (3) Civil rights. The State agency shall examine the school food 
authority's compliance with the civil rights provisions specified in 
Sec.  210.23(b) of this part.
    (4) Monitoring responsibilities. The State agency shall ensure that 
the school food authority conducts on-site reviews in accordance with 
Sec.  210.8(a)(1) of this part and monitors claims in accordance with 
Sec.  210.8(a)(2) and (a)(3) of this part.
    (5) Reporting and recordkeeping. The State agency shall determine 
that the school food authority submits reports and maintains records as 
required under 7 CFR parts 210 and 245.
    (i) Follow-up reviews. All school food authorities found to have a 
critical area violation in excess of any one of the review thresholds 
specified in this paragraph are subject to follow-up reviews. State 
agencies shall notify FNS of the names of large school food authorities 
exceeding critical area review

[[Page 47]]

thresholds in accordance with paragraph (d)(2) of this section. The 
State agency shall conduct a first follow-up review of any large school 
food authority found on an administrative review to have critical area 
violations in excess of any one of the review thresholds. State agencies 
shall also conduct a first follow-up review of at least 25 percent of 
the small school food authorities found on a review to have critical 
area violations in excess of any one of the review thresholds. State 
agencies shall conduct additional follow-up reviews of any school food 
authority which has a critical area violation exceeding a review 
threshold on the first follow-up or any subsequent follow-up review 
regardless of whether such review is conducted by FNS or the State 
agency.
    (1) Selection of small school food authorities. In determining which 
small school food authorities to include in the follow-up review sample, 
State agencies shall select those school food authorities which have the 
most serious problems, including, but not limited to, systemic 
accountability problems, large overclaims, significant lunch pattern 
violations, etc.
    (2) Selection of schools.
    (i) If the critical area violation(s) responsible for follow-up 
review activity are limited to school food authority level problems 
(e.g. centralized application processing or centralized kitchen), the 
State agency may limit the follow-up review to the school food authority 
level.
    (ii) If the critical area violation(s) responsible for follow-up 
review activity were identified in the review of a school(s), then State 
agencies shall review at least the minimum number of schools required 
under paragraph (e)(1) of this section. State agencies shall meet the 
minimum number of schools requirement by selecting those schools found, 
on a previous review, to have significant critical area violations. If 
any additional schools must be selected to meet the minimum required 
number, the State agency shall select from those schools which meet 
State agency-developed criteria identified under paragraph (e)(2)(ii) of 
this section.
    (3) Review thresholds. The review thresholds apply only to the 
critical areas of review and are designed to limit follow-up reviews to 
those school food authorities with serious problems. The provisions of 
paragraph (i) of this section apply when:
    (i) For Performance Standard 1--
    (A) A number of the reviewed schools in a school food authority, as 
specified in Table B, have an inadequate system for certification, 
issuing benefits or updating eligibility status; or for counting, 
recording, consolidating or reporting lunches, by type; or
    (B) The school food authority has an inadequate system for 
consolidating lunch counts, by type, or for reporting claims; or, if 
applicable, for certification, issuing benefits or updating eligibility 
status.
    (C) At the school and school food authority level, a system for 
certification, issuing benefits or updating eligibility status is 
inadequate if 10 percent or more (but not less than 100 lunches) of the 
free and reduced price lunches claimed for the review period (for any 
school reviewed) are claimed incorrectly due to errors of certification, 
benefit issuance or updating of eligibility status.

                                 Table B
------------------------------------------------------------------------
                                                              Number of
                                                               schools
                Number of schools reviewed                    violating
                                                             performance
                                                             standard 1
------------------------------------------------------------------------
1 to 5....................................................            1
6 to 10...................................................            2
11 to 20..................................................            3
21 to 30..................................................            4
31 to 40..................................................            5
41 to 50..................................................            6
51 to 60..................................................            7
61 to 70..................................................            8
71 to 80..................................................            9
81 to 90..................................................           10
91 to 100.................................................           11
101 or more...............................................           11*
------------------------------------------------------------------------
* 11 plus the number identified above for the appropriate increment.

    (ii) For Performance Standard 2--10 percent or more of the total 
number of Program lunches observed in a school food authority are 
missing one or more of the required meal elements (food items/
components, menu items or other items, as applicable) as required under 
Sec.  210.10.
    (4) Scope of follow-up reviews. On any follow-up review, the State 
agency is encouraged to review all of the critical

[[Page 48]]

and general areas of review specified in paragraph (g) and (h) of this 
section for those schools which were not reviewed during the 
administrative review. At a minimum, the State agency shall:
    (i) For each school selected for review (or for the school food 
authority, as applicable,) review the critical areas for which the 
review thresholds were exceeded by the school food authority on a 
previous review;
    (ii) Determine whether the school food authority has satisfactorily 
completed the corrective actions in accordance with paragraph (k) of 
this section required for both critical and general areas within the 
timeframes established by the State agency;
    (iii) Evaluate whether these corrective actions resolved the 
problem(s); and
    (iv) If the State agency did not evaluate the certification, count 
and milk/meal service procedures for the School Breakfast Program (7 CFR 
part 220) and/or the Special Milk Program for Children (7 CFR part 215) 
or offering meal supplements in after hour care programs (7 CFR part 
210) in those schools selected for the administrative review and 
participating in those Programs, the State agency shall do so for those 
schools selected for the first follow-up review.
    (5) Critical area violations identified in a follow-up review. 
Critical area violations identified on a follow-up review shall be 
addressed as follows:
    (i) If, during a follow-up review, the State agency determines, that 
corrective actions have not been satisfactorily completed in accordance 
with the documented corrective action, the State agency shall: require 
the school food authority to resolve the problems and to submit 
documented corrective action to the State agency ; take fiscal action 
for critical area violations as specified in paragraph (m) of this 
section; and withhold Program payments in accordance with paragraph (l) 
of this section, until such time as a follow-up review, requested by the 
school food authority, indicates the problem has been corrected. If the 
State agency determines that the corrective actions have been completed 
as specified in the documented corrective action, but those corrective 
actions do not effectively resolve the problem, the State agency shall 
follow the requirements for new critical area violations specified in 
paragraphs (i)(5)(ii) and (iii) of this section.
    (ii) If new critical area violations are observed that exceed a 
review threshold, the State agency shall: Require the school food 
authority to resolve the problems and to submit documented corrective 
action to the State agency; take fiscal action as specified in paragraph 
(m) of this section; and conduct a follow-up review within 6 operating 
months of the first follow-up review.
    (iii) If new critical area violations are observed which do not 
exceed review thresholds, the State agency shall: Require the school 
food authority to resolve the problem and to submit documented 
corrective action to the State agency within specified timeframes; and 
take fiscal action in accordance with paragraph (m) of this section. If 
adequate documented corrective action is not received within those 
timeframes, the State agency shall withhold Program payments in 
accordance with paragraph (l) of this section, until such time as 
adequate documented corrective action is received.
    (6) General area violations identified in a follow-up review. 
General area violations identified in a follow-up review shall be 
addressed as follows:
    (i) If, during a follow-up review, the State agency determines that 
corrective actions have not been taken in accordance with the documented 
corrective action, the State agency shall withhold Program payments in 
accordance with paragraph (l) of this section, until such time as the 
State agency receives adequate documented corrective action.
    (ii) If the State agency determines that the corrective actions 
taken did not effectively resolve the problem, or if new general area 
violations are observed on a follow-up review, the State agency shall 
require the school food authority to resolve the problem and to submit 
documented corrective action to the State agency within specified 
timeframes. If adequate documented corrective action is not received 
within those timeframes, the

[[Page 49]]

State agency shall withhold Program payments in accordance with 
paragraph (l) of this section, until such time as adequate documented 
corrective action is received.
    (7) Exceptions. FNS may, on an individual school food authority 
basis, approve written requests for exceptions to the follow-up review 
requirement specified in paragraph (i)(1) of this section if FNS 
determines that the requirement conflicts with efficient State agency 
management of the program.
    (j) Exit conference and notification. The State agency shall hold an 
exit conference at the close of the administrative review and of any 
subsequent follow-up review to discuss the violations observed, the 
extent of the violations and a preliminary assessment of the actions 
needed to correct the violations. The State agency shall discuss an 
appropriate deadline(s) for completion of corrective action, provided 
that the deadline(s) results in the completion of corrective action on a 
timely basis. After every review, the State agency shall provide written 
notification of the review findings to the school food authority's 
Superintendent (or equivalent in a non-public school food authority) or 
authorized representative. The written notification shall include the 
review findings, the needed corrective actions, the deadlines for 
completion of the corrective action, and the potential fiscal action. As 
a part of the denial of all or a part of a Claim for Reimbursement or 
withholding payment in accordance with the provisions of this section, 
the State agency shall provide the school food authority a written 
notice which details the grounds on which the denial of all or a part of 
the Claim for Reimbursement or withholding payment is based. This 
notice, which shall be sent by certified mail, return receipt requested, 
shall also include a statement indicating that the school food authority 
may appeal the denial of all or a part of a Claim for Reimbursement or 
withholding payment and the entity (i.e., FNS or State agency) to which 
the appeal should be directed. The State agency shall notify the school 
food authority, in writing, of the appeal procedures as specified in 
Sec.  210.18(q) for appeals of State agency findings, and for appeals of 
FNS findings, provide a copy of Sec.  210.29(d)(3) of the regulations.
    (k) Corrective action. Corrective action is required for any 
violation under either the critical or general areas of the review. 
Corrective action shall be applied to all schools in the school food 
authority, as appropriate, to ensure that previously deficient practices 
and procedures are revised system-wide.
    Corrective actions may include training, technical assistance, 
recalculation of data to ensure the correctness of any claim that the 
school food authority is preparing at the time of the review, or other 
actions. Fiscal action shall be taken in accordance with paragraph (m) 
of this section.
    (1) Extensions of the timeframes. If extraordinary circumstances 
arise where a school food authority is unable to complete the required 
corrective action within the timeframes specified by the State agency, 
the State agency may extend the timeframes upon written request of the 
school food authority.
    (2) Documented corrective action. Documented corrective action is 
required for any degree of violation of general or critical areas 
identified in an administrative review or on any follow-up review. 
Documented corrective action may be provided at the time of the review; 
however, it shall be postmarked or submitted to the State agency no 
later than 30 days from the deadline for completion of each required 
corrective action, as specified under paragraph (j) of this section or 
as otherwise extended by the State agency under paragraph (k)(1) of this 
section. The State agency shall maintain any documented corrective 
action on file for review by FNS.
    (l) Withholding payment. At a minimum, the State agency shall 
withhold Program payments to a school food authority as follows:
    (1) Cause. (i) The State agency shall withhold all Program payments 
to a school food authority if documented corrective action for critical 
area violation(s) which exceed the review threshold(s) is not provided 
within the deadlines specified in paragraph (k)(2) of this section; and/
or

[[Page 50]]

    (ii) The State agency shall withhold all Program payments to a 
school food authority if, in the event that a follow-up review is not 
conducted, the State agency finds that corrective action for a critical 
area violation which exceeded the review threshold was not completed 
within the deadlines specified in paragraph (j) of this section or as 
otherwise extended by the State agency under paragraph (k)(1) of this 
section; and/or
    (iii) The State agency shall withhold all Program payments to a 
school food authority if, on a follow-up review, the State agency finds 
a critical area violation which exceeded the review threshold on a 
previous review and continues to exceed the review threshold on a 
follow-up review.
    (iv) The State agency may withhold payments at its discretion, if 
the State agency finds that documented corrective action is not provided 
within the deadlines specified in paragraph (k)(2) of this section, that 
corrective action is not complete or that corrective action was not 
taken as specified in the documented corrective action for a general 
area violation or for a critical area violation which did not exceed the 
review threshold.
    (2) Duration. In all cases, Program payments shall be withheld until 
such time as corrective action is completed, and documented corrective 
action is received and deemed acceptable by the State agency or as 
otherwise specified in paragraph (i)(5) of this section. Subsequent to 
the State agency's acceptance of the corrective actions (and a follow-up 
review, when required), payments will be released for all lunches served 
in accordance with the provisions of this part during the period the 
payments were withheld. In very serious cases, the State agency will 
evaluate whether the degree of non-compliance warrants termination in 
accordance with Sec.  210.25 of this part.
    (3) Exceptions. The State agency may, at its discretion, reduce the 
amount required to be withheld from a school food authority pursuant to 
paragraph (l)(1)(i) through (iii) of this section by as much as 60 
percent of the total Program payments when it is determined to be in the 
best interest of the Program. FNS may authorize a State agency to limit 
withholding of funds to an amount less than 40 percent of the total 
Program payments, if FNS determines such action to be in the best 
interest of the Program.
    (4) Failure to withhold payments. FNS may suspend or withhold 
Program payments, in whole or in part, to those State agencies failing 
to withhold Program payments in accordance with paragraph (l)(1) of this 
section and may withhold administrative funds in accordance with Sec.  
235.11(b) of this title. The withholding of Program payments will remain 
in effect until such time as the State agency documents compliance with 
paragraph (l)(1) of this section to FNS. Subsequent to the documentation 
of compliance, any withheld administrative funds will be released and 
payment will be released for any lunches served in accordance with the 
provisions of this part during the period the payments were withheld.
    (m) Fiscal action. For purposes of the critical areas of the 
administrative review and any follow-up reviews, fiscal action is 
required for all violations of Performance Standards 1 and 2. Except 
that, on an administrative review, the State agency may limit fiscal 
action from the point corrective action occurs back through the 
beginning of the review period for errors identified under paragraphs 
(g)(1)(i)(A) and (g)(1)(i)(B) of this section, provided corrective 
action occurs. Fiscal action shall be taken in accordance with the 
provisions identified under Sec.  210.19(c) of this part.
    (n) Miscellaneous reporting requirement. Each State agency shall 
report to FNS the results of reviews by March 1 of each school year, on 
a form designated by FNS. In such annual reports, the State agency shall 
include the results of all administrative reviews and follow-up reviews 
conducted in the preceding school year.
    (o) Summary of reporting requirements. Each State agency shall 
report to FNS:
    (1) The names of those large school food authorities exceeding any 
one of the critical area review thresholds as described in paragraph 
(d)(2) of this section.

[[Page 51]]

    (2) The results of reviews by March 1 of each school year on a form 
designated by FNS, as specified under paragraph (n) of this section.
    (p) Recordkeeping. Each State agency shall keep records which 
document the details of all reviews and demonstrate the degree of 
compliance with the critical and general areas of review. Records shall 
be retained by the State agency as specified in Sec.  210.23(c) of this 
part. Such records shall include documentation of administrative reviews 
and follow-up reviews. As appropriate, the records shall include 
documented corrective action, and documentation of withholding of 
payments and fiscal action, including recoveries made. Additionally, the 
State agency must have on file:
    (1) Criteria for selecting schools on first and follow-up reviews in 
accordance with paragraphs (e)(2)(ii) and (i)(2)(ii) of this section.
    (2) Its system for selecting small school food authorities for 
follow-up reviews in accordance with paragraph (i)(1) of this section.
    (3) Documentation demonstrating compliance with the statistical 
sampling requirements in accordance with paragraph (g)(1)(i)(A)(1) of 
this section, if applicable.
    (q) School food authority appeal of State agency findings. Except 
for FNS-conducted reviews authorized under Sec.  210.29(d)(2), each 
State agency shall establish an appeal procedure to be followed by a 
school food authority requesting a review of a denial of all or a part 
of the Claim for Reimbursement or withholding payment arising from 
administrative or follow-up review activity conducted by the State 
agency under Sec.  210.18 of this part. State agencies may use their own 
appeal procedures provided the same procedures are applied to all 
appellants in the State and the procedures meet the following 
requirements: appellants are assured of a fair and impartial hearing 
before an independent official at which they may be represented by legal 
counsel; decisions are rendered in a timely manner not to exceed 120 
days from the date of the receipt of the request for review; appellants 
are afforded the right to either a review of the record with the right 
to file written information, or a hearing which they may attend in 
person; and adequate notice is given of the time, date, place and 
procedures of the hearing. If the State agency has not established its 
own appeal procedures or the procedures do not meet the above listed 
criteria, the State agency shall observe the following procedures at a 
minimum:
    (1) The written request for a review shall be postmarked within 15 
calendar days of the date the appellant received the notice of the 
denial of all or a part of the Claim for Reimbursement or withholding of 
payment, and the State agency shall acknowledge the receipt of the 
request for appeal within 10 calendar days;
    (2) The appellant may refute the action specified in the notice in 
person and by written documentation to the review official. In order to 
be considered, written documentation must be filed with the review 
official not later than 30 calendar days after the appellant received 
the notice. The appellant may retain legal counsel, or may be 
represented by another person. A hearing shall be held by the review 
official in addition to, or in lieu of, a review of written information 
submitted by the appellant only if the appellant so specifies in the 
letter of request for review. Failure of the appellant school food 
authority's representative to appear at a scheduled hearing shall 
constitute the appellant school food authority's waiver of the right to 
a personal appearance before the review official, unless the review 
official agrees to reschedule the hearing. A representative of the State 
agency shall be allowed to attend the hearing to respond to the 
appellant's testimony and to answer questions posed by the review 
official;
    (3) If the appellant has requested a hearing, the appellant and the 
State agency shall be provided with at least 10 calendar days advance 
written notice, sent by certified mail, return receipt requested, of the 
time, date and place of the hearing;
    (4) Any information on which the State agency's action was based 
shall be available to the appellant for inspection from the date of 
receipt of the request for review;
    (5) The review official shall be an independent and impartial 
official

[[Page 52]]

other than, and not accountable to, any person authorized to make 
decisions that are subject to appeal under the provisions of this 
section;
    (6) The review official shall make a determination based on 
information provided by the State agency and the appellant, and on 
Program regulations;
    (7) Within 60 calendar days of the State agency's receipt of the 
request for review, by written notice, sent by certified mail, return 
receipt requested, the review official shall inform the State agency and 
the appellant of the determination of the review official. The final 
determination shall take effect upon receipt of the written notice of 
the final decision by the school food authority;
    (8) The State agency's action shall remain in effect during the 
appeal process;
    (9) The determination by the State review official is the final 
administrative determination to be afforded to the appellant.
    (r) FNS review activity. The term ``State agency'' and all the 
provisions specified in paragraphs (a)-(h) of this section refer to FNS 
when FNS conducts administrative reviews or follow-up reviews in 
accordance with Sec.  210.29(d)(2). FNS will notify the State agency of 
the review findings and the need for corrective action and fiscal 
action. The State agency shall pursue any needed follow-up activity.

[56 FR 32942, July 17, 1991; 56 FR 55527, Oct. 28, 1991, as amended at 
57 FR 38584, Aug. 26, 1992; 57 FR 40729, Sept. 4, 1992; 59 FR 1894, Jan. 
13, 1994; 60 FR 31215, June 13, 1995; 60 FR 57147, Nov. 14, 1995; 64 FR 
50740, 50741, Sept. 20, 1999; 64 FR 72471, Dec. 28, 1999; 65 FR 26922, 
May 9, 2000]



Sec.  210.19  Additional responsibilities.

    (a) General Program management. Each State agency shall provide an 
adequate number of consultative, technical and managerial personnel to 
administer programs and monitor performance in complying with all 
Program requirements.
    (1) Compliance with nutrition standards. (i) Beginning with School 
Year 1996-1997, State agencies shall evaluate compliance, over the 
school week, with the nutrition standards for lunches and, as 
applicable, for breakfasts. Review activity may be confined to lunches 
served under the Program unless a menu planning approach is used 
exclusively in the School Breakfast Program or unless the school food 
authority only offers breakfasts under the School Breakfast Program. For 
lunches, compliance with the requirements in Sec.  210.10(b) and Sec.  
210.10(c), (d), or (i)(1) or the procedures developed under Sec.  
210.10(l), as applicable, is assessed. For breakfasts, see Sec.  
220.13(f)(3) of this chapter.
    (A) These evaluations may be conducted at the same time a school 
food authority is scheduled for an administrative review in accordance 
with Sec.  210.18. State agencies may also conduct these evaluations in 
conjunction with technical assistance visits, other reviews, or 
separately.
    (B) The type of evaluation conducted by the State agency shall be 
determined by the menu planning approach chosen by the school food 
authority. At a minimum, the State agency shall review at least one 
school for each type of menu planning approach used in the school food 
authority.
    (C) In addition, State agencies are encouraged to review breakfasts 
offered under the School Breakfast Program as well if the school food 
authority requires technical assistance from the State agency to meet 
the nutrition standards or if corrective action is needed. Such review 
shall determine compliance with the appropriate requirements in Sec.  
220.13(f)(3) of this chapter and may be done at the time of the initial 
review or as part of a follow-up to assess compliance with the nutrition 
standards.
    (ii) At a minimum, State agencies shall conduct evaluations of 
compliance with the nutrition standards in Sec.  210.10 and Sec.  220.8 
of this Chapter at least once during each 5-year review cycle provided 
that each school food authority is evaluated at least once every 6 
years, except that the first cycle shall begin July 1, 1996, and shall 
end on June 30, 2003. The compliance evaluation for the nutrition 
standards shall be conducted on the menu for any week of the current 
school year in which such evaluation is conducted. The week selected 
must continue to represent

[[Page 53]]

the current menu planning approach(es).
    (iii) For school food authorities choosing the nutrient standard or 
assisted nutrient standard menu planning approaches provided in Sec.  
210.10(i), Sec.  210.10(j), Sec.  220.8(e) or Sec.  220.8(f) of this 
chapter, or developed under the procedures in Sec.  210.10(l) or Sec.  
220.8(h) of this chapter, the State agency shall assess the nutrient 
analysis to determine if the school food authority is properly applying 
the methodology in these paragraphs, as applicable. Part of this 
assessment shall be an independent review of menus and production 
records to determine if they correspond to the analysis conducted by the 
school food authority and if the menu, as offered, over a school week, 
corresponds to the nutrition standards set forth in Sec.  210.10(b) and 
the appropriate calorie and nutrient levels in Sec.  210.10(c) or Sec.  
210.10(i)(1), whichever is applicable.
    (iv) For school food authorities choosing the food-based menu 
planning approaches provided in Sec.  210.10(k) or Sec.  220.8(g) of 
this chapter or developed under the procedures in Sec.  210.10(l) or 
Sec.  220.8(h) of this chapter, the State agency must determine if the 
nutrition standards in Sec.  210.10 and Sec.  220.8 of this chapter are 
met. The State agency shall conduct a nutrient analysis in accordance 
with the procedures in Sec.  210.10(i) or Sec.  220.8(e) of this 
chapter, as appropriate, except that the State agency may:
    (A) Use the nutrient analysis of any school or school food authority 
that offers lunches or breakfasts using the food-based menu planning 
approaches provided in Sec.  210.10(k) and Sec.  220.8(g) of this 
chapter and that conducts its own nutrient analysis under the criteria 
for such analysis established in Sec.  210.10 and Sec.  220.8 of this 
chapter for the nutrient standard and assisted nutrient standard menu 
planning approaches; or
    (B) Develop its own method for compliance reviews, subject to USDA 
approval.
    (v) If the menu for the school week fails to comply with the 
nutrition standards specified in Sec.  210.10(b) and/or Sec.  220.8(a) 
and the appropriate nutrient levels in either Sec.  210.10(c), Sec.  
210.10(d), or Sec.  210.10(i)(1) whichever is applicable, and/or Sec.  
220.8(b), Sec.  220.8(c) or Sec.  220.8(e)(1) of this chapter, whichever 
is applicable, the school food authority shall develop, with the 
assistance and concurrence of the State agency, a corrective action plan 
designed to rectify those deficiencies. The State agency shall monitor 
the school food authority's execution of the plan to ensure that the 
terms of the corrective action plan are met.
    (vi) For school food authorities following an alternate approach as 
provided under Sec.  210.10(l) or Sec.  220.8(h) of this chapter that 
does not allow for use of the monitoring procedures in paragraphs 
(a)(1)(ii) or (a)(1)(iii) of this section, the State agency shall 
monitor compliance following the procedures developed in accordance with 
Sec.  210.10(l) or Sec.  220.8(h) of this chapter, whichever is 
appropriate.
    (vii) If a school food authority fails to meet the terms of the 
corrective action plan, the State agency shall determine if the school 
food authority is working in good faith towards compliance and, if so, 
may renegotiate the corrective action plan, if warranted. However, if 
the school food authority has not been acting in good faith to meet the 
terms of the corrective action plan and refuses to renegotiate the plan, 
the State agency shall determine if a disallowance of reimbursement 
funds as authorized under paragraph (c) of this section is warranted.
    (2) Assurance of compliance for finances. Each State agency shall 
ensure that school food authorities comply with the requirements to 
account for all revenues and expenditures of their nonprofit school food 
service. School food authorities shall meet the requirements for the 
allowability of nonprofit school food service expenditures in accordance 
with this part and, as applicable, 7 CFR part 3015. The State agency 
shall ensure compliance with the requirements to limit net cash 
resources and shall provide for approval of net cash resources in excess 
of three months' average expenditures. Each State agency shall monitor, 
through review or audit or by other means, the net cash resources of the 
nonprofit school food service in each school food

[[Page 54]]

authority participating in the Program. In the event that net cash 
resources exceed 3 months' average expenditures for the school food 
authority's nonprofit school food service or such other amount as may be 
approved in accordance with this paragraph, the State agency may require 
the school food authority to reduce the price children are charged for 
lunches, improve food quality or take other action designed to improve 
the nonprofit school food service. In the absence of any such action, 
the State agency shall make adjustments in the rate of reimbursement 
under the Program.
    (3) Improved management practices. The State agency shall work with 
the school food authority toward improving the school food authority's 
management practices where the State agency has found poor food service 
management practices leading to decreasing or low child participation 
and/or poor child acceptance of the Program or of foods served. If a 
substantial number of children who routinely and over a period of time 
do not favorably accept a particular item that is offered; return foods; 
or choose less than all food items/components or foods and menu items, 
as authorized under Sec.  210.10, poor acceptance of certain menus may 
be indicated.
    (4) Program compliance. Each State agency shall require that school 
food authorities comply with the applicable provisions of this part. The 
State agency shall ensure compliance through audits, administrative 
reviews, technical assistance, training guidance materials or by other 
means.
    (5) Investigations. Each State agency shall promptly investigate 
complaints received or irregularities noted in connection with the 
operation of the Program, and shall take appropriate action to correct 
any irregularities. State agencies shall maintain on file, evidence of 
such investigations and actions. FNS and OIG may make reviews or 
investigations at the request of the State agency or where FNS or OIG 
determines reviews or investigations are appropriate.
    (6) Food service management companies. Each State agency shall 
annually review each contract between any school food authority and food 
service management company to ensure compliance with all the provisions 
and standards set forth in Sec.  210.16 of this part. Each State agency 
shall perform an on-site review of each school food authority 
contracting with a food service management company, at least once during 
each 5-year period. The State agency is encouraged to conduct such a 
review when performing reviews in accordance with Sec.  210.18. Such 
reviews shall include an assessment of the school food authority's 
compliance with Sec.  210.16 of this part. The State agency may require 
that all food service management companies that wish to contract for 
food service with any school food authority in the State register with 
the State agency. State agencies shall provide assistance upon request 
of a school food authority to assure compliance with Program 
requirements.
    (b) Donated food distribution information. Information on schools 
eligible to receive donated foods available under section 6 of the 
National School Lunch Act (42 U.S.C. 1755) shall be prepared each year 
by the State agency with accompanying information on the average daily 
number of lunches to be served in such schools. This information shall 
be prepared as early as practicable each school year and forwarded no 
later than September 1 to the Distributing agency. The State agency 
shall be responsible for promptly revising the information to reflect 
additions or deletions of eligible schools, and for providing such 
adjustments in participation as are determined necessary by the State 
agency. Schools shall be consulted by the Distributing agency with 
respect to the needs of such schools relating to the manner of selection 
and distribution of commodity assistance.
    (c) Fiscal action. State agencies are responsible for ensuring 
Program integrity at the school food authority level. State agencies 
shall take fiscal action against school food authorities for Claims for 
Reimbursement that are not properly payable under this part including, 
if warranted, the disallowance of funds for failure to take corrective 
action in accordance with paragraph (a)(1) of this section. In taking 
fiscal action, State agencies shall use

[[Page 55]]

their own procedures within the constraints of this part and shall 
maintain all records pertaining to action taken under this section. The 
State agency may refer to FNS for assistance in making a claims 
determination under this part.
    (1) Definition. Fiscal action includes, but is not limited to, the 
recovery of overpayment through direct assessment or offset of future 
claims, disallowance of overclaims as reflected in unpaid Claims for 
Reimbursement, submission of a revised Claim for Reimbursement, and 
correction of records to ensure that unfiled Claims for Reimbursement 
are corrected when filed. Fiscal action also includes disallowance of 
funds for failure to take corrective action in accordance with paragraph 
(a)(1) of this section.
    (2) General principles. When taking fiscal action, State agencies 
shall consider the following:
    (i) The State agency shall identify the school food authority's 
correct entitlement and take fiscal action when any school food 
authority claims or receives more Federal funds than earned under Sec.  
210.7 of this part. In order to take fiscal action, the State agency 
shall identify accurate counts of reimbursable lunches through available 
data, if possible. In the absence of reliable data, the State agency 
shall reconstruct the lunch accounts in accordance with procedures 
established by FNS. Such procedures will be based on the best available 
information including, participation factors for the review period, data 
from similar schools in the school food authority, etc.
    (ii) Unless otherwise specified under Sec.  210.18(m) of this part, 
fiscal action shall be extended back to the beginning of the school year 
or that point in time during the current school year when the infraction 
first occurred, as applicable. Based on the severity and longevity of 
the problem, the State agency may extend fiscal action back to previous 
school years, as applicable. The State agency shall ensure that any 
Claim for Reimbursement, filed subsequent to the reviews conducted under 
Sec.  210.18 and prior to the implementation of corrective action, is 
limited to lunches eligible for reimbursement under this part.
    (iii) In taking fiscal action, State agencies shall assume that 
children determined by the reviewer to be incorrectly approved for free 
and reduced price lunches participated at the same rate as correctly 
approved children in the corresponding lunch category.
    (3) Failure to collect. If a State agency fails to disallow a claim 
or recover an overpayment from a school food authority, as described in 
this section, FNS will notify the State agency that a claim may be 
assessed against the State agency. In all such cases, the State agency 
shall have full opportunity to submit evidence concerning overpayment. 
If after considering all available information, FNS determines that a 
claim is warranted, FNS will assess a claim in the amount of such 
overpayment against the State agency. If the State agency fails to pay 
any such demand for funds promptly, FNS will reduce the State agency's 
Letter of Credit by the sum due in accordance with FNS' existing offset 
procedures for Letter of Credit. In such event, the State agency shall 
provide the funds necessary to maintain Program operations at the level 
of earnings from a source other than the Program.
    (4) Interest charge. If an agreement cannot be reached with the 
State agency for payment of its debts or for offset of debts on its 
current Letter of Credit, interest will be charged against the State 
agency from the date the demand leter was sent, at the rate established 
by the Secretary of Treasury.
    (5) Use of recovered payment. The amounts recovered by the State 
agency from school food authorities may be utilized during the fiscal 
year for which the funds were initially available, first, to make 
payments to school food authorities for the purposes of the Program; and 
second, to repay any State funds expended in the reimbursement of claims 
under the Program and not otherwise repaid. Any amounts recovered which 
are not so utilized shall be returned to FNS in accordance with the 
requirements of this part.
    (6) Exceptions. The State agency need not disallow payment or 
collect an overpayment arising out of the situations described in 
paragraphs (c)(6) (i)

[[Page 56]]

and (ii) of this section; provided that the school food authority 
corrects the problem(s) to the satisfaction of the State agency:
    (i) When any review or audit reveals that a school food authority is 
failing to meet the quantities for each meal element (food item/
component, menu item or other items, as applicable) as required under 
Sec.  210.10.
    (ii) when any review or audit reveals that a school food authority 
is approving applications which indicate that the households' incomes 
are within the Income Eligibility Guidelines issued by the Department or 
the applications contain a food stamp or AFDC case number but the 
applications are missing the documentation specified under 7 CFR 245.2 
(a-4) (3) and/or (4); or
    (iii) when any review or audit reveals that a school food 
authority's failure to meet the nutrition standards of Sec.  210.10 is 
unintentional and the school food authority is meeting the requirements 
of a corrective plan developed and agreed to under paragraph (a)(1)(iii) 
of this section.
    (7) Claims adjustment. FNS will have the authority to determine the 
amount of, to settle, and to adjust any claim arising under the Program, 
and to compromise or deny such claim or any part thereof. FNS will also 
have the authority to waive such claims if FNS determines that to do so 
would serve the purposes of the Program. This provision shall not 
diminish the authority of the Attorney General of the United States 
under section 516 of title 28, U.S. Code, to conduct litigation on 
behalf of the United States.
    (d) Management evaluations. Each State agency shall provide FNS with 
full opportunity to conduct management evaluations of all State agency 
Program operations and shall provide OIG with full opportunity to 
conduct audits of all State agency Program operations. Each State agency 
shall make available its records, including records of the receipt and 
disbursement of funds under the Program and records of any claim 
compromised in accordance with this paragraph, upon a reasonable request 
by FNS, OIG, or the Comptroller General of the United States. FNS and 
OIG retain the right to visit schools and OIG also has the right to make 
audits of the records and operations of any school. In conducting 
management evaluations, reviews or audits for any fiscal year, the State 
agency, FNS, or OIG may disregard any overpayment if the total 
overpayment does not exceed $600 or, in the case of State agency claims 
in State administered Programs, it does not exceed the amount 
established under State law, regulations or procedure as a minimum 
amount for which claim will be made for State losses but not to exceed 
$600. However, no overpayment is to be disregarded where there is 
substantial evidence of violations of criminal law or civil fraud 
statutes.
    (e) Additional requirements. Nothing contained in this part shall 
prevent a State agency from imposing additional requirements for 
participation in the Program which are not inconsistent with the 
provisions of this part.
    (f) Cooperation with the Child and Adult Care Food Program. On an 
annual basis, the State agency shall provide the State agency which 
administers the Child and Adult Care Food Program with a list of all 
elementary schools in the State participating in the National School 
Lunch Program in which 50 percent or more of enrolled children have been 
determined eligible for free or reduced price meals as of the last 
operating day of the previous October, or other month specified by the 
State agency. The first list shall be provided by March 15, 1997; 
subsequent lists shall be provided by February 1 of each year or, if 
data is based on a month other than October, within 90 calendar days 
following the end of the month designated by the State agency. The State 
agency may provide updated free and reduced price enrollment data on 
individual schools to the State agency which administers the Child and 
Adult Care Food Program only when unusual circumstances render the 
initial data obsolete. In addition, the State agency shall provide the 
current

[[Page 57]]

list, upon request, to sponsoring organizations of day care homes 
participating in the Child and Adult Care Food Program.

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 12582, Mar. 28, 1989; 56 
FR 32947, July 17, 1991; 57 FR 38586, Aug. 26, 1992; 59 FR 1894, Jan. 
13, 1994; 60 FR 31215, June 13, 1995; 60 FR 57147, Nov. 14, 1995; 62 FR 
901, Jan. 7, 1997; 63 FR 9104, Feb. 24, 1998; 64 FR 50741, Sept. 20, 
1999; 65 FR 26912, 26922, May 9, 2000]



Sec.  210.20  Reporting and recordkeeping.

    (a) Reporting summary. Participating State agencies shall submit 
forms and reports to FNS to demonstrate compliance with Program 
requirements. The reports include but are not limited to:
    (1) Requests for cash to make reimbursement payments to school food 
authorities as required under Sec.  210.5(a);
    (2) Information on the amounts of Federal Program funds expended and 
obligated to date (SF-269) as required under Sec.  210.5(d);
    (3) Statewide totals on Program participation (FNS-10) as required 
under Sec.  210.5(d);
    (4) Information on State funds provided by the State to meet the 
State matching requirements (FNS-13) specified under Sec.  210.17(g);
    (5) The names of school food authorities in need of a follow-up 
review;
    (6) Results of reviews and audits; and
    (7) Results of the commodity preference survey and recommendations 
for commodity purchases as required under Sec.  250.13(k) of this 
chapter.
    (b) Recordkeeping summary. Participating State agencies are required 
to maintain records to demonstrate compliance with Program requirements. 
The records include but are not limited to:
    (1) Accounting records and source documents to control the receipt, 
custody and disbursement of Federal Program funds as required under 
Sec.  210.5(a);
    (2) Documentation supporting all school food authority claims paid 
by the State agency as required under Sec.  210.5(d);
    (3) Documentation to support the amount the State agency reported 
having used for State revenue matching as required under Sec.  
210.17(h);
    (4) Records supporting the State agency's review of net cash 
resources as required under Sec.  210.19(a);
    (5) Reports on the results of investigations of complaints received 
or irregularities noted in connection with Program operations as 
required under Sec.  210.19(a)
    (6) Records of all reviews and audits, including records of action 
taken to correct Program violations; and records of fiscal action taken, 
including documentation of recoveries made;
    (7) State agency criteria for selecting schools for reviews and 
small school food authorities for follow-up reviews;
    (8) Documentation of action taken to disallow improper claims 
submitted by school food authorities, as required by Sec.  210.19(c) and 
as determined through claims processing, resulting from actions such as 
reviews, audits and USDA audits;
    (9) Records of USDA audit findings, State agency's and school food 
authorities' responses to them and of corrective action taken as 
required by Sec.  210.22(a);
    (10) Records pertaining to civil rights responsibilities as defined 
under Sec.  210.23(b); and
    (11) Records pertaining to the annual food preference survey of 
school food authorities as required by Sec.  250.13(k) of this chapter.

[53 FR 29147, Aug. 2, 1988, as amended at 56 FR 32948, July 17, 1991; 56 
FR 55527, Oct. 28, 1991; 64 FR 50741, Sept. 20, 1999]



    Subpart E_State Agency and School Food Authority Responsibilities



Sec.  210.21  Procurement.

    (a) General. State agencies and school food authorities shall comply 
with the requirements of 7 CFR part 3015 concerning the procurement of 
supplies, food, equipment and other services with Program funds. These 
requirements ensure that such materials and services are obtained for 
the Program efficiently and economically and in compliance with 
applicable laws and executive orders.
    (b) Contractual responsibilities. The standards contained in 7 CFR 
part 3015 do not relieve the State agency or

[[Page 58]]

school food authority of any contractual responsibilities under its 
contracts. The State agency or school food authority is the responsible 
authority, without recourse to FNS, regarding the settlement and 
satisfaction of all contractual and administrative issues arising out of 
procurements entered into in connection with the Program. This includes, 
but is not limited to source evaluation, protests, disputes, claims, or 
other matters of a contractual nature. Matters concerning violation of 
law are to be referred to the local, State, or Federal authority that 
has proper jurisdiction.
    (c) Procurement procedure. The State agency or school food authority 
may use its own procurement procedures which reflect applicable State 
and local laws and regulations, provided that procurements made with 
Program funds adhere to the standards set forth in 7 CFR part 3015.
    (d) Buy American.--(1) Definition of domestic commodity or product. 
In this paragraph (d), the term `domestic commodity or product' means--
    (i) An agricultural commodity that is produced in the United States; 
and
    (ii) A food product that is processed in the United States 
substantially using agricultural commodities that are produced in the 
United States.
    (2) Requirement. (i) In general. Subject to paragraph (d)(2)(ii) of 
this section, the Department shall require that a school food authority 
purchase, to the maximum extent practicable, domestic commodities or 
products.
    (ii) Limitations. Paragraph (d)(2)(i) of this section shall apply 
only to--
    (A) A school food authority located in the contiguous United States; 
and
    (B) A purchase of domestic commodity or product for the school lunch 
program under this part.
    (3) Applicability to Hawaii. Paragraph (d)(2)(i) of this section 
shall apply to a school food authority in Hawaii with respect to 
domestic commodities or products that are produced in Hawaii in 
sufficient quantities to meet the needs of meals provided under the 
school lunch program under this part.

[53 FR 29147, Aug. 2, 1988, as amended at 64 FR 50741, Sept. 20, 1999]



Sec.  210.22  Audits.

    (a) General. State agencies and school food authorities shall comply 
with the requirements of 7 CFR part 3015 concerning the audit 
requirements for recipients and subrecipients of the Department's 
financial assistance.
    (b) Audit procedure. These requirements call for organization-wide 
financial and compliance audits to ascertain whether financial 
operations are conducted properly; financial statements are presented 
fairly; recipients and subrecipients comply with the laws and 
regulations that affect the expenditures of Federal funds; recipients 
and subrecipients have established procedures to meet the objectives of 
federally assisted programs; and recipients and subrecipients are 
providing accurate and reliable information concerning grant funds. 
States and school food authorities shall use their own procedures to 
arrange for and prescribe the scope of independent audits, provided that 
such audits comply with the requirements set forth in 7 CFR part 3015.



Sec.  210.23  Other responsibilities.

    (a) Free and reduced price lunches and meal supplements. State 
agencies and school food authorities shall ensure that lunches and meal 
supplements are made available free or at a reduced price to all 
children who are determined by the school food authority to be eligible 
for such benefits. The determination of a child's eligibility for free 
or reduced price lunches and meal supplements is to be made in 
accordance with 7 CFR part 245.
    (b) Civil rights. In the operation of the Program, no child shall be 
denied benefits or be otherwise discriminated against because of race, 
color, national origin, age, sex, or disability. State agencies and 
school food authorities shall comply with the requirements of: Title VI 
of the Civil Rights Act of 1964; title IX of the Education Amendments of 
1972; section 504 of the Rehabilitation Act of 1973; the Age 
Discrimination Act of 1975; Department of Agriculture regulations on 
nondiscrimination (7 CFR parts 15, 15a, and 15b); and FNS Instruction 
113-6.
    (c) Retention of records. State agencies and school food authorities 
may

[[Page 59]]

retain necessary records in their original form or on microfilm. State 
agency records shall be retained for a period of 3 years after the date 
of submission of the final Financial Status Report for the fiscal year. 
School food authority records shall be retained for a period of 3 years 
after submission of the final Claim for Reimbursement for the fiscal 
year. In either case, if audit findings have not been resolved, the 
records shall be retained beyond the 3-year period as long as required 
for the resolution of the issues raised by the audit.

[53 FR 29147, Aug. 2, 1988, as amended at 58 FR 42489, Aug. 10, 1993; 64 
FR 50741, Sept. 20, 1999]



                     Subpart F_Additional Provisions



Sec.  210.24  Withholding payments.

    In accordance with Sec.  3015.103 of this title, the State agency 
shall withhold Program payments, in whole or in part, to any school food 
authority which has failed to comply with the provisions of this part. 
Program payments shall be withheld until the school food authority takes 
corrective action satisfactory to the State agency, or gives evidence 
that such corrective action will be taken, or until the State agency 
terminates the grant in accordance with Sec.  210.25 of this part. 
Subsequent to the State agency's acceptance of the corrective actions, 
payments will be released for any lunches served in accordance with the 
provisions of this part during the period the payments were withheld.

[56 FR 32948, July 17, 1991]



Sec.  210.25  Suspension, termination and grant closeout procedures.

    Whenever it is determined that a State agency has materially failed 
to comply with the provisions of this part, or with FNS guidelines and 
instructions, FNS may suspend or terminate the Program in whole, or in 
part, or take any other action as may be available and appropriate. A 
State agency may also terminate the Program by mutual agreement with 
FNS. FNS and the State agency shall comply with the provisions of the 
Department's Uniform Federal Assistance Regulations, 7 CFR part 3015, 
subpart N concerning grant suspension, termination and closeout 
procedures. Furthermore, the State agency shall apply these provisions 
to suspension or termination of the Program in school food authorities.

[53 FR 29147, Aug. 2, 1988. Redesignated at 56 FR 32948, July 17, 1991]



Sec.  210.26  Penalties.

    Whoever embezzles, willfully misapplies, steals, or obtains by fraud 
any funds, assets, or property provided under this part whether received 
directly or indirectly from the Department, shall if such funds, assets, 
or property are of a value of $100 or more, be fined no more than 
$25,000 or imprisoned not more than 5 years or both; or if such funds, 
assets, or property are of a value of less than $100, be fined not more 
than $1,000 or imprisoned not more than 1 year or both. Whoever 
receives, conceals, or retains for personal use or gain, funds, assets, 
or property provided under this part, whether received directly or 
indirectly from the Department, knowing such funds, assets, or property 
have been embezzled, willfully misapplied, stolen, or obtained by fraud, 
shall be subject to the same penalties.

[53 FR 29147, Aug. 2, 1988. Redesignated at 56 FR 32948, July 17, 1991, 
as amended at 64 FR 50741, Sept. 20, 1999]



Sec.  210.27  Educational prohibitions.

    In carrying out the provisions of the Act, the Department shall not 
impose any requirements with respect to teaching personnel, curriculum, 
instructions, methods of instruction, or materials of instruction in any 
school as a condition for participation in the Program.

[53 FR 29147, Aug. 2, 1988. Redesignated at 56 FR 32948, July 17, 1991, 
as amended at 64 FR 50741, Sept. 20, 1999]



Sec.  210.28  Pilot project exemptions.

    Those State agencies or school food authorities selected for the 
pilot projects mandated under section 18(d) of the Act may be exempted 
by the Department from some or all of the counting and free and reduced 
price application requirements of this part and

[[Page 60]]

7 CFR part 245, as necessary, to conduct an approved pilot project. 
Additionally, those schools selected for pilot projects that also 
operate the School Breakfast Program (7 CFR part 220) and/or the Special 
Milk Program for Children (7 CFR part 215), may be exempted from the 
counting and free and reduced price application requirements mandated 
under these Programs. The Department shall notify the appropriate State 
agencies and school food authorities of its determination of which 
requirements are exempted after the Department's selection of pilot 
projects.

[55 FR 41504, Oct. 12, 1990. Redesignated at 56 FR 32948, July 17, 1991. 
Further redesignated at 64 FR 50741, Sept. 20, 1999]



Sec.  210.29  Management evaluations.

    (a) Management evaluations. FNS will conduct a comprehensive 
management evaluation of each State agency's administration of the 
National School Lunch Program.
    (b) Basis for evaluations. FNS will evaluate all aspects of State 
agency management of the Program using tools such as State agency 
reviews as required under Sec.  210.18 or Sec.  210.18a of this part; 
reviews conducted by FNS in accordance with Sec.  210.18 of this part; 
FNS reviews of school food authorities and schools authorized under 
Sec.  210.19(a)(4) of this part; follow-up reviews and actions taken by 
the State agency to correct violations found during reviews; FNS 
observations of State agency reviews; and audit reports.
    (c) Scope of management evaluations. The management evaluation will 
determine whether the State agency has taken steps to ensure school food 
authority compliance with Program regulations, and whether the State 
agency is administering the Program in accordance with Program 
requirements and good management practices.
    (1) Local compliance. FNS will evaluate whether the State agency has 
actively taken steps to ensure that school food authorities comply with 
the provisions of this part.
    (2) State agency compliance. FNS will evaluate whether the State 
agency has fulfilled its State level responsibilities, including, but 
not limited to the following areas: use of Federal funds; reporting and 
recordkeeping; agreements with school food authorities; review of food 
service management company contracts; review of the claims payment 
process; implementation of the State agency's monitoring 
responsibilities; initiation and completion of corrective action; 
recovery of overpayments; disallowance of claims that are not properly 
payable; withholding of Program payments; oversight of school food 
authority procurement activities; training and guidance activities; 
civil rights; and compliance with the State Administrative Expense Funds 
requirements as specified in 7 CFR part 235.
    (d) School food authority reviews. FNS will examine State agency 
administration of the Program by reviewing local Program operations. 
When conducting these reviews under paragraph (d)(2) of this section, 
FNS will follow all the administrative review requirements specified in 
Sec.  210.18(a)-(h) of this part. When FNS conducts reviews, the 
findings will be sent to the State agency to ensure all the needed 
follow-up activity occurs. The State agency will, in all cases, be 
invited to accompany FNS reviewers.
    (1) Observation of State agency reviews. FNS may observe the State 
agency conduct of any review and/or any follow-up review as required 
under this part. At State agency request, FNS may assist in the conduct 
of the review.
    (2) Section 210.18 reviews. FNS will conduct administrative reviews 
or follow-up reviews in accordance with Sec.  210.18(a)-(h) of this part 
which will count toward meeting the State agency responsibilities 
identified under Sec.  210.18 of this part.
    (3) School food authority appeal of FNS findings. When 
administrative or follow-up review activity conducted by FNS in 
accordance with the provisions of paragraph (d)(2) of this section 
results in the denial of all or part of a Claim for Reimbursement or 
withholding of payment, a school food authority may appeal the FNS 
findings by filing a written request with the Chief, Administrative 
Review Branch, U.S. Department of Agriculture, Food and Nutrition 
Service, 3101 Park Center Drive, Alexandria, Virginia, 22302,

[[Page 61]]

in accordance with the appeal procedures specified in this paragraph:
    (i) The written request for a review of the record shall be 
postmarked within 15 calendar days of the date the appellant received 
the notice of the denial of all or a part of the Claim for Reimbursement 
or withholding payment and the envelope containing the request shall be 
prominently marked ``REQUEST FOR REVIEW''. FNS will acknowledge the 
receipt of the request for appeal within 10 calendar days. The 
acknowledgement will include the name and address of the FNS 
Administrative Review Officer (ARO) reviewing the case. FNS will also 
notify the State agency of the request for appeal.
    (ii) The appellant may refute the action specified in the notice in 
person and by written documentation to the ARO. In order to be 
considered, written documentation must be filed with the ARO not later 
than 30 calendar days after the appellant received the notice. The 
appellant may retain legal counsel, or may be represented by another 
person. A hearing shall be held by the ARO in addition to, or in lieu 
of, a review of written information submitted by the appellant only if 
the appellant so specifies in the letter of request for review. Failure 
of the appellant school food authority's representative to appear at a 
scheduled hearing shall constitute the appellant school food authority's 
waiver of the right to a personal appearance before the ARO, unless the 
ARO agrees to reschedule the hearing. A representative of FNS shall be 
allowed to attend the hearing to respond to the appellant's testimony 
and to answer questions posed by the ARO;
    (iii) If the appellant has requested a hearing, the appellant shall 
be provided with a least 10 calendar days advance written notice, sent 
by certified mail, return receipt requested, of the time, date, and 
place of the hearing;
    (iv) Any information on which FNS's action was based shall be 
available to the appellant for inspection from the date of receipt of 
the request for review;
    (v) The ARO shall be an independent and impartial official other 
than, and not accountable to, any person authorized to make decisions 
that are subject to appeal under the provisions of this section;
    (vi) The ARO shall make a determination based on information 
provided by FNS and the appellant, and on Program regulations;
    (vii) Within 60 calendar days of the receipt of the request for 
review, by written notice, sent by certified mail, return receipt 
requested, the ARO shall inform FNS, the State agency and the appellant 
of the determination of the ARO. The final determination shall take 
effect upon receipt of the written notice of the final decision by the 
school food authority;
    (viii) The action being appealed shall remain in effect during the 
appeal process;
    (ix) The determination by the ARO is the final administrative 
determination to be afforded to the appellant.
    (4) Coordination with State agency. FNS will coordinate school food 
authority selection with the State agency to ensure that no unintended 
overlap exists and to ensure reviews are conducted in a consistent 
manner.
    (e) Management evaluation findings. FNS will consider the results of 
all its review activity within each State, including school food 
authority reviews, in performing management evaluations and issuing 
management evaluation reports. FNS will communicate the findings of the 
management evaluation to appropriate State agency personnel in an exit 
conference. Subsequent to the exit conference, the State agency will be 
notified in writing of the management evaluation findings and any needed 
corrective actions or fiscal sanctions in accordance with the provisions 
Sec.  210.25 of this part and/or 7 CFR part 235.

[56 FR 32949, July 17, 1991, as amended at 57 FR 38586, Aug. 26, 1992. 
Redesignated at 64 FR 50741, Sept. 20, 1999]



Sec.  210.30  Regional office addresses.

    School food authorities desiring information concerning the Program 
should write to their State educational agency or to the appropriate 
Regional Office of FNS as indicated below:
    (a) In the States of Connecticut, Maine, Massachusetts, New 
Hampshire, New York, Rhode Island, and Vermont: Northeast Regional 
Office, FNS, U.S.

[[Page 62]]

Department of Agriculture, 10 Causeway Street, Room 501, Boston, 
Massachusetts 02222-1065.
    (b) In the States of Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee: Southeast 
Regional Office, FNS, U.S. Department of Agriculture, 61 Forsyth Street 
SW, Room 8T36, Atlanta, Georgia 30303.
    (c) In the States of Illinois, Indiana, Michigan, Minnesota, Ohio, 
and Wisconsin: Midwest Regional Office, FNS, U.S. Department of 
Agriculture, 77 West Jackson Boulevard, 20th Floor, Chicago, Illinois 
60604-3507.
    (d) In the States of Arkansas, Louisiana, New Mexico, Oklahoma, and 
Texas: Southwest Regional Office, FNS, U.S. Department of Agriculture, 
1100 Commerce Street, Room 5-C-30, Dallas, Texas 75242.
    (e) In the States of Alaska, American Samoa, Arizona, California, 
Guam, Hawaii, Idaho, Nevada, Oregon, the Commonwealth of the Northern 
Mariana Islands, and Washington: Western Regional Office, FNS, U.S. 
Department of Agriculture, 550 Kearny Street, Room 400, San Francisco, 
California 94108.
    (f) In the States of Delaware, District of Columbia, Maryland, New 
Jersey, Pennsylvania, Puerto Rico, Virginia, Virgin Islands, and West 
Virginia: Mid-Atlantic Regional Office, FNS, U.S. Department of 
Agriculture, 300 Corporate Boulevard, Robbinsville, New Jersey 08691-
1598.
    (g) In the States of Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, North Dakota, South Dakota, Utah, and Wyoming: Mountain Plains 
Regional Office, FNS, U.S. Department of Agriculture, 1244 Speer 
Boulevard, Suite 903, Denver, Colorado 80204.

[53 FR 29147, Aug. 2, 1988. Redesignated at 55 FR 41503, Oct. 12, 1990. 
Further redesignated at 56 FR 32948, July 17, 1991. Further redesignated 
at 64 FR 50741, Sept. 20, 1999; 65 FR 12434, Mar. 9, 2000]



Sec.  210.31  OMB control numbers.

    The following control numbers have been assigned to the information 
collection requirements in 7 CFR part 210 by the Office of Management 
and Budget pursuant to the Paperwork Reduction Act of 1980, Pub. L. 96-
511.

------------------------------------------------------------------------
                                                           Current OMB
     7 CFR section where requirements are described        control No.
------------------------------------------------------------------------
210.3(b)...............................................        0584-0327
210.5(d)...............................................        0584-0006
210.5(d)(1)............................................        0584-0002
210.5(d)(2)............................................        0584-0341
210.5(d)(3)............................................        0584-0341
210.6(b)...............................................        0584-0006
210.8..................................................        0584-0006
                                                               0584-0284
210.9..................................................        0584-0006
                                                               0584-0026
                                                               0584-0329
210.10(b)..............................................        0584-0006
210.10(i)(1)...........................................        0584-0006
210.14(c)..............................................        0584-0006
210.16.................................................        0584-0006
210.17.................................................        0584-0006
210.17(g)..............................................        0584-0075
210.18.................................................        0584-0006
210.19.................................................        0584-0006
210.22.................................................        0584-0006
210.23(c)..............................................        0584-0006
210.24.................................................        0584-0006
210.27.................................................        0584-0006
------------------------------------------------------------------------


[53 FR 29147, Aug. 2, 1990. Redesignated at 55 FR 41503, Oct. 12, 1990. 
Further redesignated at 56 FR 32948, July 17, 1991. Further redesignated 
at 64 FR 50741, Sept. 20, 1999]

            Appendix A to Part 210--Alternate Foods for Meals

          I. Enriched Macaroni Products with Fortified Protein

    1. Schools may utilize the enriched macaroni products with fortified 
protein defined in paragraph 3 as a food item in meeting the meal 
requirements of this part under the following terms and conditions:
    (a) One ounce (28.35 grams) of a dry enriched macaroni product with 
fortified protein may be used to meet not more than one-half of the meat 
or meat alternate requirements specified in Sec.  210.10, when served in 
combination with 1 or more ounces (28.35 grams) of cooked meat, poultry, 
fish, or cheese. The size of servings of the cooked combination may be 
adjusted for various age groups.
    (b) Only enriched macaroni products with fortified protein that bear 
a label containing substantially the following legend shall be so 
utilized: ``One ounce (28.35 grams) dry weight of this product meets 
one-half of the meat or meat alternate requirements of lunch or supper 
of the USDA child nutrition programs when served in combination with 1 
or more ounces (28.35 grams) of cooked meat, poultry, fish, or cheese. 
In those States where State or local law prohibits the wording 
specified, a legend acceptable to both the State or local authorities 
and FNS shall be substituted.''
    (c) Enriched macaroni product may not be used for infants under 1 
year of age.

[[Page 63]]

    2. Only enriched macaroni products with fortified protein that have 
been accepted by FNS for use in the USDA Child Nutrition Programs may be 
labeled as provided in paragraph 1(b) of this appendix. Manufacturers 
seeking acceptance of their product shall furnish FNS a chemical 
analysis, the Protein Digestibility-Corrected Amino Acid Score (PDCAAS), 
and such other pertinent data as may be requested by FNS, except that 
prior to November 7, 1994, manufacturers may submit protein efficiency 
ratio analysis in lieu of the PDCAAS. This information is to be 
forwarded to: Director, Nutrition and Technical Services Division, Food 
and Nutrition Service, U.S. Department of Agriculture, 3101 Park Center 
Drive, room 607, Alexandria, VA 22302. All laboratory analyses are to be 
performed by independent or other laboratories acceptable to FNS. (FNS 
prefers an independent laboratory.) All laboratories shall retain the 
``raw'' laboratory data for a period of 1 year. Such information shall 
be made available to FNS upon request. Manufacturers must notify FNS if 
there is a change in the protein portion of their product after the 
original testing. Manufacturers who report such a change in protein in a 
previously approved product must submit protein data in accordance with 
the method specified in this paragraph.
    3. The product should not be designed in such a manner that would 
require it to be classified as a Dietary Supplement as described by the 
Food and Drug Administration (FDA) in 21 CFR part 105. To be accepted by 
FNS, enriched macaroni products with fortified protein must conform to 
the following requirements:
    (a)(1) Each of these foods is produced by drying formed units of 
dough made with one or more of the milled wheat ingredients designated 
in 21 CFR 139.110(a) and 139.138(a), and other ingredients to enable the 
finished food to meet the protein requirements set out in paragraph 
3.(a)(2)(i) under Enriched Macaroni Products with Fortified Protein in 
this appendix. Edible protein sources, including food grade flours or 
meals made from nonwheat cereals or from oilseeds, may be used. Vitamin 
and mineral enrichment nutrients are added to bring the food into 
conformity with the requirements of paragraph (b) under Enriched 
Macaroni Products with Fortified Protein in this appendix. Safe and 
suitable ingredients, as provided for in paragraph (c) under Enriched 
Macaroni Products with Fortified Protein in this appendix, may be added. 
The proportion of the milled wheat ingredient is larger than the 
proportion of any other ingredient used.
    (2) Each such finished food, when tested by the methods described in 
the pertinent sections of ``Official Methods of Analysis of the AOAC 
International,'' (formerly the Association of Official Analytical 
Chemists), 15th Ed. (1990) meets the following specifications. This 
publication is incorporated by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. Copies may be obtained from the AOAC 
International, 2200 Wilson Blvd., suite 400, Arlington, VA 22201-3301. 
This publication may be examined at the Food and Nutrition Service, 
Nutrition and Technical Services Division, 3101 Park Center Drive, room 
607, Alexandria, Virginia 22302 or the Office of the Federal Register, 
800 North Capital Street, NW., suite 700, Washington, DC.
    (i) The protein content (Nx6.25) is not less than 20 percent by 
weight (on a 13 percent moisture basis) as determined by the appropriate 
method of analysis in the AOAC manual cited in (a)(2) under Enriched 
Macaroni Products with Fortified Protein in this appendix. The protein 
quality is not less than 95 percent that of casein as determined on a 
dry basis by the PDCAAS method as described below:
    (A) The PDCAAS shall be determined by the methods given in sections 
5.4.1, 7.2.1. and 8.0 as described in ``Protein Quality Evaluation, 
Report of the Joint FAO/WHO Expert Consultation on Protein Quality 
Evaluation,'' Rome, 1990, as published by the Food and Agriculture 
Organization (FAO) of the United Nations/World Health Organization 
(WHO). This report is incorporated by reference in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies of this report may be obtained 
from the Nutrition and Technical Services Division, Food and Nutrition 
Service, 3101 Park Center Drive, room 607, Alexandria, Virginia 22302. 
This report may also be inspected at the Office of the Federal Register 
800 North Capitol St., NW., suite 700, Washington, DC.
    (B) The standard used for assessing protein quality in the PDCAAS 
method is the amino acid scoring pattern established by FAO/WHO and 
United Nations University (UNU) in 1985 for preschool children 2 to 5 
years of age which has been adopted by the National Academy of Sciences, 
Recommended Dietary Allowances (RDA), 1989.
    (C) To calculate the PDCAAS for an individual food, the test food 
must be analyzed for proximate analysis and amino acid composition 
according to AOAC methods.
    (D) The PDCAAS may be calculated using FDA's limited data base of 
published true digestibility values (determined using humans and rats). 
The true digestibility values contained in the WHO/FAO report referenced 
in paragraph 3.(a)(2)(i)(A) under Enriched Macaroni Products with 
Fortified Protein in this appendix may also be used. If the 
digestibility of the protein is not available from these sources it must 
be determined by a laboratory according to methods in the FAO/WHO report 
(sections 7.2.1 and 8.0).
    (E) The most limiting essential amino acid (that is, the amino acid 
that is present at the lowest level in the test food compared to the 
standard) is identified in the test food by

[[Page 64]]

comparing the levels of individual amino acids in the test food with the 
1985 FAO/WHO/UNU pattern of essential amino acids established as a 
standard for children 2 to 5 years of age.
    (F) The value of the most limiting amino acid (the ratio of the 
amino acid in the test food over the amino acid value from the pattern) 
is multiplied by the percent of digestibility of the protein. The 
resulting number is the PDCAAS.
    (G) The PDCAAS of food mixtures must be calculated from data for the 
amino acid composition and digestibility of the individual components by 
means of a weighted average procedure. An example for calculating a 
PDCAAS for a food mixture of varying protein sources is shown in section 
8.0 of the FAO/WHO report cited in paragraph 3.(a)(2)(i)(A) under 
Enriched Macaroni Products with Fortified Protein in this appendix.
    (H) For the purpose of this regulation, each 100 grams of the 
product (on a 13 percent moisture basis) must contain protein in amounts 
which is equivalent to that provided by 20 grams of protein with a 
quality of not less than 95 percent casein. The equivalent grams of 
protein required per 100 grams of product (on a 13 percent moisture 
basis) would be determined by the following equation:
[GRAPHIC] [TIFF OMITTED] TR07OC94.022

    X=grams of protein required per 100 grams of product
    a=20 grams (amount of protein if casein)
    b=.95 [95% x 1 (PDCAAS of casein)
    c=PDCAAS for protein used in formulation
    (ii) The total solids content is not less than 87 percent by weight 
as determined by the methods described in the ``Official Methods of 
Analysis of the AOAC International'' cited in paragraph (a)(2) under 
Enriched Macaroni Products with Fortified Protein in this appendix.
    (b)(1) Each pound of food covered by this section shall contain 5 
milligrams of thiamine, 2.2 milligrams of riboflavin, 34 milligrams of 
niacin or niacinamide, and 16.5 milligrams of iron.
    (2) Each pound of such food may also contain 625 milligrams of 
calcium.
    (3) Only harmless and assimilable forms of iron and calcium may be 
added. The enrichment nutrients may be added in a harmless carrier used 
only in a quantity necessary to effect a uniform distribution of the 
nutrients in the finished food. Reasonable overages, within the limits 
of good manufacturing practice, may be used to assure that the 
prescribed levels of the vitamins and mineral(s) in paragraphs (b)(1) 
and (2) under Enriched Macaroni Products with Fortified Protein in this 
appendix are maintained throughout the expected shelf life of the food 
under customary conditions of distribution.
    (c) Ingredients that serve a useful purpose such as to fortify the 
protein or facilitate production of the food are the safe and suitable 
ingredients referred to in paragraph (a) under Enriched Macaroni 
Products with Fortified Protein in this appendix. This does not include 
color additives, artificial flavorings, artificial sweeteners, chemical 
preservatives, or starches. Ingredients deemed suitable for use by this 
paragraph are added in amounts that are not in excess of those 
reasonably required to achieve their intended purposes. Ingredients are 
deemed to be safe if they are not food additives within the meaning of 
section 201(s) of the Federal Food, Drug and Cosmetic Act, or in case 
they are food additives if they are used in conformity with regulations 
established pursuant to section 409 of the act.
    (d)(1) The name of any food covered by this section is ``Enriched 
Wheat ---------------- Macaroni Product with Fortified Protein'', the 
blank being filled in with appropriate word(s) such as ``Soy'' to show 
the source of any flours or meals used that were made from non-wheat 
cereals or from oilseeds. In lieu of the words ``Macaroni Product'' the 
words ``Macaroni'', ``Spaghetti'', or ``Vermicelli'' as appropriate, may 
be used if the units conform in shape and size to the requirements of 21 
CFR 139.110 (b), (c), or (d).
    (2) When any ingredient not designated in the part of the name 
prescribed in paragraph (d)(1) under Enriched Macaroni Products with 
Fortified Protein in this appendix, is added in such proportion as to 
contribute 10 percent or more of the quantity of protein contained in 
the finished food, the name shall include the statement ``Made with ----
------------'', the blank being filled in with the name of each such 
ingredient, e.g. ``Made with nonfat milk''.
    (3) When, in conformity with paragraph (d)(1) or (d)(2) under 
Enriched Macaroni Products with Fortified Protein in this appendix, two 
or more ingredients are listed in the name, their designations shall be 
arranged in descending order of predominance by weight.
    (4) If a food is made to comply with a section of 21 CFR part 139, 
but also meets the compositional requirements of the Enriched Macaroni 
with Fortified Protein Appendix, it may alternatively bear the name set 
out in the other section.
    (e) Each ingredient used shall declare its common name as required 
by the applicable section of 21 CFR part 101. In addition, the 
ingredients statement shall appear in letters not less than one half the 
size of that required by 21 CFR 101.105 for the declaration of net 
quantity of contents, and in no case less than one-sixteenth of an inch 
in height.

[[Page 65]]

                     II. Alternate Protein Products

  A. What Are the Criteria for Alternate Protein Products Used in the 
                     National School Lunch Program?

    1. An alternate protein product used in meals planned under the 
food-based menu planning approaches in Sec.  210.10(k), must meet all of 
the criteria in this section.
    2. An alternate protein product whether used alone or in combination 
with meat or other meat alternates must meet the following criteria:
    a. The alternate protein product must be processed so that some 
portion of the non-protein constituents of the food is removed. These 
alternate protein products must be safe and suitable edible products 
produced from plant or animal sources.
    b. The biological quality of the protein in the alternate protein 
product must be at least 80 percent that of casein, determined by 
performing a Protein Digestibility Corrected Amino Acid Score (PDCAAS).
    c. The alternate protein product must contain at least 18 percent 
protein by weight when fully hydrated or formulated. (``When hydrated or 
formulated'' refers to a dry alternate protein product and the amount of 
water, fat, oil, colors, flavors or any other substances which have been 
added).
    d. Manufacturers supplying an alternate protein product to 
participating schools or institutions must provide documentation that 
the product meets the criteria in paragraphs A2. a through c of this 
appendix.
    e. Manufacturers should provide information on the percent protein 
contained in the dry alternate protein product and on an as prepared 
basis.
    f. For an alternate protein product mix, manufacturers should 
provide information on:
    (1) the amount by weight of dry alternate protein product in the 
package;
    (2) hydration instructions; and
    (3) instructions on how to combine the mix with meat or other meat 
alternates.

B. How Are Alternate Protein Products Used in the National School Lunch 
                                Program?

    1. Schools, institutions, and service institutions may use alternate 
protein products to fulfill all or part of the meat/meat alternate 
component discussed in Sec.  210.10.
    2. The following terms and conditions apply:
    a. The alternate protein product may be used alone or in combination 
with other food ingredients. Examples of combination items are beef 
patties, beef crumbles, pizza topping, meat loaf, meat sauce, taco 
filling, burritos, and tuna salad.
    b. Alternate protein products may be used in the dry form 
(nonhydrated), partially hydrated or fully hydrated form. The moisture 
content of the fully hydrated alternate protein product (if prepared 
from a dry concentrated form) must be such that the mixture will have a 
minimum of 18 percent protein by weight or equivalent amount for the dry 
or partially hydrated form (based on the level that would be provided if 
the product were fully hydrated).

 C. How Are Commercially Prepared Products Used in the National School 
                             Lunch Program?

    Schools, institutions, and service institutions may use a 
commercially prepared meat or meat alternate product combined with 
alternate protein products or use a commercially prepared product that 
contains only alternate protein products.

[51 FR 34874, Sept. 30, 1986; 51 FR 41295, Nov. 14, 1986, as amended at 
53 FR 29164, Aug. 2, 1988; 59 FR 51086, Oct. 7, 1994; 60 FR 31216; June 
13, 1995; 61 FR 37671, July 19, 1996; 65 FR 12434, Mar. 9, 2000; 65 FR 
26912, May 9, 2000]

Appendix B to Part 210--Categories of Foods of Minimal Nutritional Value

    (a) Foods of minimal nutritional value--Foods of minimal nutritional 
value are:
    (1) Soda Water--A class of beverages made by absorbing carbon 
dioxide in potable water. The amount of carbon dioxide used is not less 
than that which will be absorbed by the beverage at a pressure of one 
atmosphere and at a temperature of 60[deg] F. It either contains no 
alcohol or only such alcohol, not in excess of 0.5 percent by weight of 
the finished beverage, as is contributed by the flavoring ingredient 
used. No product shall be excluded from this definition because it 
contains artificial sweeteners or discrete nutrients added to the food 
such as vitamins, minerals and protein.
    (2) Water Ices--As defined by 21 CFR 135.160 Food and Drug 
Administration Regulations except that water ices which contain fruit or 
fruit juices are not included in this definition.
    (3) Chewing Gum--Flavored products from natural or synthetic gums 
and other ingredients which form an insoluble mass for chewing.
    (4) Certain Candies--Processed foods made predominantly from 
sweeteners or artifical sweeteners with a variety of minor ingredients 
which characterize the following types:
    (i) Hard Candy--A product made predominantly from sugar (sucrose) 
and corn syrup which may be flavored and colored, is characterized by a 
hard, brittle texture, and includes such items as sour balls, fruit 
balls, candy sticks, lollipops, starlight mints, after dinner mints, 
sugar wafers, rock candy, cinnamon candies, breath mints, jaw breakers 
and cough drops.

[[Page 66]]

    (ii) Jellies and Gums--A mixture of carbohydrates which are combined 
to form a stable gelatinous system of jelly-like character, and are 
generally flavored and colored, and include gum drops, jelly beans, 
jellied and fruit-flavored slices.
    (iii) Marshmallow Candies--An aerated confection composed as sugar, 
corn syrup, invert sugar, 20 percent water and gelatin or egg white to 
which flavors and colors may be added.
    (iv) Fondant--A product consisting of microscopic-sized sugar 
crystals which are separated by thin film of sugar and/or invert sugar 
in solution such as candy corn, soft mints.
    (v) Licorice--A product made predominantly from sugar and corn syrup 
which is flavored with an extract made from the licorice root.
    (vi) Spun Candy--A product that is made from sugar that has been 
boiled at high temperature and spun at a high speed in a special 
machine.
    (vii) Candy Coated Popcorn--Popcorn which is coated with a mixture 
made predominantly from sugar and corn syrup.
    (b) Petitioning Procedures--Reconsideration of the list of foods of 
minimal nutritional value identified in paragraph (a) of this section 
may be pursued as follows:
    (1) Any person may submit a petition to FNS requesting that an 
individual food be exempted from a category of foods of minimal 
nutritional value listed in paragraph (a). In the case of artificially 
sweetened foods, the petition must include a statement of the percent of 
Reference Daily Intake (RDI) for the eight nutrients listed in Sec.  
210.11(a)(2) ``Foods of minimal nutritional value,'' that the food 
provides per serving and the petitioner's source of this information. In 
the case of all other foods, the petition must include a statement of 
the percent of RDI for the eight nutrients listed in Sec.  210.11(a)(2) 
``Foods of minimal nutritional value,'' that the food provides per 
serving and per 100 calories and the petitioner's source of this 
information. The Department will determine whether or not the individual 
food is a food of minimal nutritional value as defined in Sec.  
210.11(a)(2) and will inform the petitioner in writing of such 
determination, and the public by notice in the Federal Register as 
indicated below under paragraph (b)(3) of this section. In determining 
whether an individual food is a food of minimal nutritional value, 
discrete nutrients added to the food will not be taken into account.
    (2) Any person may submit a petition to FNS requesting that foods in 
a particular category of foods be classified as foods of minimal 
nutritional value as defined in Sec.  210.11(a)(2). The petition must 
identify and define the food category in easily understood language, 
list examples of the food contained in the category and include a list 
of ingredients which the foods in that category usually contain. If, 
upon review of the petition, the Department determines that the foods in 
that category should not be classified as foods of minimal nutritional 
value, the petitioners will be so notified in writing. If, upon review 
of the petition, the Department determines that there is a substantial 
likelihood that the foods in that category should be classified as foods 
of minimal nutritional value as defined in Sec.  210.11(a)(2), the 
Department shall at that time inform the petitioner. In addition, the 
Department shall publish a proposed rule restricting the sale of foods 
in that category, setting forth the reasons for this action, and 
soliciting public comments. On the basis of comments received within 60 
days of publication of the proposed rule and other available 
information, the Department will determine whether the nutrient 
composition of the foods indicates that the category should be 
classified as a category of foods of minimal nutritional value. The 
petitioner shall be notified in writing and the public shall be notified 
of the Department's final determination upon publication in the Federal 
Register as indicated under paragraph (b)(3) of this section.
    (3) By May 1 and November 1 of each year, the Department will amend 
appendix B to exclude those individual foods identified under paragraph 
(b)(1) of this section, and to include those categories of foods 
identified under paragraph (b)(2) of this section, provided, that there 
are necessary changes. The schedule for amending appendix B is as 
follows:

------------------------------------------------------------------------
                                                Publication
     Actions for publication     ---------------------------------------
                                          May              November
------------------------------------------------------------------------
Deadline for receipt of           Nov. 15...........  May 15.
 petitions by USDA.
USDA to notify petitioners of     Feb. 1............  Aug. 1.
 results of Departmental review
 and publish proposed rule (if
 applicable).
60 Day comment period...........  Feb. 1 through      Aug. 1 through
                                   Apr. 1.             Oct. 1.
Public notice of amendment of     May 1.............  Nov. 1.
 appendix B by.
------------------------------------------------------------------------

    (4) Written petitions should be sent to the Chief, Technical 
Assistance Branch, Nutrition and Technical Services Division, FNS, USDA, 
Alexandria, Virginia 22302, on or before November 15 or May 15 of each 
year. Petitions must include all information specified in paragraph (b) 
of this appendix and Sec.  220.12(b) (1) or (2) as appropriate.

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 18465, May 1, 1989; 59 
FR 23614, May 6, 1994]

[[Page 67]]

        Appendix C to Part 210--Child Nutrition Labeling Program

    1. The Child Nutrition (CN) Labeling Program is a voluntary 
technical assistance program administered by the Food and Nutrition 
Service in conjunction with the Food Safety and Inspection Service 
(FSIS), and Agricultural Marketing Service (AMS) of the U.S. Department 
of Agriculture, and National Marine Fisheries Service of the U.S. 
Department of Commerce (USDC) for the Child Nutrition Programs. This 
program essentially involves the review of a manufacturer's recipe or 
product formulation to determine the contribution a serving of a 
commercially prepared product makes toward meal pattern requirements and 
a review of the CN label statement to ensure its accuracy. CN labeled 
products must be produced in accordance with all requirements set forth 
in this rule.
    2. Products eligible for CN labels are as follows:
    (a) Commercially prepared food products that contribute 
significantly to the meat/meat alternate component of meal pattern 
requirements of 7 CFR 210.10, 225.20, and 226.20 and are served in the 
main dish.
    (b) Juice drinks and juice drink products that contain a minimum of 
50 percent full-strength juice by volume.
    3. For the purpose of this appendix the following definitions apply:
    (a) ``CN label'' is a food product label that contains a CN label 
statement and CN logo as defined in paragraph 3 (b) and (c) below.
    (b) The ``CN logo'' (as shown below) is a distinct border which is 
used around the edges of a ``CN label statement'' as defined in 
paragraph 3(c).
[GRAPHIC] [TIFF OMITTED] TC17SE91.000

    (c) The ``CN label statement'' includes the following:
    (1) The product identification number (assigned by FNS),
    (2) The statement of the product's contribution toward meal pattern 
requirements of 7 CFR 210.10, Sec.  220.8 or Sec.  220.8a, whichever is 
applicable, Sec. Sec.  225.20, and 226.20. The statement shall identify 
the contribution of a specific portion of a meat/meat alternate product 
toward the meat/meat alternate, bread/bread alternate, and/or vegetable/
fruit component of the meal pattern requirements. For juice drinks and 
juice drink products the statement shall identify their contribution 
toward the vegetable/fruit component of the meal pattern requirements,
    (3) Statement specifying that the use of the CN logo and CN 
statement was authorized by FNS, and
    (4) The approval date.
    For example:
    [GRAPHIC] [TIFF OMITTED] TC17SE91.001
    
    (d) Federal inspection means inspection of food products by FSIS, 
AMS or USDC.
    4. Food processors or manufacturers may use the CN label statement 
and CN logo as defined in paragraph 3 (b) and (c) under the following 
terms and conditions:

[[Page 68]]

    (a) The CN label must be reviewed and approved at the national level 
by FNS and appropriate USDA or USDC Federal agency responsible for the 
inspection of the product.
    (b) The CN labeled product must be produced under Federal inspection 
by USDA or USDC. The Federal inspection must be performed in accordance 
with an approved partial or total quality control program or standards 
established by the appropriate Federal inspection service.
    (c) The CN label statement must be printed as an integral part of 
the product label along with the product name, ingredient listing, the 
inspection shield or mark for the appropriate inspection program, the 
establishment number where appropriate, and the manufacturer's or 
distributor's name and address. The inspection marking for CN labeled 
non-meat, non-poultry, and non-seafood products with the exception of 
juice drinks and juice drink products is established as follows:
[GRAPHIC] [TIFF OMITTED] TC17SE91.002

    (d) Yields for determining the product's contribution toward meal 
pattern requirements must be calculated using the Food Buying Guide for 
Child Nutrition Programs (Program AID Number 1331).
    5. In the event a company uses the CN logo and CN label statement 
inappropriately, the company will be directed to discontinue the use of 
the logo and statement and the matter will be referred to the 
appropriate agency for action to be taken against the company.
    6. Products that bear a CN label statement as set forth in paragraph 
3(c) carry a warranty. This means that if a food service authority 
participating in the Child Nutrition Programs purchases a CN labeled 
product and uses it in accordance with the manufacturer's directions, 
the school or institution will not have an audit claim filed against it 
for the CN labeled product for noncompliance with the meal pattern 
requirements of 7 CFR 210.10, Sec.  220.8 or Sec.  220.8a, whichever is 
applicable, Sec. Sec.  225.20, and 226.20. If a State or Federal auditor 
finds that a product that is CN labeled does not actually meet the meal 
pattern requirements claimed on the label, the auditor will report this 
finding to FNS. FNS will prepare a report of the findings and send it to 
the appropriate divisions of FSIS and AMS of the USDA, National Marine 
Fisheries Services of the USDC, Food and Drug Administration, or the 
Department of Justice for action against the company. Any or all of the 
following courses of action may be taken:
    (a) The company's CN label may be revoked for a specific period of 
time;
    (b) The appropriate agency may pursue a misbranding or mislabeling 
action against the company producing the product;
    (c) The company's name will be circulated to regional FNS offices;
    (d) FNS will require the food service program involved to notify the 
State agency of the labeling violation.
    7. FNS is authorized to issue operational policies, procedures, and 
instructions for the CN Labeling Program. To apply for a CN label and to 
obtain additional information on CN label application procedures write 
to: CN Labels, U.S. Department of Agriculture, Food and Nutrition 
Service, Nutrition and Technical Services Division, 3101 Park Center 
Drive, Alexandria, Virginia 22302.

[51 FR 34874, Sept. 30, 1986, as amended at 53 FR 29164, Aug. 2, 1988; 
60 FR 31216, June 13, 1995; 65 FR 26912, May 9, 2000]



PART 215_SPECIAL MILK PROGRAM FOR CHILDREN--Table of Contents




Sec.
215.1 General purpose and scope.
215.2 Definitions.
215.3 Administration.
215.4 Payments of funds to States and FNSROs.
215.5 Method of payment to States.
215.6 Use of funds.
215.7 Requirements for participation.
215.8 Reimbursement payments.
215.9 Effective date for reimbursement.
215.10 Reimbursement procedures.
215.11 Special responsibilities of State agencies.
215.12 Claims against schools or child-care institutions.
215.13 Management evaluations and audits.
215.13a Determining eligibility for free milk in child-care 
          institutions.
215.14 Nondiscrimination.
215.14a Procurement standards.
215.15 Suspension, termination and grant closeout procedures.
215.16 Program information.
215.17 Information collection/recordkeeping--OMB assigned control 
          numbers.

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



Sec.  215.1  General purpose and scope.

    This part announces the policies and prescribes the general 
regulations with respect to the Special Milk Program for Children, under 
the Child Nutrition Act of 1966, as amended, and sets forth the general 
requirements for participation in the program. The Act reads in 
pertinent part as follows:

    Section 3(a)(1) There is hereby authorized to be appropriated for 
the fiscal year ending

[[Page 69]]

June 30, 1970, and for each succeeding fiscal year such sums as may be 
necessary to enable the Secretary of Agriculture, under such rules and 
regulations as he may deem in the public interest, to encourage 
consumption of fluid milk by children in the United States in (A) 
nonprofit schools of high school grade and under, except as provided in 
paragraph (2), which do not participate in a meal service program 
authorized under this Act or the National School Lunch Act, and (B) 
nonprofit nursery schools, child care centers, settlement houses, summer 
camps, and similar nonprofit institutions devoted to the care and 
training of children, which do not participate in a meal service program 
authorized under this Act or the National School Lunch Act.
    (2) The limitation imposed under paragraph (1)(A) for participation 
of nonprofit schools in the special milk program shall not apply to 
split-session kindergarten programs conducted in schools in which 
children do not have access to the meal service program operating in 
schools the children attend as authorized under this Act or the National 
School Lunch Act (42 U.S.C. 1751 et seq.).
    (3) For the purposes of this section ``United States'' means the 
fifty States, Guam, the Commonwealth of Puerto Rico, the Virgin Islands, 
American Samoa, the Trust Territory of the Pacific Islands, and the 
District of Columbia.
    (4) The Secretary shall administer the special milk program provided 
for by this section to the maximum extent practicable in the same manner 
as he administered the special milk program provided for by Pub. L. 89-
642, as amended, during the fiscal year ending June 30, 1969.
    (5) Any school or nonprofit child care institution which does not 
participate in a meal service program authorized under this Act or the 
National School Lunch Act shall receive the special milk program upon 
their request.
    (6) Children who qualify for free lunches under guidelines 
established by the Secretary shall, at the option of the school involved 
(or of the local educational agency involved in the case of a public 
school) be eligible for free milk upon their request.
    (7) For the fiscal year ending June 30, 1975, and for subsequent 
school years, the minimum rate of reimbursement for a half-pint of milk 
served in schools and other eligible institutions shall not be less than 
5 cents per half-pint served to eligible children, and such minimum rate 
of reimbursement shall be adjusted on an annual basis each school year 
to reflect changes in the Producer Price Index for Fresh Processed Milk 
published by the Bureau of Labor Statistics of the Department of Labor.
    (8) Such adjustment shall be computed to the nearest one-fourth 
cent.
    (9) Notwithstanding any other provision of this section, in no event 
shall the minimum rate of reimbursement exceed the cost to the school or 
institution of milk served to children.

[52 FR 7562, Mar. 12, 1987]



Sec.  215.2  Definitions.

    For the purpose of this part, the term:
    (a) Act means the Child Nutrition Act of 1966.
    (b) Adults means those persons not included under the definition of 
children.
    (c) [Reserved]
    (d) Child and Adult Care Food Program means the program authorized 
by section 17 of the National School Lunch Act, as amended.
    (e) Child-care institution means any nonprofit nursery school, 
child-care center, settlement house, summer camp, service institution 
participating in the Summer Food Program for Children pursuant to part 
225 of this chapter, institution participating in the Child and Adult 
Care Food Program pursuant to part 226 of this chapter, or similar 
nonprofit institution devoted to the care and training of children. The 
term ``child-care institution'' also includes a nonprofit agency to 
which such institution has delegated authority for the operation of a 
milk program in the institution. It does not include any institution 
falling within the definition of ``School'' in paragraph (v) of this 
section.
    (e-1) Children means persons under 19 chronological years of age in 
child-care institutions as defined in Sec.  215.2(e); or persons under 
21 chronological years of age attending schools as defined in Sec.  
215.2(v)(3) and (4) of this part; or students, including students who 
are mentally or physically disabled as defined by the State and who are 
participating in a school program established for the mentally or 
physically disabled, of high school grade or under as determined by the 
State educational agency in schools as defined in Sec.  215.2(v)(1) and 
(2) of this part.
    (e-2) CND means the Child Nutrition Division of the Food and 
Nutrition Service of the Department.
    (f) FNS means the Food and Nutrition Service of the U.S. Department 
of Agriculture.

[[Page 70]]

    (g) FNSRO means Food and Nutrition Services Regional Offices, of the 
Food and Nutrition Service of the U.S. Department of Agriculture.
    (h) Cost of milk means the net purchase price paid by the school or 
child-care institution to the milk supplier for milk delivered to the 
school or child-care institution. This shall not include any amount paid 
to the milk supplier for servicing, rental of or installment purchase of 
milk service equipment.
    (i) Department means the U.S. Department of Agriculture.
    (i-1) Disclosure means individual children's program eligibility 
information obtained through the free milk eligibility process that is 
revealed or used for a purpose other than for the purpose for which the 
information was obtained. The term refers to access, release, or 
transfer of personal data about children by means of print, tape, 
microfilm, microfiche, electronic communication or any other means.
    (j) Family means a group of related or nonrelated individuals, who 
are not residents of an institution or boarding house, but who are 
living as one economic unit.
    (j-1) Free milk means milk for which neither the child nor any 
member of his family pays or is required to work in the school or child-
care institution or in its food service.
    (k) Fiscal year means the period of 12 calendar months beginning 
October 1, 1977, and each October 1 of any calendar year thereafter and 
ending September 30 of the following calendar year.
    (k-1) Medicaid means the State medical assistance program under 
title XIX of the Social Security Act (42 U.S.C. 1396 et seq.).
    (l) Milk means pasteurized fluid types of unflavored or flavored 
whole milk, lowfat milk, skim milk, or cultured buttermilk which meet 
State and local standards for such milk. In Alaska, Hawaii, American 
Samoa, Guam, Puerto Rico, the Trust Territory of the Pacific Islands, 
and the Virgin Islands, if a sufficient supply of such types of fluid 
milk cannot be obtained, milk shall include reconstituted or recombined 
milk. All milk should contain vitamins A and D at levels specified by 
the Food and Drug Administration and consistent with State and local 
standards for such milk.
    (m) National School Lunch Program means the program under which 
general cash-for-food assistance and special cash assistance are made 
available to schools pursuant to part 210 of this chapter.
    (n) Needy children means: (1) Children who attend schools 
participating in the Program and who meet the School Food Authority's 
eligibility standards for free milk approved by the State agency, or 
FNSRO where applicable, under part 245 of this chapter; and (2) children 
who attend child-care institutions participating in the Program and who 
meet the eligibility standards for free milk approved by the State 
agency, or FNSRO where applicable, under Sec.  215.13a of this part.
    (o) [Reserved]
    (p) Nonpricing program means a program which does not sell milk to 
children. This shall include any such program in which children are 
normally provided milk, along with food and other services, in a school 
or child-care institution financed by a tuition, boarding, camping or 
other fee, or by private donations or endowments.
    (q) Nonprofit milk service means milk service maintained by or on 
behalf of the school or child-care institution for the benefit of the 
children, all of the income from which is used solely for the operation 
or improvement of such milk service.
    (r) Nonprofit means exempt from income tax under the Internal 
Revenue Code, as amended.
    (s) OA means the Office of Audit of the United States Department of 
Agriculture.
    (s-1) OIG means the Office of the Inspector General of the 
Department.
    (t) Pricing program means a program which sells milk to children. 
This shall include any such program in which maximum use is made of 
Program reimbursement payments in lowering, or reducing to ``zero,'' 
wherever possible, the price per half pint which children would normally 
pay for milk.
    (u) Program means the Special Milk Program for Children.

[[Page 71]]

    (u-1) Reimbursement means financial assistance paid or payable to 
participating schools and child-care institutions for milk served to 
eligible children.
    (v) School means: (1) An educational unit of high school grade or 
under, recognized as part of the educational system in the State and 
operating under public or nonprofit private ownership in a single 
building or complex of buildings; (2) any public or nonprofit private 
classes of preprimary grade when they are conducted in the 
aforementioned schools; (3) any public or nonprofit private residential 
child care institution, or distinct part of such institution, which 
operates principally for the care of children, and, if private, is 
licensed to provide residential child care services under the 
appropriate licensing code by the State or a subordinate level of 
government, except for residential summer camps which participate in the 
Summer Food Service Program for Children, Job Corps centers funded by 
the Department of Labor, and private foster homes. The term residential 
child care institutions includes, but is not limited to: Homes for the 
mentally, emotionally or physically impaired, and unmarried mothers and 
their infants; group homes; halfway houses; orphanages; temporary 
shelters for abused children and for runaway children; long-term care 
facilities for chronically ill children; and juvenile detention centers. 
A long-term care facility is a hospital, skilled nursing facility, 
intermediate care facility, or distinct part thereof, which is intended 
for the care of children confined for 30 days or more; or (4) with 
respect to the Commonwealth of Puerto Rico, nonprofit child care centers 
certified as such by the Governor of Puerto Rico.
    (w) School Breakfast Program means the program authorized by section 
4 of the Child Nutrition Act of 1966, as amended.
    (w-1) School Food Authority means the governing body which is 
responsible for the administration of one or more schools and which has 
the legal authority to operate a milk program therein. The term ``School 
Food Authority'' also includes a nonprofit agency to which such 
governing body has delegated authority for the operation of a milk 
program in a school.
    (x) School year means the period of 12 calendar months beginning 
July 1, 1977, and each July 1 of any calendar year thereafter and ending 
June 30 of the following calendar year.
    (x-1) 7 CFR part 3015 means the Uniform Federal Assistance 
Regulations published by the Department to implement OMB Circulars A-21, 
A-87, A-102, A-110, and A-122; and Executive Order 12372. (For 
availability of OMB Circulars referenced in this definition, see 5 CFR 
1310.3.)
    (x-2) 7 CFR part 3017 means the Department's regulation to implement 
Executive Order 12549, covering governmentwide rules on suspension and 
debarment as well as The Drug Free Workplace Act of 1988.
    (x-3) 7 CFR part 3018 means the Department's Common Rule regarding 
Governmentwide New Restrictions on Lobbying. Part 3018 implements the 
requirements established by section 319 of the 1990 Appropriations Act 
for the Department of Interior and Related Agencies (Pub. L. 101-121).
    (x-4) 7 CFR part 3052 means the Department's regulations 
implementing OMB Circular A-133, ``Audits of State, Local Governments, 
and Non-Profit Organizations.'' (For availability of OMB Circulars 
referenced in this definition, see 5 CFR 1310.3.)
    (x-5) Split-session means an educational program operating for 
approximately one-half of the normal school day.
    (y) State means any of the 50 States, District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, and, as 
applicable, American Samoa and the Commonwealth of the Northern 
Marianas.
    (z) State agency means the State educational agency or any other 
State agency that has been designated by the Governor or other 
appropriate executive or legislative authority of the State and approved 
by the Department to administer the Program.
    (aa) State Children's Health Insurance Program (SCHIP) means the 
State medical assistance program under title XXI of the Social Security 
Act (42 U.S.C. 1397aa et seq.).

[[Page 72]]

    (bb) Summer Food Service Program for Children means the program 
authorized by section 13 of the National School Lunch Act, as amended.

(Sec. 11, Pub. L. 95-166, 91 Stat. 1337 (42 U.S.C. 1772, 1753, 1766; 
sec. 10(a), Pub. L. 95-627, 92 Stat. 3623 (42 U.S.C. 1760; sec. 10(d)), 
Pub. L. 95-627, 92 Stat. 3624 (42 U.S.C. 1757); sec. 14, Pub. L. 95-627, 
92 Stat. 3625-3626; sec. 205, Pub. L. 96-499, The Omnibus Reconciliation 
Act of 1980, 94 Stat. 2599; secs. 807 and 808, Pub. L. 97-35, 95 Stat. 
521-535 (42 U.S.C. 1772, 1784, 1760))

[32 FR 12587, Aug. 31, 1967]

    Editorial Note: For Federal Register citations affecting Sec.  
215.2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  215.3  Administration.

    (a) Within the Department, FNS shall act on behalf of the Department 
in the administration of the Program. Within FNS, CND shall be 
responsible for Program administration.
    (b) Within the States, to the extent practicable and permissible 
under State law, responsibility for the administration of the Program in 
schools and child-care institutions shall be in the educational agency 
of the State: Provided, however, That another State agency, upon request 
by the Governor or other appropriate State executive or legislative 
authority, may be approved to administer the Program in schools as 
defined in Sec.  215.2(v)(3) or Sec.  215.2(v)(4) or in child-care 
institutions.
    (c) FNSRO shall administer the Program in any school as defined in 
Sec.  215.2(v)(1), Sec.  215.2(v)(2) or Sec.  215.2(v)(3) or in any 
child-care institution as defined in Sec.  215.2(e) wherein the State 
agency is not permitted by law to disburse Federal funds paid to it 
under the Program; Provided, however, That FNSRO shall also administer 
the Program in all other schools and child-care institutions which have 
been under continuous FNS administration since October 1, 1980 unless 
the administration of such schools and institutions is assumed by a 
State agency. References in this part to ``FNSRO where applicable'' are 
to FNSRO as the agency administering the Program to schools or child-
care institutions within certain States.
    (d) Each State agency desiring to take part in the Program shall 
enter into a written agreement with the Department for the 
administration of the Program in the State in accordance with the 
provisions of this part. Such agreement shall cover the operation of the 
Program during the period specified therein and may be extended at the 
option of the Department.

(Secs. 804, 816 and 817, Pub. L. 97-35; 95 Stat. 521-535 (42 U.S.C. 
1753, 1756, 1759, 1771 and 1785))

[Amdt. 14, 41 FR 31174, July 27, 1976, as amended by Amdt. 24, 47 FR 
14133 Apr. 2, 1982; Amdt. 36, 54 FR 2989, Jan. 23, 1989]



Sec.  215.4  Payments of funds to States and FNSROs.

    (a) For each fiscal year, the Secretary shall make payments to each 
State agency at such times as he may determine from the funds 
appropriated for Program reimbursement. Subject to Sec.  215.11(c)(2), 
the total of these payments for each State for any fiscal year shall be 
limited to the amount of reimbursement payable to School Food 
Authorities and child care institutions under Sec.  215.8 of this part 
for the total number of half-pints of milk served under the Program to 
eligible children from October 1 to September 30.
    (b) Each State agency shall be responsible for controlling Program 
reimbursement payments so as to keep within the funds made available to 
it, and for the timely reporting to FNS of the number of half pints of 
milk actually served. The Secretary shall increase or decrease the 
available level of funding by adjusting the State agency's Letter of 
Credit when appropriate.

(Pub. L. 97-370, 96 Stat. 1806)

[Amdt. 14, 41 FR 31174, July 27, 1976, as amended by Amdt. 30, 49 FR 
18986, May 4, 1984]



Sec.  215.5  Method of payment to States.

    (a) Funds to be paid to any State shall be made available by means 
of Letters of Credit issued by FNS in favor of the State agency. The 
State agency shall:
    (1) Obtain funds needed to reimburse School Food Authorities and 
child-care institutions through presentation by designated State 
officials of a Payment

[[Page 73]]

Voucher on Letter of Credit (Treasury Form GFO 7578) in accordance with 
procedures prescribed by FNS and approved by the U.S. Treasury 
Department; (2) submit requests for funds only at such times and in such 
amounts as will permit prompt payment of claims; (3) use the funds 
received from such requests without delay for the purpose for which 
drawn. Notwithstanding the foregoing provisions, if funds are made 
available by Congress for the operation of the Program under a 
continuing resolution, Letters of Credit shall reflect only the amount 
available for the effective period of the resolution.
    (b) [Reserved]
    (c) The State agency shall release to FNS any Federal funds made 
available to it under the Program which are unobligated at the end of 
each fiscal year. Release of funds by the State agency shall be made as 
soon as practicable but in no event later than 30 days following demand 
by FNSRO, and shall be reflected by a related adjustment in the State 
agency's Letter of Credit.

[Amdt. 13, 39 FR 28416, Aug. 7, 1974, as amended by Amdt. 14, 41 FR 
31174, July 27, 1976]



Sec.  215.6  Use of funds.

    (a) Federal funds made available under the Program shall be used to 
encourage the consumption of milk through reimbursement payments to 
schools and child-care institutions in connection with the purchase and 
service of milk to children in accordance with the provisions of this 
part: Provided, however, That, with the approval of FNS, any State 
agency, or FNSRO where applicable, may reserve for use in carrying out 
special developmental projects an amount equal to not more than 1 per 
centum of the Federal funds so made available for any fiscal year.
    (b) Whoever embezzles, willfully misapplies, steals, or obtains by 
fraud any funds, assets, or property provided under this part, whether 
received directly or indirectly from the Department, shall: (1) If such 
funds, assets, or property are of a value of $100 or more, be fined not 
more than $25,000 or imprisoned not more than 5 years or both; or (2) if 
such funds, assets, or property are of a value of less than $100, be 
fined not more than $1,000 or imprisoned not more than one year or both.
    (c) Whoever receives, conceals, or retains to his use or gain funds, 
assets, or property provided under this part, whether received directly 
or indirectly from the Department, knowing such funds, assets, or 
property have been embezzled, willfully misapplied, stolen, or obtained 
by fraud, shall be subject to the same penalties provided in paragraph 
(b) of this section.

(Sec. 10(a), Pub. L. 95-627, 92 Stat. 3623 (42 U.S.C. 1760; sec. 
10(d)(3), Pub. L. 95-627, 92 Stat. 3624 (42 U.S.C. 1757); sec. 14, Pub. 
L. 95-627, 92 Stat. 3625-3626; 44 U.S.C. 3506))

[Amdt. 14, 41 FR 31174, July 27, 1976, as amended by Amdt. 18, 44 FR 
37898, June 29, 1979; 47 FR 746, Jan. 7, 1982; 64 FR 50741, Sept. 20, 
1999]



Sec.  215.7  Requirements for participation.

    (a) Any school or nonprofit child care institution shall receive the 
Special Milk Program upon request provided it does not participate in a 
meal service program authorized under the Child Nutrition Act of 1966 or 
the National School Lunch Act; except that schools with such meal 
service may receive the Special Milk Program upon request only for the 
children attending split-session kindergarten programs who do not have 
access to the meal service. Each School Food Authority or child-care 
institution shall make written application to the State agency, or FNSRO 
where applicable, for any school or child-care institution in which it 
desires to operate the Program, if such school or child-care institution 
did not participate in the Program in the prior fiscal year.
    (b) Any School Food Authority or child care institution 
participating in the Program may elect to serve free milk to children 
eligible for free meals. Upon application for the Program, each School 
Food Authority or child care institution:
    (1) Shall be required by the State agency, or FNSRO where 
applicable, to state whether or not it wishes to provide free milk in 
the schools or institutions participating under its jurisdiction and
    (2) If it so wishes to provide free milk, shall also submit for 
approval a free milk policy statement which, if for

[[Page 74]]

a school, shall be in accordance with part 245 of this chapter or, if 
for a child care institution, shall be in accordance with Sec.  215.13a 
of this part.
    (c) The application shall include information in sufficient detail 
to enable the State agency, or FNSRO where applicable, to determine 
whether the School Food Authority or child-care institution is eligible 
to participate in the Program and extent of the need for Program 
payments.
    (d) Each school food authority or child care institution approved to 
participate in the program shall enter into a written agreement with the 
State agency or FNSRO, as applicable, that may be amended as necessary. 
Nothing in the preceding sentence shall be construed to limit the 
ability of the State agency to suspend or terminate the agreement in 
accordance with Sec.  215.15. If a single State agency administers any 
combination of the Child Nutrition Programs, that State agency shall 
provide each SFA with a single agreement with respect to the operation 
of those programs. Such agreement shall provide that the School Food 
Authority or child-care institution shall, with respect to participating 
schools and child-care institutions under its jurisdiction:
    (1) Operate a nonprofit milk service. However, school food 
authorities may use facilities, equipment, and personnel supported with 
funds provided to a school food authority under this part to support a 
nonprofit nutrition program for the elderly, including a program funded 
under the Older Americans Act of 1965 (42 U.S.C. 3001 et seq.).
    (2) If electing to provide free milk (i) serve milk free to all 
eligible children, at times that milk is made available to nonneedy 
children under the Program; and (ii) make no discrimination against any 
needy child because of his inability to pay for the milk.
    (3) Comply with the requirements of the Department's regulations 
respecting nondiscrimination (7 CFR part 15);
    (4) Claim reimbursement only for milk as defined in this part and in 
accordance with the provisions of Sec.  215.8 and Sec.  215.10;
    (5) Submit Claims for Reimbursement in accordance with Sec.  215.10 
of this part and procedures established by the State agency or FNSRO 
where applicable;
    (6) Maintain a financial management system as prescribed by the 
State agency, or FNSRO where applicable;
    (7) Upon request, make all records pertaining to its milk program 
available to the State agency and to FNS or OA for audit and 
administrative review, at any reasonable time and place. Such records 
shall be retained for a period of three years after the end of the 
fiscal year to which they pertain, except that, if audit findings have 
not been resolved, the records shall be retained beyond the three-year 
period as long as required for the resolution of the issues raised by 
the audit;
    (8) Retain the individual applications for free milk submitted by 
families for a period of three years after the end of the fiscal year to 
which they pertain, except that, if audit findings have not been 
resolved, the records shall be retained beyond the three-year period as 
long as required for the resolution of the issues raised by the audit.
    (e) State requirements. Nothing contained in this part shall prevent 
a State agency from imposing additional requirements for participation 
in the Program which are not inconsistent with the provision of this 
part.

(Sec. 11, Pub. L. 95-166, 91 Stat. 1337 (42 U.S.C. 1772, 1753, 1766); 
sec. 5, Pub. L. 95-627, 92 Stat. 3619 (42 U.S.C. 1772); secs. 801, 803, 
812; Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1753, 1759(a), 1773, 
1758); 44 U.S.C. 3506)

[Amdt. 13, 39 FR 28416, Aug. 7, 1974, as amended by Amdt. 14, 41 FR 
31174, July 27, 1976; Amdt. 16, 43 FR 1059, Jan. 6, 1978; 44 FR 10700, 
Feb. 23, 1979; Amdt. 17, 44 FR 33047, June 8, 1979; 46 FR 51635, Oct. 
20, 1981; 47 FR 745, Jan. 7, 1982; Amdt. 30, 49 FR 18986, 18987, May 4, 
1984; 52 FR 7562, Mar. 12, 1987; 52 FR 15298, Apr. 28, 1987; 64 FR 
50741, Sept. 20, 1999]



Sec.  215.8  Reimbursement payments.

    (a) [Reserved]
    (b)(1) The rate of reimbursement per half-pint of milk purchased and 
(i) served in nonpricing programs to all children; (ii) served to all 
children in pricing programs by institutions and School Food Authorities 
not electing to provide free milk; and (iii) served to children other 
than needy children in pricing programs by institutions and School Food 
Authorities electing to

[[Page 75]]

provide free milk shall be the rate announced by the Secretary for the 
applicable school year. However, in no event shall the reimbursement for 
each half-pint (236 ml.) of milk served to children exceed the cost of 
the milk to the school or child care institution.
    (2) The rate of reimbursement for milk purchased and served free to 
needy children in pricing programs by institutions and School Food 
Authorities electing to provide free milk shall be the average cost of 
milk, i.e., the total cost of all milk purchased during the claim 
period, divided by the total number of purchased half-pints.
    (c) Schools and child-care institutions having pricing programs 
shall use the reimbursement payments received to reduce the price of 
milk to children.

(Sec. 11, Pub. L. 95-166, 91 Stat. 1337 (42 U.S.C. 1772, 1753, 1766); 
sec. 5, Pub. L. 95-627, 92 Stat. 3619 (42 U.S.C. 1772); Omnibus 
Reconciliation Act of 1980, sec. 209, Pub. L. 96-499, 94 Stat. 2599; 
secs. 807 and 808, Pub. L. 97-35, 95 Stat. 521-535, 42 U.S.C. 1772, 
1784, 1760; secs. 805 and 819, Pub. L. 97-35, 95 Stat. 521-535 (42 
U.S.C. 1773))

[Amdt. 13, 39 FR 28416, Aug. 7, 1974, as amended by Amdt. 16, 43 FR 
1060, Jan. 6, 1978; 44 FR 10700, Feb. 23, 1979; Amdt. 17, 44 FR 33047, 
June 8, 1979; 46 FR 51365, Oct. 20, 1981; Amdt. 23, 47 FR 14134, Apr. 2, 
1982]



Sec.  215.9  Effective date for reimbursement.

    (a) A State Agency, or FNSRO where applicable, may grant written 
approval to begin operations under the Program prior to the receipt of 
the application from the School Food Authority or child-care 
institution. Such written approval shall be attached to the subsequently 
filed application, and the agreement executed by the School Food 
Authority or child-care institution shall be effective from the date 
upon which the School Food Authority or child-care institution was 
authorized to begin operations: Provided, however, That such effective 
date shall not be earlier than the calendar month preceding the calendar 
month in which the agreement is executed by the State Agency or by the 
Department.
    (b) Reimbursement payments pursuant to Sec.  215.8 shall be made for 
milk purchased and served to children at any time during the effective 
period of an agreement between a School Food Authority or child care 
institution and the State agency or the Department.

(Sec. 11, Pub. L. 95-166, 91 Stat. 1337 (42 U.S.C. 1772, 1753, 1766))

[32 FR 12587, Aug. 31, 1967, as amended by Amdt. 5, 37 FR 14686, July 
22, 1972; Amdt. 13, 39 FR 28417, Aug. 7, 1974; Amdt. 16, 43 FR 1060, 
Jan. 6, 1978; 44 FR 10700, Feb. 23, 1979]



Sec.  215.10  Reimbursement procedures.

    (a) To be entitled to reimbursement under this part, each School 
Food Authority shall submit to the State agency, or FNSRO where 
applicable, a monthly Claim for Reimbursement.
    (b) Claims for Reimbursement shall include data in sufficient detail 
to justify the reimbursement claimed and to enable the State agency to 
provide the Reports of School Program Operations required under Sec.  
215.11(c)(2). Unless otherwise approved by FNS, the Claim for 
Reimbursement for any month shall include only milk served in that month 
except if the first or last month of Program operations for any year 
contains 10 operating days or less, such month may be added to the Claim 
for Reimbursement for the appropriate adjacent month; however, Claims 
for Reimbursement may not combine operations occurring in two fiscal 
years. If a single State agency administers any combination of the Child 
Nutrition Programs, the SFA shall be able to use a common claim form 
with respect to claims for reimbursement for meals served under those 
programs. A final Claim for Reimbursement shall be postmarked and/or 
submitted to the State agency, or FNSRO where applicable, not later than 
60 days following the last day of the full month covered by the claim. 
State agencies may establish shorter deadlines at their discretion. 
Claims not postmarked and/or submitted within 60 days shall not be paid 
with Program funds unless FNS determines that an exception should be 
granted. The State agency, or FNSRO where applicable, shall promptly 
take corrective action with respect to any Claim for Reimbursement as 
determined necessary through its claim review process or otherwise. In 
taking such corrective action, State agencies may make upward 
adjustments in Program funds claimed on claims filed within the 60 day 
deadline if such adjustments are

[[Page 76]]

completed within 90 days of the last day of the claim month and are 
reflected in the final Report of School Program Operations (FNS-10) for 
the claim month which is required under Sec.  215.11(c)(2). Upward 
adjustments in Program funds claimed which are not reflected in the 
final FNS-10 for the claim month shall not be made unless authorized by 
FNS. Downward adjustments in Program funds claimed shall always be made, 
without FNS authorization, regardless of when it is determined that such 
adjustments are necessary.
    (c) [Reserved]
    (d) In submitting a Claim for Reimbursement, each School Food 
Authority or child-care institution shall certify that the claim is true 
and correct; that records are available to support the claim; that the 
claim is in accordance with the existing agreement; and that payment 
therefor has not been received.
    (e) Milk served to adults is not eligible for reimbursement.
    (f) Any School Food Authority or child care institution which 
operates both a nonpricing and pricing milk program in the same school 
or child care institution, may elect to claim reimbursement for:
    (1) All milk purchased and served to children under the Program at 
the nonpricing rate prescribed in Sec.  215.8(b) (1), or (2) only milk 
purchased and served to children in the pricing program at the rates 
prescribed in Sec.  215.8(b) (1) and (2) for pricing programs.

(Sec. 11, Pub. L. 95-166, 91 Stat. 1337 (42 U.S.C. 1772, 1753, 1766); 
Pub. L. 97-370, 96 Stat. 1806)

[Amdt. 13, 39 FR 28417, Aug. 7, 1974, as amended by Amdt. 14, 41 FR 
31175, July 27, 1976; Amdt. 16, 43 FR 1060, Jan. 6, 1978; 44 FR 10700, 
Feb. 23, 1979; 45 FR 82622, Dec. 16, 1980; 48 FR 20896, May 10, 1983; 
Amdt. 30, 49 FR 18986, May 4, 1984; 64 FR 50742, Sept. 20, 1999]



Sec.  215.11  Special responsibilities of State agencies.

    (a) [Reserved]
    (b) Program assistance. Each State agency, or FNSRO where 
applicable, shall provide Program assistance, as follows:
    (1) Consultive, technical, and managerial personnel to administer 
the Program and monitor performance of schools and child-care 
institutions and to measure progress toward achieving Program goals.
    (2) Visits to participating schools and child-care institutions to 
ensure compliance with Program regulations and with the Department's 
nondiscrimination regulations (part 15 of this title), issued under 
title VI of the Civil Rights Act of 1964. State agencies shall conduct 
reviews of schools participating in the Program for compliance with the 
provisions of this part when such schools are being reviewed under the 
provisions identified under Sec.  210.18(i) of this title. Compliance 
reviews of participating schools shall focus on the reviewed school's 
compliance with the required certification, counting and milk service 
procedures. School food authorities may appeal a denial of all or a part 
of the Claim for Reimbursement or withholding of payment arising from 
review activity conducted by the State agency under Sec.  210.18 of this 
title or by FNS under Sec.  210.30(d)(2) of this title. Any such appeal 
shall be subject to the procedures set forth under Sec.  210.18(q) of 
this title or Sec.  210.30(d)(3) of this title, as appropriate.
    (3) Documentation of such Program assistance shall be maintained on 
file by the State agency, or FNSRO where applicable.
    (c) Records and reports. (1) Each State agency shall maintain 
Program records as necessary to support the reimbursement payments made 
to child care institutions or School Food Authorities under Sec.  215.8 
and Sec.  215.10 and the reports submitted to FNS under Sec.  
215.11(c)(2). The records may be kept in their original form or on 
microfilm, and shall be retained for a period of three years after the 
date of submission of the final Financial Status Report for the fiscal 
year, except that if audit findings have not been resolved, the records 
shall be retained beyond the three-year period as long as required for 
the resolution of the issues raised by the audit.
    (2) Each State agency shall submit to FNS a final Report of School 
Program Operations (FNS-10) for each month which shall be limited to 
claims submitted in accordance with Sec.  215.10(b) and which shall be 
postmarked and/or

[[Page 77]]

submitted no later than 90 days following the last day of the month 
covered by the report. States shall not receive Program funds for any 
month for which the final report is not submitted within this time limit 
unless FNS grants an exception. Upward adjustments to a State agency's 
report shall not be made after 90 days from the month covered by the 
report unless authorized by FNS. Downward adjustments shall always be 
made, without FNS authorization, regardless of when it is determined 
that such adjustments are necessary. Adjustments shall be reported to 
FNS in accordance with procedures established by FNS. Each State agency 
shall also submit to FNS a quarterly Financial Status Report (SF-269) on 
the use of Program funds. Such reports shall be postmarked and/or 
submitted no later than 30 days after the end of each fiscal year 
quarter. Obligations shall be reported only for the fiscal year in which 
they occur. A final Financial Status Report for each fiscal year shall 
be postmarked and/or submitted to FNS within 120 days after the end of 
the fiscal year. FNS shall not be responsible for reimbursing unpaid 
program obligations reported later than 120 days after the close of the 
fiscal year in which they were incurred.
    (d) Compliance. State agencies, or FNSROs where applicable, shall 
require School Food Authorities and child-care institutions to comply 
with applicable provisions of this part.
    (e) Investigations. Each State Agency shall promptly investigate 
complaints received or irregularities noted in connection with the 
operation of the Program and shall take appropriate action to correct 
any irregularities. State Agencies shall maintain on file evidence of 
such investigations and actions. The Office of Investigation of the 
Department (OI) shall make investigations at the request of the State 
Agency or if CND or FNSRO determines investigations by OI are 
appropriate.

(Sec. 11, Pub. L. 95-166, 91 Stat. 1337 (42 U.S.C. 1772, 1753, 1766); 44 
U.S.C. 3506; sec. 812, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 
1759a))

[32 FR 12587, Aug. 31, 1967, as amended by Amdt. 13, 39 FR 28417, Aug. 
7, 1974; Amdt. 14, 41 FR 31175, July 27, 1976; 47 FR 745, Jan. 7, 1982; 
Amdt. 25, 47 FR 18564, Apr. 30, 1982; Amdt. 30, 49 FR 18987, May 4, 
1984; 56 FR 32949, July 17, 1991; 57 FR 38586, Aug. 26, 1992]



Sec.  215.12  Claims against schools or child-care institutions.

    (a) State agencies, or FNSROs where applicable, shall disallow any 
portion of a claim and recover any payment made to a School Food 
Authority or child-care institution that was not properly payable under 
this part. State agencies will use their own procedures to disallow 
claims and recover overpayments already made.
    (b) [Reserved]
    (c) The State Agency may refer any matter in connection with this 
section to FNSRO and CND for determination of the action to be taken.
    (d) Each State agency shall maintain all records pertaining to 
action taken under this section. Such records shall be retained for a 
period of three years after the date of the submission of the final 
Financial Status Report, except that, if audit findings have not been 
resolved, the records shall be retained beyond the three-year period as 
long as required for the resolution of the issues raised by the audit.
    (e) If CND does not concur with the State Agency action in paying a 
claim or a reclaim, or in failing to collect an overpayment FNSRO shall 
assert a claim against the State Agency for the amount of such claim, 
reclaim or overpayment. In all such cases, the State Agency shall have 
full opportunity to submit to CND evidence or information concerning the 
action taken. If in the determination of CND, the State Agency's action 
was unwarranted, the State Agency shall promptly pay to FNS the

[[Page 78]]

amount of the claim, reclaim, or overpayment.
    (f) The amounts recovered by the State Agency from schools and 
child-care institutions may be utilized, first, to make reimbursement 
payments for milk served during the fiscal year for which the funds were 
initially available, and second, to repay any State funds expended in 
the reimbursement of claims under the program and not otherwise repaid. 
Any amounts recovered which are not so utilized shall be returned to FNS 
in accordance with the requirements of Sec.  215.5(c).
    (g) With respect to schools or child-care institutions in which 
FNSRO administers the Program, when FNSRO disallows a claim or a portion 
of a claim, or makes a demand for refund of an alleged overpayment, it 
shall notify the School Food Authority or child-care institutions of the 
reasons for such disallowance or demand and the School Food Authority or 
child-care institutions shall have full opportunity to submit evidence 
or to file reclaim for any amount disallowed or demanded in the same 
manner afforded in this section to schools or child-care institutions 
administered by State Agencies.
    (h) The Secretary shall have the authority to determine the amount 
of, to settle, and to adjust any claims arising under the Program, and 
to compromise or deny such claim or any part thereof. The Secretary 
shall also have the authority to waive such claims if the Secretary 
determines that to do so would serve the purposes of the Program. This 
provision shall not diminish the authority of the Attorney General of 
the United States under section 516 of Title 28, U.S. Code, to conduct 
litigation on behalf of the United States.

(47 FR 745, Jan. 7, 1982 (44 U.S.C. 3506; secs. 804, 816 and 817, Pub. 
L. 97-35; 95 Stat. 521-535 (42 U.S.C. 1753, 1756, 1759, 1771 and 1785))

[32 FR 12587, Aug. 31, 1967, as amended by Amdt. 5, 37 FR 14686, July 
22, 1972; Amdt. 13, 39 FR 28418, Aug. 7, 1974; Amdt. 14, 41 FR 31175, 
July 27, 1976; 47 FR 745, Jan. 7, 1982; Amdt. 24, 47 FR 14133, Apr. 2, 
1982]



Sec.  215.13  Management evaluations and audits.

    (a) State agencies and school food authorities shall comply with the 
requirements of part 3015 of this title concerning the audit 
requirements for recipients and subrecipients of the Department's 
financial assistance.
    (b) These requirements call for organization-wide financial and 
compliance audits to ascertain whether financial operations are 
conducted properly; financial statements are presented fairly; 
recipients and subrecipients comply with the laws and regulations that 
affect the expenditures of Federal funds; recipients and subrecipients 
have established procedures to meet the objectives of federally assisted 
programs; and recipients and subrecipients are providing accurate and 
reliable information concerning grant funds. States and school food 
authorities shall use their own procedures to arrange for and prescribe 
the scope of independent audits, provided that such audits comply with 
the requirements set forth in part 3015 of this title.
    (c) Each State agency shall provide FNS with full opportunity to 
conduct management evaluations (including visits to schools and child-
care institutions) of any operations of the State agency under the 
Program and shall provide OA with full opportunity to conduct audits 
(including visits to schools and child-care institutions) of all 
operations of the State agency under the Program. Each State agency 
shall make available its records, including records of the receipt and 
expenditure of funds under the Program, upon a reasonable request by FNS 
or OA. OA shall also have the right to make audits of the records and 
operations of any school or child-care institution.
    (d) In conducting management evaluations, reviews or audits for any 
fiscal year, the State agency, FNS, or OIG may disregard any overpayment 
if the total overpayment does not exceed $600 or, in the case of State 
agency claims in State administered Programs, it does not exceed the 
amount established under State law, regulations or procedure as a 
minimum amount for which claim will be made for State losses but not to 
exceed $600. However, no overpayment is to be disregarded where

[[Page 79]]

there is substantial evidence of violations of criminal law or civil 
fraud statutes.

(Secs. 805 and 819, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1773); 
sec. 812, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1759a))

[Amdt. 14, 41 FR 31175, July 27, 1976, as amended at 43 FR 58925, Dec. 
22, 1978; Amdt. 23, 47 FR 14135, Apr. 2, 1982; Amdt. 25, 47 FR 18564, 
Apr. 30, 1982; Amdt. 36, 54 FR 2990, Jan. 23, 1989; 57 FR 38586, Aug. 
26, 1992; 59 FR 1894, Jan. 13, 1994; 64 FR 50742, Sept. 20, 1999]



Sec.  215.13a  Determining eligibility for free milk in child-care 
institutions.

    (a) General. Child care institutions which operate pricing programs 
may elect to make free milk available, as set forth in Sec.  
215.7(d)(2), to children who meet the approved eligibility criteria. 
Such child care institutions shall determine the children who are 
eligible for free milk and assure that there is no physical segregation 
of, or other discrimination against, or overt identification of, 
children unable to pay the full price for milk.
    (b) Action by State agencies and FNSROs. Each State agency, or FNSRO 
where applicable, upon application for the program by a child care 
institution operating a pricing program, and annually thereafter, shall 
require the institution to state whether or not it wishes to serve free 
milk to eligible children at times that milk is provided under the 
Program. It shall annually require each child care institution electing 
to provide free milk to submit a free milk policy statement and shall 
provide such institutions with a prototype free milk policy statement 
and a copy of the State's family-size income standards for determining 
eligibility for free meals and milk under the National School Lunch and 
School Breakfast Programs to assist the institutions in meeting its 
responsibilities.
    (c) Action by institutions. Each child care institution which 
operates a pricing program shall inform the State agency, or FNSRO where 
applicable, at the time it applies for Program participation and at 
least annually thereafter, whether or not it wishes to provide free 
milk. Institutions electing to provide free milk shall annually submit a 
written free milk policy statement for determining free milk eligibility 
of children under their jurisdiction, which shall contain the items 
specified in paragraph (d) of this section. Such institutions shall not 
be approved for Program participation of their agreements renewed unless 
the free milk policy has been reviewed and approved. Pending approval or 
a revision of a policy statement, the existing policy shall remain in 
effect.
    (d) Policy statement. A free milk policy statement as required in 
paragraph (c) of this section shall contain the following:
    (1) The specific criteria to be used in determining eligibility for 
free milk. These criteria shall give consideration to economic need as 
reflected by family size and income. The criteria used by the child-care 
institution may not result in the eligibility of children from families 
whose incomes exceed the State's family-size income standards for 
determining eligibility for free meals under the National School Lunch 
and School Breakfast Programs.
    (2) The method by which the child-care institution will collect 
information from families in order to determine a child's eligibility 
for free milk.
    (3) The method by which the child-care institution will collect milk 
payments so as to prevent the overt identification of children receiving 
free milk.
    (4) A hearing procedure substantially like that outlined in part 245 
of this chapter.
    (5) An assurance that there will be no discrimination against free 
milk recipients and no discrimination against any child on the basis of 
race, color, or national origin.
    (e) Public announcement of eligibility criteria. Each child care 
institution which elects to make free milk available under the Program 
shall annually make a public announcement of the availability of free 
milk to children who meet the approved eligibility criteria to the 
information media serving the area from which its attendance is drawn. 
The public announcement must also state that milk is available to all 
children in attendance without regard to race, color, or national 
origin.
    (f) Is a Privacy Act notice required on the free milk application? 
Each free milk application must include substantially the following 
statement: ``Unless you

[[Page 80]]

include your child's case number for the Food Stamp Program, the Food 
Distribution Program on Indian Reservations (or other identifier for the 
Food Distribution Program on Indian Reservations) or the Temporary 
Assistance for Needy Families Program, you must include the social 
security number of the adult household member signing the application or 
indicate that the household member does not have a social security 
number. This is required by section 9 of the National School Lunch Act. 
The social security number is not mandatory, but the application cannot 
be approved if a social security number is not given or an indication is 
not made that the signer does not have a social security number. The 
social security number will be used in the administration and 
enforcement of the program.''
    (g) Disclosure of program eligibility information to State Medicaid 
(Medicaid) and the State Children's Health Insurance Program (SCHIP) 
Program eligibility information about children eligible for free milk 
may be disclosed to Medicaid and SCHIP as described in this section.
    (1) Who decides whether to disclose program eligibility information 
to Medicaid and/or SCHIP? The State agency may elect to allow child care 
institutions to disclose children's free milk eligibility information to 
Medicaid and SCHIP. Child care institutions may then elect to do so. 
Children's program eligibility information may only be disclosed to 
Medicaid or SCHIP when both the State agency and the child care 
institution so elect, the parent/guardian does not decline to have their 
eligibility information disclosed as described in paragraph (g)(5), and 
the requirements in this paragraph (g) are met.
    (2) What information may we disclose for use by Medicaid and SCHIP? 
The State agency or child care institution, as appropriate, may disclose 
children's names, eligibility status (whether they are eligible for free 
milk), and any other eligibility information obtained through the free 
milk application or obtained through direct certification to persons 
directly connected with the administration of Medicaid or SCHIP.
    (3) Who are persons ``directly connected'' with the administration 
of Medicaid and SCHIP? State employees and persons authorized under 
Federal and State Medicaid and SCHIP requirements to carry out initial 
processing of Medicaid or SCHIP applications or to make eligibility 
determinations are persons directly connected with the administration of 
Medicaid and SCHIP for purposes of disclosure of children's free milk 
eligibility information.
    (4) What are the restrictions on how Medicaid and SCHIP use 
children's free milk eligibility information? Medicaid and SCHIP 
agencies and health insurance program operators receiving children's 
free milk eligibility information may only use the information to seek 
to enroll children in Medicaid or SCHIP. The Medicaid and SCHIP 
enrollment process may include targeting and identifying children from 
low-income households who are potentially eligible for Medicaid or SCHIP 
for the purpose of seeking to enroll them in Medicaid or SCHIP.
    (5) Must we notify households of potential disclosure to Medicaid or 
SCHIP? The State agency or child care institution, as appropriate, must 
notify parents/guardians that their children's free milk eligibility 
information will be disclosed to Medicaid and/or SCHIP unless the 
parent/guardian elects not to have their information disclosed. 
Additionally, the State agency or sponsor, as appropriate, must give 
parents/guardians an opportunity to elect not to have their information 
disclosed to Medicaid or SCHIP. Only the parent or guardian who is a 
member of the household or family for purposes of the free and reduced 
price meal or free milk application may decline the disclosure of 
eligibility information. The notification must inform parents/guardians 
that they are not required to consent to the disclosure, that the 
information, if disclosed, will be used to identify children eligible 
for and to seek to enroll children in a health insurance program, and 
that their decision will not affect their children's eligibility for 
free milk. The notification may be included in the letter/notice to 
parents/guardians that accompanies the free milk application, on the 
application itself or in a separate notice

[[Page 81]]

provided to parents/guardians. The notice must give parents/guardians 
adequate time to respond. For children determined eligible through 
direct certification, the notice of potential disclosure may be included 
in the document informing parents/guardians of their children's 
eligibility for free milk through direct certification.
    (6) May social security numbers be disclosed? The State agency or 
child care institution, as appropriate, may disclose social security 
numbers to any programs or persons authorized to receive all program 
eligibility information under this paragraph (g), provided parents/
guardians have not declined to have their information disclosed. However 
State agencies and child care institutions that plan to disclose social 
security numbers must give notice of the planned use of the social 
security numbers. This notice must be in accordance with section 7(b) of 
the Privacy Act of 1974 (5 U.S.C. 552a note). The application must 
include substantially the following language for disclosures of social 
security numbers to Medicaid or SCHIP: ``The social security number may 
also be disclosed to Medicaid and the State Children's Health Insurance 
Program for the purpose of identifying and seeking to enroll eligible 
children in one of these health insurance programs.'' This language is 
in addition to the notice required in paragraph (f) of this section. 
State agencies and child care institutions are responsible for drafting 
the appropriate notice for disclosures of social security numbers.
    (7) Are agreements required before disclosing program eligibility 
information? The State agency or child care institution, as appropriate, 
must have a written agreement with the State or local agency or agencies 
administering Medicaid or SCHIP prior to disclosing children's free milk 
eligibility information. At a minimum, the agreement must:
    (i) Identify the health insurance program or health agency receiving 
children's eligibility information;
    (ii) Describe the information that will be disclosed;
    (iii) Require that the Medicaid or SCHIP agency use the information 
obtained and specify that the information must only be used to seek to 
enroll children in Medicaid or SCHIP;
    (iv) Describe how the information will be protected from 
unauthorized uses and disclosures;
    (v) Describe the penalties for unauthorized disclosure; and
    (vi) Be signed by both the Medicaid or SCHIP program or agency and 
the State agency or child care institution, as appropriate.
    (8) What are the penalties for unauthorized disclosure or misuse of 
information? In accordance with section 9(b)(2)(C)(v) of the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1758(b)(2)(C)(v)), any 
individual who publishes, divulges, discloses or makes known in any 
manner, or to any extent not authorized by statute or this section, any 
information obtained under this paragraph (g) will be fined not more 
than $1,000 or imprisoned for up to 1 year, or both.
    (9) What are the State agency's responsibilities regarding 
disclosures? State agencies that elect to allow disclosure of children's 
free milk eligibility information to Medicaid or SCHIP, as provided in 
this paragraph (g), must ensure that any child care institution acting 
in accordance with that option:
    (i) Has a written agreement with the State or local agency or 
agencies administering health insurance programs for children under 
titles XIX and XXI of the Social Security Act (42 U.S.C. 1396 et seq. 
and 1397aa et seq.) that requires the health agencies to use children's 
free milk eligibility information to seek to enroll children in those 
health insurance programs; and
    (ii) Notifies each household of the information that will be 
disclosed, that the information disclosed will be used only to seek to 
enroll children in Medicaid or SCHIP and provides each parent/guardian 
with an opportunity to elect not to have the information disclosed.

(Sec. 11, Pub. L. 95-166, 91 Stat. 1337 (42 U.S.C. 1772, 1753, 1766); 
sec. 5, Pub. L. 95-627, 92 Stat. 3619 (42 U.S.C. 1772))

[Amdt. 14, 41 FR 31176, July 27, 1976, as amended by Amdt. 16, 43 FR 
1060, Jan. 6, 1978; 44 FR 10700, Feb. 23, 1979; Amdt. 17, 44 FR 33047, 
June 8, 1979; 66 FR 2201, Jan. 11, 2001]

[[Page 82]]



Sec.  215.14  Nondiscrimination.

    The Department's regulations on nondiscrimination in federally 
assisted programs are set forth in part 15 of this title. The 
Department's agreements with State agencies, the State agencies' 
agreements with School Food Authorities and child-care institutions and 
the FNSRO agreements with School Food Authorities administering 
nonprofit private schools and with child-care institutions shall contain 
the assurances required by such regulations. When different types of 
milk are served to children, (a) a uniform price for each type of milk 
served shall be charged to all non-needy children in the school or 
child-care institution who purchase milk, and (b) needy children shall 
be given the opportunity to select any type of milk offered.

(44 U.S.C. 3506)

[Amdt. 13, 39 FR 28418, Aug. 7, 1974, as amended at 47 FR 745, Jan. 7, 
1982]



Sec.  215.14a  Procurement standards.

    (a) Requirements. State agencies and School Food Authorities shall 
comply with the requirements of the Office of Management and Budget 
(OMB) Circular A-102 and the Department's Uniform Federal Assistance 
Regulations, 7 CFR part 3015, subpart S (46 FR 55658) concerning the 
procurement of supplies, food, equipment and other services with Program 
funds. These requirements are adopted by FNS to ensure that such 
materials and services are obtained for the Program efficiently and 
economically and in compliance with applicable laws and executive 
orders.
    (b) Contractual responsibilities. The standards contained in OMB 
Circular A-102 and 7 CFR part 3015, do not relieve the State agency or 
School Food Authority of any contractual responsibilities under its 
contract. The State agency or School Food Authority is the responsible 
authority, without recourse to FNS, regarding the settlement and 
satisfaction of all contractual and administrative issues arising out of 
procurements entered into in connection with the Program. This includes 
but is not limited to: Source evaluation, protests, disputes, claims, or 
other matters of a contractual nature. Matters concerning violation of 
law are to be referred to the local, State or Federal authority that has 
proper jurisdiction.
    (c) Procurement procedure. The State agency or School Food Authority 
may use their own procurement procedures which reflect applicable State 
and local laws and regulations, provided that procurements made with 
Program funds adhere to the standards set forth in OMB Circular A-102 
and 7 CFR part 3015.

(Pub. L. 79-396, 60 Stat. 231 (42 U.S.C. 1751); Pub. L. 89-642, 80 Stat. 
885-890 (42 U.S.C. 1773); Pub. L. 91-248, 84 Stat. 207 (42 U.S.C. 1759))

[Amdt. 27, 48 FR 19355, Apr. 29, 1983]



Sec.  215.15  Suspension, termination and grant closeout procedures.

    Whenever it is determined that a State agency has materially failed 
to comply with the provisions of this part, or with FNS guidelines and 
instructions, FNS may suspend or terminate the Program in whole, or in 
part, or take any other action as may be available and appropriate. A 
State agency may also terminate the Program by mutual agreement with 
FNS. FNS and the State agency shall comply with the provisions of the 
Department's Uniform Federal Assistance Regulations, 7 CFR part 3015, 
subpart N concerning grant suspension, termination and closeout 
procedures. Furthermore, the State agency, or FNSRO where applicable, 
shall apply these provisions to suspension or termination of the Program 
in School Food Authorities.

[Amdt. 30, 49 FR 18987, May 4, 1984]



Sec.  215.16  Program information.

    School Food Authorities and child-care institutions desiring 
information concerning the Program should write to their State 
educational agency, or the appropriate Food and Nutrition Service 
Regional Office of FNS as indicated below:
    (a) In the States of Connecticut, Maine, Massachusetts, New 
Hampshire, New York, Rhode Island, and Vermont: Northeast Regional 
Office, FNS, U.S.

[[Page 83]]

Department of Agriculture, 10 Causeway Street, Room 501, Boston, 
Massachusetts 02222-1065.
    (b) In the States of Delaware, District of Columbia, Maryland, New 
Jersey, Pennsylvania, Puerto Rico, Virginia, Virgin Islands, and West 
Virginia: Mid-Atlantic Regional Office, FNS, U.S. Department of 
Agriculture, 300 Corporate Boulevard, Robbinsville, New Jersey 08691-
1598.
    (c) In the States of Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee: Southeast 
Regional Office, FNS, U.S. Department of Agriculture, 61 Forsyth Street 
SW., Room 8T36, Atlanta, Georgia 30303.
    (d) In the States of Illinois, Indiana, Michigan, Minnesota, Ohio, 
and Wisconsin: Midwest Regional Office, FNS, U.S. Department of 
Agriculture, 77 West Jackson Boulevard, 20th Floor, Chicago, Illinois 
60604-3507.
    (e) In the States of Arkansas, Louisiana, New Mexico, Oklahoma, 
Texas: Southwest Regional Office, Food and Nutrition Service, U.S. 
Department of Agriculture, 1100 Commerce Street, Room 5-C-30, Dallas, 
Texas 75242.
    (f) In the States of Alaska, American Samoa, Arizona, California, 
Guam, Hawaii, Idaho, Nevada, Oregon, The Commonwealth of the Northern 
Mariana Islands, and Washington: Western Regional Office, FNS, U.S. 
Department of Agriculture, 550 Kearny Street, Room 400, San Francisco, 
California 94108.
    (g) In the States of Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, North Dakota, South Dakota, Utah, and Wyoming: Mountain Plains 
Regional Office, FNS, U.S. Department of Agriculture, 1244 Speer 
Boulevard, Suite 903, Denver, Colorado 80204.

(Sec. 11, Pub. L. 95-166, 91 Stat. 1337 (42 U.S.C. 1772, 1753, 1766); 
sec. 10(a), Pub. L. 95-627, 92 Stat. 3623 (42 U.S.C. 1760); sec. 
10(d)(3), Pub. L. 95-627, 92 Stat. 3624 (42 U.S.C. 1757); sec. 14, Pub. 
L. 95-627, 92 Stat. 3625-3626); secs. 804, 816, 817 and 819, Pub. L. 97-
35, 95 Stat. 521-535 (42 U.S.C. 1753, 1756, 1759, 1771, 1773 and 1785)

[Amdt. 14, 41 FR 31178, July 27, 1976, as amended by Amdt. 18, 44 FR 
37898, June 29, 1979; Amdt. 27, 48 FR 195, Jan. 4, 1983; Amdt. 36, 54 FR 
2990, Jan. 23, 1989; 65 FR 12435, Mar. 9, 2000]



Sec.  215.17  Information collection/recordkeeping--OMB assigned control numbers.

------------------------------------------------------------------------
                                                             Current OMB
       7 CFR section where requirements are described          control
                                                                number
------------------------------------------------------------------------
215.3(d)...................................................    0584-0327
215.5(a)...................................................    0584-0005
                                                               0584-0002
215.5(c)...................................................    0584-0341
215.7 (a), (c).............................................    0584-0005
215.7 (b)(2)...............................................    0584-0026
215.7(d)...................................................    0584-0329
                                                               0584-0005
215.10 (a), (b), (d).......................................    0584-0005
                                                               0584-0284
215.11 (b), (c)(1), (e)....................................    0584-0005
215.11(c)(2)...............................................    0584-0002
                                                               0584-0341
215.12 (a), (d), (e), (g)..................................    0584-0005
215.13(a)..................................................    0584-0005
215.13a(a)-(e).............................................    0584-0026
215.14.....................................................    0584-0005
215.14a(a)-(c).............................................    0584-0005
215.15.....................................................    0584-0005
------------------------------------------------------------------------


[50 FR 53258, Dec. 31, 1985]



PART 220_SCHOOL BREAKFAST PROGRAM--Table of Contents




Sec.
220.1 General purpose and scope.
220.2 Definitions.
220.3 Administration.
220.4 Payment of funds to States and FNSROs.
220.5 Method of payment to States.
220.6 Use of funds.
220.7 Requirements for participation.
220.8 What are the nutrition standards and menu planning approaches for 
          breakfasts?
220.9 Reimbursement payments.
220.10 Effective date for reimbursement.
220.11 Reimbursement procedures.
220.12 Competitive food services.
220.13 Special responsibilities of State agencies.
220.14 Claims against school food authorities.
220.15 Management evaluations and audits.
220.16 Procurement standards.
220.17 Prohibitions.
220.18 Suspension, termination and grant closeout procedures.
220.19 Free and reduced price breakfasts.
220.20 Program information.
220.21 Information collection/recordkeeping--OMB assigned control 
          numbers.

Appendix A to Part 220--Alternate Foods for Meals
Appendix B to Part 220--Categories of Foods of Minimal Nutritional Value
Appendix C to Part 220--Child Nutrition (CN) Labeling Program


[[Page 84]]


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



Sec.  220.1  General purpose and scope.

    This part announces the policies and prescribes the regulations 
necessary to carry out the provisions of section 4 of the Child 
Nutrition Act of 1966, as amended, which authorizes payments to the 
States to assist them to initiate, maintain, or expand nonprofit 
breakfast programs in schools.

[Amdt. 25, 41 FR 34758, Aug. 17, 1976]



Sec.  220.2  Definitions.

    For the purpose of this part the term:
    (a) Act means the Child Nutrition Act of 1966, as amended.
    (b) Breakfast means a meal which meets the nutritional requirements 
set out in Sec.  220.8, and which is served to a child in the morning 
hours. The meal shall be served at or close to the beginning of the 
child's day at school.
    (c) Child means: (1) A student of high school grade or under as 
determined by the State educational agency, who is enrolled in an 
educational unit of high school grade or under as described in 
paragraphs (1) and (2) of the definition of ``School'', including 
students who are mentally or physically disabled as defined by the State 
and who are participating in a school program established for the 
mentally or physically disabled; or (2) a person under 21 chronological 
years of age who is enrolled in an institution or center as described in 
paragraphs (3) and (4) of the definition of ``School''.
    (c-1) Competitive foods means any foods sold in competition with the 
School Breakfast Program to children in food service areas during the 
breakfast period.
    (d) CND means the Child Nutrition Division of the Food and Nutrition 
Service of the Department.
    (e) Department means the U.S. Department of Agriculture.
    (f) Distributing agency means a State, Federal, or private agency 
which enters into an agreement with the Department for the distribution 
of commodities pursuant to part 250 of this chapter.
    (g) Fiscal year means the period of 15 calendar months beginning 
July 1, 1976, and ending September 30, 1977; and the period of 12 
calendar months beginning October 1, 1977, and each October 1 of any 
calendar year thereafter and ending September 30 of the following 
calendar year.
    (h) FNS means the Food and Nutrition Service of the Department.
    (i) FNSRO means the appropriate Food and Nutrition Service Regional 
Office of the Food and Nutrition Service of the Department.
    (i-1) Foods of minimal nutritional value means: (1) In the case of 
artificially sweetened foods, a food which provides less than five 
percent of the Reference Daily Intake (RDI) for each of eight specified 
nutrients per serving; (2) in the case of all other foods, a food that 
provides less than five percent of the RDI for each of eight specified 
nutrients per 100 calories and less than five percent of the RDI for 
each of eight specified nutrients per serving. The eight nutrients to be 
assessed for this purpose are: Protein, vitamin A, vitamin C, niacin, 
riboflavin, thiamin, calcium and iron. Categories of foods of minimal 
nutritional value are listed in appendix B of this part.
    (j) Free breakfast means a breakfast for which neither the child nor 
any member of his family pays or is required to work in the school or in 
the school's food service.
    (k) Infant cereal means any iron fortified dry cereal especially 
formulated and generally recognized as cereal for infants that is 
routinely mixed with breast milk or iron-fortified infant formula prior 
to consumption.
    (l) Infant formula means any iron-fortified infant formula intended 
for dietary use solely as a food for normal healthy infants excluding 
those formulas specifically formulated for infants with inborn errors of 
metabolism or digestive or absorptive problems. Infant formula, as 
served, must be in liquid state at recommended dilution.
    (m) Menu item means, under Nutrient Standard Menu Planning or 
Assisted Nutrient Standard Menu Planning, any single food or combination 
of foods. All menu items or foods offered as part of the reimbursable 
meal may be considered as contributing towards meeting the nutrition 
standards provided in Sec.  220.8, except for those foods that are

[[Page 85]]

considered as foods of minimal nutritional value as provided for in 
Sec.  220.2(i-1) which are not offered as part of a menu item in a 
reimbursable meal. For the purposes of a reimbursable breakfast, a 
minimum of three menu items must be offered, one of which shall be fluid 
milk served as a beverage or on cereal or both; under offer versus 
serve, a student may decline only one menu item.
    (n) Milk means pasteurized fluid types of unflavored or flavored 
whole milk, lowfat milk, skim milk, or cultured buttermilk which meet 
State and local standards for such milk except that, in the meal pattern 
for infants (0 to 1 year of age), milk means breast milk or iron-
fortified infant formula. In Alaska, Hawaii, American Samoa, Guam, 
Puerto Rico, the Trust Territory of the Pacific Islands, and the Virgin 
Islands, if a sufficient supply of such types of fluid milk cannot be 
obtained, ``milk'' shall include reconstituted or recombined milk. All 
milk should contain vitamins A and D at levels specified by the Food and 
Drug Administration and consistent with State and local standards for 
such milk.
    (o) National School Lunch Program means the Program authorized by 
the National School Lunch Act.
    (o-1) Net cash resources means all monies as determined in 
accordance with the State agency's established accounting system, that 
are available to or have accrued to a School Food Authority's nonprofit 
school food service at any given time, less cash payable. Such monies 
may include but are not limited to, cash on hand, cash receivable, 
earnings or investments, cash on deposit and the value of stocks, bonds 
or other negotiable securities.
    (o-2) Nonprofit school food service means all food service 
operations conducted by the School Food Authority principally for the 
benefit of school children, all of the revenue from which is used solely 
for the operation or improvement of such food service.
    (p) Nonprofit when applied to schools or institutions eligible for 
the Program means exempt from income tax under section 501(c)(3) of the 
Internal Revenue Code of 1954, as amended; or in the Commonwealth of 
Puerto Rico, certified by the Governor.
    (p-1) Nutrient Standard Menu Planning/Assisted Nutrient Standard 
Menu Planning means ways to develop breakfast menus based on the 
analysis for nutrients in the menu items and foods offered over a school 
week to determine if specific levels for a set of key nutrients and 
calories were met in accordance with Sec.  220.8(e)(5). However, for the 
purposes of Assisted Nutrient Standard Menu Planning, breakfast menu 
planning and analysis are completed by other entities and must 
incorporate the production quantities needed to accommodate the specific 
service requirements of a particular school or school food authority in 
accordance with Sec.  220.8(f).
    (q) OA means the Office of Audit of the Department.
    (q-1) OI means the Office of Investigation of the Department.
    (q-2) OIG means the Office of the Inspector General of the 
Department.
    (r) Program means the School Breakfast Program.
    (s) Reduced price breakfast means a breakfast which meets all of the 
following criteria: (1) The price shall be less than the full price of 
the breakfast, (2) the price shall be 30 cents or lower, and (3) neither 
the child nor any member of his family shall be required to supply an 
equivalent value in work for the school or the school's food service.
    (t) Reimbursement means financial assistance paid or payable to 
participating schools for breakfasts meeting the requirements of Sec.  
220.8 served to eligible children at rates assigned by the State agency, 
or FNSRO where applicable. The term ``reimbursement'' also includes 
financial assistance made available through advances to School Food 
Authorities.
    (t-1) Revenue when applied to nonprofit school food service means 
all monies received by or accruing to the nonprofit school food service 
in accordance with the State agency's established accounting system 
including, but not limited to, children's payments, earnings on 
investments, other local revenues, State revenues, and Federal cash 
reimbursements.

[[Page 86]]

    (u) School means: (1) An educational unit of high school grade or 
under, recognized as part of the educational system in the State and 
operating under public or nonprofit private ownership in a single 
building or complex of buildings; (2) any public or nonprofit private 
classes of preprimary grade when they are conducted in the 
aforementioned schools; or (3) any public or nonprofit private 
residential child care institution, or distinct part of such 
institution, which operates principally for the care of children, and, 
if private, is licensed to provide residential child care services under 
the appropriate licensing code by the State or a subordinate level of 
government, except for residential summer camps which participate in the 
Summer Food Service Program for Children, Job Corps centers funded by 
the Department of Labor, and private foster homes. The term 
``residential child care institutions'' includes, but is not limited to: 
Homes for the mentally, emotionally or physically impaired, and 
unmarried mothers and their infants; group homes; halfway houses; 
orphanages; temporary shelters for abused children and for runaway 
children; long-term care facilities for chronically ill children; and 
juvenile detention centers. A long-term care facility is a hospital, 
skilled nursing facility, intermediate care facility, or distinct part 
thereof, which is entended for the care of children confined for 30 days 
or more.
    (v) School Breakfast Program means the program authorized by section 
4 of the Child Nutrition Act of 1966.
    (v-1) School in severe need means a school determined to be eligible 
for rates of reimbursement in excess of the prescribed National Average 
Payment Factors, based upon the criteria set forth in Sec.  220.9(e).
    (w) School Food Authority means the governing body which is 
responsible for the administration of one or more schools and which has 
legal authority to operate a breakfast program therein.
    (w-1) School week means the period of time used to determine 
compliance with the nutrition standards and the appropriate calorie and 
nutrient levels in Sec.  220.8. Further, if applicable, school week is 
the basis for conducting Nutrient Standard Menu Planning or Assisted 
Nutrient Standard Menu Planning for breakfasts as provided in Sec.  
220.8(e) and Sec.  220.8(f). The period shall be a normal school week of 
five consecutive days; however, to accommodate shortened weeks resulting 
from holidays and other scheduling needs, the period shall be a minimum 
of three consecutive days and a maximum of seven consecutive days. Weeks 
in which school breakfasts are offered less than three times shall be 
combined with either the previous or the coming week.
    (x) Secretary means the Secretary of Agriculture.
    (x-1) 7 CFR part 3015 means the Uniform Federal Assistance 
Regulations published by the Department to implement OMB Circulars A-21, 
A-87, A-102, A-110, and A-122; and Executive Order 12372. (For 
availability of OMB Circulars referenced in this definition, see 5 CFR 
1310.3.)
    (x-2) 7 CFR part 3017 means the Department's regulation to implement 
Executive Order 12549, covering governmentwide rules on suspension and 
debarment as well as The Drug Free Workplace Act of 1988.
    (x-3) 7 CFR part 3018 means the Department's Common Rule regarding 
Governmentwide New Restrictions on Lobbying. Part 3018 implements the 
requirements established by section 319 of the 1990 Appropriations Act 
for the Department of Interior and Related Agencies (Pub. L. 101-121).
    (x-4) 7 CFR part 3052 means the Department's regulations 
implementing A-133, ``Audits of State, Local Governments, and Non-Profit 
Organizations.'' (For availability of OMB Circulars referenced in this 
definition, see 5 CFR 1310.3.)
    (y) State means any of the 50 States, District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, and, as 
applicable, American Samoa and the Commonwealth of the Northern 
Marianas.
    (z) State agency means: (1) The State educational agency or (2) such 
other agency of the State as has been designated by the Governor or 
other appropriate executive or legislative authority of the State and 
approved by

[[Page 87]]

the Department to administer the Program in schools as defined in Sec.  
220.2(u)(3) of this part.
    (aa) State educational agency means, as the State legislature may 
determine: (1) The chief State school officer (such as the State 
Superintendent of Public Instruction, Commissioner of Education, or 
similar officer), or (2) a board of education controlling the State 
department of education.
    (bb) Yogurt means commercially prepared coagulated milk products 
obtained by the fermentation of specific bacteria, that meet milk fat or 
milk solid requirements and to which flavoring foods or ingredients may 
be added. These products are covered by the Food and Drug 
Administration's Definition and Standard of Identity for yogurt, lowfat 
yogurt, and nonfat yogurt, 21 CFR 131.200, 21 CFR 131.203, and 21 CFR 
131.206, respectively.

(Sec. 6, Pub. L. 95-627, 92 Stat. 3620 (42 U.S.C. 1760); sec. 205, Pub. 
L. 96-499, The Omnibus Reconciliation Act of 1980, 94 Stat. 2599; secs. 
801, 803, 812; Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1753, 1759(a), 
1773, 1758; secs. 807 and 808, Pub. L. 97-35, 95 Stat. 521-535, 42 
U.S.C. 1772, 1784, 1760; sec. 819, Pub. L. 97-35; 95 Stat. 533 (42 
U.S.C. 1759a, 1773 and 1757))

[Amdt. 25, 41 FR 34758, Aug. 17, 1976]

    Editorial Note: For Federal Register citations affecting Sec.  
220.2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  220.3  Administration.

    (a) Within the Department, FNS shall act on behalf of the Department 
in the administration of the Program covered by this part. Within FNS, 
CND shall be responsible for administration of the Program.
    (b) Within the States, responsibility for the administration of the 
Program in schools as defined in Sec.  220.2(u)(1), (u)(2) and (u)(4) 
shall be in the State educational agency, except that FNSRO shall 
administer the Program with respect to nonprofit private schools as 
defined in Sec.  220.2(u)(1) of any State wherein the State educational 
agency is not permitted by law to disburse Federal funds paid to it 
under the Program; Provided, however, That FNSRO shall also administer 
the Program in all other nonprofit private schools which have been under 
continuous FNS administration since October 1, 1980, unless the 
administration of such private schools is assumed by a State agency.
    (c) Within the States, responsibility for the administration of the 
Program in schools as defined in Sec.  220.2(u)(3) shall be in the State 
educational agency, or if the State educational agency cannot administer 
the Program in such schools, such other agency of the State as has been 
designated by the Governor or other appropriate executive or legislative 
authority of the State and approved by the Department to administer the 
Program in such schools: Provided, however, That FNSRO shall administer 
the Program in such schools if the State agency is not permitted by law 
to disburse Federal funds paid to it under the Program to such schools; 
and Provided, further, That FNSRO shall also administer the Program in 
all other such schools which have been under continuous FNS 
administration since October 1, 1980, unless the administration of such 
schools is assumed by a State agency.
    (d) References in this part to ``FNSRO where applicable'' are to 
FNSRO as the agency administering the Program.
    (e) Each State agency desiring to take part in any of the programs 
shall enter into a written agreement with the Department for the 
administration of the Program in the State in accordance with the 
provisions of this part. Such agreement shall cover the operation of the 
Program during the period specified therein and may be extended at the 
option of the Department.

(Sec. 804, 816 and 817, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1753, 
1756, 1759, 1771 and 1785); 44 U.S.C. 3506)

[Amdt. 25, 41 FR 34759, Aug. 17, 1976, as amended at 47 FR 745, Jan. 7, 
1982; Amdt. 42, 47 FR 14133, Apr. 2, 1982; Amdt. 56, 54 FR 2990, Jan. 
23, 1989]



Sec.  220.4  Payment of funds to States and FNSROs.

    (a) To the extent funds are available, the Secretary shall make 
breakfast assistance payments to each State agency for breakfasts served 
to children under the Program. Subject to

[[Page 88]]

Sec.  220.13(b)(2), the total of these payments for each State for any 
fiscal year shall be limited to the total amount of reimbursement 
payable to eligible schools within the State under this part for the 
fiscal year.
    (b) The Secretary shall prescribe by July 1 of each fiscal year 
annual adjustments to the nearest one-fourth cent in the national 
average per breakfast factors for all breakfasts and for free and 
reduced price breakfasts, that shall reflect changes in the cost of 
operating a breakfast program.
    (c) In addition to the funds made available under paragraph (a) of 
this section, funds shall be made available to the State agencies, and 
FNSROs where applicable, in such amounts as are needed to finance 
reimbursement rates assigned in accordance with the provisions of Sec.  
220.9(c).

(Secs. 801, 803, 812; Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1753, 
1759(a), 1773, 1758); Pub. L. 97-370, 96 Stat. 1806)

[38 FR 35554, Dec. 28, 1973, as amended at 40 FR 30923, July 24, 1975; 
46 FR 51367, Oct. 20, 1981; 48 FR 20896, May 10, 1983; Amdt. 49, 49 FR 
18987, May 4, 1984]



Sec.  220.5  Method of payment to States.

    Funds to be paid to any State for the School Breakfast Program shall 
be made available by means of Letters of Credit issued by FNS in favor 
of the State agency. The State agency shall:
    (a) Obtain funds needed for reimbursement to School Food Authorities 
through presentation by designated State officials of a payment Voucher 
on Letter of Credit in accordance with procedures prescribed by FNS and 
approved by the U.S. Treasury Department; (b) submit requests for funds 
only at such times and in such amounts, as will permit prompt payment of 
claims or authorized advances; and (c) use the funds received from such 
requests without delay for the purpose for which drawn.

[Amdt. 25, 41 FR 34759, Aug. 17, 1976]



Sec.  220.6  Use of funds.

    (a) Federal funds made available under the School Breakfast Program 
shall be used by State agencies, or FNSROs where applicable, to 
reimburse or make advance payments to School Food Authorities in 
connection with breakfasts served in accordance with the provisions of 
this part. However, with the approval of FNS, any State agency, or FNSRO 
where applicable, may reserve for use in carrying out special 
developmental projects an amount up to 1 per centum of the funds earned 
in any fiscal year under the School Breakfast Program. Advance payments 
to School Food Authorities may be made at such times and in such amounts 
as are necessary to meet current obligations.
    (b) Whoever embezzles, willfully misapplies, steals, or obtains by 
fraud any funds, assets, or property provided under this part, whether 
received directly or indirectly from the Department, shall--
    (1) If such funds, assets, or property are of a value of $100 or 
more, be fined not more than $25,000 or imprisoned not more than 5 years 
or both; or
    (2) If such funds, assets, or property are of a value of less than 
$100, be fined not more than $1,000 or imprisoned not more than one year 
or both.
    (c) Whoever receives, conceals, or retains to his use or gain funds, 
assets, or property provided under this part, whether received directly 
or indirectly from the Department, knowing such funds, assets, or 
property have been embezzled, willfully misapplied, stolen, or obtained 
by fraud, shall be subject to the same penalties provided in paragraph 
(b) of this section.

(Sec. 10(a), Pub. L. 95-627, 92 Stat. 3623 (42 U.S.C. 1760); sec. 
10(d)(3), Pub. L. 95-627, 92 Stat. 3624 (42 U.S.C. 1757); sec. 14, Pub. 
L. 95-627, 92 Stat. 3625-3626)

[40 FR 30923, July 24, 1975, as amended by Amdt. 25, 41 FR 34759, Aug. 
17, 1976; Amdt. 28, 44 FR 37899, June 29, 1979; 64 FR 50742, Sept. 20, 
1999]



Sec.  220.7  Requirements for participation.

    (a) The School Food Authority shall make written application to the 
State agency, or FNSRO where applicable, for any school in which it 
desires to operate the School Breakfast Program, if such school did not 
participate in the Program in the prior fiscal year. The School Food 
Authority shall also submit for approval, either with the application or 
at the request of the State agency, or FNSRO where applicable, a

[[Page 89]]

free and reduced price policy statement in accordance with part 245 of 
this chapter. A School Food Authority which simultaneously makes 
application for the National School Lunch Program and the School 
Breakfast Program shall submit one free and reduced price policy 
statement which shall provide that the terms, conditions, and 
eligibility criteria set forth in such policy statement shall apply to 
the service of free and reduced price lunches and to the service of free 
and reduced price breakfasts. If, at the time application is made for 
the School Breakfast Program, a School Food Authority has an approved 
free and reduced price policy statement on file with the State agency, 
or FNSRO where applicable, for the National School Lunch Program, it 
need only confirm in writing that such approved policy statement will 
also apply to the operation of its School Breakfast Program. 
Applications for the School Breakfast Program shall not be approved in 
the absence of an approved free and reduced price policy statement.
    (a-1) A school which also either participates in the National School 
Lunch Program or only receives donations of commodities for its 
nonprofit lunch program under the provisions of part 250 of this chapter 
(commodity only school) shall apply the same set of eligibility criteria 
so that children who are eligible for free lunches shall also be 
eligible for free breakfasts and children who are eligible for reduced 
price lunches shall also be eligible for reduced price breakfasts.
    (a-2) Schools shall, at least once during each school year, obtain a 
food safety inspection conducted by a State or local governmental agency 
responsible for food safety inspections. However, this requirement shall 
not apply to a school if a food safety inspection of the school is 
required by a State or local governmental agency responsible for food 
safety inspections.
    (b) Applications shall solicit information in sufficient detail to 
enable the State agency to determine whether the School Food Authority 
is eligible to participate in the Program and extent of the need for 
Program payments.
    (c) Within the funds available to them, State agencies, or FNSRO's 
where applicable, shall approve for participation in the School 
Breakfast Program any school making application and agreeing to carry 
out the program in accordance with this part. State agencies, or FNSRO's 
where applicable, have a positive obligation, however, to extend the 
benefits of the School Breakfast Program to children attending schools 
in areas where poor economic conditions exist.
    (d) Any School Food Authority may employ a food service management 
company (or other nonprofit agency or nonprofit organization) in the 
conduct of its feeding operation in one or more of its schools. A School 
Food Authority that employs a food service management company shall 
remain responsible for seeing that the feeding operation is in 
conformance with its agreement with the State Agency or the FNS Regional 
Office. The contract between the School Food Authority and the food 
service management company shall expressly provide that:
    (1) The food service management company shall maintain such records 
(supported by invoices, receipts, or other evidence) as the School Food 
Authority will need to meet its responsibilities under this part, and 
shall report thereon to the School Food Authority promptly at the end of 
each month;
    (2) Any federally donated commodities received by the School Food 
Authority and made available to the food service management company 
shall enure only to the benefit to the School Food Authority's nonprofit 
school food service and be utilized therein; and
    (3) The books and records of the food service management company 
pertaining to the School Food Authority's feeding operation shall be 
available for a period of 3 years from the date of the submission of the 
final Financial Status Report, for inspection and audit by 
representatives of the State agency, of the Department, and of the 
General Accounting Office at any reasonable time and place, except that 
if audit findings have not been resolved, the records shall be retained 
beyond the three-year period as long as required for the resolution of 
the issues raised by the audit.

[[Page 90]]

    (e) Each school food authority approved to participate in the 
program shall enter into a written agreement with the State agency or 
the Department through the FNSRO, as applicable, that may be amended as 
necessary. Nothing in the preceding sentence shall be construed to limit 
the ability of the State agency or the FNSRO to suspend or terminate the 
agreement in accordance with Sec.  220.18. If a single State agency 
administers any combination of the Child Nutrition Programs, that State 
agency shall provide each SFA with a single agreement with respect to 
the operation of those programs. Such agreements shall provide that the 
School Food Authority shall, with respect to participating schools under 
its jurisdiction:
    (1)(i) Maintain a nonprofit school food service; (ii) in accordance 
with the financial management system established under Sec.  220.13(i) 
of this part, use all revenues received by such food service only for 
the operation or improvement of that food service Except that, 
facilities, equipment, and personnel support with funds provided to a 
school food authority under this part may be used to support a nonprofit 
nutrition program for the elderly, including a program funded under the 
Older Americans Act of 1965 (42 U.S.C. 3001 et seq.); (iii) revenues 
received by the nonprofit school food service shall not be used to 
purchase land or buildings or to contruct buildings; (iv) limit its net 
cash resources to an amount that does not exceed three months average 
expenditure for its nonprofit school food service or such other amount 
as may be approved by the State agency; and (v) observe the limitations 
on any competitive food service as set forth in Sec.  220.12 of this 
part;
    (2) Serve breakfasts which meet the minimum requirements prescribed 
in Sec.  220.8, during a period designated as the breakfast period by 
the school;
    (3) Price the breakfast as a unit;
    (4) Supply breakfast without cost or at reduced price to all 
children who are determined by the School Food Authority to be unable to 
pay the full price thereof in accordance with the free and reduced price 
policy statements approved under part 245 of this chapter;
    (5) Make no discrimination against any child because of his 
inability to pay the full price of the breakfasts;
    (6) Claim reimbursement at the assigned rates only for breakfasts 
served in accordance with the agreement;
    (7) Submit Claims for Reimbursement in accordance with Sec.  220.11 
of this part and procedures established by the State agency, or FNSRO 
where applicable;
    (8) Maintain, in the storage, preparation and service of food, 
proper sanitation and health standards in conformance with all 
applicable State and local laws and regulations;
    (9) Purchase, in as large quantities as may be efficiently utilized 
in its nonprofit school food service, foods designated as plentiful by 
the State Agency, or CFPDO, where applicable;
    (10) Accept and use, in as large quantities as may be efficiently 
utilized in its nonprofit school food service, such foods as may be 
offered as a donation by the Department;
    (11) Maintain necessary facilities for storing, preparing, and 
serving food;
    (12) Maintain a financial management system as prescribed by the 
State agency, or FNSRO where applicable;
    (13) Upon request, make all accounts and records pertaining to its 
nonprofit school food service available to the State agency, to FNS and 
to OA for audit or review at a reasonable time and place. Such records 
shall be retained for a period of three years after the end of the 
fiscal year to which they pertain, except that if audit findings have 
not been resolved, the records shall be retained beyond the three-year 
period as long as required for the resolution of the issues raised by 
the audit;
    (14) Retain the individual application for free and reduced price 
breakfasts submitted by families for a period of three years after the 
end of the fiscal year to which they pertain; and
    (15) Comply with the requirements of the Department's regulations 
respecting nondiscrimination (7 CFR part 15).
    (f) Nothing contained in this part shall prevent the State Agency 
from imposing additional requirements for participation in the program 
which are

[[Page 91]]

not inconsistent with the provisions of this part.

(44 U.S.C. 3506; sec. 819, Pub. L. 97-35, 95 Stat. 533 (42 U.S.C. 1759a, 
1773 and 1757); Pub. L. 79-396, 60 Stat. 231 (42 U.S.C. 1751); Pub. L. 
89-647, 80 Stat. 885-890 (42 U.S.C. 1773); Pub. L. 91-248, 84 Stat. 207 
(42 U.S.C. 1759))

[32 FR 34, Jan. 5, 1967]

    Editorial Note: For Federal Register citations affecting Sec.  
220.7, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  220.8  What are the nutrition standards and menu planning approaches 
for breakfasts?

    (a) What are the nutrition standards for breakfasts for children age 
2 and over? School food authorities must ensure that participating 
schools provide nutritious and well-balanced breakfasts. For children 
age 2 and over, breakfasts, when averaged over a school week, must meet 
the nutrition standards and the appropriate nutrient and calorie levels 
in this section. The nutrition standards are:
    (1) Provision of one-fourth of the Recommended Dietary Allowances 
(RDA) for protein, calcium, iron, vitamin A and vitamin C in the 
appropriate levels (see paragraphs (b), (c), (e)(1), or (h) of this 
section);
    (2) Provision of the breakfast energy allowances (calories) for 
children in the appropriate levels (see paragraphs (b), (c), (e)(1), or 
(h) of this section);
    (3) These applicable recommendations of the 1995 Dietary Guidelines 
for Americans:
    (i) Eat a variety of foods;
    (ii) Limit total fat to 30 percent of total calories;
    (iii) Limit saturated fat to less than 10 percent of total calories;
    (iv) Choose a diet low in cholesterol;
    (v) Choose a diet with plenty of grain products, vegetables, and 
fruits; and
    (vi) Choose a diet moderate in salt and sodium.
    (4) These measures of compliance with the applicable recommendations 
of the 1995 Dietary Guidelines for Americans:
    (i) Limit the percent of calories from total fat to 30 percent of 
the actual number of calories offered;
    (ii) Limit the percent of calories from saturated fat to less than 
10 percent of the actual number of calories offered;
    (iii) Reduce sodium and cholesterol levels; and
    (iv) Increase the level of dietary fiber.
    (5) School food authorities have several ways to plan menus. The 
minimum levels of nutrients and calories that breakfasts must offer 
depends on the menu planning approach used and the age/grades served. 
The menu planning approaches are:
    (i) Nutrient standard menu planning (see paragraphs (b) and (e) of 
this section);
    (ii) Assisted nutrient standard menu planning (see paragraphs (b) 
and (f) of this section);
    (iii) Traditional food-based menu planning (see paragraphs (c) and 
(g)(1) of this section);
    (iv) Enhanced food-based menu planning (see paragraphs (c) and 
(g)(2) of this section); or
    (v) Alternate menu planning as provided for in paragraph (h) of this 
section.
    (6) Schools must keep production and menu records for the breakfasts 
they produce. These records must show how the breakfasts contribute to 
the required food components, food items or menu items every day. In 
addition, these records must show how the breakfasts contribute to the 
nutrition standards in paragraph (a) of this section and the appropriate 
calorie and nutrient levels (see paragraphs (c), (d) or (h) of this 
section, depending on the menu planning approach used) over the school 
week. If applicable, schools or school food authorities must maintain 
nutritional analysis records to demonstrate that breakfasts, when 
averaged over each school week, meet:
    (i) The nutrition standards provided in paragraph (a) of this 
section; and
    (ii) The nutrient and calorie levels for children for each age or 
grade group in accordance with paragraphs (b), (e)(1) of this section or 
developed under paragraph (h) of this section.
    (b) What are the levels for nutrients and calories for breakfasts 
planned under the nutrient standard or assisted nutrient standard menu 
planning approaches?

[[Page 92]]

    (1) The required levels are:
    [GRAPHIC] [TIFF OMITTED] TR09MY00.007
    
    (2) Optional levels are:
    [GRAPHIC] [TIFF OMITTED] TR09MY00.008
    
    (3) Schools may also develop a set of nutrient and calorie levels 
for a school week. These levels are customized for the age groups of the 
children in the particular school.
    (c) What are the nutrient and calorie levels for breakfasts planned 
under the food-based menu planning approaches?--(1) Traditional 
approach. For the traditional food-based menu planning approach, the 
required levels are:

[[Page 93]]

[GRAPHIC] [TIFF OMITTED] TR09MY00.009

    (2) Enhanced approach. For the enhanced food-based menu planning 
approach, the required levels are:
[GRAPHIC] [TIFF OMITTED] TR09MY00.010

    (d) What exceptions and variations are allowed in reimbursable 
breakfasts?--(1) Exceptions for medical or special dietary needs. 
Schools must make substitutions in breakfasts for students who are 
considered to have a disability under 7 CFR Part 15b and whose 
disability restricts their diet. Schools may also make substitutions for 
students who do not have a disability but who cannot consume the regular 
breakfast because of medical or other special dietary needs. 
Substitutions must be made on a case by case basis only when supported 
by a statement of the need for substitutions that includes recommended 
alternate foods, unless otherwise exempted by FNS. Such statement must, 
in the case of a student with a disability, be signed by a physician or, 
in the case of a student who is not disabled, by a recognized medical 
authority.
    (2) Variations for ethnic, religious, or economic reasons. Schools 
should consider ethnic and religious preferences when planning and 
preparing breakfasts. Variations on an experimental or continuing basis 
in the food components for the food-based menu planning approaches in 
paragraph (g) may be allowed by FNS. Any variations must be 
nutritionally sound and needed to meet ethnic, religious, or economic 
needs.

[[Page 94]]

    (3) Exceptions for natural disasters. If there is a natural disaster 
or other catastrophe, FNS may temporarily allow schools to serve 
breakfasts for reimbursement that do not meet the requirements in this 
section.
    (e) What are the requirements for the nutrient standard menu 
planning approach?
    (1) Nutrient levels.--(i) Adjusting nutrient levels for young 
children. Schools with children who are age 2 must at least meet the 
nutrition standards in paragraph (a) of this section and the preschool 
nutrient and calorie levels in paragraph (b)(1) of this section over a 
school week. Schools may also use the preschool nutrient and calorie 
levels in paragraph (b)(2) of this section or may calculate nutrient and 
calorie levels for two year olds. FNS has a method for calculating these 
levels in menu planning guidance materials.
    (ii) Minimum levels for nutrients. Breakfasts must at least offer 
the nutrient and calorie levels for the required grade groups in the 
table in paragraph (b)(1) of this section. Schools may also offer 
breakfasts meeting the nutrient and calorie levels for the age groups in 
paragraph (b)(2) of this section. If only one grade or age group is 
outside the established levels, schools may follow the levels for the 
majority of the children. Schools may also customize the nutrient and 
calorie levels for the children they serve. FNS has a method for 
calculating these levels in guidance materials for menu planning.
    (2) Reimbursable breakfasts.--(i) Contents of a reimbursable 
breakfast. A reimbursable breakfast must include at least three menu 
items. All menu items or foods offered in a reimbursable breakfast 
contribute to the nutrition standards in paragraph (a) of this section 
and to the levels of nutrients and calories that must be met in 
paragraphs (c) or (e)(1) of this section. Unless offered as part of a 
menu item in a reimbursable breakfast, foods of minimal nutritional 
value (see appendix B to part 220) are not included in the nutrient 
analysis. Reimbursable breakfasts planned under the nutrient standard 
menu planning approach must meet the nutrition standards in paragraph 
(a) of this section and the appropriate nutrient and calorie levels in 
paragraph (b) or (e)(1) of this section.
    (ii) Offer versus serve. Schools must offer at least three menu 
items. At their option, school food authorities may allow students to 
select only two menu items and to decline a maximum of one menu item. 
The price of a reimbursable breakfast does not change if the student 
does not take a menu item or requests smaller portions.
    (3) Doing the analysis. Schools using nutrient standard menu 
planning must conduct the analysis on all menu items and foods offered 
in a reimbursable breakfast. The analysis is conducted over a school 
week. Unless offered as part of a menu item in a reimbursable breakfast, 
foods of minimal nutritional value (see appendix B to part 220) are not 
included in the nutrient analysis.
    (4) Software elements.--(i) The Child Nutrition Database. The 
nutrient analysis is based on the Child Nutrition Database. This 
database is part of the software used to do a nutrient analysis. 
Software companies or others developing systems for schools may contact 
FNS for more information about the database.
    (ii) Software evaluation. FNS or an FNS designee evaluates any 
nutrient analysis software before it may be used in schools. FNS or its 
designee determines if the software, as submitted, meets the minimum 
requirements. The approval of software does not mean that FNS or USDA 
endorses it. The software must be able to do all functions after the 
basic data is entered. The required functions include weighted averages 
and the optional combined analysis of the lunch and breakfast programs.
    (5) Nutrient analysis procedures.--(i) Weighted averages. Schools 
must include all menu items and foods offered in reimbursable breakfasts 
in the nutrient analysis. Menu items and foods are included based on the 
portion sizes and projected serving amounts. They are also weighted 
based on their proportionate contribution to the breakfasts offered. 
This means that menu items or foods more frequently offered are weighted 
more heavily than those not offered as frequently. Schools calculate 
weighting as indicated by FNS guidance and by the guidance provided

[[Page 95]]

by the software. Through September 30, 2003, schools are not required to 
conduct a weighted analysis.
    (ii) Analyzed nutrients. The analysis includes all menu items and 
foods offered over a school week. The analysis must determine the levels 
of: Calories, protein, vitamin A, vitamin C, iron, calcium, total fat, 
saturated fat, sodium, cholesterol and dietary fiber.
    (iii) Combining the analysis of the lunch and breakfast programs. At 
their option, schools may combine the analysis of breakfasts offered 
under this part and lunches offered under part 210 of this chapter. The 
analysis is done proportionately to the levels of participation in each 
program based on FNS guidance.
    (6) Comparing the results of the nutrient analysis. Once the 
procedures in paragraph (i)(5) of this section are completed, schools 
must compare the results of the analysis to the appropriate nutrient and 
calorie levels, by age/grade groups, in paragraph (b) of this section or 
those developed under paragraph (e)(1) of this section. This comparison 
determines the school week's average. Schools must also make comparisons 
to the nutrition standards in paragraph (a) of this section to determine 
how well they are meeting the nutrition standards over the school week.
    (7) Adjustments to the menus. Once schools know the results of the 
nutrient analysis based on the procedures in paragraphs (e)(5) and 
(e)(6) of this section, they must adjust future menu cycles to reflect 
production and how often the menu items and foods are offered. Schools 
may need to reanalyze menus when the students' selections and, 
consequently, production levels change. Schools may need to change the 
menu items and foods offered given the students' selections and may need 
to modify the recipes and other specifications to make sure that the 
nutrition standards in paragraph (a) and either paragraph (b) or (e)(1) 
of this section are met.
    (8) Standardized recipes. If a school follows the nutrient standard 
menu planning approach, it must develop and follow standardized recipes. 
A standardized recipe is a recipe that was tested to provide an 
established yield and quantity using the same ingredients for both 
measurement and preparation methods. Any standardized recipes developed 
by USDA/FNS are in the Child Nutrition Database. If a school has its own 
recipes, they must be standardized and analyzed to determine the levels 
of calories, nutrients, and dietary components listed in paragraph 
(e)(5)(ii) of this section. Schools must add any local recipes to their 
local database as outlined in FNS guidance.
    (9) Processed foods. The Child Nutrition Database includes a number 
of processed foods. Schools may use purchased processed foods and menu 
items that are not in the Child Nutrition Database. Schools or the State 
agency must add any locally purchased processed foods and menu items to 
their local database as outlined in FNS guidance. Schools or State 
agencies must obtain the levels of calories, nutrients, and dietary 
components listed in paragraph (e)(5)(ii) of this section.
    (10) Menu substitutions. Schools may need to substitute foods or 
menu items in a menu that was already analyzed. If the substitution(s) 
occurs more than two weeks before the planned menu is served, the school 
must reanalyze the revised menu. If the substitution(s) occurs two weeks 
or less before the planned menu is served, the school does not need to 
do a reanalysis. However, schools should always try to substitute 
similar foods.
    (11) Meeting the nutrition standards. The school's analysis shows 
whether their menus are meeting the nutrition standards in paragraph (a) 
of this section and the appropriate levels of nutrients and calories in 
paragraph (b) of this section or customized levels developed under 
paragraph (e)(1) of this section. If the analysis shows that the menu(s) 
are not meeting these standards, the school needs to take action to make 
sure that the breakfasts meet the nutrition standards and the calorie, 
nutrient, and dietary component levels. Actions may include technical 
assistance and training and may be taken by the State agency, the school 
food authority or by the school as needed.
    (12) Other Child Nutrition Programs and nutrient standard analysis 
menu planning. School food authorities that

[[Page 96]]

operate the Summer Food Service Program (part 225 of this chapter) and/
or the Child and Adult Care Food Program (part 226 of this chapter) may, 
with State agency approval, prepare breakfasts for these programs using 
the nutrient standard menu planning approach for children age two and 
over. FNS has guidance on the levels of nutrient and calories for adult 
breakfasts offered under the Child and Adult Care Food Program.
    (f) What are the requirements for the assisted nutrient standard 
menu planning approach?--(1) Definition of assisted nutrient standard 
menu planning. Some school food authorities may not be able to do all of 
the procedures necessary for nutrient standard menu planning. The 
assisted nutrient standard menu planning approach provides schools with 
menu cycles developed and analyzed by other sources. These sources 
include the State agency, other schools, consultants, or food service 
management companies.
    (2) Elements of assisted nutrient standard menu planning. School 
food authorities using menu cycles developed under assisted nutrient 
standard menu planning must follow the procedures in paragraphs (e)(1) 
through (e)(10) of this section. The menu cycles must also incorporate 
local food preferences and accommodate local food service operations. 
The menu cycles must meet the nutrition standards in paragraph (a) of 
this section and meet the applicable nutrient and calorie levels for 
nutrient standard menu planning in paragraphs (b) or (e)(1) of this 
section. The supplier of the assisted nutrient standard menu planning 
approach must also develop and provide recipes, food product 
specifications, and preparation techniques. All of these components 
support the nutrient analysis results of the menu cycles used by the 
receiving school food authorities.
    (3) State agency approval. Prior to its use, the State agency must 
approve the initial menu cycle, recipes and other specifications of the 
assisted nutrient standard menu planning approach. The State agency 
needs to make sure all the steps required for nutrient analysis were 
followed. School food authorities may also ask the State agency for 
assistance with implementation of their assisted nutrient standard menu 
planning approach.
    (4) Required adjustments. After the initial service of the menu 
cycle developed under the assisted nutrient standard menu planning 
approach, the nutrient analysis must be reassessed and appropriate 
adjustments made as discussed in paragraph (e)(7) of this section.
    (5) Final responsibility for meeting the nutrition standards. The 
school food authority using the assisted nutrient standard menu planning 
approach retains final responsibility for meeting the nutrition 
standards in paragraph (a) of this section and the applicable calorie 
and nutrient levels in paragraphs (b) or (e)(1) of this section.
    (6) Adjustments to the menus. If the nutrient analysis shows that 
the breakfasts offered are not meeting the nutrition standards in 
paragraph (a) of this section and the applicable calorie and nutrient 
levels in paragraphs (b) or (e)(1) of this section, the State agency, 
school food authority or school must take action to make sure the 
breakfasts offered meet these requirements. Actions needed include 
technical assistance and training.
    (7) Other Child Nutrition Programs and assisted nutrient analysis 
menu planning. School food authorities that operate the Summer Food 
Service Program (part 225 of this chapter) and/or the Child and Adult 
Care Food Program (part 226 of this chapter) may, with State agency 
approval, prepare breakfasts for these programs using the assisted 
nutrient standard menu planning approach for children age two and over. 
FNS has guidance on the levels of nutrients and calories for adult 
breakfasts offered under the Child and Adult Care Food Program.
    (g) What are the requirements for the food-based menu planning 
approaches? (1) Food items. There are two menu planning approaches based 
on meal patterns, not nutrient analysis. These approaches are the 
traditional food-based menu planning approach and the enhanced food-
based menu planning approach. Schools using one of these approaches must 
offer these food items in at least the portions required for various 
age/grade groups:

[[Page 97]]

    (i) A serving of fluid milk as a beverage or on cereal or used 
partly for both;
    (ii) A serving of fruit or vegetable or both, or full-strength fruit 
or vegetable juice; and
    (iii) Two servings from one of the following components or one 
serving from each component:
    (A) Grains/breads; and/or
    (B) Meat/meat alternate.
    (2) Quantities for the traditional food-based menu planning 
approach. At a minimum, schools must offer the food items in the 
quantities specified for the appropriate age/grade group in the 
following table:
[GRAPHIC] [TIFF OMITTED] TR09MY00.011

    (3) Quantities for the enhanced food-based menu planning approach. 
At a minimum, schools must offer the food items in the quantities 
specified for the appropriate age/grade group in the following table:

[[Page 98]]

[GRAPHIC] [TIFF OMITTED] TR09MY00.012

    (4) Offer versus serve. Each school must offer all four required 
food items listed in paragraph (g)(1) of this section. At the option of 
the school food authority, each school may allow students to refuse one 
food item from any component. The refused food item may be any of the 
four items offered to the student. A student's decision to accept all 
four food items or to decline one of the four food items must not affect 
the charge for a reimbursable breakfast.
    (5) Meal pattern exceptions for outlying areas. Schools in American 
Samoa, Puerto Rico and the Virgin Islands may serve a starchy vegetable 
such as yams, plantains, or sweet potatoes to meet the grain/bread 
requirement.
    (h) What are the requirements for alternate menu planning 
approaches?
    (1) Definition. Alternate menu planning approaches are those adopted 
or developed by school food authorities or State agencies that differ 
from the standard approaches established in paragraphs (e) through (g) 
of this section.
    (2) Use and approval of major changes or new alternate approaches. 
Within the guidelines established for developing alternate menu planning 
approaches, school food authorities or State agencies may modify one of 
the established

[[Page 99]]

menu planning approaches in paragraphs (e) through (g) of this section 
or may develop their own menu planning approach. The alternate menu 
planning approach must be available in writing for review and monitoring 
purposes. No formal plan is required; guidance material, a handbook or 
protocol is sufficient. As appropriate, the material must address how 
the guidelines in paragraph (h)(3) of this section are met. A State 
agency that develops an alternate approach that is exempt from FNS 
approval under paragraph (h)(2)(iii) of this section must notify FNS in 
writing when implementing the alternate approach.
    (i) Approval of local level plans. Any school food authority-
developed menu planning approach must have prior State agency review and 
approval.
    (ii) Approval of State agency plans. Unless exempt under paragraph 
(h)(2)(iii) of this section, any State agency-developed menu planning 
approach must have prior FNS approval.
    (iii) State agency plans not subject to approval. A State agency-
developed menu planning approach does not need FNS approval if:
    (A) Five or more school food authorities in the State use it; and
    (B) The State agency maintains on-going oversight of the operation 
and evaluation of the approach and makes any needed adjustments to its 
policies and procedures to ensure that the appropriate guidelines in 
paragraph (h)(3) of this section are met.
    (3) Elements for major changes or new approaches. Any alternate menu 
planning approach must:
    (i) offer fluid milk, as provided in paragraph (i) of this section;
    (ii) include the procedures for offer versus serve if the school 
food authority chooses to implement the offer versus serve option. 
Alternate approaches should follow the offer versus serve procedures in 
paragraphs (e)(2)(ii) and (g)(4) of this section, as appropriate. If 
these requirements are not followed, the approach must indicate:
    (A) The affected age/grade groups;
    (B) The number and type of items (and, if applicable, the quantities 
for the items) that constitute a reimbursable breakfast under offer 
versus serve;
    (C) How such procedures will reduce plate waste; and
    (D) How a reasonable level of calories and nutrients for the 
breakfast as taken is provided.
    (iii) Meet the Recommended Dietary Allowances and breakfast energy 
allowances (nutrient levels) and indicate the age/grade groups served 
and how the nutrient levels are met for those age/grade groups;
    (iv) Follow the requirements for competitive foods in Sec.  Sec.  
220.2(i-1) and 220.12 and appendix B to this part;
    (v) Follow the requirements for counting food items and products 
towards meeting the meal patterns. These requirements are found in 
paragraphs (g) and (i) of this section, in appendices A through C to 
this part, and in instructions and guidance issued by FNS. This only 
applies if the alternate approach is a food-based menu planning 
approach.
    (vi) Identify a reimbursable breakfast at the point of service.
    (A) To the extent possible, the procedures provided in paragraph 
(e)(2)(i) of this section for nutrient standard or assisted nutrient 
standard menu planning approaches or for food-based menu planning 
approaches provided in paragraph (g) of this section must be followed. 
Any instructions or guidance issued by FNS that further defines the 
elements of a reimbursable breakfast must be followed when using the 
existing regulatory provisions.
    (B) Any alternate approach that deviates from the provisions in 
paragraph (e)(2)(i) or paragraph (g) of this section must indicate what 
constitutes a reimbursable breakfast, including the number and type of 
items (and, if applicable, the quantities for the items) which comprise 
the breakfast, and how a reimbursable breakfast is to be identified at 
the point of service.
    (vii) explain how the alternate menu planning approach can be 
monitored under the applicable provisions of Sec.  210.18 and Sec.  
210.19 of this chapter, including a description of the records that will 
be maintained to document compliance with the program's administrative 
and nutrition requirements. However, if the procedures under Sec.  
210.19 of this chapter cannot be used to monitor the alternate approach, 
a

[[Page 100]]

description of review procedures which will enable the State agency to 
assess compliance with the nutrition standards in paragraphs (a)(1) 
through (a)(4) of this section must be included; and
    (viii) follow the requirements for weighted analysis and for 
approved software for nutrient standard menu planning as required by 
paragraphs (e)(4) and (e)(5) of this section unless a State agency-
developed approach meets the criteria in paragraph (h)(2)(iii) of this 
section. Through September 30, 2003, schools are not required to conduct 
a weighted analysis.
    (i) What are the requirements for offering milk?
    (1) Serving milk. A serving of milk as a beverage or on cereal or 
used in part for each purpose must be offered for breakfasts.
    (2) Inadequate milk supply. If a school cannot get a supply of milk, 
it can still participate in the Program under the following conditions:
    (i) If emergency conditions temporarily prevent a school that 
normally has a supply of fluid milk from obtaining delivery of such 
milk, the State agency may allow the school to serve breakfasts during 
the emergency period with an alternate form of milk or without milk.
    (ii) If a school is unable to obtain a supply of any type of fluid 
milk on a continuing basis, the State agency may allow schools to 
substitute canned or dry milk in the required quantities in the 
preparation of breakfasts. In Alaska, Hawaii, American Samoa, Guam, 
Puerto Rico, and the Virgin Islands, if a sufficient supply of fluid 
milk cannot be obtained, ``milk'' includes reconstituted or recombined 
milk, or otherwise as allowed by FNS through a written exception.
    (j) What are the requirements for the infant breakfast pattern?
    (1) Feeding breakfasts to infants. Breakfasts served to infants ages 
birth through 11 months must meet the requirements described in 
paragraph (j)(4) of this section. Foods included in the breakfast must 
be of a texture and a consistency that are appropriate for the age of 
the infant being served. The foods must be served during a span of time 
consistent with the infant's eating habits. For those infants whose 
dietary needs are more individualized, exceptions to the meal pattern 
must be made in accordance with the requirements found in paragraph 
(d)(1) of this section.
    (2) Breastmilk and iron-fortified formula. Either breastmilk or 
iron-fortified infant formula, or portions of both, must be served for 
the entire first year. Meals containing breastmilk and meals containing 
iron-fortified infant formula supplied by the school are eligible for 
reimbursement. However, infant formula provided by a parent (or 
guardian) and breastmilk fed directly by the infant's mother, during a 
visit to the school, contribute to a reimbursable breakfast only when 
the school supplies at least one component of the infant's meal.
    (3) Solid foods. For infants ages 4 through 7 months, solid foods of 
an appropriate texture and consistency are required only when the infant 
is developmentally ready to accept them. The school should consult with 
the infant's parent (or guardian) in making the decision to introduce 
solid foods. Solid foods should be introduced one at a time, on a 
gradual basis, with the intent of ensuring the infant's health and 
nutritional well-being.
    (4) Infant meal pattern. Infant breakfasts must have, at a minimum, 
each of the food components indicated, in the amount that is appropriate 
for the infant's age. For some breastfed infants who regularly consume 
less than the minimum amount of breastmilk per feeding, a serving of 
less than the minimum amount of breastmilk may be offered. In these 
situations, additional breastmilk must be offered if the infant is still 
hungry. Breakfasts may include portions of breastmilk and iron-fortified 
infant formula as long as the total number of ounces meets, or exceeds, 
the minimum amount required of this food component. Similarly, to meet 
the component requirement for vegetables and fruit, portions of both may 
be served.
    (i) Birth through 3 months. 4 to 6 fluid ounces of breastmilk or 
iron-fortified infant formula--only breastmilk or iron-fortified formula 
is required to meet the infant's nutritional needs.
    (ii) 4 through 7 months. Breastmilk or iron-fortified formula is 
required.

[[Page 101]]

Some infants may be developmentally ready for solid foods of an 
appropriate texture and consistency. Breakfasts are reimbursable when 
schools provide all of the components in the meal pattern that the 
infant is developmentally ready to accept.
    (A) 4 to 8 fluid ounces of breastmilk or iron-fortified infant 
formula; and
    (B) 0 to 3 tablespoons of iron-fortified dry infant cereal.
    (iii) 8 through 11 months. Breastmilk or iron-fortified formula and 
solid foods of an appropriate texture and consistency are required.
    (A) 6 to 8 fluid ounces of breastmilk or iron-fortified infant 
formula; and
    (B) 2 to 4 tablespoons of iron-fortified dry infant cereal; and
    (C) 1 to 4 tablespoons of fruit or vegetable.
    (5) Infant meal pattern table. The minimum amounts of food 
components to serve to infants, as described in paragraph (j)(4) of this 
section, are:

                      Breakfast Pattern for Infants
------------------------------------------------------------------------
                                                         8 through 11
     Birth through 3 months       4 through 7 months        months
------------------------------------------------------------------------
4-6 fluid ounces of formula \1\   4-8 fluid ounces    6-8 fluid ounces
 or breastmilk 2 3.                of formula \1\ or   of formula \1\ or
                                   breastmilk 2 3;     breastmilk 2 3;
                                   and.                and
                                  0-3 tablespoons of  2-4 tablespoons of
                                   infant cereal 1 4.  infant cereal
                                                       \1\; and
                                                      1-4 tablespoons of
                                                       fruit or
                                                       vegetable or
                                                       both.
------------------------------------------------------------------------
\1\ Infant formula and dry infant cereal must be iron-fortified.
\2\ Breastmilk or formula, or portions of both, may be served; however,
  it is recommended that breastmilk be served in place of formula from
  birth through 11 months.
\3\ For some breastfed infants who regularly consume less than the
  minimum amount of breastmilk per feeding, a serving of less than the
  minimum amount of breastmilk may be offered, with additional
  breastmilk offered if the infant is still hungry.
\4\ A serving of this component is required only when the infant is
  developmentally ready to accept it.

    (k) What about serving additional foods? Schools may offer 
additional foods with breakfasts to children over one year of age.
    (l) Must schools offer choices at breakfast? FNS encourages schools 
to offer children a selection of foods and menu items at breakfast. 
Choices provide variety and encourage consumption. Schools may offer 
choices of reimbursable breakfasts or foods within a reimbursable 
breakfast. When a school offers a selection of more than one type of 
breakfast or when it offers a variety of food components, menu items or 
foods and milk for choice as a reimbursable breakfast, the school must 
offer all children the same selection(s) regardless of whether the child 
is eligible for free or reduced price breakfasts or must pay the 
designated full price. The school may establish different unit prices 
for each type of breakfast offered provided that the benefits made 
available to children eligible for free or reduced price breakfasts are 
not affected.
    (m) What must schools do about nutrition disclosure? To the extent 
that school food authorities identify foods in a menu, or on the serving 
line or through other available means of communicating with program 
participants, school food authorities must identify products or dishes 
containing more than 30 parts fully hydrated alternate protein products 
(as specified in appendix A of this part) to less than 70 parts beef, 
pork, poultry or seafood on an uncooked basis, in a manner which does 
not characterize the product or dish solely as beef, pork, poultry or 
seafood. Additionally, FNS encourages schools to inform the students, 
parents, and the public about efforts they are making to meet the 
nutrition standards (see paragraph (a) of this section) for school 
breakfasts.

[65 FR 26923, May 9, 2000, as amended at 65 FR 36317, June 8, 2000; 67 
FR 36785, May 28, 2002]



Sec.  220.9  Reimbursement payments.

    (a) State agencies, or FNSRO's where applicable, shall make 
reimbursement payments to schools only in connection with breakfasts 
meeting the requirements of Sec.  220.8, and reported in accordance with 
Sec.  220.11(b) of this part. School Food Authorities shall plan for and 
prepare breakfasts on the basis of participation trends, with the 
objective of providing one breakfast per child per day. Production and 
participation rec ords shall be maintained to demonstrate positive 
action toward this objective. In recognition of the fluctuation in 
participation levels which makes it difficult to precisely estimate the 
number of breakfasts needed and to reduce the resultant waste, any 
excess breakfasts that are prepared may be

[[Page 102]]

served to eligible children and may be claimed for reimbursement unless 
the State agency, or FNSRO where applicable, determines that the School 
Food Authority has failed to plan and prepare breakfasts with the 
objective of providing one breakfast per child per day. In no event 
shall the School Food Authority claim reimbursement for free and reduced 
price breakfasts in excess of the number of children approved for free 
and reduced price meals.
    (b) The rates of reimbursement for breakfasts served to eligible 
children in schools not in severe need are the applicable national 
average payment factors for breakfasts. The maximum rates of 
reimbursement for breakfasts served to eligible children in schools 
determined to be in severe need are those prescribed by the Secretary. 
National average payment factors and maximum rates of reimbursement for 
the School Breakfast Program shall be prescribed annually by the 
Secretary in the Federal Register.
    (c) The total reimbursement for breakfasts served to eligible 
children in, (1) schools not in severe need, and (2) severe need schools 
in State's with State Breakfast mandates as provided for in Sec.  
220.9(e)(3) (i) and (ii) in any School Food Authority during the school 
year shall not exceed the sum of the products obtained by multiplying 
the total numbers of such free, reduced price and paid breakfasts, 
respectively, by the applicable rate of reimbursement for each type of 
breakfast as prescribed for the school year.
    (d) For any school year, severe need reimbursement payments to any 
School Food Authority except as provided for in paragraph (c) of this 
section shall be the lesser of: (1) The cost of providing free and 
reduced price breakfast to eligible children in schools determined to be 
in severe need, less the reduced price payments received by such 
schools; or (2) the number of free and the number of reduced price 
breakfasts, respectively, that are served to eligible children in 
schools determined to be in severe need, multiplied by the applicable 
severe need reimbursement rates for such breakfasts.
    (e) Severe need schools. The State agency, or FNSRO where 
applicable, shall determine whether a school is in severe need based on 
the following eligibility criteria: (1) The reimbursement rate per meal 
established by the Secretary is insufficient to cover the costs of the 
school's breakfast program; (2) the school is participating in or 
desiring to initiate a breakfast program; and (3) 40 percent or more of 
the lunches served to students at the school in the second preceding 
school year were served free or at a reduced price. In addition, schools 
which are required by State law to serve breakfasts and which fail to 
satisfy the required 40 percent eligibility criteria are eligible for 
severe need reimbursement rates only for the following limited time 
periods:
    (i) In States where the State legislature meets annually, the 
schools may receive severe need reimbursement rates until July 1, 1983; 
and (ii) in States where the State legislature meets biennially, the 
schools may receive severe need reimbursement rates until July 1, 1984. 
State agencies shall maintain on file, and have available for review and 
audits, their eligibility criteria for determining the severe need of 
schools and the source of the data to be used in making individual 
determinations. The State agency, or FNSRO where applicable, shall be 
responsible for establishing systems for determining breakfast costs 
where such costs are necessary to the determination of whether or not a 
school is in severe need.

(Sec. 6, Pub. L. 95-627, 92 Stat. 3620 (42 U.S.C. 1776; secs. 801, 803, 
812; Pub. L. 97-35, 95 Stat. 521-535, 42 U.S.C. 1753, 1759(a), 1758, 
1773; sec. 819, Pub. L. 97-35, 95 Stat. 533 (42 U.S.C. 1759a, 1773 and 
1757); 44 U.S.C. 3506))

[Amdt. 25, 41 FR 34760, Aug. 17, 1976, as amended by Amdt. 29, 44 FR 
48159, Aug. 17, 1979; Amdt. No. 38, 46 FR 50928, Oct. 16, 1981; 46 FR 
51368, Oct. 20, 1981; 47 FR 746, Jan. 7, 1982; 47 FR 31375, July 20, 
1982; 48 FR 40196, 40197, Sept. 6, 1983; 60 FR 31222, June 13, 1995; 65 
FR 26923, May 9, 2000]



Sec.  220.10  Effective date for reimbursement.

    Reimbursement payments under the School Breakfast Program may be 
made only to School Food Authorities operating under an agreement with 
the State Agency or the Department, and may be made only after execution 
of

[[Page 103]]

the agreement. Such payments may include reimbursement in connection 
with breakfasts served in accordance with provisions of the program in 
the calendar month preceding the calendar month in which the agreement 
is executed.

[32 FR 35, Jan. 5, 1967, as amended by Amdt. 9, 37 FR 9613, May 13, 
1972]



Sec.  220.11  Reimbursement procedures.

    (a) To be entitled to reimbursement under this part, each School 
Food Authority shall submit to the State agency, or FNSRO where 
applicable, a monthly Claim for Reimbursement.
    (b) Claims for Reimbursement shall include data in sufficient detail 
to justify the reimbursement claimed and to enable the State agency to 
provide the Reports of School Program Operations required under Sec.  
220.13(b)(2). Unless otherwise approved by FNS, the Claim for 
Reimbursement for any month shall include only breakfasts served in that 
month except if the first or last month of Program operations for any 
year contains 10 operating days or less, such month may be added to the 
Claim for Reimbursement for the appropriate adjacent month; however, 
Claims for Reimbursement may not combine operations occurring in two 
fiscal years. If a single State agency administers any combination of 
the Child Nutrition Programs, the SFA shall be able to use a common 
claim form with respect to claims for reimbursement for meals served 
under those programs. A final Claim for Reimbursement shall be 
postmarked and/or submitted to the State agency, or FNSRO where 
applicable, not later than 60 days following the last day of the full 
month covered by the claim. State agencies may establish shorter 
deadlines at their discretion. Claims not postmarked and/or submitted 
within 60 days shall not be paid with Program funds unless FNS 
determines that an exception should be granted. The State agency, or 
FNSRO where applicable, shall promptly take corrective action with 
respect to any Claim for Reimbursement as determined necessary through 
its claim review process or otherwise. In taking such corrective action, 
State agencies may make upward adjustments in Program funds claimed on 
claims filed within the 60 day deadline if such adjustments are 
completed within 90 days of the last day of the claim month and are 
reflected in the final Report of School Program Operations (FNS-10) for 
the claim month which is required under Sec.  220.13(b)(2). Upward 
adjustments in Program funds claimed which are not reflected in the 
final FNS-10 for the claim month shall not be made unless authorized by 
FNS. Downward adjustments in Program funds claimed shall always be made, 
without FNS authorization, regardless of when it is determined that such 
adjustments are necessary.
    (c) Where a school participates in both the National School Lunch 
Program and the School Breakfast Program, the State agency or FNSRO, 
where applicable, may authorize the submission of one claim for 
reimbursement to cover both programs.
    (d) [Reserved]
    (e) Notwithstanding any other provision of this section, the State 
agency, or FNSRO where applicable, may advance funds available for the 
School Breakfast Program to a School Food Authority in an amount equal 
to the reimbursement estimated for the total number of breakfasts, 
including free and reduced price breakfasts, to be served to children 
for 1 month. The State agency, or FNSRO where applicable, shall require 
School Food Authorities who receive advances of funds under the 
provisions of this paragraph to make timely submissions of claims for 
reimbursement on a monthly basis and shall suspend advances of funds in 
the absence of such timely submissions. Following the receipt of claims 
the State agency, or FNSRO where applicable, shall make such adjustments 
as are necessary in such advances of funds to insure that the total 
amount of reimbursement received by a School Food Authority for the 
fiscal year will not exceed an amount equal to the number of breakfasts, 
including free and reduced price breakfast, served to children times the 
respective rates of reimbursement assigned by the State

[[Page 104]]

agency, or FNSRO where applicable, in accordance with Sec.  220.9.

(Title 1, Chapter I, Pub. L. 96-38, 93 Stat. 98 (42 U.S.C. 1776a); secs. 
807 and 808, Pub. L. 97-35, 95 Stat. 521-535, 42 U.S.C. 1772, 1784, 
1760; sec. 819, Pub. L. 97-35, 95 Stat. 533 (42 U.S.C. 1759a, 1773, 
1757); Pub. L. 97-370, 96 Stat. 1806)

[32 FR 35, Jan. 5, 1967, as amended by Amdt. 9, 37 FR 9613, May 13, 
1972; 40 FR 30924, July 24, 1975; 45 FR 82622, Dec. 16, 1980; 47 FR 
31376, July 20, 1982; 48 FR 40196, Sept. 6, 1983; Amdt. 49, 49 FR 18987, 
May 4, 1984; 64 FR 50742, Sept. 20, 1999]



Sec.  220.12  Competitive food services.

    (a) State agencies and School Food Authorities shall establish such 
rules or regulations as are necessary to control the sale of foods in 
competition with breakfasts served under the Program. Such rules or 
regulations shall prohibit the sale of foods of minimal nutritional 
value, as listed in appendix B of this part, in the food service areas 
during the breakfast periods. The sale of other competitive foods may, 
at the discretion of the State agency and the School Food Authority, be 
allowed in the food service area during the breakfast period only if all 
income from the sale of such foods accrues to the benefit of the 
nonprofit school food service or the school or student organizations 
approved by the school. State agencies and School Food Authorities may 
impose additional restrictions on the sale of and income from all foods 
sold at any time throughout schools participating in the School 
Breakfast Program.
    (b)(1) Any person may submit a petition to FNS requesting that an 
individual food be exempted from a category of foods of minimal 
nutritional value listed in appendix B. In the case of artificially 
sweetened foods, the petition must include a statement of the percent of 
RDI for the eight nutrients listed in Sec.  220.2(i-1) that the food 
provides per serving and the petitioner's source of this information. In 
the case of all other foods, the petition must include a statement of 
the percent of RDI for the eight nutrients listed in Sec.  220.2(i-1) 
that the food provides per serving and per 100 calories and the 
petitioner's source of this information. The Department will determine 
whether or not the individual food is a food of minimal nutritional 
value as defined Sec.  220.2(i-1), and will inform the petitioner in 
writing of such determination, and the public by notice in the Federal 
Register as indicated under paragraph (b)(3) of this section. In 
determining whether an individual food is a food of minimal nutritional 
value, discrete nutrients added to the food will not be taken into 
account.
    (2) Any person may submit a petition to FNS requesting that foods in 
a particular category of foods be classified as foods of minimal 
nutritional value as defined in Sec.  220.2(i-1). The petition must 
identify and define the food category in easily understood language, 
list examples of the foods contained in the category and include a list 
which the foods in that category usually contain. If, upon review of the 
petition, the Department determines that the foods in that category 
should not be classified as foods of minimal nutritional value, the 
petitioner will be so notified in writing. If upon review of the 
petition, the Department determines that there is a substantial 
likelihood that the foods in that category should be classified as foods 
of minimal nutritional value as defined in Sec.  220.2(i-1), the 
Department shall at that time inform the petitioner. In addition, the 
Department shall publish a proposed rule restricting the sale of the 
foods in that category, setting forth the reasons for this action, and 
soliciting public comments. On the basis of comments received within 60 
days of publication of the proposed rule and other available 
information, the Department will determine whether the nutrient 
composition of the foods indicates that the category should be 
classified as a category of foods of minimal nutritional value.

The petitioner shall be notified in writing and the public shall be 
notified of the Department's final determination upon publication in the 
Federal Register as indicated under section (b)(3) of this section.
    (3) By May 1 and November 1 of each year, the Department shall amend 
appendix B to exclude those individual foods identified under paragraph 
(b)(1) of this section, and to include those categories of foods 
identified under

[[Page 105]]

paragraph (b)(2) of this section, Provided That there are necessary 
changes.

(Sec. 819, Pub. L. 97-35, 95 Stat. 533 (42 U.S.C. 1759a, 1773 and 1757))

[Amdt. 32, 45 FR 6771, Jan. 29, 1980, as amended by Amdt. 34, 45 FR 
76937, Nov. 21, 1980; 50 FR 20547, May 17, 1985; 59 FR 23614, May 6, 
1994]



Sec.  220.13  Special responsibilities of State agencies.

    (a) [Reserved]
    (a-1) Each State agency, or FNSRO where applicable, shall require 
each School Food Authority of a school participating in the School 
Breakfast Program to develop and file for approval a free and reduced 
price policy statement in accordance with paragraph (a) of Sec.  220.7.
    (b) Records and reports. (1) Each State agency shall maintain 
Program records as necessary to support the reimbursement payments made 
to School Food Authorities under Sec.  220.9 and the reports submitted 
to FNS under Sec.  220.13(b)(2). The records may be kept in their 
original form or on microfilm, and shall be retained for a period of 
three years after the date of submission of the final Financial Status 
Report for the fiscal year, except that if audit findings have not been 
resolved, the records shall be retained beyond the three-year period as 
long as required for the resolution of the issues raised by the audit.
    (2) Each State agency shall submit to FNS a final Report of School 
Program Operations (FNS-10) for each month which shall be limited to 
claims submitted in accordance with Sec.  220.11(b) and which shall be 
postmarked and/or submitted no later than 90 days following the last day 
of the month covered by the report. States shall not receive Program 
funds for any month for which the final report is not submitted within 
this time limit unless FNS grants an exception. Upward adjustments to a 
State agency's report shall not be made after 90 days from the month 
covered by the report unless authorized by FNS. Downward adjustments 
shall always be made, without FNS authorization, regardless of when it 
is determined that such adjustments are necessary. Adjustments shall be 
reported to FNS in accordance with procedures established by FNS. Each 
State agency shall also submit to FNS a quarterly Financial Status 
Report (SF-269) on the use of Program funds. Such reports shall be 
postmarked and/or submitted no later than 30 days after the end of each 
fiscal year quarter. Obligations shall be reported only for the fiscal 
year in which they occur. A final Financial Status Report for each 
fiscal year shall be postmarked and/or submitted to FNS within 120 days 
after the end of the fiscal year. FNS shall not be responsible for 
reimbursing unpaid Program obligations reported later than 120 days 
after the close of the fiscal year in which they were incurred.
    (c) Each State agency shall promptly investigate complaints received 
or irregularities noted in connection with the operation of either 
program, and shall take appropriate action to correct any 
irregularities. State Agencies shall maintain on file evidence of such 
investigations and actions. FNS or OI shall make investigations at the 
request of the State Agency or where FNS or OI determines investigations 
are appropriate.
    (d) The State agency shall release to FNS any Federal funds made 
available to it under the Act which are unobligated at the end of each 
fiscal year. Any such funds shall remain available to FNS for the 
purposes of the programs authorized by the Act until expended. Release 
of funds by the State Agency shall be made as soon as practicable, but 
in any event not later than 30 days following demand by FNSRO and shall 
be reflected by related adjustment in the State Agency's Letter of 
Credit.
    (e) State agencies shall provide School Food Authorities with 
monthly information on foods available in plentiful supply, based on 
information provided by the Department.
    (f) Each State agency shall provide program assistance as follows:
    (1) Each State agency or FNSRO where applicable shall provide 
consult ative, technical, and managerial personnel to administer 
programs, monitor performance, and measure progress toward achieving 
program goals.
    (2) State agencies shall conduct reviews of schools participating in 
the

[[Page 106]]

Program for compliance with the provisions of this part when such 
schools are being reviewed under the provisions identified under Sec.  
210.18(i) of this title. Compliance reviews of participating schools 
shall focus on the reviewed school's compliance with the required 
certification, counting and breakfast service procedures. School food 
authorities may appeal a denial of all or a part of the Claim for 
Reimbursement or withholding of payment arising from review activity 
conducted by the State agency under Sec.  210.18 of this title or by FNS 
under Sec.  210.30(d)(2) of this title. Any such appeal shall be subject 
to the procedures set forth under Sec.  210.18(q) of this title or Sec.  
210.30(d)(3) of this title, as appropriate.
    (3) For the purposes of compliance with the nutrition standards in 
Sec.  220.8(a) and the nutrient and calorie levels in Sec.  220.8(b) or 
(c) or those developed under Sec.  220.8(e)(1) or (h), the State agency 
shall follow the provisions specified Sec.  210.19(a)(1) of this 
chapter.
    (4) Such assistance shall include visits to participating schools to 
ensure compliance with program regulations and with the Department's 
nondiscrimination regulations (part 15 of this title), issued under 
title VI, of the Civil Rights Act of 1964.
    (5) Documentation of such assistance shall be maintained on file by 
the State agency, or FNSRO where applicable.
    (g) State agencies shall adequately safeguard all assets and assure 
that they are used solely for authorized purposes.
    (h) [Reserved]
    (i) Each State agency, or FNS where applicable, shall establish a 
financial management system under which School Food Authorities shall 
account for all revenues and expenditures of their nonprofit school food 
service. The system shall prescribe the allowability of nonprofit school 
food service expenditures in accordance with this part and, as 
applicable, the cost principles contained in OMB Circular A-87 and 7 CFR 
part 3015. The system shall permit determination of school food service 
net cash resources, and shall include any criteria for approval of net 
cash resources in excess of three months average expenditures. In 
addition, School Food Authorities shall be required to account 
separately for other food services which are operated by the School Food 
Authority.
    (j) During audits, supervisory assistance reviews, or by other 
means, State agencies, or FNSROs where applicable, shall be responsible 
for monitoring the net cash resources of the nonprofit school food 
service of each School Food Authority participating in the Program. In 
the event that such resources exceed three months average expenditures 
for the School Food Authority's nonprofit school food service, or such 
amount as may be approved by the State agency or FNSRO where applicable, 
the State agency or FNSRO where applicable, may require the School Food 
Authority to reduce children's prices, improve food quality or take 
other actions designed to improve the nonprofit school food service. In 
the absence of any such action, adjustments in the rates of 
reimbursement under the Program shall be made.
    (k)State agencies shall require compliance by School Food 
Authorities with applicable provisions of this part.

(44 U.S.C. 3506; sec. 812, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 
1759a); sec. 819, Pub. L. 97-35, 95 Stat. 533 (42 U.S.C. 1759a, 1773 and 
1757); Pub. L. 79-396, 60 Stat. 231 (42 U.S.C. 1751); Pub. L. 89-642, 80 
Stat 885-890 (42 U.S.C. 1773); Pub. L. 91-248, 84 Stat. 207 (42 U.S.C. 
1759))

[32 FR 37, Jan. 5, 1967. Redesignated by Amdt. 2, 33 FR 14513, Sept. 27, 
1968]

    Editorial Note: For Federal Register citations affecting Sec.  
220.13, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  220.14  Claims against school food authorities.

    (a) State agencies shall disallow any portion of a claim and recover 
any payment made to a School Food Authority that was not properly 
payable under this part. State agencies will use their own procedures to 
disallow claims and recover overpayments already made.
    (b) [Reserved]
    (c) The State agency may refer to CND through the FNSRO for 
determination any action it proposes to take under this section.
    (d) The State agency shall maintain all records pertaining to action 
taken

[[Page 107]]

under this section. Such records shall be retained for a period of 3 
years after the end of the fiscal year to which they pertain.
    (e) If CND does not concur with the State agency's action in paying 
a claim or a reclaim, or in failing to collect an overpayment, CND shall 
assert a claim against the State agency for the amount of such claim, 
reclaim, or overpayment. In all such cases the State agency shall have 
full opportunity to submit to CND evidence or information concerning the 
action taken. If, in the determination of CND, the State agency's action 
was unwarranted, the State agency shall promptly pay to FNS the amount 
of the claim, reclaim, or overpayment.
    (f) The amounts recovered by the State agency from Schools may be 
utilized, first, to make payments to School Food Authorities for the 
purposes of the related program during the fiscal year for which the 
funds were initially available, and second to repay any State funds 
expended in the reimbursement of claims under the program and not 
otherwise repaid. Any amounts recovered which are not so utilized shall 
be returned to FNS in accordance with the requirements of this part.
    (g) With respect to School Food Authorities of schools in which the 
program is administered by FNSRO, when FNSRO disallows a claim or a 
portion of a claim, or makes a demand for refund of an alleged 
overpayment, it shall notify the School Food Authority of the reasons 
for such disallowance or demand and the School Food Authority shall have 
full opportunity to submit evidence or to file reclaims for any amounts 
disallowed or demanded in the same manner as that afforded in this 
section to School Food Authorities of schools in which the program is 
administered by State agencies.
    (h) In the event that the State agency or FNSRO, where applicable, 
finds that a school is failing to meet the requirements of Sec.  
220.8(g), Sec.  220.8(i)(2) and (i)(3), whichever is applicable, the 
State agency or FNSRO need not disallow payment or collect an 
overpayment arising out of such failure, if the State agency or FNSRO 
takes such other action as, in its opinion, will have a corrective 
effect.
    (i) The Secretary shall have the authority to determine the amount 
of, to settle, and to adjust any claim arising under the Program, and to 
compromise or deny such claim or any part thereof. The Secretary shall 
also have the authority to waive such claims if the Secretary determines 
that to do so would serve the purposes of the Program. This provision 
shall not diminish the authority of the Attorney General of the United 
States under section 516 of Title 28, U.S. Code, to conduct litigation 
on behalf of the United States.

(44 U.S.C. 3506; secs. 804, 816 and 817, Pub. L. 97-35, 95 Stat. 521-535 
(42 U.S.C. 1753, 1756, 1759, 1771 and 1785))

[32 FR 37, Jan. 5, 1967. Redesignated by Amdt. 2, 33 FR 14513, Sept. 27, 
1968, and amended by Amdt. 9, 37 FR 9614, May 13, 1972; 40 FR 30925, 
July 24, 1975. Redesignated and amended by Amdt. 25, 41 FR 34757, 34760, 
Aug. 17, 1976; 47 FR 746, Jan. 7, 1982; Amdt. 42, 47 FR 14134, Apr. 2, 
1982; 60 FR 31222, June 13, 1995; 65 FR 26931, May 9, 2000]



Sec.  220.15  Management evaluations and audits.

    (a) State agencies and school food authorities shall comply with the 
requirements of part 3015 of this title concerning the audit 
requirements for recipients and subrecipients of the Department's 
financial assistance.
    (b) These requirements call for organization-wide financial and 
compliance audits to ascertain whether financial operations are 
conducted properly; financial statements are presented fairly; 
recipients and subrecipients comply with the laws and regulations that 
affect the expenditures of Federal funds; recipients and subrecipients 
have established procedures to meet the objectives of federally assisted 
programs; and recipients and subrecipients are providing accurate and 
reliable information concerning grant funds. States and school food 
authorities shall use their own procedures to arrange for and prescribe 
the scope of independent audits, provided that such audits comply with 
the requirements set forth in part 3016 of this title.
    (c) Each State agency shall provide FNS with full opportunity to 
conduct management evaluations (including visits to schools) of all 
operations of the State agency under the programs

[[Page 108]]

covered by this part and shall provide OA with full opportunity to 
conduct audits (including visits to schools) of all operations of the 
State agency under such programs. Each State agency shall make available 
its rec ords, including records of the receipt and expenditure of funds 
under such programs, upon a reasonable request by FNS or OA. OA shall 
also have the right to make audits of the records and operations of any 
school.
    (d) In conducting management evaluations, reviews or audits for any 
fiscal year, the State agency, FNS, or OIG may disregard any overpayment 
if the total overpayment does not exceed $600 or, in the case of State 
agency claims in State administered Programs, it does not exceed the 
amount established under State law, regulations or procedure as a 
minimum amount for which claim will be made for State losses but not to 
exceed $600. However, no overpayment is to be disregarded where there is 
substantial evidence of violations of criminal law or civil fraud 
statutes.

(Secs. 805 and 819, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1773); 
sec. 812, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1759a))

[40 FR 30925, July 24, 1975. Redesignated and amended by Amdt. 25, 41 FR 
34757, 34760, Aug. 17, 1976; 43 FR 59825, Dec. 22, 1978; Amdt. 41, 47 FR 
14135, Apr. 2, 1982; Amdt. 43, 47 FR 18564, Apr. 30, 1982; Amdt. 56, 54 
FR 2990, Jan. 23, 1989; 57 FR 38587, Aug. 26, 1992; 59 FR 1894, Jan. 13, 
1994; 64 FR 50742, Sept. 20, 1999]



Sec.  220.16  Procurement standards.

    (a) Requirements. State agencies and School Food Authorities shall 
comply with the requirements of the Office of Management and Budget 
(OMB) Circular A-102 and the Department's Uniform Federal Assistance 
Regulations, 7 CFR part 3015, subpart S (46 FR 55658) concerning the 
procurement of supplies, food, equipment and other services with Program 
funds. These requirements are adopted by FNS to ensure that such 
materials and services are obtained for the Program efficiently and 
economically and in compliance with applicable laws and executive 
orders.
    (b) Contractual responsibilities. The standards contained in OMB 
Circular A-102 and 7 CFR 3015, do not relieve the State agency or School 
Food Authority of any contractual responsibilities under its contract. 
The State agency or School Food Authority is the responsible authority, 
without recourse to FNS, regarding the settlement and satisfaction of 
all contractual and administrative issues arising out of procurements 
entered into in connection with the Program. This includes but is not 
limited to: source evaluation, protests, disputes, claims, or other 
matters of a contractual nature. Matters concerning violation of law are 
to be referred to the local, State or Federal authority that has proper 
jurisdiction.
    (c) Procurement procedure. The State agency or School Food Authority 
may use their own procurement procedures which reflect applicable State 
and local laws and regulations, provided that procurements made with 
Program funds adhere to the standards set forth in OMB Circular A-102 
and 7 CFR part 3015.
    (d) Buy American.--(1) Definition of domestic commodity or product. 
In this paragraph (d), the term ``domestic commodity or product'' 
means--
    (i) An agricultural commodity that is produced in the United States; 
and
    (ii) A food product that is processed in the United States 
substantially using agricultural commodities that are produced in the 
United States.
    (2) Requirement.--(i) In general. Subject to paragraph (d)(2)(ii) of 
this section, the Department shall require that a school food authority 
purchase, to the maximum extent practicable, domestic commodities or 
products.
    (ii) Limitations. Paragraph (d)(2)(i) of this section shall apply 
only to--
    (A) A school food authority located in the contiguous United States; 
and
    (B) A purchase of domestic commodity or product for the school 
breakfast program under this part.
    (3) Applicability to Hawaii. Paragraph (d)(2)(i) of this section 
shall apply to a school food authority in Hawaii with respect to 
domestic commodities or products that are produced in Hawaii in 
sufficient quantities to meet the needs of meals provided under the

[[Page 109]]

school breakfast program under this part.

(Pub. L. 79-396, 60 Stat. 231 (42 U.S.C. 1751); Pub. L. 89-642, 80 Stat. 
885-890 (42 U.S.C. 1773); Pub. L. 91-248, 84 Stat. 207 (42 U.S.C. 1759))

[Amdt. 45, 48 FR 19355, Apr. 29, 1983, as amended at 64 FR 50743, Sept. 
20, 1999]



Sec.  220.17  Prohibitions.

    (a) In carrying out the provisions of this part, the Department 
shall not impose any requirements with respect to teaching personnel, 
curriculum, instructions, methods of instruction, and materials of 
instruction in any school as a condition for participation in the 
Program.
    (b) The value of assistance to children under the Act shall not be 
considered to be income or resources for any purposes under any Federal 
or State laws, including, but not limited to, laws relating to taxation, 
welfare, and public assistance programs. Expenditure of funds from State 
and local sources for the maintenance of food programs for children 
shall not be diminished as a result of funds received under the Act.

[32 FR 37, Jan. 5, 1967. Redesignated by Amdt. 2, 33 FR 14513, Sept. 27, 
1968. Redesignated and amended by Amdt. 25, 41 FR 34757, 34760, Aug. 17, 
1976; 64 FR 50743, Sept. 20, 1999]



Sec.  220.18  Suspension, termination and grant closeout procedures.

    Whenever it is determined that a State agency has materially failed 
to comply with the provisions of this part, or with FNS guidelines and 
instructions, FNS may suspend or terminate the Program in whole, or in 
part, or take any other action as may be available and appropriate. A 
State agency may also terminate the Program by mutual agreement with 
FNS. FNS and the State agency shall comply with the provisions of the 
Department's Uniform Federal Assistance Regulations, 7 CFR part 3015, 
subpart N concerning grant suspension, termination and closeout 
procedures. Furthermore, the State agency or FNSRO were applicable, 
shall apply these provisions to suspension or termination of the Program 
in School Food Authorities.

[Amdt. 49, 49 FR 18988, May 4, 1984]



Sec.  220.19  Free and reduced price breakfasts.

    The determination of the children to whom free and reduced price 
breakfasts are to be served because of inability to pay the full price 
thereof, and the serving of the breakfasts to such children, shall be 
effected in accordance with part 245 of this chapter.

[Amdt. 25, 41 FR 34760, Aug. 17, 1976]



Sec.  220.20  Program information.

    School Food Authorities desiring information concerning the program 
should write to their State educational agency or to the appropriate 
Food and Nutrition Service Regional Office as indicated below:
    (a) In the States of Delaware, District of Columbia, Maryland, New 
Jersey, Pennsylvania, Puerto Rico, Virginia, Virgin Islands, and West 
Virginia: Mid-Atlantic Regional Office, FNS, U.S. Department of 
Agriculture, 300 Corporate Boulevard, Robbinsville, New Jersey 08691-
1598.
    (b) In the States of Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee: Southeast 
Regional Office, FNS, U.S. Department of Agriculture, 161 Forsyth Street 
SW., Room 8T36, Atlanta, Georgia 30303.
    (c) In the States of Illinois, Indiana, Michigan, Minnesota, Ohio, 
and Wisconsin: Midwest Regional Office, FNS, U.S. Department of 
Agriculture, 77 West Jackson Boulevard, 20th Floor, Chicago, Illinois 
60604-3507.
    (d) In the States of Arkansas, Louisiana, New Mexico, Oklahoma, and 
Texas: Southwest Regional Office, FNS, U.S. Department of Agriculture, 
1100 Commerce Street, Room 5-C-30, Dallas, Texas 75242.
    (e) In the States of Alaska, American Samoa, Arizona, California, 
Guam, Hawaii, Idaho, Nevada, Oregon, the Commonwealth of the Northern 
Mariana Islands, and Washington: Western Regional Office, FNS, U.S. 
Department of Agriculture, 550 Kearny Street, Room 400, San Francisco, 
California 94108.

[[Page 110]]

    (f) In the States of Connecticut, Maine, Massachusetts, New 
Hampshire, New York, Rhode Island, and Vermont: Northeast Regional 
Office, FNS, U.S. Department of Agriculture, 10 Causeway Street, Room 
501, Boston, Massachusetts 02222-1065.
    (g) In the States of Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, North Dakota, South Dakota, Utah, and Wyoming: Mountain Plains 
Regional Office, FNS, U.S. Department of Agriculture, 1244 Speer 
Boulevard, Suite 903, Denver, Colorado 80204.

(Sec. 10(a), Pub. L. 95-627, 92 Stat. 3623 (42 U.S.C. 1760); sec. 
10(d)(3), Pub. L. 95-627, 92 Stat. 3624 (42 U.S.C. 1757); sec. 14, Pub. 
L. 95-627, 92 Stat. 3625-3626; secs. 804, 816, 817 and 819, Pub. L. 97-
35, 95 Stat. 521-535 (42 U.S.C. 1753, 1756, 1759, 1771, 1773, and 1785))

[32 FR 37, Jan. 5, 1967. Redesignated at 49 FR 18988, May 4, 1984]

    Editorial Note: For Federal Register citations affecting Sec.  
220.20, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  220.21  Information collection/recordkeeping--OMB assigned control numbers.

------------------------------------------------------------------------
                                                             Current OMB
       7 CFR section where requirements are described          control
                                                                number
------------------------------------------------------------------------
220.3(e)...................................................    0584-0327
220.5......................................................    0584-0012
220.7(a)-(e)...............................................    0584-0329
                                                               0584-0012
                                                               0584-0026
220.8(f)...................................................    0584-0012
220.9(a)...................................................    0584-0012
220.11 (a), (b), (e).......................................    0584-0012
                                                               0584-0002
                                                               0584-0341
220.12(b)..................................................    0584-0012
220.13 (a-1)-(c), (f)......................................    0584-0026
                                                               0584-0002
                                                               0584-0341
                                                               0584-0012
220.14(d)..................................................    0584-0012
220.15.....................................................    0584-0012
------------------------------------------------------------------------


[Amdt. 56, 54 FR 2990, Jan. 23, 1989]

            Appendix A to Part 220--Alternate Foods for Meals

                   I. Formulated Grain-Fruit Products

    1. Schools may utilize the formulated grain-fruit products defined 
in paragraph 3 as a food component in meeting the meal requirements of 
this part under the following terms and conditions:
    (a) Formulated grain-fruit products may be used to meet one bread/
bread alternate and the fruit/vegetable requirement in the breakfast 
pattern specified in Sec.  220.8.
    (b) Only individually wrapped formulated grain-fruit products which 
bear a label conforming to the following legend shall be utilized. 
``This product conforms to U.S.D.A. Child Nutrition Program 
specifications. For breakfast, it meets the requirements for fruit/
vegetable/juice and one bread/bread alternate.''
    2. Only formulated grain-fruit products that have been accepted by 
the Food and Nutrition Service (FNS) for use in the USDA child nutrition 
programs may be labeled as provided in paragraph 1.(b) of this appendix. 
Manufacturers seeking acceptance of their product shall furnish FNS a 
chemical analysis, protein efficiency ratio analysis, and such other 
pertinent data as may be requested by FNS. This information shall be 
forwarded to: Director, Nutrition and Technical Services Staff, Food and 
Nutrition Service, U.S. Department of Agriculture, Alexandria, Virginia 
22302. All laboratory analyses are to be performed by independent or 
other laboratories acceptable to FNS. (FNS prefers an independent 
laboratory.) All laboratories shall retain the ``raw'' laboratory data 
for a period of one year. Such information shall be made available to 
FNS upon request.
    3. To be accepted by FNS, products must have the following 
characteristics and meet the following nutritional specifications:
    (a) Types. There are two types of products: one is a grain-type 
product and the other a grain-fruit type product.
    (b) Ingredients. A grain-type product shall have grain as its 
primary ingredient. A grain-fruit type product shall have fruit as its 
primary ingredient. Both types of products must have at least 25 percent 
of their weight derived from grain. All ingredients and/or components 
shall comply with pertinent requirements or standards of the USDA and 
the Food, Drug, and Cosmetic Act, as amended, and any regulations issued 
thereunder.
    (c) Nutritional specifications. Each serving of the product shall 
meet the minimum compositional requirements in the following table. The 
requirements as specified for those nutrients not limited by maximum 
values will be deemed to have been met if reasonable overages of the 
vitamins and minerals, within the limits of good manufacturing practice, 
are present to insure that the required levels are maintained throughout 
the expected shelf life under customary conditions of distribution and 
storage. An exception will be made for vitamins or minerals which occur 
naturally in an ingredient at such concentration that the level 
specified will be substantially exceeded in the final product. Such 
excess will be permitted

[[Page 111]]

but no lable claim of nutritional advantage can be made for overages for 
any nutrients. Analytical methods employed should be according to the 
standard procedures defined in the Association of Official Analytical 
Chemists, 1970, ``Official Methods of Analysis,'' 11th edition, 
Washington, DC or by appropriate analytical procedures FNS considers 
reliable.

             Nutritional Levels of Grain-Fruit Products \1\
------------------------------------------------------------------------
            Nutrient                      Unit          Minimum  Maximum
------------------------------------------------------------------------
Weight..........................  Ounce...............        2      4.0
PER.............................  Casein=2.5..........      2.0  .......
Moisture........................  Percent weight......  .......     40.0
Fat \2\.........................  ......do............  .......     22.0
Fiber...........................  ......do............  .......      0.8
Protein (Nx6.25)................  Gram................      5.0  .......
Energy..........................  Kilocalorie.........      250  .......
Vitamin A \3\...................  International unit..    1,115  1,675.0
Vitamin E.......................  ......do............        5  .......
Vitamin B12.....................  Microgram...........     1.25  .......
Thiamin.........................  Milligram...........      .26  .......
Riboflavin......................  ......do............      .13  .......
Vitamin B6......................  ......do............      .26  .......
Vitamin C.......................  ......do............       20  .......
Niacin..........................  ......do............     2.65  .......
Folacin.........................  ......do............      .04  .......
Iron \4\........................  ......do............      4.4  .......
Calcium.........................  ......do............      120  .......
Phosphorus......................  ......do............      120  .......
Magnesium.......................  ......do............       30  .......
------------------------------------------------------------------------
\1\ These specifications are based on a nutrient level for acceptable
  products plus \1/2\ pint of fluid milk (as defined in Sec.   220.2 of
  the regulations (7 CFR part 220)) to provide at least 25 percent of
  the Recommended Dietary Allowances (RDA), 1968, for 10- to 12-year-old
  boys and girls for specified nutrients except magnesium and
  kilocalories. Magnesium and kilocalories--at least 13 percent of this
  RDA.
\2\ Although the maximum fat in these specifications is 22 percent,
  consideration should be given to the development of formulated items
  containing less fat. Most medical authorities recommend keeping the
  dietary intake of fats at about \1/3\ of the day's calories. At least
  5 percent of the total calories shall be from linoleic acid.
\3\ Vitamin A levels above the maximum of 1,675 I.U. will be allowed in
  products containing this nutrient as a natural food, and if the
  vitamin has not been added to the ingredients or foods.
\4\ Recommended sources of iron are ferric ammonium citrate, ferrous
  fumarate, ferrous sulfates (FeSO4 or FeSO4 7H2 O), ferrous gluconate,
  reduced iron, or other sources known to have a similar relative
  biological value.

                     II. Alternate Protein Products

  A. What Are the Criteria for Alternate Protein Products Used in the 
                        School Breakfast Program?

    1. An alternate protein product used in meals planned under the 
food-based menu planning approaches in Sec.  220.8(g), must meet all of 
the criteria in this section.
    2. An alternate protein product whether used alone or in combination 
with meat or other meat alternates must meet the following criteria:
    a. The alternate protein product must be processed so that some 
portion of the non-protein constituents of the food is removed. These 
alternate protein products must be safe and suitable edible products 
produced from plant or animal sources.
    b. The biological quality of the protein in the alternate protein 
product must be at least 80 percent that of casein, determined by 
performing a Protein Digestibility Corrected Amino Acid Score (PDCAAS).
    c. The alternate protein product must contain at least 18 percent 
protein by weight when fully hydrated or formulated. (``When hydrated or 
formulated'' refers to a dry alternate protein product and the amount of 
water, fat, oil, colors, flavors or any other substances which have been 
added).
    d. Manufacturers supplying an alternate protein product to 
participating schools or institutions must provide documentation that 
the product meets the criteria in paragraphs A.2. a through c of this 
appendix.
    e. Manufacturers should provide information on the percent protein 
contained in the dry alternate protein product and on an as prepared 
basis.
    f. For an alternate protein product mix, manufacturers should 
provide information on:
    (1) The amount by weight of dry alternate protein product in the 
package;
    (2) Hydration instructions; and
    (3) instructions on how to combine the mix with meat or other meat 
alternates.

   B. How Are Alternate Protein Products Used in the School Breakfast 
                                Program?

    1. Schools, institutions, and service institutions may use alternate 
protein products to fulfill all or part of the meat/meat alternate 
component discussed in Sec.  220.8. The following terms and conditions 
apply:
    a. The alternate protein product may be used alone or in combination 
with other food ingredients. Examples of combination items are beef 
patties, beef crumbles, pizza topping, meat loaf, meat sauce, taco 
filling, burritos, and tuna salad.
    b. Alternate protein products may be used in the dry form 
(nonhydrated), partially hydrated or fully hydrated form. The moisture 
content of the fully hydrated alternate protein product (if prepared 
from a dry concentrated form) must be such that the mixture will have a 
minimum of 18 percent protein by weight or equivalent amount for the dry 
or partially hydrated form (based on the level that would be provided if 
the product were fully hydrated).

 C. How Are Commercially Prepared Products Used in the School Breakfast 
                                Program?

    Schools, institutions, and service institutions may use a 
commercially prepared meat or other meat alternate products combined 
with alternate protein products or use a

[[Page 112]]

commercially prepared product that contains only alternate protein 
products.

(Secs. 804, 816, 817, and 819, Pub. L. 97-35, 95 Stat. 521-535 (42 
U.S.C. 1753, 1756, 1759, 1771, 1773 and 1785))

[Amdt. 18, 39 FR 11249, Mar. 27, 1974, as amended at 40 FR 37027, Aug. 
25, 1975; Amdt. 45, 48 FR 195, Jan. 4, 1983; Amdt. 57, 54 FR 13048, Mar. 
30, 1989; 60 FR 31222, June 13, 1995; 65 FR 12436, Mar. 9, 2000; 65 FR 
26923, May 9, 2000]

Appendix B to Part 220--Categories of Foods of Minimal Nutritional Value

    (1) Soda Water--A class of beverages made by absorbing carbon 
dioxide in potable water. The amount of carbon dioxide used is not less 
than that which will be absorbed by the beverage at a pressure of one 
atmosphere and at a temperature of 60[deg] F. It either contains no 
alcohol or only such alcohol, not in excess of 0.5 percent by weight of 
the finished beverage, as is contributed by the flavoring ingredient 
used. No product shall be excluded from this definition because it 
contains artificial sweeteners or discrete nutrients added to the food 
such as vitamins, minerals and protein.
    (2) Water ices. As defined by 21 CFR 135.160 Food and Drug 
Administration Regulations except that water ices which contain fruit or 
fruit juices are not included in this definition.
    (3) Chewing gum. Flavored products from natural or synthetic gums 
and other ingredients which form an insoluble mass for chewing.
    (4) Certain candies. Processed foods made predominantly from 
sweeteners or artificial sweeteners with a variety of minor ingredients 
which characterize the following types: (a) Hard candy. A product made 
predominantly from sugar (sucrose) and corn syrup which may be flavored 
and colored, is characterized by a hard, brittle texture, and includes 
such items as sour balls, fruit balls, candy sticks, lollipops, 
starlight mints, after dinner mints, sugar wafers, rock candy, cinnamon 
candies, breath mints, jaw breakers and cough drops.
    (b) Jellies and gums. A mixture of carbohydrates which are combined 
to form a stable gelatinous system of jelly-like character, and are 
generally flavored and colored, and include gum drops, jelly beans, 
jellied and fruit-flavored slices.
    (c) Marshmallow candies. An aerated confection composed of sugar, 
corn syrup, invert sugar, 20% water and gelatin or egg white to which 
flavors and colors may be added.
    (d) Fondant. A product consisting of microscopic-sized sugar 
crystals which are separated by a thin film of sugar and/or invert sugar 
in solution such as candy corn, soft mints.
    (e) Licorice. A product made predominantly from sugar and corn syrup 
which is flavored with an extract made from the licorice root.
    (f) Spun candy. A product that is made from sugar that has been 
boiled at high temperature and spun at a high speed in a special 
machine.
    (g) Candy coated popcorn. Popcorn which is coated with a mixture 
made predominantly from sugar and corn syrup.

                    Schedule for Amending Appendix B
------------------------------------------------------------------------
                                                Publication
     Actions for publication     ---------------------------------------
                                          May              November
------------------------------------------------------------------------
Deadline for receipt of           Nov. 15...........  May 15.
 petitions by USDA.
USDA to notify petitioners of     Feb. 1............  Aug. 1.
 results of Departmental review
 and publish proposed rule (if
 applicable).
60 Day Comment Period...........  Feb 1 through Apr.  Aug. 1 through
                                   1.                  Oct. 1.
Public Notice of Amendment of     May 1.............  Nov. 1.
 Appendix B by.
------------------------------------------------------------------------

Written petitions should be sent to the Chief, Technical Assistance 
Branch, Nutrition and Technical Services Divisions, FNS, USDA, 
Alexandria, Virginia 22302 on or before November 15 or May 15 of each 
year. Petitions must include all information specified in Sec.  
210.15b(b) (1) or (2), and Sec.  220.12(b) (1) or (2) as appropriate.

(Sec. 17, Pub. L. 95-166, 91 Stat. 1345 (42 U.S.C. 1779); secs. 804, 
816, 817 and 819, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1753, 1756, 
1759, 1771, 1773 and 1785))

[Amdt. 32, 45 FR 6772, Jan. 29, 1980, as amended at 45 FR 72081, Oct. 
31, 1980; 45 FR 76937, Nov. 21, 1980; Amdt. 45, 48 FR 195, Jan. 4, 1983; 
54 FR 18466, May 1, 1989]

      Appendix C to Part 220--Child Nutrition (CN) Labeling Program

    1. The Child Nutrition (CN) Labeling Program is a voluntary 
technical assistance program administered by the Food and Nutrition 
Service (FNS) in conjunction with the Food Safety and Inspection Service 
(FSIS), and Agricultural Marketing Service (AMS) of the U.S. Department 
of Agriculture (USDA), and National Marine Fisheries Service of the U.S. 
Department of Commerce (USDC) for the Child Nutrition Programs. This 
program essentially involves the review of a manufacturer's recipe or 
product formulation to determine the contribution a serving of a 
commercially prepared product makes toward meal pattern requirements

[[Page 113]]

and a review of the CN label statement to ensure its accuracy. CN 
labeled products must be produced in accordance with all requirements 
set forth in this rule.
    2. Products eligible for CN labels are as follows:
    (a) Commercially prepared food products that contribute 
significantly to the meat/meat alternate component of meal pattern 
requirements of 7 CFR 210.10 or 210.10a, whichever is applicable, 
225.21, and 226.20 and are served in the main dish.
    (b) Juice drinks and juice drink products that contain a minimum of 
50 percent full-strength juice by volume.
    3. For the purpose of this appendix the following definitions apply:
    (a) ``CN label'' is a food product label that contains a CN label 
statement and CN logo as defined in paragraph 3 (b) and (c) below.
    (b) The ``CN logo'' (as shown below) is a distinct border which is 
used around the edges of a ``CN label statement'' as defined in 
paragraph 3(c).
[GRAPHIC] [TIFF OMITTED] TC17SE91.003

    (c) The ``CN label statement'' includes the following:
    (1) The product identification number (assigned by FNS),
    (2) The statement of the product's contribution toward meal pattern 
requirements of 7 CFR 210.10 or 210.10a, whichever is applicable, 220.8, 
225.21, and 226.20. The statement shall identify the contribution of a 
specific portion of a meat/meat alternate product toward the meat/meat 
alternate, bread/bread alternate, and/or vegetable/fruit component of 
the meal pattern requirements. For juice drinks and juice drink products 
the statement shall identify their contribution toward the vegetable/
fruit component of the meal pattern requirements,
    (3) Statement specifying that the use of the CN logo and CN 
statement was authorized by FNS, and
    (4) The approval date.
    For example:
    [GRAPHIC] [TIFF OMITTED] TC17SE91.004
    
    (d) Federal inspection means inspection of food products by FSIS, 
AMS or USDC.
    4. Food processors or manufacturers may use the CN label statement 
and CN logo as defined in paragraph 3 (b) and (c) under the following 
terms and conditions:
    (a) The CN label must be reviewed and approved at the national level 
by the Food and Nutrition Service and appropriate USDA or USDC Federal 
agency responsible for the inspection of the product.
    (b) The CN labeled product must be produced under Federal inspection 
by USDA or USDC. The Federal inspection must be performed in accordance 
with an approved partial or total quality control program or standards 
established by the appropriate Federal inspection service.
    (c) The CN label statement must be printed as an integral part of 
the product label along with the product name, ingredient listing, the 
inspection shield or mark for the appropriate inspection program, the 
establishment number where appropriate, and the manufacturer's or 
distributor's name and address.
    (1) The inspection marking for CN labeled non-meat, non-poultry, and 
non-seafood

[[Page 114]]

products with the exception of juice drinks and juice drink products is 
established as follows:
[GRAPHIC] [TIFF OMITTED] TC17SE91.005

    (d) Yields for determining the product's contribution toward meal 
pattern requirements must be calculated using the Food Buying Guide for 
Child Nutrition Programs (Program Aid Number 1331).
    5. In the event a company uses the CN logo and CN label statement 
inappropriately, the company will be directed to discontinue the use of 
the logo and statement and the matter will be referred to the 
appropriate agency for action to be taken against the company.
    6. Products that bear a CN label statement as set forth in paragraph 
3(c) carry a warranty. This means that if a food service authority 
participating in the child nutrition programs purchases a CN labeled 
product and uses it in accordance with the manufacturer's directions, 
the school or institution will not have an audit claim filed against it 
for the CN labeled product for noncompliance with the meal pattern 
requirements of 7 CFR 210.10 or 210.10a, whichever is applicable, 220.8, 
225.21, and 226.20. If a State or Federal auditor finds that a product 
that is CN labeled does not actually meet the meal pattern requirements 
claimed on the label, the auditor will report this finding to FNS. FNS 
will prepare a report of the findings and send it to the appropriate 
divisions of FSIS and AMS of the USDA, National Marine Fisheries 
Services of the USDC, Food and Drug Administration, or the Department of 
Justice for action against the company.
    Any or all of the following courses of action may be taken:
    (a) The company's CN label may be revoked for a specific period of 
time;
    (b) The appropriate agency may pursue a misbranding or mislabeling 
action against the company producing the product;
    (c) The company's name will be circulated to regional FNS offices;
    (d) FNS will require the food service program involved to notify the 
State agency of the labeling violation.
    7. FNS is authorized to issue operational policies, procedures, and 
instructions for the CN Labeling Program.
    To apply for a CN label and to obtain additional information on CN 
label application procedures write to: CN Labels, U.S. Department of 
Agriculture, Food and Nutrition Service, Nutrition and Technical 
Services Division, 3101 Park Center Drive, Alexandria, Virginia 22302.

(National School Lunch Act, secs. 9, 13, 17; 42 U.S.C. 1758, 1761, 1766; 
7 CFR 210.10, 220.8, 225.21, 226.20)

[49 FR 18457, May 1, 1984; 49 FR 45109, Nov. 15, 1984; 60 FR 31222, June 
13, 1995; 65 FR 26923, May 9, 2000]



PART 225_SUMMER FOOD SERVICE PROGRAM--Table of Contents




                            Subpart A_General

Sec.
225.1 General purpose and scope.
225.2 Definitions.
225.3 Administration.

                    Subpart B_State Agency Provisions

225.4 Program management and administration plan.
225.5 Payments to State agencies and use of Program funds.
225.6 State agency responsibilities.
225.7 Program monitoring and assistance.
225.8 Records and reports.
225.9 Program assistance to sponsors.
225.10 Audits and management evaluations.
225.11 Corrective action procedures.
225.12 Claims against sponsors.
225.13 Appeal procedures.

                  Subpart C_Sponsor and Site Provisions

225.14 Requirements for sponsor participation.
225.15 Management responsibilities of sponsors.
225.16 Meal service requirements.

               Subpart D_General Administrative Provisions

225.17 Procurement standards.
225.18 Miscellaneous administrative provisions.
225.19 Regional office addresses.
225.20 Information collection/recordkeeping--OMB assigned control 
          numbers.

Appendix A to Part 225--Alternate Foods for Meals
Appendix B to Part 225 [Reserved]
Appendix C to Part 225--Child Nutrition (CN) Labeling Program

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

    Source: 54 FR 18208, Apr. 27, 1989, unless otherwise noted.

[[Page 115]]



                            Subpart A_General



Sec.  225.1  General purpose and scope.

    This part establishes the regulations under which the Secretary will 
administer a Summer Food Service Program. Section 13 of the Act 
authorizes the Secretary to assist States through grants-in-aid to 
conduct nonprofit food service programs for children during the summer 
months and at other approved times. The primary purpose of the Program 
is to provide food service to children from needy areas during periods 
when area schools are closed for vacation.



Sec.  225.2  Definitions.

    Act means the National School Lunch Act, as amended.
    Administrative costs means costs incurred by a sponsor related to 
planning, organizing, and managing a food service under the Program, and 
excluding interest costs and operating costs.
    Adult means, for the purposes of the collection of social security 
numbers as a condition of eligibility for Program meals, any individual 
21 years of age or older.
    Advance payments means financial assistance made available to a 
sponsor for its operating costs and/or administrative costs prior to the 
end of the month in which such costs will be incurred.
    Areas in which poor economic conditions exist means:
    (a) The local areas from which an open site and restricted open site 
draw their attendance in which at least 50 percent of the children are 
eligible for free or reduced-price school meals under the National 
School Lunch Program and the School Breakfast Program, as determined:
    (1) By information provided from departments of welfare and 
education, zoning commissions, census tracts, and organizations 
determined by the State agency to be migrant organizations;
    (2) By the number of free and reduced-price lunches or breakfasts 
served to children attending public and nonprofit private schools 
located in the areas of Program sites; or
    (3) From other appropriate sources; or
    (b) A closed enrolled site.
    Camps means residential summer camps and nonresidential day camps 
which offer a regularly scheduled food service as part of an organized 
program for enrolled children. Nonresidential camp sites shall offer a 
continuous schedule of organized cultural or recreational programs for 
enrolled children between meal services.
    Children means (a) persons 18 years of age and under, and (b) 
persons over 18 years of age who are determined by a State educational 
agency or a local public educational agency of a State to be mentally or 
physically handicapped and who participate in a public or nonprofit 
private school program established for the mentally or physically 
handicapped.
    Closed enrolled site means a site which is open only to enrolled 
children, as opposed to the community at large, and in which at least 50 
percent of the enrolled children at the site are eligible for free or 
reduced price school meals under the National School Lunch Program and 
the School Breakfast Program, as determined by approval of applications 
in accordance with Sec.  225.15(f).
    Continuous school calendar means a situation in which all or part of 
the student body of a school is (a) on a vacation for periods of 15 
continuous school days or more during the period October through April 
and (b) in attendance at regularly scheduled classes during most of the 
period May through September.
    Costs of obtaining food means costs related to obtaining food for 
consumption by children. Such costs may include, in addition to the 
purchase price of agricultural commodities and other food, the cost of 
processing, distributing, transporting, storing, or handling any food 
purchased for, or donated to, the Program.
    Current income means income, as defined in Sec.  225.15(f)(4)(vi), 
received during the month prior to application for free meals. If such 
income does not accurately reflect the household's annual income, income 
must be based on the projected annual household income. If the prior 
year's income provides an accurate reflection of the household's current 
annual income, the prior year may be used as a base for the projected 
annual income.

[[Page 116]]

    Department means the U.S. Department of Agriculture.
    Disclosure means individual children's program eligibility 
information obtained through the free and reduced price meal eligibility 
process that is revealed or used for a purpose other than for the 
purpose for which the information was obtained. The term refers to 
access, release, or transfer of personal data about children by means of 
print, tape, microfilm, microfiche, electronic communication or any 
other means.
    Documentation means:
    (a) The completion of the following information on a free meal 
application:
    (1) Names of all household members;
    (2) Income received by each household member, identified by source 
of income (such as earnings, wages, welfare, pensions, support payments, 
unemployment compensation, social security and other cash income);
    (3) The signature of an adult household member; and
    (4) The social security number of the adult household member who 
signs the application, or an indication that he/she does not possess a 
social security number; or
    (b) For a child who is a member of a household receiving food stamp, 
FDPIR, or TANF benefits, ``documentation'' means completion of only the 
following information on a free meal application:
    (1) The name(s) and appropriate food stamp, FDPIR, or TANF case 
number(s) for the child(ren); and
    (2) the signature of an adult member of the household.
    Experienced site means a site which, as determined by the State 
agency, has successfully participated in the Program in the prior year.
    Experienced sponsor means a sponsor which, as determined by the 
State agency, has successfully participated in the Program in the prior 
year.
    Family means a group of related or nonrelated individuals who are 
not residents of an institution or boarding house but who are living as 
one economic unit.
    FDPIR household means any individual or group of individuals which 
is currently certified to receive assistance as a household under the 
Food Distribution Program on Indian Reservations.
    Fiscal year means the period beginning October 1 of any calendar 
year and ending September 30 of the following calendar year.
    FNS means the Food and Nutrition Service of the Department.
    FNSRO means the appropriate FNS Regional Office.
    Food service management company means any commercial enterprise or 
nonprofit organization with which a sponsor may contract for preparing 
unitized meals, with or without milk, for use in the Program, or for 
managing a sponsor's food service operations in accordance with the 
limitations set forth in Sec.  225.15. Food service management companies 
may be: (a) Public agencies or entities; (b) private, nonprofit 
organizations; or (c) private, for-profit companies.
    Food stamp household means any individual or group of individuals 
which is currently certified to receive assistance as a household under 
the Food Stamp Program.
    Household means ``family,'' as defined in this section.
    Income accruing to the program means all funds used by a sponsor in 
its food service program, including but not limited to all monies, other 
than program payments, received from Federal, State and local 
governments, from food sales to adults, and from any other source 
including cash donations or grants. Income accruing to the Program will 
be deducted from combined operating and administrative costs.
    Income standards means the family-size and income standards 
prescribed annually by the Secretary for determining eligibility for 
reduced price meals under the National School Lunch Program and the 
School Breakfast Program.
    Meals means food which is served to children at a food service site 
and which meets the nutritional requirements set out in this part.
    Medicaid means the State medical assistance program under title XIX 
of the Social Security Act (42 U.S.C. 1396 et seq.).
    Milk means whole milk, lowfat milk, skim milk, and buttermilk. All 
milk must be fluid and pasteurized and must

[[Page 117]]

meet State and local standards for the appropriate type of milk. Milk 
served may be flavored or unflavored. In Alaska, Hawaii, American Samoa, 
Guam, Puerto Rico, the Trust Territory of the Pacific Islands, the 
Northern Mariana Islands, and the Virgin Islands of the United States, 
if a sufficient supply of such types of fluid milk cannot be obtained, 
reconstituted or recombined milk may be used. All milk should contain 
Vitamins A and D at the levels specified by the Food and Drug 
Administration and at levels consistent with State and local standards 
for such milk.
    Needy children means children from families whose incomes are equal 
to or below the Secretary's Guidelines for Determining Eligibility for 
Reduced Price School Meals.
    New site means a site which did not participate in the Program in 
the prior year, or, as determined by the State agency, a site which has 
experienced significant staff turnover from the prior year.
    New sponsor means a sponsor which did not participate in the Program 
in the prior year, or, as determined by the State agency, a sponsor 
which has experienced significant staff turnover from the prior year.
    NYSP means the National Youth Sports Program administered by the 
National Collegiate Athletic Association.
    NYSP feeding site means a site at which all of the children 
receiving Program meals are enrolled in the NYSP and which qualifies for 
Program participation on the basis of documentation that the site meets 
the definition of ``areas in which poor economic conditions exist'' as 
provided in this section.
    OIG means the Office of the Inspector General of the Department.
    Open site means a site at which meals are made available to all 
children in the area and which is located in an area in which at least 
50 percent of the children are from households that would be eligible 
for free or reduced price school meals under the National School Lunch 
Program and the School Breakfast Program, as determined in accordance 
with paragraph (a) of the definition of Areas in which poor economic 
conditions exist.
    Operating costs means the cost of operating a food service under the 
Program,
    (a) Including the (1) cost of obtaining food, (2) labor directly 
involved in the preparation and service of food, (3) cost of nonfood 
supplies, (4) rental and use allowances for equipment and space, and (5) 
cost of transporting children in rural areas to feeding sites in rural 
areas, but
    (b) Excluding (1) the cost of the purchase of land, acquisition or 
construction of buildings, (2) alteration of existing buildings, (3) 
interest costs, (4) the value of in-kind donations, and (5) 
administrative costs.
    Private nonprofit means tax exempt under the Internal Revenue Code 
of 1986, as amended.
    Private nonprofit organization means an organization (other than 
private nonprofit residential camps, school food authorities, or 
colleges or universities participating in the NYSP) which meets the 
definition of ``private nonprofit'' in this section and which:
    (a) Administers the Program:
    (1) At no more than 25 sites, with not more than 300 children being 
served at any approved meal service at any one site; or
    (2) With a waiver granted by the State in accordance with Sec.  
225.6(b)(ii), not more than 500 children being served at any approved 
meal service at any one site;
    (b) Operates in areas where a school food authority has not 
indicated that it will operate the Program in the current year;
    (c) Exercises full control and authority over the operation of the 
Program at all sites under its sponsorship;
    (d) Provides ongoing year-round activities for children or families;
    (e) Demonstrates that it possesses adequate management and the 
fiscal capacity to operate the Program; and
    (f) Meets applicable State and local health, safety, and sanitation 
standards.
    Program means the Summer Food Service Program for Children 
authorized by Section 13 of the Act.
    Program funds means Federal financial assistance made available to 
State

[[Page 118]]

agencies for the purpose of making Program payments.
    Program payments means financial assistance in the form of start-up 
payments, advance payments, or reimbursement paid to sponsors for 
operating and administrative costs.
    Restricted open site means a site which is initially open to broad 
community participation, but at which the sponsor restricts or limits 
attendance for reasons of security, safety or control. Site eligibility 
for a restricted open site shall be documented in accordance with 
paragraph (a) of the definition of Areas in which poor economic 
conditions exist.
    Rural means (a) any area in a county which is not a part of a 
Metropolitan Statistical Area or (b) any ``pocket'' within a 
Metropolitan Statistical Area which, at the option of the State agency 
and with FNSRO concurrence, is determined to be geographically isolated 
from urban areas.
    School food authority means the governing body which is responsible 
for the administration of one or more schools and which has the legal 
authority to operate a lunch program in those schools. In addition, for 
the purpose of determining the applicability of food service management 
company registration and bid procedure requirements, ``school food 
authority'' also means any college or university which participates in 
the Program.
    Secretary means the Secretary of Agriculture.
    Self-preparation sponsor means a sponsor which prepares the meals 
that will be served at its site(s) and does not contract with a food 
service management company for unitized meals, with or without milk, or 
for management services.
    Session means a specified period of time during which an enrolled 
group of children attend camp.
    Site means a physical location at which a sponsor provides a food 
service for children and at which children consume meals in a supervised 
setting.
    Special account means an account which a State agency may require a 
vended sponsor to establish with the State agency or with a Federally 
insured bank. Operating costs payable to the sponsor by the State agency 
are deposited in the account and disbursement of monies from the account 
must be authorized by both the sponsor and the food service management 
company.
    Sponsor means a public or private nonprofit school food authority, a 
public or private nonprofit residential summer camp, a unit of local, 
municipal, county or State government, a public or private nonprofit 
college or university currently participating in the NYSP, or a private 
nonprofit organization which develops a special summer or other school 
vacation program providing food service similar to that made available 
to children during the school year under the National School Lunch and 
School Breakfast Programs and which is approved to participate in the 
Program. Sponsors are referred to in the Act as ``service 
institutions''.
    Start-up payments means financial assistance made available to a 
sponsor for administrative costs to enable it to effectively plan a 
summer food service, and to establish effective management procedures 
for such a service. These payments shall be deducted from subsequent 
administrative cost payments.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands of the United States, 
Guam, American Samoa, the Trust Territory of the Pacific Islands, and 
the Northern Mariana Islands.
    State agency means the State educational agency or an alternate 
agency that has been designated by the Governor or other appropriate 
executive or legislative authority of the State and which has been 
approved by the Department to administer the Program within the State, 
or, in States where FNS administers the Program, FNSRO.
    State Children's Health Insurance Program (SCHIP) means the State 
medical assistance program under title XXI of the Social Security Act 
(42 U.S.C. 1397aa et seq.).
    TANF means the State funded program under part A of title IV of the 
Social Security Act that the Secretary determines complies with 
standards established by the Secretary that ensure that the standards 
under the State program are comparable to or more restrictive than those 
in effect on June 1,

[[Page 119]]

1995. This program is commonly referred to as Temporary Assistance for 
Needy Families, although States may refer to the program by another 
name.
    Unit of local, municipal, county or State government means an entity 
which is so recognized by the State constitution or State laws, such as 
the State administrative procedures act, tax laws, or other applicable 
State laws which delineate authority for government responsibility in 
the State.
    Vended sponsor means a sponsor which purchases from a food service 
management company the unitized meals, with or without milk, which it 
will serve at its site(s), or a sponsor which purchases management 
services, subject to the limitations set forth in Sec.  225.15, from a 
food service management company.
    Yogurt means commercially prepared coagulated milk products obtained 
by the fermentation of specific bacteria, that meet milk fat or milk 
solid requirements and to which flavoring foods or ingredients may be 
added. These products are covered by the Food and Drug Administration's 
Standard of Identity for yogurt, lowfat yogurt, and nonfat yogurt, (21 
CFR 131.200), (21 CFR 131.203), (21 CFR 131.206), respectively.

[54 FR 18208, Apr. 27, 1989, as amended at 54 FR 27153, June 28, 1989; 
55 FR 13466, Apr. 10, 1990; 61 FR 25553, May 22, 1996; 64 FR 72483, Dec. 
28, 1999; 64 FR 72895, Dec. 29, 1999; 66 FR 2202, Jan. 11, 2001]



Sec.  225.3  Administration.

    (a) Responsibility within the Department. FNS shall act on behalf of 
the Department in the administration of the Program.
    (b) State administered programs. Within the State, responsibility 
for the administration of the Program shall be in the State agency. Each 
State agency must notify the Department by November 1 of the fiscal year 
regarding its intention to administer the Program. Each State agency 
desiring to take part in the Program shall enter into a written 
agreement with FNS for the administration of the Program in accordance 
with the provisions of this part. The agreement shall cover the 
operation of the Program during the period specified therein and may be 
extended by written consent of both parties. The agreement shall contain 
an assurance that the State agency will comply with the Department's 
nondiscrimination regulations (7 CFR part 15) issued under title VI of 
the Civil Rights Act of 1964, and any Instructions issued by FNS 
pursuant to those regulations, title IX of the Education Amendments of 
1972, and section 504 of the Rehabilitation Act of 1973. However, if a 
State educational agency is not permitted by law to disburse funds to 
any of the nonpublic schools in the State, the Secretary shall disburse 
the funds directly to such schools within the State for the same 
purposes and subject to the same conditions as the disbursements to 
public schools within the State by the State educational agency.
    (c) Regional office administered programs. The Secretary shall not 
administer the Program in the States, except that if a FNSRO has 
continuously administered the Program in any State since October 1, 
1980, FNS shall continue to administer the Program in that State. In 
States in which FNSRO administers the Program, it shall have all of the 
responsibilities of a State agency and shall earn State administrative 
and Program funds as set forth in this part. A State in which FNS 
administers the Program may, upon request to FNS, assume administration 
of the Program.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13466, Apr. 10, 1990; 
64 FR 72483, Dec. 28, 1999]



                    Subpart B_State Agency Provisions



Sec.  225.4  Program management and administration plan.

    (a) Not later than February 15 of each year, each State agency shall 
submit to FNSRO a Program management and administration plan for that 
fiscal year.
    (b) Each plan shall be acted on or approved by March 15 or, if it is 
submitted late, within 30 calendar days of receipt of the plan. If the 
plan initially submitted is not approved, the State agency and FNS shall 
work together to ensure that changes to the plan, in the form of 
amendments, are submitted so that the plan can be approved within 60

[[Page 120]]

calendar days following the initial submission of the plan. Upon 
approval of the plan, the State agency shall be notified of the level of 
State administrative funding which it is assured of receiving under 
Sec.  225.5(a)(3).
    (c) Approval of the Plan by FNS shall be a prerequisite to the 
withdrawal of Program funds by the State from the Letter of Credit and 
to the donation by the Department of any commodities for use in the 
State's Program.
    (d) The Plan must include, at a minimum, the following information:
    (1) The State's administrative budget for the fiscal year, and the 
State's plan to comply with any standards prescribed by the Secretary 
for the use of these funds;
    (2) The State's plan for use of Program funds and funds from within 
the State to the maximum extent practicable to reach needy children;
    (3) The State's plans for providing technical assistance and 
training to eligible sponsors;
    (4) The State's plans for monitoring and inspecting sponsors, 
feeding sites, and food service management companies and for ensuring 
that such companies do not enter into contracts for more meals than they 
can provide effectively and efficiently;
    (5) The State's plan for timely and effective action against Program 
violators;
    (6) The State's plan for ensuring the fiscal integrity of sponsors 
not subject to auditing requirements prescribed by the Secretary;
    (7) The State's plan for ensuring compliance with the food service 
managment company procurement monitoring requirements set forth at Sec.  
225.6(h); and
    (8) An estimate of the State's need, if any, for monies available to 
pay for the cost of conducting health inspections and meal quality 
tests.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13466, Apr. 10, 1990; 
64 FR 72483, Dec. 28, 1999]



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

    (a) State administrative funds. (1) Administrative funding formula. 
For each fiscal year, FNS shall pay to each State agency for 
administrative expenses incurred in the Program an amount equal to
    (i) 20 percent of the first $50,000 in Program funds properly 
payable to the State in the preceding fiscal year;
    (ii) 10 percent of the next $100,000 in Program funds properly 
payable to the State in the preceding fiscal year;
    (iii) 5 percent of the next $250,000 in Program funds properly 
payable to the State in the preceding fiscal year; and
    (iv) 2\1/2\ percent of any remaining Program funds properly payable 
to the State in the preceding fiscal year,

Provided, however, That FNS may make appropriate adjustments in the 
level of State administrative funds to reflect changes in Program size 
from the preceding fiscal year as evidenced by information submitted in 
the State Program management and administration plan and any other 
information available to FNS. If a State agency fails to submit timely 
and accurate reports under Sec.  225.8(c) of this part, State 
administrative funds payable under this paragraph shall be subject to 
sanction. For such failure, FNS may recover, withhold, or cancel payment 
of up to one hundred percent of the funds payable to the State agency 
under this paragraph during the fiscal year.
    (2) Use of State administrative funds. State administrative funds 
paid to any State shall be used by State agencies to employ personnel, 
including travel and related expenses, and to supervise and give 
technical assistance to sponsors in their initiation, expansion, and 
conduct of any food service for which Program funds are made available. 
State agencies may also use administrative funds for such other 
administrative expenses as are set forth in their approved Program 
management and administration plan.
    (3) Funding assurance. At the time FNS approves the State's 
management and administration plan, the State shall be assured of 
receiving State administrative funding equal to the lesser of the 
following amounts: 80 percent of the amount obtained by applying the 
formula set forth in paragraph (a)(1) of this section to the total 
amount of Program payments made within the State during the prior fiscal 
year; or, 80 percent of the amount obtained by

[[Page 121]]

applying the formula set forth in paragraph (a)(1) to the amount of 
Program funds estimated to be needed in the management and 
administration plan. The State agency shall be assured that it will 
receive no less than this level unless FNS determines that the State 
agency has failed or is failing to meet its responsibilities under this 
part.
    (4) Limitation. In no event may the total payment for State 
administrative costs in any fiscal year exceed the total amount of 
expenditures incurred by the State agency in administering the Program.
    (b) State administrative funds Letter of Credit. (1) At the 
beginning of each fiscal year, FNS shall make available to each 
participating State agency by Letter of Credit an initial allocation of 
State administrative funds for use in that fiscal year. This allocation 
shall not exceed one-third of the administrative funds provided to the 
State in the preceding fiscal year. For State agencies which did not 
receive any Program funds during the preceding fiscal year, the amount 
to be made available shall be determined by FNS.
    (2) Additional State administrative funds shall be made available 
upon the receipt and approval by FNS of the State's Program management 
and administration plan. The amount of such funds, plus the initial 
allocation, shall not exceed 80 percent of the State administrative 
funds determined by the formula set forth in paragraph (a)(1) of this 
section and based on the estimates set forth in the approved Program 
management and administration plan.
    (3) Any remaining State administrative funds shall be paid to each 
State agency as soon as practicable after the conduct of the funding 
assessment described in paragraph (c) of this section. However, 
regardless of whether such assessment is made, the remaining 
administrative funds shall be paid no later than September 1. The 
remaining administrative payment shall be in an amount equal to that 
determined to be needed during the funding evaluation or, if such 
evaluation is not conducted, the amount owed the State in accordance 
with paragraph (a)(1) of this section, less the amounts paid under 
paragraphs (b) (1) and (2) of this section.
    (c) Administrative funding evaluation. FNSRO shall conduct data on 
the need for Program and State administrative funding within any State 
agency if the funding needs estimated in a State's management and 
administration plan are no longer accurate. Based on this data, FNS may 
make adjustments in the level of State administrative funding paid or 
payable to the State agency under paragraph (b) of this section to 
reflect changes in the size of the State's Program as compared to that 
estimated in its management and administration plan. The data shall be 
based on approved Program participation levels and shall be collected 
during the period of Program operations. As soon as possible following 
this data collection, payment of any additional administrative funds 
owed shall be made to the State agency. The payment may reflect 
adjustments made to the level of State administrative funding based on 
the information collected during the funding assessment. However, FNS 
shall not decrease the amount of a State's administrative funds as a 
result of this assessment unless the State failed to make reasonable 
efforts to administer the Program as proposed in its management and 
administration plan or the State incurred unnecessary expenses.
    (d) Letter of Credit for Program payments. (1) Not later than April 
15 of each fiscal year, FNS shall make available to each participating 
State in a Letter of Credit an amount equal to 65 percent of the 
preceding fiscal year's Program payments for operating costs plus 65 
percent of the preceding fiscal year's Program payments for 
administrative costs in the State. This amount may be adjusted to 
reflect changes in reimbursement rates made pursuant to Sec.  
225.9(d)(8). However, the State shall not withdraw funds from this 
Letter of Credit until its Program management and administration plan is 
approved by FNS.
    (2) Based on the State agency's approved management and 
administration plan, FNS shall, if necessary, adjust the State's Letter 
of Credit to ensure that 65 percent of estimated current year Program 
operating and administrative funding needs is available. Such adjustment 
shall be made no

[[Page 122]]

later than May 15, or within 90 days of FNS receipt of the State 
agency's management and administration plan, whichever date is later.
    (3) Subsequent to the adjustment provided for in paragraph (d)(2) of 
this section, FNS will, if necessary, make one additional adjustment to 
ensure that the State agency's Letter of Credit contains at least 65 
percent of the Program operating and administrative funds needed during 
the current fiscal year. Such adjustment may be based on the 
administrative funding assessment provided for in paragraph (c) of this 
section, if one is conducted, or on any additional information which 
demonstrates that the funds available in the Letter of Credit do not 
equal at least 65 percent of current year Program needs. In no case will 
such adjustments be made later than September 1. Funds made available in 
the Letter of Credit shall be used by the State agency to make Program 
payments to sponsors.
    (4) The Letter of Credit shall include sufficient funds to enable 
the State agency to make advance payments to sponsors serving areas in 
which schools operate under a continuous school calendar. These funds 
shall be made available no later than the first day of the month prior 
to the month during which the food service will be conducted.
    (5) FNS shall make available any remaining Program funds due within 
45 days of the receipt of valid claims for reimbursement from sponsors 
by the State agency. However, no payment shall be made for claims 
submitted later than 60 days after the month covered by the claim unless 
an exception is granted by FNS.
    (6) Each State agency shall release to FNS any Program funds which 
it determines are unobligated as of September 30 of each fiscal year. 
Release of funds by the State agency shall be made as soon as 
practicable, but in no event later than 30 calendar days following 
demand by FNS, and shall be accomplished by an adjustment in the State 
agency's Letter of Credit.
    (e) Adjustment to Letter of Credit. Prior to May 15 of each fiscal 
year, FNS shall make any adjustments necessary in each State's Letter of 
Credit to reflect actual expenditures in the preceding fiscal year's 
Program.
    (f) Health inspection funds. If the State agency's approved 
management and administration plan estimates a need for health 
inspection funding, FNS shall make available by letter of credit an 
amount up to one percent of Program funds estimated to be needed in the 
management and administration plan. Such amount may be adjusted, based 
on the administrative funding assessment provided for in paragraph (c) 
of this section, if such assessment is conducted. Health inspection 
funds shall be used solely to enable State or local health departments 
or other governmental agencies charged with health inspection functions 
to carry out health inspections and meal quality tests, provided that if 
these agencies cannot perform such inspections or tests, the State 
agency may use the funds to contract with an independent agency to 
conduct the inspection or meal quality tests. Funds so provided but not 
expended or obligated shall be returned to the Department by September 
30 of the same fiscal year.



Sec.  225.6  State agency responsibilities.

    (a) General responsibilities. (1) The State agency shall provide 
sufficient qualified consultative, technical, and managerial personnel 
to administer the Program, monitor performance, and measure progress in 
achieving Program goals. The State agency shall assign Program 
responsibilities to personnel to ensure that all applicable requirements 
under this part are met.
    (2) By February 1 of each fiscal year, each State agency shall 
announce the purpose, eligibility criteria, and availability of the 
Program throughout the State, through appropriate means of 
communication. As part of this effort, each State agency shall identify 
rural areas, Indian tribal territories, and areas with a concentration 
of migrant farm workers which qualify for the Program and actively seek 
eligible applicant sponsors to serve such areas. State agencies shall 
identify priority outreach areas in accordance with FNS guidance and 
target outreach efforts in

[[Page 123]]

these areas. State agencies shall identify priority outreach areas in 
accordance with FNS guidance and target outreach efforts in these areas.
    (3) Each State agency shall require applicant sponsors submitting 
Program application site information sheets, Program agreements, or a 
request for advance payments, and sponsors submitting claims for 
reimbursement to certify that the information submitted on these forms 
is true and correct and that the sponsor is aware that deliberate 
misrepresentation or withholding of information may result in 
prosecution under applicable State and Federal statutes.
    (4) In addition to the warnings specified in paragraph (a)(3) of 
this section, State agencies may include the following information on 
applications and pre-application materials distributed to prospective 
sponsors:
    (i) The criminal penalties and provisions established in section 
12(g) of the National School Lunch Act (42 U.S.C. 1760(g)) that states 
substantially: Whoever embezzles, willfully misapplies, steals, or 
obtains by fraud any funds, assets, or property that are the subject of 
a grant or other form of assistance under this Act or the Child 
Nutrition Act of 1966 (42 U.S.C. 1771 et seq.), whether received 
directly or indirectly from the United States Department of Agriculture, 
or whoever receives, conceals, or retains such funds, assets, or 
property to personal use or gain, knowing such funds, assets, or 
property have been embezzled, willfully misapplied, stolen, or obtained 
by fraud shall, if such funds, assets, or property are of the value of 
$100 or more, be fined not more than $25,000 or imprisoned not more than 
five years, or both, or, if such funds, assets, or property are of a 
value of less than $100, shall be fined not more than $1,000 or 
imprisoned for not more than one year, or both.
    (ii) The procedures for termination from Program participation of 
any site or sponsor which is determined to be seriously deficient in its 
administration of the Program. In addition, the application may also 
state that appeals of sponsor or site terminations will follow 
procedures mandated by the State agency and will also meet the minimum 
requirements of 7 CFR 225.13.
    (b) Approval of sponsor applications. (1) Each State agency must 
inform all of the previous year's sponsors which meet current 
eligibility requirements and all other potential sponsors of the 
deadline date for submitting a written application for participation in 
the Program. The State agency must require that all applicant sponsors 
submit written applications for Program participation to the State 
agency by June 15. However, the State agency may establish an earlier 
deadline for the Program application submission.Sponsors applying for 
participation in the Program due to an unanticipated school closure 
during the period from October through April (or at any time of the year 
in an area with a continuous school calendar) shall be exempt from the 
application submission deadline.
    (2) Each State agency shall inform potential sponsors of the 
procedure for applying for advance operating and administrative costs 
payments as provided for in Sec.  225.9(c). Where applicable, each State 
agency shall inform sponsors of the procedure for applying for start-up 
payments provided for in Sec.  225.9(a).
    (3) Within 30 days of receiving a complete and correct application, 
the State agency shall notify the applicant of its approval or 
disapproval. If an incomplete application is received, the State agency 
shall so notify the applicant within 15 days and shall provide technical 
assistance for the purpose of completing the application. Any 
disapproved applicant shall be notified of its right to appeal under 
Sec.  225.13.
    (4) The State agency shall determine the eligibility of sponsors 
applying for participation in the Program in accordance with the 
applicant sponsor eligibility criteria outlined in Sec.  225.14. 
However, State agencies may approve the application of an otherwise 
eligible applicant sponsor which does not provide a year-round service 
to the community which it proposes to serve under the Program only if it 
meets one or more of the following criteria: It is a residential camp; 
it proposes to provide a food service for the children of migrant 
workers; a failure to do so would deny the Program to an area in which 
poor

[[Page 124]]

economic conditions exist; a significant number of needy children will 
not otherwise have reasonable access to the Program; or it proposes to 
serve an area affected by an unanticipated school closure during the 
period from October through April (or at any time of the year in an area 
with a continuous school calendar). In addition, the State agency may 
approve a sponsor for participation during an unanticipated school 
closure without a prior application if the sponsor participated in the 
program at any time during the current year or in either of the prior 
two calendar years.
    (5) The State agency must use the following priority system in 
approving applicants to operate sites that propose to serve the same 
area or the same enrolled children:
    (i) Public or nonprofit private school food authorities;
    (ii) Public agencies and private nonprofit organizations that have 
demonstrated successful program performance in a prior year;
    (iii) New public agencies; and
    (iv) New private nonprofit organizations.
    (v) If two or more sponsors that qualify under paragraph (b)(5)(ii) 
of this section apply to serve the same area, the State agency must 
determine on a case-by-case basis which sponsor or sponsors it will 
select to serve the needy children in the area. The State agency should 
consider the resources and capabilities of each applicant.
    (6) The following limitations apply on the number of sites and 
children that may be served per day:
    (i) The State agency must not approve any school food authority or 
public agency to operate more than 200 sites or to serve more than an 
average of 50,000 children per day. However, the State agency may 
approve exceptions if the applicant can demonstrate that it has the 
capability of managing a program larger than these limits.
    (ii) The State agency must not approve any private nonprofit 
organization to operate more than 25 sites. In addition, the State 
agency must not approve any private nonprofit organization to serve more 
than 300 children at any one site for any approved meal service. 
However, the State agency may grant a waiver to allow up to 500 children 
served at any one site operated by a private nonprofit organization. To 
be approved for the waiver, the private nonprofit organization must 
demonstrate that it is fully capable of managing a site with more than 
300 children and that there are no other sponsors capable of serving the 
children in excess of 300.
    (7) The State agency shall review each applicant's administrative 
budget as a part of the application approval process in order to assess 
the applicant's ability to operate in compliance with these regulations 
within its projected reimbursement. In approving the applicant's 
administrative budget, the State agency shall take into consideration 
the number of sites and children to be served, as well as any other 
relevant factors. A sponsor's administrative budget shall be subject to 
review for adjustments by the State agency if the sponsor's level of 
site participation or the number of meals served to children changes 
significantly.
    (8) Applicants which qualify as camps shall be approved for 
reimbursement only for meals served free to enrolled children who meet 
the Program's eligibility standards.
    (9) The State agency shall not approve the application of any 
applicant sponsor identifiable through its organization or principals as 
a sponsor which has been determined to be seriously deficient as 
described in Sec.  225.11(c). However, the State agency may approve the 
application of a sponsor which has been disapproved or terminated in 
prior years in accordance with this paragraph if the applicant 
demonstrates to the satisfaction of the State agency that it has taken 
appropriate corrective actions to prevent recurrence of the 
deficiencies.
    (10) If the sponsor's application to participate is denied, the 
official making the determination of denial must notify the applicant 
sponsor in writing stating all of the grounds on which the State agency 
based the denial. Pending the outcome of a review of a denial, the State 
agency shall proceed to approve other applicants in accordance with its 
responsibilities under paragraph (b)(5)

[[Page 125]]

of this section, without regard to the application under review.
    (11) The State agency shall not approve the application of any 
applicant sponsor which submits fraudulent information or documentation 
when applying for Program participation or which knowingly withholds 
information that may lead to the disapproval of its application. 
Complete information regarding such disapproval of an applicant shall be 
submitted by the State agency through FNSRO to OIG.
    (c) Content of sponsor application.
    (1) Application forms. The applicant shall submit a written 
application to the State agency for participation in the Program as a 
sponsor. Sponsors proposing to serve an area affected by an 
unanticipated school closure during the period from October through 
April (or at any time of the year in an area with a continuous school 
calendar) may be exempt, at the discretion of the State agency, from 
submitting a new application if they have participated in the program at 
any time during the current year or in either of the prior two calendar 
years. The State agency may use the application form developed by FNS, 
or it may develop an application form, for use in the Program. 
Application shall be made on a timely basis in accordance with the 
deadline date established under Sec.  225.6(b)(1).
    (2) Requirements for new sponsors, new sites, and, as determined by 
the State agency, sponsors and sites which have experienced significant 
operational problems in the prior year.--(i) Site information sheets. At 
a minimum, the application submitted by new sponsors and by sponsors 
which, in the determination of the State agency, have experienced 
significant operational problems in the prior year shall include a site 
information sheet, as developed by the State agency, for each site where 
a food service operation is proposed. The site information sheet for new 
sponsors and new sites, and for sponsors and sites which, in the 
determination of the State agency, have experienced significant 
operational problems in the current year must demonstrate or describe 
the following:
    (A) An organized and supervised system for serving meals to 
attending children;
    (B) The estimated number and types of meals to be served and the 
times of service;
    (C) Arrangements, within standards prescribed by the State or local 
health authorities, for delivery and holding of meals until time of 
service, and arrangements for storing and refrigerating any leftover 
meals until the next day;
    (D) Arrangements for food service during periods of inclement 
weather;
    (E) Access to a means of communication for making necessary 
adjustments in the number of meals delivered in accordance with the 
number of children attending daily at each site;
    (F) Whether the site is rural, as defined in Sec.  225.2, or non-
rural, and whether the site's food service will be self-prepared or 
vended;
    (G) For open sites and restricted open sites, documentation 
supporting the eligibility of each site as serving an area in which poor 
economic conditions exist. However, for sites that a sponsor proposes to 
serve during an unanticipated school closure during the period from 
October through April (or at any time of the year in an area with a 
continuous school calendar), any site which has participated in the 
Program at any time during the current year or in either of the prior 
two calendar years shall be considered eligible without new 
documentation;
    (H) For closed enrolled sites, the projected number of children 
enrolled and the projected number of children eligible for free and 
reduced price meals for each of these sites;
    (I) For NYSP sites, certification from the sponsor that all of the 
children who will receive Program meals are enrolled participants in the 
NYSP;
    (J) For camps, the number of children enrolled in each session who 
meet the Program's income standards. If such information is not 
available at the time of application, it shall be submitted as soon as 
possible thereafter and in no case later than the filing of the camp's 
claim for reimbursement for each session;
    (K) For those sites at which applicants will serve children of 
migrant workers, certification from a migrant organization which attests 
that the site serves children of migrant worker

[[Page 126]]

families. If the site also serves non-migrant children, the sponsor 
shall certify that the site predominantly serves migrant children; and
    (L) For a site that serves homeless children, information sufficient 
to demonstrate that the site is not a residential child care 
institution, as defined in paragraph (c) of the definition of school in 
Sec.  210.2 of this chapter. If cash payments, food stamps, or any in-
kind service are required of any meal recipient at these sites, sponsors 
must describe the method(s) used to ensure that no such payments or 
services are received for any Program meal served to children. In 
addition, sponsors must certify that such sites employ meal counting 
methods which ensure that reimbursement is claimed only for meals served 
to children.
    (ii) Other application requirements. New sponsors and sponsors which 
in the determination of the State agency have experienced significant 
operational problems in the prior year shall also include in their 
applications:
    (A) Information in sufficient detail to enable the State agency to 
determine whether the applicant meets the criteria for participation in 
the Program as set forth in Sec.  225.14; the extent of Program payments 
needed, including a request for advance payments and start-up payments, 
if applicable; and a staffing and monitoring plan;
    (B) A complete administrative and operating budget for State agency 
review and approval. The administrative budget shall contain the 
projected administrative expenses which a sponsor expects to incur 
during the operation of the Program, and shall include information in 
sufficient detail to enable the State agency to assess the sponsor's 
ability to operate the Program within its estimated reimbursement. A 
sponsor's approved administrative budget shall be subject to subsequent 
review by the State agency for adjustments in projected administrative 
costs;
    (C) A summary of how meals will be obtained (e.g., self-prepared at 
each site, self-prepared and distributed from a central kitchen, 
purchased from a school food authority, competitively procured from a 
food service management company, etc.). If an invitation for bid is 
required under Sec.  225.15(g), sponsors shall also submit a schedule 
for bid dates, and a copy of their invitation for bid; and
    (D) For each applicant which seeks approval under Sec.  225.14(b)(3) 
as a unit of local, municipal, county or State government, or under 
Sec.  225.14(b)(5) as a private nonprofit organization, certification 
that it will directly operate the Program in accordance with Sec.  
225.14(d)(3).
    (3) Requirements for experienced sponsors and experienced sites.--
(i) Site information sheets. At a minimum, the application submitted by 
experienced sponsors shall include a site information sheet, as 
developed by the State agency, for each site where a food service 
operation is proposed. The site information sheet for experienced 
sponsors and experienced sites must demonstrate or describe the 
information below. The State agency also may require experienced 
sponsors and experienced sites to provide any of the information 
required in paragraph (c)(2) of this section.
    (A) The estimated number and types of meals to be served and the 
times of service;
    (B) For open sites and restricted open sites, new documentation 
supporting the eligibility of each site as serving an area in which poor 
economic conditions exist shall be submitted. Such documentation shall 
be submitted every three years when school data are used. When census 
data are used, such documentation shall be submitted when new census 
data are available, or earlier if the State agency believes that an 
area's socioeconomic status has changed significantly since the last 
census. For sites that a sponsor proposes to serve during an 
unanticipated school closure during the period from October through 
April (or at any time of the year in an area with a continuous school 
calendar), any site which has participated in the Program at any time 
during the current year or in either of the prior two calendar years 
shall be considered eligible without new documentation of serving an 
area in which poor economic conditions exist;
    (C) For closed enrolled sites, the projected number of children 
enrolled and

[[Page 127]]

the projected number of children eligible for free and reduced price 
school meals for each of these sites; and
    (D) For camps, the number of children enrolled in each session who 
meet the Program's income standards. If such information is not 
available at the time of application, it shall be submitted as soon as 
possible thereafter and in no case later than the filing of the camp's 
claim for reimbursement for each session.
    (ii) Other application requirements. Experienced sponsors shall also 
include on their applications:
    (A) The extent of Program payments needed, including a request for 
advance payments and start-up payments, if applicable, and a staffing 
and monitoring plan;
    (B) A complete administrative and operating budget for State agency 
review and approval. The administrative budget shall contain the 
projected administrative expenses which a sponsor expects to incur 
during the operation of the Program, and shall include information in 
sufficient detail to enable the State agency to assess the sponsor's 
ability to operate the Program within its estimated reimbursement. A 
sponsor's approved administrative budget shall be subject to subsequent 
review by the State agency for adjustments in projected administrative 
costs; and
    (C) If an invitation for bid is required under Sec.  225.15(g), a 
schedule for bid dates. Sponsors shall also submit a copy of the 
invitation for bid if it is changed from the previous year. If the 
method of procuring meals is changed, sponsors shall submit a summary of 
how meals will be obtained (e.g., self-prepared at each site, self-
prepared and distributed from a central kitchen, purchased from a school 
food authority, competitively procured from a food service management 
company, etc.).
    (4) Free meal policy statement.
    (i) Each applicant must submit a statement of nondiscrimination in 
its policy for serving meals to children. The statement must consist of 
an assurance that all children are served the same meals and that there 
is no discrimination in the course of the food service. A school sponsor 
must submit the policy statement only once, with the initial application 
to participate as a sponsor. However, if there is a substantive change 
in the school's free and reduced price policy, a revised policy 
statement must be provided at the State agency's request. In addition to 
the policy of service/nondiscrimination statement described in paragraph 
(c)(3) of this section, all applicants except camps must include a 
statement that the meals served are free at all sites.
    (ii) In addition to the policy of service/nondiscrimination 
statement described in paragraph (c)(3) of this section, all applicants 
that are camps that charge separately for meals must include the 
following:
    (A) A statement that the eligibility standards conform to the 
Secretary's family size and income standards for reduced price school 
meals;
    (B) A description of the method or methods to be used in accepting 
applications from families for Program meals. Such methods must ensure 
that households are permitted to apply on behalf of children who are 
members of households receiving food stamp, FDPIR, or TANF benefits 
using the categorical eligibility procedures described in 
Sec. 225.15(f);
    (C) A description of the method used by camps for collecting 
payments from children who pay the full price of the meal while 
preventing the overt identification of children receiving a free meal;
    (D) An assurance that the camp will establish a hearing procedure 
for families wishing to appeal a denial of an application for free 
meals. Such hearing procedures shall meet the requirements set forth in 
paragraph (c)(5) of this section;
    (E) An assurance that, if a family requests a hearing, the child 
shall continue to receive free meals until a decision is rendered; and
    (F) An assurance that there will be no overt identification of free 
meal recipients and no discrimination against any child on the basis of 
race, color, national origin, sex, age, or handicap.
    (5) Hearing procedures statement.Each applicant that is a camp shall 
submit with its application a copy of its hearing procedures. At a 
minimum, these procedures shall provide:

[[Page 128]]

    (i) That a simple, publicly announced method will be used for a 
family to make an oral or written request for a hearing;
    (ii) That the family will have the opportunity to be assisted or 
represented by an attorney or other person;
    (iii) That the family will have an opportunity to examine the 
documents and records supporting the decision being appealed both before 
and during the hearing;
    (iv) That the hearing will be reasonably prompt and convenient for 
the family;
    (v) That adequate notice will be given to the family of the time and 
place of the hearing;
    (vi) That the family will have an opportunity to present oral or 
documentary evidence and arguments supporting its position;
    (vii) That the family will have an opportunity to question or refute 
any testimony or other evidence and to confront and cross-examine any 
adverse witnesses;
    (viii) That the hearing shall be conducted and the decision made by 
a hearing official who did not participate in the action being appealed;
    (ix) That the decision shall be based on the oral and documentary 
evidence presented at the hearing and made a part of the record;
    (x) That the family and any designated representative shall be 
notified in writing of the decision;
    (xi) That a written record shall be prepared for each hearing which 
includes the action being appealed, any documentary evidence and a 
summary of oral testimony presented at the hearing, the decision and the 
reasons for the decision, and a copy of the notice sent to the family; 
and
    (xii) That the written record shall be maintained for a period of 
three years following the conclusion of the hearing, during which it 
shall be available for examination by the family or its representatives 
at any reasonable time and place.
    (d) Approval of sites. (1) When evaluating a proposed food service 
site, the State agency shall ensure that:
    (i) If not a camp, the proposed site serves an area in which poor 
economic conditions exist, as defined by Sec.  225.2;
    (ii) The area which the site proposes to serve is not or will not be 
served in whole or in part by another site, unless it can be 
demonstrated to the satisfaction of the State agency that each site will 
serve children not served by any other site in the same area for the 
same meal;
    (iii) The site is approved to serve no more than the number of 
children for which its facilities are adequate and;
    (iv) If it is a site proposed to operate during an unanticipated 
school closure, it is a non-school site.
    (2) When approving the application of a site which will serve meals 
prepared by a food service management company, the State agency shall 
establish for each meal service an approved level for the maximum number 
of children's meals which may be served under the Program. These 
approved levels shall be established in accordance with the following 
provisions:
    (i) The initial maximum approved level shall be based upon the 
historical record of attendance at the site if such a record has been 
established in prior years and the State agency determines that it is 
accurate. The State agency shall develop a procedure for establishing 
initial maximum approved levels for sites when no accurate record from 
prior years is available.
    (ii) The maximum approved level shall be adjusted, if warranted, 
based upon information collected during site reviews. If attendance at 
the site on the day of the review is significantly below the site's 
approved level, the State agency should consider making a downward 
adjustment in the approved level with the objective of providing only 
one meal per child.
    (iii) The sponsor may seek an upward adjustment in the approved 
level for its sites by requesting a site review or by providing the 
State agency with evidence that attendance exceeds the sites' approved 
levels.
    (iv) Whenever the State agency establishes or adjusts approved 
levels of meal service for a site, it shall document the action in its 
files, and it shall provide the sponsor with immediate written 
confirmation of the approved level.

[[Page 129]]

    (v) Upon approval of its application or any adjustment to its 
maximum approved levels, the sponsor shall inform the food service 
management company with which it contracts of the approved level for 
each meal service at each site served by the food service management 
company. This notification of any adjustments in approved levels shall 
take place within the time frames set forth in the contract for 
adjusting meal orders. Whenever the sponsor notifies the food service 
management company of the approved levels or any adjustments to these 
levels for any of its sites, the sponsor shall clearly inform the food 
service management company that an approved level of meal service 
represents the maximum number of meals which may be served at a site and 
is not a standing order for a specific number of meals at that site. 
When the number of children attending is below the site's approved 
level, the sponsor shall adjust meal orders with the objective of 
serving only one meal per child as required under Sec.  225.15(b)(3).
    (e) State-Sponsor Agreement. A sponsor approved for participation in 
the Program must enter into a written agreement with the State agency. 
If the sponsor is a school food authority that operates more than one 
child nutrition program (e.g., the National School Lunch Program, the 
School Breakfast Program, or the Child and Adult Care Food Program) 
under a single State agency, a single permanent agreement that includes 
all the child nutrition programs must be executed with the State agency, 
as described in Sec.  210.9(b) of this chapter. All sponsors must agree 
in writing to:
    (1) Operate a nonprofit food service during the period specified, as 
follows:
    (i) From May through September for children on school vacation;
    (ii) At any time of the year, in the case of sponsors administering 
the Program under a continuous school calendar system; or
    (iii) During the period from October through April, if it serves an 
area affected by an unanticipated school closure due to a natural 
disaster, major building repairs, court orders relating to school safety 
or other issues, labor-management disputes, or, when approved by the 
State agency, a similar cause.
    (2) For school food authorities, offer meals which meet the 
requirements and provisions set forth in Sec.  225.16 during times 
designated as meal service periods by the sponsor, and offer the same 
meals to all children;
    (3) For all other sponsors, serve meals which meet the requirements 
and provisions set forth in Sec.  225.16 during times designated as meal 
service periods by the sponsor, and serve the same meals to all 
children;
    (4) Serve meals without cost to all children, except that camps may 
charge for meals served to children who are not served meals under the 
Program;
    (5) Issue a free meal policy statement in accordance with Sec.  
225.6(c);
    (6) Meet the training requirement for its administrative and site 
personnel, as required under Sec.  225.15(d)(1);
    (7) Claim reimbursement only for the type or types of meals 
specified in the agreement and served without charge to children at 
approved sites during the approved meal service period, except that 
camps shall claim reimbursement only for the type or types of meals 
specified in the agreement and served without charge to children who 
meet the Program's income standards. The agreement shall specify the 
approved levels of meal service for the sponsor's sites if such levels 
are required under Sec.  225.6(d)(2). No permanent changes may be made 
in the serving time of any meal unless the changes are approved by the 
State agency;
    (8) Submit claims for reimbursement in accordance with procedures 
established by the State agency, and those stated in Sec.  225.9;
    (9) In the storage, preparation and service of food, maintain proper 
sanitation and health standards in conformance with all applicable State 
and local laws and regulations;
    (10) Accept and use, in quantities that may be efficiently utilized 
in the Program, such foods as may be offered as a donation by the 
Department;
    (11) Have access to facilities necessary for storing, preparing, and 
serving food;

[[Page 130]]

    (12) Maintain a financial management system as prescribed by the 
State agency;
    (13) Maintain on file documentation of site visits and reviews in 
accordance with Sec.  225.15(d) (2) and (3);
    (14) Upon request, make all accounts and records pertaining to the 
Program available to State, Federal, or other authorized officials for 
audit or administrative review, at a reasonable time and place. The 
records shall be retained for a period of 3 years after the end of the 
fiscal year to which they pertain, unless audit or investigative 
findings have not been resolved, in which case the records shall be 
retained until all issues raised by the audit or investigation have been 
resolved;
    (15) Maintain children on site while meals are consumed; and
    (16) Retain final financial and administrative responsibility for 
its program.
    (f) Special Account. In addition, the State agency may require any 
vended sponsor to enter into a special account agreement with the State 
agency. The special account agreement shall stipulate that the sponsor 
shall establish a special account with a State agency or Federally 
insured bank for operating costs payable to the sponsor by the State. 
The agreement shall also stipulate that any disbursement of monies from 
the account must be authorized by both the sponsor and the food service 
management company. The special account agreement may contain such other 
terms, agreed to by both the sponsor and the food service management 
company, which are consistent with the terms of the contract between the 
sponsor and the food service management company. A copy of the special 
account agreement shall be submitted to the State agency and another 
copy maintained on file by the sponsor. Any charges made by the bank for 
the account described in this section shall be considered an allowable 
sponsor administrative cost.
    (g) Food service management company registration. A State agency may 
require each food service management company, operating within the 
State, to register based on State procedures. A State agency may further 
require the food service management company to certify that the 
information submitted on its application for registration is true and 
correct and that the food service management company is aware that 
misrepresentation may result in prosecution under applicable State and 
Federal statutes.
    (h) Monitoring of food service management company procurements. (1) 
The State agency shall ensure that sponsors' food service management 
company procurements are carried out in accordance with Sec. Sec.  
225.15(g) and 225.17 of this part.
    (2) Each State agency shall develop a standard form of contract for 
use by sponsors in contracting with food service management companies. 
Sponsors which are public entities, sponsors with exclusive year-round 
contracts with a food service management company, and sponsors whose 
food service management company contract(s) do not exceed $10,000 in 
aggregate value may use their existing or usual form of contract, 
provided that such form of contract has been submitted to and approved 
by the State agency. The standard contract developed by the State agency 
shall expressly and without exception provide that:
    (i) All meals prepared by a food service management company shall be 
unitized, with or without milk or juice, unless the State agency has 
approved, pursuant to paragraph (h)(3) of this section, a request for 
exceptions to the unitizing requirement for certain components of a 
meal;
    (ii) A food service management company entering into a contract with 
a sponsor under the Program shall not subcontract for the total meal, 
with or without milk, or for the assembly of the meal;
    (iii) The sponsor shall provide to the food service management 
company a list of State agency approved food service sites, along with 
the approved level for the number of meals which may be claimed for 
reimbursement for each site, established under Sec.  225.6(d)(2), and 
shall notify the food service management company of all sites which have 
been approved, cancelled, or terminated subsequent to the submission of 
the initial approved site list and of any changes in the approved level 
of meal service for a site. Such notification

[[Page 131]]

shall be provided within the time limits mutually agreed upon in the 
contract;
    (iv) The food service management company shall maintain such records 
(supported by invoices, receipts, or other evidence) as the sponsor will 
need to meet its responsibilities under this part, and shall submit all 
required reports to the sponsor promptly at the end of each month, 
unless more frequent reports are required by the sponsor;
    (v) The food service management company must have State or local 
health certification for the facility in which it proposes to prepare 
meals for use in the Program. It must ensure that health and sanitation 
requirements are met at all times. In addition, the food service 
management company must ensure that meals are inspected periodically to 
determine bacteria levels present in the meals and that the bacteria 
levels found to be present in the meals conform with the standards set 
by local health authorities. The results of the inspections must be 
submitted promptly to the sponsor and to the State agency.
    (vi) The meals served under the contract shall conform to the cycle 
menus and meal quality standards and food specifications approved by the 
State agency and upon which the bid was based;
    (vii) The books and records of the food service management company 
pertaining to the sponsor's food service operation shall be available 
for inspection and audit by representatives of the State agency, the 
Department and the U.S. General Accounting Office at any reasonable time 
and place for a period of 3 years from the date of receipt of final 
payment under the contract, except that, if audit or investigation 
findings have not been resolved, such records shall be retained until 
all issues raised by the audit or investigation have been resolved;
    (viii) The sponsor and the food service management company shall 
operate in accordance with current Program regulations;
    (ix) The food service management company shall be paid by the 
sponsor for all meals delivered in accordance with the contract and this 
part. However, neither the Department nor the State agency assumes any 
liability for payment of differences between the number of meals 
delivered by the food service management company and the number of meals 
served by the sponsor that are eligible for reimbursement;
    (x) Meals shall be delivered in accordance with a delivery schedule 
prescribed in the contract;
    (xi) Increases and decreases in the number of meals ordered shall be 
made by the sponsor, as needed, within a prior notice period mutually 
agreed upon;
    (xii) All meals served under the Program shall meet the requirements 
of Sec.  225.16;
    (xiii) In cases of nonperformance or noncompliance on the part of 
the food service management company, the company shall pay the sponsor 
for any excess costs which the sponsor may incur by obtaining meals from 
another source;
    (xiv) If the State agency requires the sponsor to establish a 
special account for the deposit of operating costs payments in 
accordance with the conditions set forth in Sec.  225.6(f), the contract 
shall so specify;
    (xv) The food service management company shall submit records of all 
costs incurred in the sponsor's food service operation in sufficient 
time to allow the sponsor to prepare and submit the claim for 
reimbursement to meet the 60-day submission deadline; and
    (xvi) The food service management company shall comply with the 
appropriate bonding requirements, as set forth in Sec.  225.15(g) (6)-
(8).
    (3) All meals prepared by a food service management company shall be 
unitized, with or without milk or juice, unless the sponsor submits to 
the State agency a request for exceptions to the unitizing requirement 
for certain components of a meal. These requests shall be submitted to 
the State agency in writing in sufficient time for the State agency to 
respond prior to the sponsor's advertising for bids. The State agency 
shall notify the sponsor in writing of its determination in a timely 
manner.

[[Page 132]]

    (4) Each State agency shall have a representative present at all 
food service management company procurement bid openings when sponsors 
are expected to receive more than $100,000 in Program payments.
    (5) Copies of all contracts between sponsors and food service 
management companies, along with a certification of independent price 
determination, shall be submitted to the State agency prior to the 
beginning of Program operations. Sponsors shall also submit to the State 
agency copies of all bids received and their reason for selecting the 
food service management company chosen.
    (6) All bids in an amount which exceeds the lowest bid shall be 
submitted to the State agency for approval before acceptance. All bids 
totaling $100,000 or more shall be submitted to the State agency for 
approval before acceptance. State agencies shall respond to a request 
for approval of such bids within 5 working days of receipt.
    (7) Failure by a sponsor to comply with the provisions of this 
paragraph or Sec.  225.15(g)(1) shall be sufficient grounds for the 
State agency to terminate participation by the sponsor in accordance 
with Sec.  225.18(b).
    (i) Meal pattern exceptions. The State agency shall review and act 
upon requests for exceptions to the meal pattern in accordance with the 
guidelines and limitations set forth in Sec.  225.16.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13467, Apr. 10, 1990; ; 
64 FR 72484, Dec. 28, 1999; 64 FR 72896, Dec. 29, 1999]



Sec.  225.7  Program monitoring and assistance.

    (a) Training. Prior to the beginning of Program operations, each 
State agency shall make available training in all necessary areas of 
Program administration to sponsor personnel, food service management 
company representatives, auditors, and health inspectors who will 
participate in the Program in that State. Prior to Program operations, 
the State agency shall ensure that the sponsor's supervisory personnel 
responsible for the food service receive training in all necessary areas 
of Program administration and operations. This training shall reflect 
the fact that individual sponsors or groups of sponsors require 
different levels and areas of Program training. State agencies are 
encouraged to utilize in such training, and in the training of site 
personnel, sponsor personnel who have previously participated in the 
Program. Training should be made available at convenient locations. 
State agencies are not required to conduct this training for sponsors 
operating the Program during unanticipated school closures during the 
period from October through April (or at any time of the year in an area 
with a continuous school calendar).
    (b) Program materials. Each State agency shall develop and make 
available all necessary Program materials in sufficient time to enable 
applicant sponsors to prepare adequately for the Program.
    (c) Food specifications and meal quality standards. With the 
assistance of the Department, each State agency shall develop and make 
available to all sponsors minimum food specifications and model meal 
quality standards which shall become part of all contracts between 
vended sponsors and food service management companies.
    (d) Program monitoring and assistance. The State agency shall 
conduct Program monitoring and provide Program assistance according to 
the following provisions:
    (1) Pre-approval visits. The State agency shall conduct pre-approval 
visits of sponsors and sites, as specified below, to assess the 
applicant sponsor's or site's potential for successful Program 
operations and to verify information provided in the application. The 
State agency shall visit prior to approval:
    (i) All applicant sponsors which did not participate in the program 
in the prior year. However, if a sponsor is a school food authority, has 
been reviewed by the State agency under the National School Lunch 
Program during the preceding 12 months, and had no significant 
deficiencies noted in that review, a pre-approval visit may be conducted 
at the discretion of the State agency. In addition, pre-approval visits 
of sponsors proposing to operate the Program during unanticipated school 
closures during the period from October through April (or at any time

[[Page 133]]

of the year in an area with a continuous school calendar) may be 
conducted at the discretion of the State agency;
    (ii) All applicant sponsors which, as a result of operational 
problems noted in the prior year, the State agency has determined need a 
pre-approval visit; and
    (iii) All sites which the State agency has determined need a pre-
approval visit.
    (2) Sponsor and site reviews--(i) General. The State agency must 
review sponsors and sites to ensure compliance with Program regulations, 
the Department's non-discrimination regulations (7 CFR part 15) and any 
other applicable instructions issued by the Department. In determining 
which sponsors and sites to review, the State agency must, at a minimum, 
consider the sponsors' and sites' previous participation in the Program, 
their current and previous Program performance, and the results of 
previous reviews of the sponsor and sites. When the same school food 
authority personnel administer this Program as well as the National 
School Lunch Program (7 CFR part 210), the State agency is not required 
to conduct a review of the Program in the same year in which the 
National School Lunch Program operations have been reviewed and 
determined to be satisfactory. Reviews shall be conducted as follows:
    (ii) Frequency and number of required reviews. State agencies shall:
    (A) Conduct a review of every new sponsor at least once during the 
first year of operation;
    (B) Annually review a number of sponsors whose program 
reimbursements, in the aggregate, accounted for at least one-half of the 
total program meal reimbursements in the State in the prior year;
    (C) Annually review every sponsor which experienced significant 
operational problems in the prior year;
    (D) Review each sponsor at least once every three years; and
    (E) As part of each sponsor review, conduct reviews of at least 10 
percent of each sponsor's sites, or one site, whichever number is 
greater.
    (3) Follow-up reviews. The State agency shall conduct follow-up 
reviews of sponsors and sites as necessary.
    (4) Monitoring system. Each State agency shall develop and implement 
a monitoring system to ensure that sponsors, including site personnel, 
and the sponsor's food service management company, if applicable, 
immediately receive a copy of any review reports which indicate Program 
violations and which could result in a Program disallowance.
    (5) Records. Documentation of Program assistance and the results of 
such assistance shall be maintained on file by the State agency.
    (6) Food service management company facility visits. As a part of 
the review of any vended sponsor which contracts for the preparation of 
meals, the State agency shall inspect the food service management 
company's facilities. Each State agency shall establish an order of 
priority for visiting facilities at which food is prepared for the 
Program. The State agency shall respond promptly to complaints 
concerning facilities. If a food service management company fails to 
correct violations noted by the State agency during a review, the State 
agency shall notify the sponsor and the food service management company 
that reimbursement shall not be paid for meals prepared by the food 
service management company after a date specified in the notification. 
Funds provided for in Sec.  225.5(f) may be used for conducting food 
service management company facility inspections.
    (7) Forms for reviews by sponsors. Each State agency shall develop 
and provide monitor review forms to all approved sponsors. These forms 
shall be completed by sponsor monitors. The monitor review form shall 
include, but not be limited to, the time of the reviewer's arrival and 
departure, the site supervisor's signature, a certification statement to 
be signed by the monitor, the number of meals prepared or delivered, the 
number of meals served to children, the deficiencies noted, the 
corrective actions taken by the sponsor, and the date of such actions.
    (8) Statistical monitoring. State agencies may use statistical 
monitoring

[[Page 134]]

procedures in lieu of the site monitoring requirements prescribed in 
paragraph (d)(2) of this section to accomplish the monitoring and 
technical assistance aspects of the Program. State agencies which use 
statistical monitoring procedures may use the findings in evaluating 
claims for reimbursement. Statistical monitoring may be used for some or 
all of a State's sponsors. Use of statistical monitoring does not 
eliminate the requirements for reviewing sponsors as specified in 
paragraph (d)(2) of this section.
    (9) Corrective actions. Corrective actions which the State agency 
may take when Program violations are observed during the conduct of a 
review are discussed in Sec.  225.11. The State agency shall conduct 
follow-up reviews as appropriate when corrective actions are required.
    (e) Other facility inspections and meal quality tests. In addition 
to those inspections required by paragraph (d)(6) of this section, the 
State agency may also conduct, or arrange to have conducted: inspections 
of self-preparation and vended sponsors' food preparation facilities; 
inspections of food service sites; and meal quality tests. The 
procedures for carrying out these inspections and tests shall be 
consistent with procedures used by local health authorities. For 
inspections of food service management companies' facilities not 
conducted by State agency personnel, copies of the results shall be 
provided to the State agency. The company and the sponsor shall also 
immediately receive a copy of the results of these inspections when 
corrective action is required. If a food service management company 
fails to correct violations noted by the State agency during a review, 
the State agency shall notify the sponsor and the food service 
management company that reimbursement shall not be paid for meals 
prepared by the food service management company after a date specified 
in the notification. Funds provided for in Sec.  225.5(f) may be used 
for conducting these inspections and tests.
    (f) Financial management. Each State agency shall establish a 
financial management system, in accordance with the Department's Uniform 
Financial Assistance Regulations (7 CFR part 3015) and FNS guidance, to 
identify allowable Program costs and to establish standards for sponsor 
recordkeeping and reporting. The State agency shall provide guidance on 
these financial management standards to each sponsor.
    (g) Nondiscrimination. (1) Each State agency shall comply with all 
requirements of title VI of the Civil Rights Act of 1964, title IX of 
the Education Amendments of 1972, section 504 of the Rehabilitation Act 
of 1973, the Age Discrimination Act of 1975, and the Department's 
regulations concerning nondiscrimination (7 CFR parts 15, 15a and 15b), 
including requirements for racial and ethnic participation data 
collection, public notification of the nondiscrimination policy, and 
reviews to assure compliance with such policy, to the end that no person 
shall, on the grounds of race, color, national origin, sex, age, or 
handicap, be excluded from participation in, be denied the benefits of, 
or be otherwise subjected to discrimination under, the Program.
    (2) Complaints of discrimination filed by applicants or participants 
shall be referred to FNS or the Secretary of Agriculture, Washington, DC 
20250. A State agency which has an established grievance or complaint 
handling procedure may resolve sex and handicap discrimination 
complaints before referring a report to FNS.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13468, Apr. 10, 1990; 
64 FR 72485, Dec. 28, 1999; 64 FR 72898, Dec. 29, 1999]



Sec.  225.8  Records and reports.

    (a) Each State agency shall maintain complete and accurate current 
accounting records of its Program operations which will adequately 
identify funds authorizations, obligations, unobligated balances, 
assets, liabilities, income, claims against sponsors and efforts to 
recover overpayments, and expenditures for administrative and operating 
costs. These records shall be retained for a period of three years after 
the date of the submission of the final Program Operations and Financial 
Status Report (SF-269), except that, if audit findings have not been 
resolved, the affected records shall be retained beyond the three year 
period until such time as any issues raised by the audit

[[Page 135]]

findings have been resolved. The State agency shall also retain a 
complete record of each review or appeal conducted, as required under 
Sec.  225.13, for a period of three years following the date of the 
final determination on the review or appeal. Records may be kept in 
their original form or on microfilm.
    (b) Each State agency shall submit to FNS a final report on the 
Summer Food Service Program Operations (FNS-418) for each month no more 
than 90 days following the last day of the month covered by the report. 
States shall not receive Program funds for any month for which the final 
report is not postmarked and/or submitted within this time limit unless 
FNS grants an exception. Upward adjustments to a State's report shall 
not be made after 90 days from the month covered by the report unless 
authorized by FNS. Downward adjustments shall always be made without FNS 
authorization, regardless of when it is determined that such adjustments 
need to be made. Adjustments to a State's report shall be reported to 
FNS in accordance with procedures established by FNS. Each State agency 
shall also submit to FNS a quarterly Financial Status Report (SF-269) on 
the use of Program funds. Such reports shall be submitted no later than 
30 days after the end of each fiscal year quarter. Obligations shall be 
reported only for the fiscal year in which they occur. Action may be 
taken against the State agency, in accordance with Sec.  225.5(a)(1), 
for failure to submit accurate and timely reports.
    (c) The State agency must submit to FNS a final Financial Status 
Report no later than 120 days after the end of the fiscal year, on a 
form (SF-269) provided by FNS. Any requested increase in reimbursement 
levels for a fiscal year resulting from corrective action taken after 
submission of the final Program Operations and Financial Status Reports 
shall be submitted to FNS for approval. The request shall be accompanied 
by a written explanation of the basis for the adjustment and the actions 
taken to minimize the need for such adjustments in the future. If FNS 
approves such an increase, it will make payment, subject to availability 
of funds. Any reduction in reimbursement for that fiscal year resulting 
from corrective action taken after submission of the final fiscal year 
Program Operations and Financial Status Reports shall be handled in 
accordance with the provisions of Sec.  225.12(d), except that amounts 
recovered may not be used to make Program payments.
    (d)(1) By May 1 of each year, State agencies must submit to the 
appropriate FNSRO a list of potential private nonprofit organization 
sponsors. The list must include the following information for each 
applicant sponsor:
    (i) Name and address;
    (ii) Geographical area(s) proposed to be served;
    (iii) Proposed number of sites; and
    (iv) Any available details of each proposed site including address, 
dates of operation, and estimated daily attendance.
    (2) State agencies must also notify the appropriate FNSRO within 5 
working days after they approve each private nonprofit organization to 
participate as a SFSP sponsor. When State agencies notify the FNSRO of 
sponsor approval, they must provide the following information:
    (i) Any changes to site locations, dates of operation, and estimated 
daily attendance that was previously provided;
    (ii) The hours and type(s) of approved meal service at each site;
    (iii) The type of site approval--open, restricted open, closed 
enrolled, or camp; and
    (iv) Any other important details about each site that would help the 
FNSRO plan reviews, including whether the site is rural or urban, or 
vended or self-preparation.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13469, Apr. 10, 1990; 
64 FR 72485, Dec. 28, 1999; 65 FR 82251, Dec. 28, 2000]



Sec.  225.9  Program assistance to sponsors.

    (a) Start-up payments. At their discretion, State agencies may make 
start-up payments to sponsors which have executed Program agreements. 
Start-up payments shall not be made more than two months before the 
sponsor is scheduled to begin food service operations and shall not 
exceed 20 percent of the sponsor's approved administrative budget. The 
amount of the start-

[[Page 136]]

up payment shall be deducted from the first advance payment for 
administrative costs or, if the sponsor does not receive advance 
payments, from the first administrative reimbursement.
    (b) Commodity assistance. (1) Sponsors eligible to receive 
commodities under the Program include: Self-preparation sponsors; 
sponsors which have entered into an agreement with a school or school 
food authority for the preparation of meals; and sponsors which are 
school food authorities and have competitively procured Program meals 
from the same food service management company from which they 
competitively procured meals for the National School Lunch Program 
during the last period in which school was in session. The State agency 
shall make available to these sponsors information on available 
commodities. Sponsors shall use in the Program food donated by the 
Department and accepted by sponsors.
    (2) Not later than June 1 of each year, State agencies shall prepare 
a list of the sponsors which are eligible to receive commodities and the 
average daily number of eligible meals to be served by each of these 
sponsors. If the State agency does not handle the distribution of 
commodities donated by the Department, this list shall be forwarded to 
the agency of the State responsible for the distribution of commodities. 
The State agency shall be responsible for promptly revising the list to 
reflect additions or terminations of sponsors and for adjusting the 
average daily participation data as it deems necessary.
    (c) Advance payments. At the sponsor's request, State agencies shall 
make advance payments to sponsors which have executed Program agreements 
in order to assist these sponsors in meeting operating costs and 
administrative expenses. For sponsors operating under a continuous 
school calendar, all advance payments shall be forwarded on the first 
day of each month of operation. Advance payments shall be made by the 
dates specified in paragraphs (c) (1) and (2) of this section for all 
other sponsors whose requests are received at least 30 days prior to 
those dates. Requests received less than 30 days prior to those dates 
shall be acted upon within 30 days of receipt. When making advance 
payments, State agencies shall observe the following criteria:
    (1) Operating costs. (i) State agencies shall make advance payments 
for operating costs by June 1, July 15, and August 15. Except for school 
food authorities, sponsors must conduct training sessions before 
receiving the second advance payment. Training sessions must cover 
Program duties and responsibilities for the sponsor's staff and for site 
personnel.A sponsor shall not receive advance operating cost payments 
for any month in which it will participate in the Program for less than 
ten days.
    (ii) To determine the amount of the advance payment to any sponsor, 
the State agency shall employ whichever of the following methods will 
result in the larger payment:
    (A) The total operating costs paid to the sponsor for the same 
calendar month in the preceding year; or
    (B) For vended sponsors, 50 percent of the amount determined by the 
State agency to be needed that month for meals, and, for self-
preparation sponsors, 65 percent of the amount determined by the State 
agency to be needed that month for meals.
    (2) Administrative costs. (i) State agencies shall make advance 
payments for administrative costs by June 1 and July 15. To be eligible 
for the second advance payment, the sponsor must certify that it is 
operating the number of sites for which the administrative budget was 
approved and that its projected administrative costs do not differ 
significantly from the approved budget. A sponsor shall not receive 
advance administrative costs payments for any month in which it will 
participate in the Program for less than 10 days. However, if a sponsor 
operates for less than 10 days in June but for at least 10 days in 
August, the second advance administrative costs payment shall be made by 
August 15.
    (ii) Each payment shall equal one-third of the total amount which 
the State agency determines the sponsor will need to administer its 
program. For sponsors which will operate for 10 or more days in only one 
month and, therefore, will qualify for only one advance administrative 
costs payment,

[[Page 137]]

the payment shall be no less than one-half, and no more than two-thirds, 
of the total amount which the State agency determines the sponsor will 
need to administer its program.
    (3) Advance payment estimates. When determining the amount of 
advance payments payable to the sponsor, the State agency shall make the 
best possible estimate based on the sponsor's request and any other 
available data. Under no circumstances may the amount of the advance 
payment for operating or administrative costs exceed the amount 
estimated by the State agency to be needed by the sponsor to meet 
operating or administrative costs, respectively.
    (4) Limit. The sum of the advance operating and administrative costs 
payments to a sponsor for any one month shall not exceed $40,000 unless 
the State agency determines that a larger payment is necessary for the 
effective operation of the Program and the sponsor demonstrates 
sufficient administrative and managerial capability to justify a larger 
payment.
    (5) Deductions from advance payments. The State agency shall deduct 
from either advance operating payments or advance administrative 
payments the amount of any previous payment which is under dispute or 
which is part of a demand for recovery under Sec.  225.12.
    (6) Withholding of advance payments. If the State agency has reason 
to believe that a sponsor will not be able to submit a valid claim for 
reimbursement covering the month for which advance payments have already 
been made, the subsequent month's advance payment shall be withheld 
until a valid claim is received.
    (7) Repayment of excess advance payments. Upon demand of the State 
agency, sponsors shall repay any advance Program payments in excess of 
the amount cited on a valid claim for reimbursement.
    (d) Reimbursements. Sponsors shall not be eligible for 
reimbursements for operating and administrative costs unless they have 
executed an agreement with the State agency. All reimbursements shall be 
in accordance with the terms of this agreement. Reimbursements shall not 
be paid for meals served at a site before the sponsor has received 
written notification that the site has been approved for participation 
in the Program. Income accruing to a sponsor's program shall be deducted 
from combined operating and administrative costs. The State agency may 
make full or partial reimbursement upon receipt of a claim for 
reimbursement, but shall first make any necessary adjustments in the 
amount to be paid. The following requirements shall be observed in 
submitting and paying claims:
    (1) School food authorities that operate the Program, and operate 
more than one child nutrition program under a single State agency, must 
use a common claim form (as provided by the State agency) for claiming 
reimbursement for meals served under those programs.
    (2) No reimbursement may be issued until the sponsor certifies that 
it operated all sites for which it is approved and that there has been 
no significant change in its projected administrative costs since its 
preceding claim and, for a sponsor receiving an advance payment for only 
one month, that there has been no significant change in its projected 
administrative costs since its initial advance administrative costs 
payment.
    (3) Sponsors which operate less than 10 days in the final month of 
operations shall submit a combined claim for the final month and the 
immediate preceding month within 60 days of the last day of operation.
    (4) The State agency shall forward reimbursements within 45 days of 
receiving valid claims. If a claim is incomplete or invalid, the State 
agency shall return the claim to the sponsor within 30 days with an 
explanation of the reason for disapproval. If the sponsor submits a 
revised claim, final action shall be completed within 45 days of 
receipt.
    (5) Claims for reimbursement shall report information in accordance 
with the financial management system established by the State agency, 
and in sufficient detail to justify the reimbursement claimed and to 
enable the State agency to provide the Reports of Summer Food Service 
Program Operations required under Sec.  225.8(b). In submitting a claim 
for reimbursement, each sponsor shall certify that the

[[Page 138]]

claim is correct and that records are available to support this claim. 
Failure to maintain such records may be grounds for denial of 
reimbursement for meals served and/or administrative costs claimed 
during the period covered by the records in question. The costs of meals 
served to adults performing necessary food service labor may be included 
in the claim. Under no circumstances may a sponsor claim the cost of any 
disallowed meals as operating costs.
    (6) A final Claim for Reimbursement shall be postmarked and/or 
submitted to the State agency not later than 60 days after the last day 
of the month covered by the claim. State agencies may establish shorter 
deadlines at their discretion. Claims not filed within the 60 day 
deadline shall not be paid with Program funds unless FNS determines that 
an exception should be granted. The State agency shall promptly take 
corrective action with respect to any Claim for Reimbursement as 
determined necessary through its claim review process or otherwise. In 
taking such corrective action, State agencies may make upward 
adjustments in Program funds claimed on claims filed within the 60 day 
deadline if such adjustments are completed within 90 days of the last 
day of the month covered by the claim and are reflected in the final 
Program Operations Report (FNS-418). Upward adjustments in Program funds 
claimed which are not reflected in the final FNS-418 for the month 
covered by the claim cannot be made unless authorized by FNS. Downward 
adjustments in Program funds claimed shall always be made without FNS 
authorization, regardless of when it is determined that such adjustments 
are necessary.
    (7) Payments to a sponsor for operating costs must equal the lesser 
of the following totals:
    (i) The actual operating costs incurred by the sponsor; or
    (ii) The sum of the amounts derived by multiplying the number of 
meals, by type, actually served under the sponsor's program to eligible 
children by the current rates for each meal type, as adjusted in 
accordance with paragraph (d)(9) of this section.
    (8) Payments to a sponsor for administrative costs must equal the 
lowest of the following totals:
    (i) The amount estimated in the sponsor's approved administrative 
budget (taking into account any amendments);
    (ii) The actual administrative costs incurred by the sponsor; or
    (iii) The sum of the amounts derived by multiplying the number of 
meals, by type, actually served under the sponsor's program to eligible 
children by the current administrative rates for each meal type, as 
adjusted in accordance with paragraph (d)(9) of this section. Sponsors 
must be eligible to receive additional administrative reimbursement for 
each meal served to participating children at rural or self-preparation 
sites, and the rates for such additional administrative reimbursement 
must be adjusted in accordance with paragraph (d)(9) of this section.
    (9) On each January 1, or as soon thereafter or as practicable, FNS 
will publish a notice in the Federal Register announcing any adjustment 
to the reimbursement rates described in paragraphs (d)(7)(ii) and 
(d)(8)(iii) of this section. Adjustments will be based upon changes in 
the series for food away from home of the Consumer Price Index(CPI) for 
all urban consumers since the establishment of the rates. Higher rates 
will be established for Alaska and Hawaii, based on the CPI for those 
States.
    (10) Sponsors of camps shall be reimbursed only for meals served to 
children in camps whose eligibility for Program meals is documented. 
Sponsors of NYSP sites shall only claim reimbursement for meals served 
to children enrolled in the NYSP.
    (11) If a State agency has reason to believe that a sponsor or food 
service management company has engaged in unlawful acts in connection 
with Program operations, evidence found in audits, reviews, or 
investigations shall be a basis for nonpayment of the applicable 
sponsor's claims for reimbursement.
    (e) The sponsor may claim reimbursement for any meals which are 
examined for meal quality by the State

[[Page 139]]

agency, auditors, or local health authorities and found to meet the meal 
pattern requirements.
    (f) The sponsor shall not claim reimbursement for meals served to 
children at any site in excess of the site's approved level of meal 
service, if one has been established under Sec.  225.6(d)(2). However, 
the total number of meals for which operating costs are claimed may 
exceed the approved level of meal service if the meals exceeding this 
level were served to adults performing necessary food service labor in 
accordance with paragraph (d)(5) of this section. In reviewing a 
sponsor's claim, the State agency shall ensure that reimbursements for 
second meals are limited to the percentage tolerance established in 
Sec.  225.15(b)(4).

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13469, Apr. 10, 1990; 
64 FR 72485, Dec. 28, 1999]



Sec.  225.10  Audits and management evaluations.

    (a) Audits. State agencies shall arrange for audits of their own 
operations to be conducted in accordance with the Department's Uniform 
Federal Assistance Regulations (7 CFR part 3015). Unless otherwise 
exempt, sponsors shall arrange for audits to be conducted in accordance 
with 7 CFR part 3015. State agencies shall provide OIG with full 
opportunity to audit the State agency and sponsors. Each State agency 
shall make available its records, including records of the receipt and 
expenditure of funds, upon a reasonable request from OIG. While OIG 
shall rely to the fullest extent feasible upon State-sponsored audits of 
sponsors, it shall, when considered necessary, (1) make audits on a 
State-wide basis, (2) perform on-site test audits, and (3) review audit 
reports and related working papers of audits performed by or for State 
agencies.
    (b) Management evaluations. (1) State agencies shall provide FNS 
with full opportunity to conduct management evaluations (including 
visits to sponsors) of all operations of the State agency. Each State 
agency shall make available its records, including records of the 
receipts and expenditures of funds, upon a reasonable request by FNS.
    (2) The State agency shall fully respond to any recommendations made 
by FNSRO pursuant to the management evaluation.
    (3) FNSRO may require the State agency to submit on 20 days notice a 
corrective action plan regarding serious problems observed during any 
phase of the management evaluation.
    (c) Disregards. In conducting management evaluations or audits for 
any fiscal year, the State agency, FNS or OIG may disregard overpayment 
which does not exceed $100 or, in the case of State agency administered 
programs, does not exceed the amount established by State law, 
regulations or procedures as a minimum for which claims will be made for 
State losses generally. No overpayment shall be disregarded, however, 
when there are unpaid claims for the same fiscal year from which the 
overpayment can be deducted or when there is substantial evidence of 
violation of criminal law or civil fraud statutes.



Sec.  225.11  Corrective action procedures.

    (a) Purpose. The provisions in this section shall be used by the 
State agency to improve Program performance.
    (b) Investigations. Each State agency shall promptly investigate 
complaints received or irregularities noted in connection with the 
operation of the Program, and shall take appropriate action to correct 
any irregularities. The State agency shall maintain on file all evidence 
relating to such investigations and actions. The State agency shall 
inform the appropriate FNSRO of any suspected fraud or criminal abuse in 
the Program which would result in a loss or misuse of Federal funds. The 
Department may make investigations at the request of the State agency, 
or where the Department determines investigations are appropriate.
    (c) Denial of applications and termination of sponsors. Except as 
specified below, the State agency shall not enter into an agreement with 
any applicant sponsor identifiable through its corporate organization, 
officers, employees, or otherwise, as an institution which participated 
in any Federal child nutrition program and was seriously deficient in 
its operation of any such

[[Page 140]]

program. The State agency shall terminate the Program agreement with any 
sponsor which it determines to be seriously deficient. However, the 
State agency shall afford a sponsor reasonable opportunity to correct 
problems before terminating the sponsor for being seriously deficient. 
The State agency may approve the application of a sponsor which has been 
disapproved or terminated in prior years in accordance with this 
paragraph if the sponsor demonstrates to the satisfaction of the State 
agency that the sponsor has taken appropriate corrective actions to 
prevent recurrence of the deficiencies. Serious deficiencies which are 
grounds for disapproval of applications and for termination include, but 
are not limited to, any of the following:
    (1) Noncompliance with the applicable bid procedures and contract 
requirements of Federal child nutrition program regulations;
    (2) The submission of false information to the State agency;
    (3) Failure to return to the State agency any start-up or advance 
payments which exceeded the amount earned for serving meals in 
accordance with this part, or failure to submit all claims for 
reimbursement in any prior year, provided that failure to return any 
advance payments for months for which claims for reimbursement are under 
dispute from any prior year shall not be grounds for disapproval in 
accordance with this paragraph; and
    (4) Program violations at a significant proportion of the sponsor's 
sites. Such violations include, but are not limited to, the following:
    (i) Noncompliance with the meal service time restrictions set forth 
at Sec.  225.16(c);
    (ii) Failure to maintain adequate records;
    (iii) Failure to adjust meal orders to conform to variations in the 
number of participating children;
    (iv) The simultaneous service of more than one meal to any child;
    (v) The claiming of Program payments for meals not served to 
participating children;
    (vi) Service of a significant number of meals which did not include 
required quantities of all meal components;
    (vii) Excessive instances of off-site meal consumption;
    (viii) Continued use of food service management companies that are 
in violation of health codes.
    (d) Meal service restriction. With the exception for residential 
camps set forth at Sec.  225.16(b)(1)(ii), the State agency shall 
restrict to one meal service per day:
    (1) Any food service site which is determined to be in violation of 
the time restrictions for meal service set forth at Sec.  225.16(c) when 
corrective action is not taken within a reasonable time as determined by 
the State agency; and
    (2) All sites under a sponsor if more than 20 percent of the 
sponsor's sites are determined to be in violation of the time 
restrictions set forth at Sec.  225.16(c).

If this action results in children not receiving meals under the 
Program, the State agency shall make reasonable effort to locate another 
source of meal service for these children.
    (e) Meal disallowances. (1) If the State agency determines that a 
sponsor has failed to plan, prepare, or order meals with the objective 
of providing only one meal per child at each meal service at a site, the 
State agency shall disallow the number of children's meals prepared or 
ordered in excess of the number of children served.
    (2) If the State agency observes meal service violations during the 
conduct of a site review, the State agency shall disallow as meals 
served to children all of the meals observed to be in violation.
    (3) The State agency shall also disallow children's meals which are 
in excess of a site's approved level established under Sec.  
225.6(d)(2).
    (f) Corrective action and termination of sites. (1) Whenever the 
State agency observes violations during the course of a site review, it 
shall require the sponsor to take corrective action. If the State agency 
finds a high level of meal service violations, the State agency shall 
require a specific immediate corrective action plan to be followed by 
the sponsor and shall either conduct a follow-up visit or in some other 
manner verify that the specified corrective action has been taken.
    (2) The State agency shall terminate the participation of a 
sponsor's site if

[[Page 141]]

the sponsor fails to take action to correct the Program violations noted 
in a State agency review report within the timeframes established by the 
corrective action plan.
    (3) The State agency shall immediately terminate the participation 
of a sponsor's site if during a review it determines that the health or 
safety of the participating children is imminently threatened.
    (4) If the site is vended, the State agency shall within 48 hours 
notify the food service management company providing meals to the site 
of the site's termination.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13469, Apr. 10, 1990]



Sec.  225.12  Claims against sponsors.

    (a) The State agency shall disallow any portion of a claim for 
reimbursement and recover any payment to a sponsor not properly payable 
under this part, except as provided for in Sec.  225.10(c). State 
agencies may consider claims for reimbursement not properly payable if a 
sponsor's records do not justify all costs and meals claimed. However, 
the State agency shall notify the sponsor of the reasons for any 
disallowance or demand for repayment.
    (b) Minimum State agency collection procedures for unearned payments 
shall include:
    (1) Written demand to the sponsor for the return of improper 
payments;
    (2) If after 30 calendar days the sponsor fails to remit full 
payment or agree to a satisfactory repayment schedule, a second written 
demand for the return of improper payments, sent by certified mail, 
return receipt requested;
    (3) If after 60 calendar days following the original written demand, 
the sponsor fails to remit full payment or agree to a satisfactory 
repayment schedule, a third written demand for the return of improper 
payments, sent by certified mail, return receipt requested;
    (4) If after 90 calendar days following the original written demand, 
the sponsor fails to remit full payment or agree to a satisfactory 
repayment schedule, the State agency shall refer the claim against the 
sponsor to the appropriate State or Federal authorities for pursuit of 
legal remedies.
    (c) If FNS does not concur with the State agency's action in paying 
a sponsor or in failing to collect an overpayment, FNS shall notify the 
State agency of its intention to assert a claim against the State 
agency. In all such cases, the State agency shall have full opportunity 
to submit evidence concerning the action taken. The State agency shall 
be liable to FNS for failure to collect an overpayment unless FNS 
determines that the State agency has conformed with this part in issuing 
the payment and has exerted reasonable efforts in accordance with 
paragraph (b) of this section to recover the improper payment.
    (d) The amounts recovered by the State agency from sponsors may be 
utilized to make Program payments to sponsors for the period for which 
the funds were initially available and/or to repay the State for any of 
its own funds used to make payments on claims for reimbursement. Any 
amounts recovered which are not so utilized shall be returned to FNS in 
accordance with the requirements of this part.



Sec.  225.13  Appeal procedures.

    (a) Each State agency shall establish a procedure to be followed by 
an applicant appealing: A denial of an application for participation; a 
denial of a sponsor's request for an advance payment; a denial of a 
sponsor's claim for reimbursement (except for late submission under 
Sec.  225.9(d)(5)); a State agency's refusal to forward to FNS an 
exception request by the sponsor for payment of a late claim or a 
request for an upward adjustment to a claim; a claim against a sponsor 
for remittance of a payment; the termination of the sponsor or a site; a 
denial of a sponsor's application for a site; a denial of a food service 
management company's application for registration, if applicable; or the 
revocation of a food service management company's registration, if 
applicable. Appeals shall not be allowed on decisions made by FNS with 
respect to late claims or upward adjustments under Sec.  225.9(d)(5).
    (b) At a minimum, appeal procedures shall provide that:
    (1) The sponsor or food service management company be advised in 
writing

[[Page 142]]

of the grounds upon which the State agency based the action. The notice 
of action, which shall be sent by certified mail, return receipt 
requested, shall also state that the sponsor or food service management 
company has the right to appeal the State's action;
    (2) The sponsor or food service management company be advised in 
writing that the appeal must be made within a specified time and must 
meet the requirements of paragraph (b)(4) of this section. The State 
agency shall establish this period of time at not less than one week nor 
more than two weeks from the date on which the notice of action is 
received;
    (3) The appellant be allowed the opportunity to review any 
information upon which the action was based;
    (4) The appellant be allowed to refute the charges contained in the 
notice of action either in person or by filing written documentation 
with the review official. To be considered, written documentation must 
be submitted by the appellant within seven days of submitting the 
appeal, must clearly identify the State agency action being appealed, 
and must include a photocopy of the notice of action issued by the State 
agency;
    (5) A hearing be held by the review official in addition to, or in 
lieu of, a review of written information submitted by the appellant only 
if the appellant so specifies in the letter appealing the action. The 
appellant may retain legal counsel or may be represented by another 
person. Failure of the appellant's representative to appear at a 
scheduled hearing shall constitute the appellant's waiver of the right 
to a personal appearance before the review official, unless the review 
official agrees to reschedule the hearing. A representative of the State 
agency shall be allowed to attend the hearing to respond to the 
appellant's testimony and written information and to answer questions 
from the review official;
    (6) If the appellant has requested a hearing, the appellant and the 
State agency shall be provided with at least 5 days advance written 
notice, sent by certified mail, return receipt requested, of the time 
and place of the hearing;
    (7) The hearing be held within 14 days of the date of the receipt of 
the request for review, but, where applicable, not before the 
appellant's written documentation is received in accordance with 
paragraphs (b) (4) and (5) of this section;
    (8) The review official be independent of the original decision-
making process;
    (9) The review official make a determination based on information 
provided by the State agency and the appellant, and on Program 
regulations;
    (10) Within 5 working days after the appellant's hearing, or within 
5 working days after receipt of written documentation if no hearing is 
held, the reviewing official make a determination based on a full review 
of the administrative record and inform the appellant of the 
determination of the review by certified mail, return receipt requested;
    (11) The State agency's action remain in effect during the appeal 
process. However, participating sponsors and sites may continue to 
operate the Program during an appeal of termination, and if the appeal 
results in overturning the State agency's decision, reimbursement shall 
be paid for meals served during the appeal process. However, such 
continued Program operation shall not be allowed if the State agency's 
action is based on imminent dangers to the health or welfare of 
children. If the sponsor or site has been terminated for this reason, 
the State agency shall so specify in its notice of action; and
    (12) The determination by the State review official is the final 
administrative determination to be afforded to the appellant.
    (c) The State agency shall send written notification of the complete 
appeal procedures and of the actions which are appealable, as specified 
in paragraph (a) of this section, to each potential sponsor applying to 
participate and to each food service management company applying to 
register in accordance with Sec.  225.6(g).
    (d) A record regarding each review shall be kept by the State 
agency, as required under Sec.  225.8(a). The record shall document the 
State agency's

[[Page 143]]

compliance with these regulations and shall include the basis for its 
decision.

[54 FR 18208, Apr. 27, 1989, as amended at 64 FR 72486, Dec. 28, 1999]



                  Subpart C_Sponsor and Site Provisions



Sec.  225.14  Requirements for sponsor participation.

    (a) Applications. Sponsors shall make written application to the 
State agency to participate in the Program. Such application shall be 
made on a timely basis in accordance with the requirements of Sec.  
225.6(b)(1). Sponsors proposing to operate a site during an 
unanticipated school closure during the period from October through 
April (or at any time of the year in an area with a continuous school 
calendar) may be exempt, at the discretion of the State agency, from 
submitting a new application if they have participated in the program at 
any time during the current year or in either of the prior two calendar 
years.
    (b) Sponsor eligibility. Applicants eligible to sponsor the Program 
include:
    (1) Public or nonprofit private school food authorities;
    (2) Public or nonprofit private residential summer camps;
    (3) Units of local, municipal, county, or State governments;
    (4) Public or private nonprofit colleges or universities which are 
currently participating in the National Youth Sports Program; and
    (5) Private nonprofit organizations as defined in Sec.  225.2.
    (c) General requirements. No applicant sponsor shall be eligible to 
participate in the Program unless it:
    (1) Demonstrates financial and administrative capability for Program 
operations and accepts final financial and administrative responsibility 
for total Program operations at all sites at which it proposes to 
conduct a food service;
    (2) Has not been seriously deficient in operating the Program;
    (3) Will conduct a regularly scheduled food service for children 
from areas in which poor economic conditions exist, or qualifies as a 
camp;
    (4) Has adequate supervisory and operational personnel for overall 
monitoring and management of each site, including adequate personnel to 
conduct the visits and reviews required in Sec. Sec.  225.15(d) (2) and 
(3);
    (5) Provides an ongoing year-round service to the community which it 
proposes to serve under the Program, except as provided for in Sec.  
225.6(b)(4);
    (6) Certifies that all sites have been visited and have the 
capability and the facilities to provide the meal service planned for 
the number of children anticipated to be served; and
    (7) Enters into a written agreement with the State agency upon 
approval of its application, as required in Sec.  225.6(e).
    (d) Requirements specific to sponsor types. (1) If the sponsor is a 
camp, it must certify that it will collect information on participants' 
eligibility to support its claim for reimbursement.
    (2) If the sponsor administers the Program at sites that provide 
summer school sessions, it must ensure that these sites are open to 
children enrolled in summer school and to all children residing in the 
area served by the site.
    (3) Sponsors which are units of local, municipal, county or State 
government, and sponsors which are private nonprofit organizations, will 
only be approved to administer the Program at sites where they have 
direct operational control. Operational control means that the sponsor 
shall be responsible for:
    (i) Managing site staff, including the hiring, terminating, and 
determining conditions of employment for site staff; and
    (ii) Exercising management control over Program operations at sites 
throughout the period of Program participation by performing the 
functions specified in Sec.  225.15.
    (4) If the sponsor administers homeless feeding sites, it must:
    (i) Document that the site is not a residential child-care 
institution as defined in paragraph (c) of the definition of 'School' 
contained in Sec.  210.2 of this chapter;
    (ii) Document that the primary purpose of the homeless feeding site 
is to provide shelter and meals to homeless families; and
    (iii) Certify that these sites employ meal counting methods to 
ensure that

[[Page 144]]

reimbursement is claimed only for meals served to homeless and non-
homeless children.
    (5) If the sponsor administers NYSP sites, it must ensure that all 
children at these sites are enrolled participants in the NYSP.
    (6) If the sponsor is a private nonprofit organization, it must 
certify that it:
    (i) Administers the Program:
    (A) At no more than 25 sites, with not more than 300 children being 
served at any approved meal service at any one site, or
    (B) With a waiver granted by the State agency in accordance with 
Sec.  225.6(b)(6)(ii), not more than 500 children being served at any 
approved meal service at any one site;
    (ii) Operates in areas where a school food authority has not 
indicated that it will operate the Program in the current year;
    (iii) Exercises full control and authority over the operation of the 
Program at all sites under its sponsorship;
    (iv) Provides ongoing year-round activities for children or 
families;
    (v) Demonstrates that it possesses adequate management and the 
fiscal capacity to operate the Program; and
    (vi) Meets applicable State and local health, safety, and sanitation 
standards.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13469, Apr. 10, 1990; 
64 FR 72486, Dec. 28, 1999; 64 FR 72898, Dec. 29, 1999; 65 FR 50128, 
Aug. 17, 2000]



Sec.  225.15  Management responsibilities of sponsors.

    (a) General. (1) Sponsors shall operate the food service in 
accordance with: the provisions of this part; any instructions and 
handbooks issued by FNS under this part; and any instructions and 
handbooks issued by the State agency which are not inconsistent with the 
provisions of this part.
    (2) Sponsors shall not claim reimbursement under parts 210, 215, 
220, or 226 of this chapter. In addition, the sponsor must ensure that 
records of any site serving homeless children accurately reflect 
commodity allotments received as a ``charitable institution'', as 
defined in Sec. Sec.  250.3 and 250.41 of this chapter. Commodities 
received for Program meals must be based only on the number of eligible 
children's meals served. Sponsors may use funds from other Federally-
funded programs to supplement their meal service but must, in 
calculating their claim for reimbursement, deduct such funds from total 
operating and administrative costs in accordance with the definition of 
``income accruing to the Program'' at Sec.  225.2 and with the 
regulations at Sec.  225.9(d). Sponsors which are school food 
authorities may use facilities, equipment and personnel supported by 
funds provided under this part to support a nonprofit nutrition program 
for the elderly, including a program funded under the Older Americans 
Act of 1965 (42 U.S.C. 3001 et seq.).
    (3) No sponsor may contract out for the management responsibilities 
of the Program described in this section.
    (b) Meal Ordering. (1) Each sponsor shall, to the maximum extent 
feasible, utilize either its own food service facilities or obtain meals 
from a school food service facility. If the sponsor obtains meals from a 
school food service facility, the applicable requirements of this part 
shall be embodied in a written agreement between the sponsor and the 
school.
    (2) Upon approval of its application or any adjustment in the 
approved levels of meal service for its sites established under Sec.  
225.6(d)(2), vended sponsors shall inform their food service management 
company of the approved level at each site for which the food service 
management company will provide meals.
    (3) Sponsors shall plan for and prepare or order meals on the basis 
of participation trends with the objective of providing only one meal 
per child at each meal service. The sponsor shall make the adjustments 
necessary to achieve this objective using the results from its 
monitoring of sites. For sites for which approved levels of meal service 
have been established in accordance with Sec.  225.6(d)(2), the sponsor 
shall adjust the number of meals ordered or prepared with the objective 
of providing only one meal per child whenever the number of children 
attending the site is below the approved level. The sponsor shall not 
order or prepare meals for children at any site in excess

[[Page 145]]

of the site's approved level, but may order or prepare meals above the 
approved level if the meals are to be served to adults performing 
necessary food service labor in accordance with Sec.  225.9(d)(4). 
Records of participation and of preparation or ordering of meals shall 
be maintained to demonstrate positive action toward meeting this 
objective.
    (4) In recognition of the fluctuation in participation levels which 
makes it difficult to estimate precisely the number of meals needed and 
to reduce the resultant waste, sponsors may claim reimbursement for a 
number of second meals which does not exceed two percent of the number 
of first meals served to children for each meal type (i.e., breakfasts, 
lunches, supplements, or suppers) during the claiming period. The State 
agency shall disallow all claims for second meals if it determines that 
the sponsor failed to plan and prepare or order meals with the objective 
of providing only one meal per child at each meal service. Second meals 
shall be served only after all participating children at the site's meal 
service have been served a meal.
    (c) Records and claims. (1) Sponsors shall maintain accurate records 
which justify all costs and meals claimed. Failure to maintain such 
records may be grounds for denial of reimbursement for meals served and/
or administrative costs claimed during the period covered by the records 
in question. The sponsor's records shall be available at all times for 
inspection and audit by representatives of the Secretary, the 
Comptroller General of the United States, and the State agency for a 
period of three years following the date of submission of the final 
claim for reimbursement for the fiscal year.
    (2) Sponsors shall submit claims for reimbursement in accordance 
with this part. All final claims must be submitted to the State agency 
within 60 days following the last day of the month covered by the claim.
    (d) Training and monitoring. (1) Each sponsor shall hold Program 
training sessions for its administrative and site personnel and shall 
allow no site to operate until personnel have attended at least one of 
these training sessions. The State agency may waive these training 
requirements for operation of the Program during unanticipated school 
closures during the period from October through April (or at any time of 
the year in an area with a continuous school calendar). Training of site 
personnel shall, at a minimum, include: the purpose of the Program; site 
eligibility; recordkeeping; site operations; meal pattern requirements; 
and the duties of a monitor. Each sponsor shall ensure that its 
administrative personnel attend State agency training provided to 
sponsors, and sponsors shall provide training throughout the summer to 
ensure that administrative personnel are thoroughly knowledgeable in all 
required areas of Program administration and operation and are provided 
with sufficient information to enable them to carry out their Program 
responsibilities. Each site shall have present at each meal service at 
least one person who has received this training.
    (2) Sponsors shall visit each of their sites at least once during 
the first week of operation under the Program and shall promptly take 
such actions as are necessary to correct any deficiencies.
    (3) Sponsors shall review food service operations at each site at 
least once during the first four weeks of Program operations, and 
thereafter shall maintain a reasonable level of site monitoring. 
Sponsors shall complete a monitoring form developed by the State agency 
during the conduct of these reviews.
    (e) Media Release. Each sponsor shall annually announce in the media 
serving the area from which it draws its attendance the availability of 
free meals. Camps and other programs not eligible under Sec.  225.2 
(paragraph (a) of ``areas in which poor economic conditions exist'') 
shall annually announce to all participants the availability of free 
meals for eligible children. All media releases issued by camps and 
other programs not eligible under Sec.  225.2 (paragraph (a) of ``areas 
in which poor economic conditions exist'') shall include: the 
Secretary's family-size and income standards for reduced price school 
meals labelled ``SFSP Income Eligibility Standards''; a statement that 
children

[[Page 146]]

who are members of households receiving food stamp, FDPIR, or TANF 
benefits are automatically eligible to receive free meal benefits at 
eligible program sites; and a statement that meals are available without 
regard to race, color, national origin, sex, age, or handicap.
    (f) Application for free Program meals.--(1) Purpose of application 
form. The application is used to determine the eligibility of children 
attending camps and the eligibility of sites that are not open sites as 
defined in paragraph (a) of the definition of ``areas in which poor 
economic conditions exist'', in Sec.  225.2. In these situations, 
parents or guardians of children enrolled in camps or these other sites 
must be given application forms to provide information described in 
paragraph (f)(2) or (f)(3) of this section, as applicable. Applications 
are not necessary if other information sources are available and can be 
used to determine eligibility of individual children in camps or sites.
    (2) Application procedures based on household income. The household 
member completing the application on behalf of the child enrolled in the 
Program must provide the following information:
    (i) The names of all children for whom application is made;
    (ii) The names of all other household members;
    (iii) The social security number of the adult household member who 
signs the application or an indication that the household member does 
not have a social security number;
    (iv) The income received by each household member identified by 
source of income;
    (v) The signature of an adult household member;
    (vi) The date the application is completed and signed.
    (3) Application based on the household's receipt of food stamp, 
FDPIR, or TANF benefits. Households may apply on the basis of receipt of 
food stamp, FDPIR, or TANF benefits by providing the following 
information:
    (i) The name(s) and food stamp, FDPIR, or TANF case number(s) of the 
child(ren) who are enrolled in the Program; and
    (ii) The signature of an adult household member.
    (4) Information or notices required on application forms. 
Application forms or descriptive materials given to households about 
applying for free meals must contain the following information:
    (i) The family-size and income levels for reduced price school meal 
eligibility with an explanation that households with incomes less than 
or equal to these values are eligible for free Program meals (Note: The 
income levels for free school meal eligibility must not be included on 
the application or in other materials given to the household).
    (ii) A statement that a child who is a member of a household that 
receives food stamp, FDPIR, or TANF benefits is automatically eligible 
to receive free meals in the Program;
    (iii) A statement that reads, ``In certain cases, foster children 
are eligible for free meals regardless of household income. If such 
children are living with you and you wish to apply for such meals, 
please contact us.'';
    (iv) The following statement that provides notice to the household 
member whose social security number is disclosed: ``Unless you include 
your child's case number for the Food Stamp Program, the Food 
Distribution Program on Indian Reservations (or other identifier for the 
Food Distribution Program on Indian Reservations) or the Temporary 
Assistance for Needy Families Program, you must include the social 
security number of the adult household member signing the application or 
indicate that the household member does not have a social security 
number. This is required by section 9 of the National School Lunch Act. 
The social security number is not mandatory, but the application cannot 
be approved if a social security number is not given or an indication is 
not made that the signer does not have a social security number. The 
social security number will be used in the administration and 
enforcement of the program.''
    (v) The statement used to inform the household about the use of 
social security numbers must comply with the Privacy Act of 1974 (Pub. 
L. 93-579). If a State or local agency plans to use the

[[Page 147]]

social security numbers for uses not described in paragraph (f)(4)(iv) 
of this section, the notice must be revised to explain those uses.
    (vi) Examples of income that should be provided on the application, 
including: Earnings, wages, welfare benefits, pensions, support 
payments, unemployment compensation, social security, and other cash 
income;
    (vii) A notice placed immediately above the signature block stating 
that the person signing the application certifies that all information 
provided is correct, that the household is applying for Federal benefits 
in the form of free Program meals, that Program officials may verify the 
information on the application, and that purposely providing untrue or 
misleading statements may result in prosecution under State or Federal 
criminal laws; and
    (viii) A statement that if food stamp, FDPIR, or TANF case numbers 
are provided, they may be used to verify the current food stamp, FDPIR, 
or TANF certification for the children for whom free meals benefits are 
claimed.
    (5) Verifying information on Program applications. Households 
selected to verify information on their Program applications must be 
notified in writing. State agencies must ensure that the notice of 
information about the use of social security numbers provided on 
applications complies with section 7 of Pub. L. 93-579 (Privacy Act of 
1974). Households must be informed of the following:
    (i) They must provide a social security number for each adult 
household member, or indicate that an adult household member does not 
have a social security number, or provide proof that they are receiving 
food stamp, FDPIR, or TANF benefits;
    (ii) They will lose Program benefits or be terminated from 
participation if they do not cooperate with the verification process;
    (iii) Social security numbers may be used to determine the 
correctness of information on applications and continued eligibility for 
Program benefits;
    (iv) They will be given the name and phone number of an official who 
can assist in the verification process;
    (v) Verification may occur during program reviews, audits, and 
investigations;
    (vi) Verification may include contacting employers, food stamp or 
welfare offices, or State employment offices to determine the accuracy 
of statements on the application about income, receipt of food stamp, 
FDPIR, TANF, or unemployment benefits; and
    (vii) They may lose benefits or face claims or legal action if 
incorrect information is reported on the application.
    (g) Disclosure of program eligibility information to State Medicaid 
(Medicaid) and the State Children's Health Insurance Program (SCHIP). 
Program eligibility information about children eligible for free and 
reduced price meals may be disclosed to Medicaid and SCHIP as described 
in this section.
    (1) Who decides whether to disclose program eligibility information 
to Medicaid and/or SCHIP? The State agency may elect to allow sponsors 
to disclose children's free and reduced price meal eligibility 
information to Medicaid and SCHIP. Sponsors may then elect to do so. 
Children's program eligibility information may only be disclosed to 
Medicaid or SCHIP when both the State agency and the sponsor so elect, 
the parent/guardian does not decline to have their eligibility 
information disclosed as described in paragraph (g)(5), and the 
requirements in this paragraph (g) are met. y
    (2) What information may we disclose for use by Medicaid and SCHIP? 
The State agency or sponsor, as appropriate, may disclose children's 
names, eligibility status (whether they are eligible for free or reduced 
price meals), and any other eligibility information obtained through the 
free and reduced price meal application or obtained through direct 
certification to persons directly connected with the administration of 
Medicaid or SCHIP.
    (3) Who are persons ``directly connected'' with the administration 
of Medicaid and SCHIP? State employees and persons authorized under 
Federal and State Medicaid and SCHIP requirements to carry out initial 
processing of Medicaid or SCHIP applications or to make eligibility 
determinations are

[[Page 148]]

persons directly connected with the administration of Medicaid and SCHIP 
for purposes of disclosure of children's free and reduced price meal 
eligibility information.
    (4) What are the restrictions on how Medicaid and SCHIP use 
children's free and reduced price meal eligibility information? Medicaid 
and SCHIP agencies and health insurance program operators receiving 
children's free and reduced price meal eligibility information may only 
use the information to enroll children in Medicaid or SCHIP. The 
Medicaid and SCHIP enrollment process may include targeting and 
identifying children from low-income households who are potentially 
eligible for Medicaid or SCHIP for the purpose of seeking to enroll them 
in Medicaid or SCHIP.
    (5) What are the requirements for notifying households of potential 
disclosure to Medicaid or SCHIP? The State agency or sponsor, as 
appropriate, must notify parents/guardians that their children's free or 
reduced price meal eligibility information will be disclosed to Medicaid 
and/or SCHIP unless the parent/guardian elects not to have their 
information disclosed. Additionally, the State agency or sponsor, as 
appropriate, must give parents/guardians an opportunity to elect not to 
have their information disclosed to Medicaid or SCHIP. Only the parent 
or guardian who is a member of the household or family for purposes of 
the free and reduced price meal or free milk application may decline the 
disclosure of eligibility information. The notification must inform 
parents/guardians that they are not required to consent to the 
disclosure, that the information, if disclosed, will be used to identify 
children eligible for and seek to enroll children in a health insurance 
program, and that their decision will not affect their children's 
eligibility for free or reduced price meals. The notification may be 
included in the letter/notice to parents/guardians that accompanies the 
free and reduced price application, on the application itself or in a 
separate notice provided to parents/guardians. The notice must give 
parents/guardians adequate time to respond. For children determined 
eligible through direct certification, the notice of potential 
disclosure may be included in the document informing parents/guardians 
of their children's eligibility for free meals through direct 
certification.
    (6) May social security numbers be disclosed? The State agency or 
sponsor, as appropriate, may disclose social security numbers to any 
programs or persons authorized to receive all program eligibility 
information under this paragraph (g), provided parents/guardians have 
not declined to have their information disclosed. However, State 
agencies and sponsors that plan to disclose social security numbers must 
give notice of the planned use of the social security number. This 
notice must be in accordance with section 7(b) of the Privacy Act of 
1974 (5 U.S.C. 552a note). The application must include substantially 
the following language for disclosures of social security numbers to 
Medicaid or SCHIP: ``The social security number may also be disclosed to 
Medicaid and the State Children's Health Insurance Program for the 
purpose of identifying and seeking to enroll eligible children in one of 
these health insurance programs.'' This language is in addition to the 
notice required in paragraph (f)(4)(iv) of this section. State agencies 
and sponsors are responsible for drafting the appropriate notice for 
disclosures of social security numbers.
    (7) Are agreements required before disclosing program eligibility 
information? The State agency or sponsor, as appropriate, must have a 
written agreement with the State or local agency or agencies 
administering Medicaid or SCHIP prior to disclosing children's free and 
reduced price eligibility information. At a minimum, the agreement must:
    (i) Identify the health insurance program or health agency receiving 
children's eligibility information;
    (ii) Describe the information that will be disclosed;
    (iii) Require that the Medicaid or SCHIP agency use the information 
obtained and specify that the information must only be used to seek to 
enroll children in Medicaid or SCHIP;
    (iv) Describe how the information will be protected from 
unauthorized uses and disclosures;
    (v) Describe the penalties for unauthorized disclosure; and

[[Page 149]]

    (vi) Be signed by both the Medicaid or SCHIP program or agency and 
the State agency or sponsor, as appropriate.
    (8) What are the penalties for unauthorized disclosure or misuse of 
information? In accordance with section 9(b)(2)(C)(v) of the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1758(b)(2)(C)(v)), any 
individual who publishes, divulges, discloses or makes known in any 
manner, or to any extent not authorized by statute or this section, any 
information obtained under this paragraph (g) will be fined not more 
than $1,000 or imprisoned for up to 1 year, or both.
    (9) What are the State agency's responsibilities regarding 
disclosures? State agencies that elect to allow disclosure of children's 
free and reduced price meal eligibility information to Medicaid or 
SCHIP, as provided in this paragraph (g), must ensure that any sponsor 
acting in accordance with that option:
    (i) Has a written agreement with the State or local agency or 
agencies administering health insurance programs for children under 
titles XIX and XXI of the Social Security Act (42 U.S.C. 1396 et seq. 
and 1397aa et seq.) that requires the health agencies to use children's 
free and reduced price meal eligibility information to seek to enroll 
children in those health insurance programs; and
    (ii) Notifies each household of the information that will be 
disclosed, that the information disclosed will be used only to seek to 
enroll children in Medicaid or SCHIP and provides each parent/guardian 
with an opportunity to elect not to have the information disclosed.
    (h) Food service management companies. (1) Failure by a sponsor to 
comply with the provisions of this section shall be sufficient grounds 
for the State agency to terminate that sponsor's participation in 
accordance with Sec.  225.18.
    (2) Any sponsor may contract with a food service management company 
to manage the sponsor's food service operations and/or for the 
preparation of unitized meals with or without milk or juice. Exceptions 
to the unitizing requirement may only be made in accordance with the 
provisions set forth at Sec.  225.6(h)(3).
    (3) Any vended sponsor shall be responsible for ensuring that its 
food service operation is in conformity with its agreement with the 
State agency and with all the applicable provisions of this part.
    (4) In addition to any applicable State or local laws governing bid 
procedures, and with the exceptions identified in this paragraph, each 
sponsor which contracts with a food service management company shall 
comply with the competitive bid procedures described in this paragraph. 
Sponsors which are schools or school food authorities and which have an 
exclusive contract with a food service management company for year-round 
service, and sponsors whose total contracts with food service management 
companies will not exceed $10,000, shall not be required to comply with 
these procedures. These exceptions do not relieve the sponsor of the 
responsibility to ensure that competitive procurement procedures are 
followed in contracting with any food service management company. Each 
sponsor whose proposed contract is subject to the specific bid 
procedures set forth in this paragraph shall ensure, at a minimum, that:
    (i) All proposed contracts are publicly announced at least once, not 
less than 14 calendar days prior to the opening of bids, and the 
announcement includes the time and place of the bid opening;
    (ii) The bids are publicly opened;
    (iii) The State agency is notified, at least 14 calendar days prior 
to the opening of the bids, of the time and place of the bid opening;
    (iv) The invitation to bid does not specify a minimum price;
    (v) The invitation to bid contains a cycle menu approved by the 
State agency upon which the bid is based;
    (vi) The invitation to bid contains food specifications and meal 
quality standards approved by the State agency upon which the bid is 
based;
    (vii) The invitation to bid does not specify special meal 
requirements to meet ethnic or religious needs unless such special 
requirements are necessary to meet the needs of the children to be 
served;

[[Page 150]]

    (viii) Neither the invitation to bid nor the contract provides for 
loans or any other monetary benefit or term or condition to be made to 
sponsors by food service management companies;
    (ix) Nonfood items are excluded from the invitation to bid, except 
where such items are essential to the conduct of the food service;
    (x) Copies of all contracts between sponsors and food service 
management companies, along with a certification of independent price 
determination, are submitted to the State agency prior to the beginning 
of Program operations;
    (xi) Copies of all bids received are submitted to the State agency, 
along with the sponsor's reason for choosing the successful bidder; and
    (xii) All bids in an amount which exceeds the lowest bid and all 
bids totaling $100,000 or more are submitted to the State agency for 
approval before acceptance. State agencies shall respond to a request 
for approval of such bids within 5 working days of receipt.
    (5) Each food service management company which submits a bid over 
$100,000 shall obtain a bid bond in an amount not less than five (5) 
percent nor more than ten (10) percent, as determined by the sponsor, of 
the value of the contract for which the bid is made. A copy of the bid 
bond shall accompany each bid.
    (6) Each food service management company which enters into a food 
service contract for over $100,000 with a sponsor shall obtain a 
performance bond in an amount not less than ten (10) percent nor more 
than twenty-five (25) percent of the value of the contract, as 
determined by the State agency, of the value of the contract for which 
the bid is made. Any food service management company which enters into 
more than one contract with any one sponsor shall obtain a performance 
bond covering all contracts if the aggregate amount of the contracts 
exceeds $100,000. Sponsors shall require the food service management 
company to furnish a copy of the performance bond within ten days of the 
awarding of the contract.
    (7) Food service management companies shall obtain bid bonds and 
performance bonds only from surety companies listed in the current 
Department of the Treasury Circular 570. No sponsor or State agency 
shall allow food service management companies to post any 
``alternative'' forms of bid or performance bonds, including but not 
limited to cash, certified checks, letters of credit, or escrow 
accounts.
    (i) Other responsibilities. Sponsors shall comply with all of the 
meal service requirements set forth in Sec.  225.16.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13470, Apr. 10, 1990; 
61 FR 25553, May 22, 1996; 64 FR 72486, Dec. 28, 1999; 64 FR 72898, Dec. 
29, 1999; 65 FR 82251, Dec. 28, 2000; 66 FR 2202, Jan. 11, 2001]



Sec.  225.16  Meal service requirements.

    (a) Sanitation. Sponsors shall ensure that in storing, preparing, 
and serving food, proper sanitation and health standards are met which 
conform with all applicable State and local laws and regulations. 
Sponsors shall ensure that adequate facilities are available to store 
food or hold meals. Within two weeks of receiving notification of their 
approval, but in any case prior to commencement of Program operation, 
sponsors shall submit to the State agency a copy of their letter 
advising the appropriate health department of their intention to provide 
a food service during a specific period at specific sites.
    (b) Meal services. The meals which may be served under the Program 
are breakfast, lunch, supper, and supplements, referred to from this 
point as ``snacks''. No sponsor may be approved to provide more than two 
snacks per day. A sponsor may only be reimbursed for meals served in 
accordance with this section.
    (1) Camps. Sponsors of camps shall only be reimbursed for meals 
served in camps to children from families which meet the eligibility 
standards for this Program. The sponsor shall maintain a copy of the 
documentation establishing the eligibility of each child receiving meals 
under the Program. Meal service at camps shall be subject to the 
following provisions:
    (i) Each day a camp may serve up to three meals or two meals and one 
snack;

[[Page 151]]

    (ii) Residential camps are not subject to the time restrictions for 
meal service set forth at paragraphs (c) (1) and (2) of this section; 
and
    (iii) A camp shall be approved to serve these meals only if it has 
the administrative capability to do so; if the service period of the 
different meals does not coincide or overlap; and, where applicable, if 
it has adequate food preparation and holding facilities.
    (2) NYSP Sites. Sponsors of NYSP sites shall only be reimbursed for 
meals served to enrolled NYSP participants at these sites.
    (3) Restrictions on the number and type of meals served. Food 
service sites other than camps and sites that primarily serve migrant 
children may serve either:
    (i) One meal each day, a breakfast, a lunch, or snack; or
    (ii) Two meals each day, if one is a lunch and the other is a 
breakfast or a snack.
    (4) Sites which serve children of migrant families. Food service 
sites that primarily serve children from migrant families may be 
approved to serve each day up to three meals or two meals and one snack. 
These sites shall serve children in areas where poor economic conditions 
exist as defined in Sec.  225.2. A sponsor which operates in accordance 
with this part shall receive reimbursement for all meals served to 
children at these sites. A site which primarily serves children from 
migrant families shall only be approved to serve more than one meal each 
day if it has the administrative capability to do so; if the service 
period of the different meals does not coincide or overlap; and, where 
applicable, if it has adequate food preparation and holding facilities.
    (c) Time restrictions for meal service. (1) Three hours must elapse 
between the beginning of one meal service, including snacks, and the 
beginning of another, except that 4 hours must elapse between the 
service of a lunch and supper when no snack is served between lunch and 
supper. The service of supper shall begin no later than 7 p.m., unless 
the State agency has granted a waiver of this requirement due to 
extenuating circumstances. These waivers shall be granted only when the 
State agency and the sponsor ensure that special arrangements shall be 
made to monitor these sites. In no case may the service of supper extend 
beyond 8 p.m. The time restrictions in this paragraph shall not apply to 
residential camps.
    (2) The duration of the meal service shall be limited to two hours 
for lunch or supper and one hour for all other meals.
    (3) Meals served outside of the period of approved meal service 
shall not be eligible for Program payments.
    (4) Any permanent or planned changes in meal service periods must be 
approved by the State agency.
    (5) Meals which are not prepared at the food service site shall be 
delivered no earlier than one hour prior to the beginning of the meal 
service (unless the site has adequate facilities for holding hot or cold 
meals within the temperatures required by State or local health 
regulations) and no later than the beginning of the meal service.
    (6) The sponsor shall claim for reimbursement only the type(s) of 
meals for which it is approved under its agreement with the State 
agency.
    (d) Meal patterns. The meal requirements for the Program are 
designed to provide nutritious and well-balanced meals to each child. 
Sponsors shall ensure that meals served meet all of the requirements. 
Except as otherwise provided in this section, the following tables 
present the minimum requirements for meals served to children in the 
Program. Children age 12 and up may be served larger portions based on 
the greater food needs of older boys and girls.
    (1) Breakfast. The minimum amount of food components to be served as 
breakfast are as follows:

------------------------------------------------------------------------
           Food components                      Minimum amount
------------------------------------------------------------------------
                          Vegetables and Fruits
------------------------------------------------------------------------
Vegetable(s) and/or fruit(s) or.....  \1/2\ cup.\1\
Full-strength vegetable or fruit      \1/2\ cup (4 fluid ounces).
 juice or an equivalent quantity of
 any combination of vegetable(s),
 fruits(s), and juice.
-------------------------------------

[[Page 152]]

 
                     Bread and Bread Alternates \2\
------------------------------------------------------------------------
Bread or............................  1 slice.
Cornbread, biscuits, rolls, muffins,  1 serving.\3\
 etc. or.
Cold dry cereal or..................  \3/4\ cup or 1 ounce.\4\
Cooked cereal or cereal grains or...  \1/2\ cup.
Cooked pasta or noodle products or    \1/2\ cup.
 an equivalent quantity of any
 combination of bread/bread
 alternate.
-------------------------------------
                                Milk \5\
------------------------------------------------------------------------
Milk, fluid.........................  1 cup (\1/2\ pint, 8 fluid
                                       ounces).
-------------------------------------
                   Meat and Meat Alternates (Optional)
------------------------------------------------------------------------
Lean meat or poultry or fish or.....  1 ounce.
Alternate protein product \6\ or....  1 ounce.
Cheese or...........................  1 ounce.
Egg (large) or......................  \1/2\.
Cooked dry beans or peas or.........  \1/4\ cup.
Peanut butter or an equivalent        2 tablespoons.
 quantity of any combination of meat/
 meat alternate or.
Yogurt, plain or flavored,            4 ounces or \1/2\ cup.
 unsweetened or sweetened.
------------------------------------------------------------------------
\1\ For the purposes of the requirement outlined in this table, a cup
  means a standard measuring cup.
\2\ Bread, pasta or noodle products, and cereal grains (such as rice,
  bulgur, or corn grits) shall be whole-grain or enriched; cornbread,
  biscuits, rolls, muffins, etc., shall be made with whole-grain or
  enriched meal or flour; cereal shall be whole-grain, enriched or
  fortified.
\3\ Serving sizes and equivalents will be in guidance materials to be
  distributed by FNS to State agencies.
\4\ Either volume (cup) or weight (ounces), whichever is less.
\5\ Milk shall be served as a beverage or on cereal or used in part for
  each purpose.
\6\ Must meet the requirements in appendix A of this part.

    (2) Lunch or supper. The minimum amounts of food components to be 
served as lunch or supper are as follows:

------------------------------------------------------------------------
           Food components                      Minimum amount
------------------------------------------------------------------------
                        Meat and Meat Alternates
------------------------------------------------------------------------
Lean meat or poultry or fish or.....  2 ounces.
Alternate protein products \1\ or...  2 ounces.
Cheese or...........................  2 ounces.
Egg (large) or......................  1.
Cooked dry beans or peas or.........  \1/2\ cup.\2\
Peanut butter or soynut butter or     4 tablespoons.
 other nut or seed butters or.
Peanuts or soynuts or tree nuts or    1 ounce=50%.\4\
 seed \3\ or.
Yogurt, plain or flavored,            8 ounces or 1 cup.
 unsweetened or sweetened or an
 equivalent quantity of any
 combination of the above meat/meat
 alternates.
-------------------------------------
                          Vegetables and Fruits
------------------------------------------------------------------------
Vegetable(s) and/or fruit(s) \5\....  \3/4\ cup total.
-------------------------------------
                    Bread and Bread Alternatives \6\
------------------------------------------------------------------------
Bread or............................  1 slice.
Cornbread, biscuits, rolls, muffins,  1 serving.\7\
 etc. or.
Cooked pasta or noodle products or..  \1/2\ cup.
Cooked cereal grains or an            \1/2\ cup.
 equivalent quantity of any
 combination of bread/bread
 alternate.
-------------------------------------
                                  Milk
------------------------------------------------------------------------
Milk, fluid, served as a beverage...  1 cup (\1/2\ pint, 8 fluid
                                       ounces).
------------------------------------------------------------------------
\1\ Must meet the requirements of appendix A of this part.
\2\ For the purposes of the requirement outlined in this table, a cup
  means a standard measuring cup.
\3\ Tree nuts and seeds that may be used as meat alternate are listed in
  program guidance.
\4\ No more than 50% of the requirement shall be met with nuts or seeds.
  Nuts or seeds shall be combined with another meat/meat alternate to
  fulfill the requirement. For purposes of determining combinations, 1
  ounce of nuts or seeds is equal to 1 ounce of cooked lean meat,
  poultry or fish.
\5\ Serve 2 or more kinds of vegetable(s) and/or fruits or a combination
  of both. Full strength vegetable or fruit juice may be counted to meet
  not more than one-half of this requirement.
\6\ Bread, pasta or noodle products, and cereal grains (such as rice,
  bulgur, or corn grits) shall be whole-grain or enriched; cornbread,
  biscuits, rolls, muffins, etc., shall be made with whole-grain or
  enriched meal or flour; cereal shall be whole-grain, enriched or
  fortified.
\7\ Serving sizes and equivalents will be in guidance materials to be
  distributed by FNS to State agencies.


[[Page 153]]

    (3) Snacks. The minimum amounts of food components to be served as 
snacks are as follows. Select two of the following four components. 
(Juice may not be served when milk is served as the only other 
component.)

------------------------------------------------------------------------
           Food components                      Minimum amount
------------------------------------------------------------------------
                        Meat and Meat Alternates
------------------------------------------------------------------------
Lean meat or poultry or fish or.....  1 ounce.
Alternate protein products \1\ or...  1 ounce.
Cheese or...........................  1 ounce.
Egg (large) or......................  \1/2\.
Cooked dry beans or peas or.........  \1/4\ cup \2\.
Peanut butter or soynut butter or     2 tablespoons.
 other nut or seed butters or.
Peanuts or soynuts or tree nuts or    1 ounce.
 seeds \3\ or.
Yogurt, plain or flavored,            4 ounce or \1/2\ cup.
 unsweetened or sweetened or an
 equivalent quantity of any
 combination of the above meat/meat
 alternates.
-------------------------------------
                          Vegetables and Fruits
------------------------------------------------------------------------
Vegetable(s) and/or fruit(s) or.....  \3/4\ cup.
Full-strength vegetable or fruit      \3/4\ cup (6 fluid ounces).
 juice or an equivalent quantity or
 any combination of vegetable(s),
 fruits(s) and juice.
-------------------------------------
                     Bread and Bread Alternates \4\
------------------------------------------------------------------------
Bread or............................  1 slice.
Cornbread, biscuits, rolls, muffins,  1 serving.\5\
 etc. or.
Cold dry cereal or..................  \3/4\ cup or 1 ounce.\6\
Cooked cereal or....................  \1/2\ cup.
Cooked cereal grains or an            \1/2\ cup.
 equivalent quantity of any
 combination of bread/bread
 alternate.
-------------------------------------
                                Milk \7\
------------------------------------------------------------------------
Milk, fluid.........................  1 cup (\1/2\ pint, 8 fluid
                                       ounces).
------------------------------------------------------------------------
\1\ Must meet the requirements in appendix A of this part.
\2\ For the purposes of the requirement outlined in this table, a cup
  means a standard measuring cup.
\3\ Tree nuts and seeds that may be used as meat alternates are listed
  in program guidance.
\4\ Bread, pasta or noodle products, and cereal grains (such as rice,
  bulgur, or corn grits) shall be whole-grain or enriched; cornbread,
  biscuits, rolls, muffins, etc., shall be made with whole-grain or
  enriched meal or flour; cereal shall be whole-grain, enriched or
  fortified.
\5\ Serving sizes and equivalents will be in guidance materials to be
  distributed by FNS to State agencies.
\6\ Either volume (cup) or weight (ounces), whichever is less.
\7\ Milk should be served as a beverage or on cereal, or used in part
  for each purpose.

    (e) Meat or meat alternate. Meat or meat alternates served under the 
Program are subject to the following requirements and recommendations.
    (1) The required quantity of meat or meat alternate shall be the 
quantity of the edible portion as served. These foods must be served in 
a main dish, or in a main dish and one other menu item.
    (2) Cooked dry beans or peas may be used as a meat alternate or as a 
vegetable, but they may not be used to meet both component requirements 
in a meal.
    (3) Enriched macaroni with fortified protein may be used to meet 
part but not all of the meat/meat alternate requirement. The Department 
will provide guidance to State agencies on the part of the meat/meat 
alternate requirement which these foods may be used to meet. If enriched 
macaroni with fortified protein is served as a meat alternate it shall 
not be counted toward the bread requirement.
    (4) If the sponsor believes that the recommended portion size of any 
meat or meat alternate is too large to be appealing to children, the 
sponsor may reduce the portion size of that meat or meat alternate and 
supplement it with another meat or meat alternate to meet the full 
requirement.
    (5) Nuts and seeds and their butters listed in program guidance are 
nutritionally comparable to meat or other meat alternates based on 
available nutritional data. Acorns, chestnuts, and coconuts shall not be 
used as meat alternates due to their low protein content. Nut and seed 
meals or flours shall not be used as a meat alternate except as defined 
in this section under paragraph (e)(3) and in this part under Appendix 
A: Alternate Foods for Meals.

[[Page 154]]

As noted in paragraph (d)(2) of this section, nuts or seeds may be used 
to meet no more than one-half of the meat/meat alternate requirement for 
lunch or supper. Therefore, nuts or seeds must be combined with another 
meat/meat alternate to fulfill the requirement. For the supplemental 
food pattern, nuts or seeds may be used to fulfill all of the meat/meat 
alternate requirement.
    (f) Exceptions to and variations from the meal pattern.--(1) Meals 
provided by school food authorities.--(i) Meal pattern substitution. 
School food authorities that are Program sponsors and that participate 
in the National School Lunch or School Breakfast Program during any time 
of the year may substitute the meal pattern requirements of the 
regulations governing those programs (Parts 210 and 220 of this chapter, 
respectively) for the meal pattern requirements in this section.
    (ii) Offer versus serve. School food authorities that are Program 
sponsors may permit a child to refuse one or more items that the child 
does not intend to eat. The school food authority must apply this 
``offer versus serve'' option under the rules followed for the National 
School Lunch Program, as described in part 210 of this chapter. The 
reimbursements to school food authorities for Program meals served under 
the ``offer versus serve'' must not be reduced because children choose 
not to take all components of the meals that are offered.
    (2) Children under 6. The State agency may authorize the sponsor to 
serve food in smaller quantities than are indicated in paragraph (d) of 
this section to children under six years of age if the sponsor has the 
capability to ensure that variations in portion size are in accordance 
with the age levels of the children served. Sponsors wishing to serve 
children under one year of age shall first receive approval to do so 
from the State agency. In both cases, the sponsor shall follow the age-
appropriate meal pattern requirements contained in the Child and Adult 
Care Food Program regulations (7 CFR part 226).
    (3) Statewide substitutions. In American Samoa, Puerto Rico, Guam, 
the Virgin Islands, the Trust Territory of the Pacific Islands, and the 
Northern Mariana Islands, the following variations from the meal 
requirements are authorized: A serving of a starchy vegetable--such as 
ufi, tanniers, yams, plantains, or sweet potatoes--may be substituted 
for the bread requirements.
    (4) Individual substitutions. Substitutions may be made by sponsors 
in food listed in paragraph (d) of this section if individual 
participating children are unable, because of medical or other special 
dietary needs, to consume such foods. Such substitutions shall be made 
only when supported by a statement from a recognized medical authority 
which includes recommended alternate foods. Such statement shall be kept 
on file by the sponsor.
    (5) Special variations. FNS may approve variations in the food 
components of the meals on an experimental or a continuing basis for any 
sponsor where there is evidence that such variations are nutritionally 
sound and are necessary to meet ethnic, religious, economic, or physical 
needs.
    (6) Temporary unavailability of milk. If emergency conditions 
prevent a sponsor normally having a supply of milk from temporarily 
obtaining milk deliveries, the State agency may approve the service of 
breakfasts, lunches or suppers without milk during the emergency period.
    (7) Continuing unavailability of milk. The inability of a sponsor to 
obtain a supply of milk on a continuing basis shall not bar it from 
participation in the Program. In such cases, the State agency may 
approve service of meals without milk, provided that an equivalent 
amount of canned, whole dry or nonfat dry milk is used in the 
preparation of the milk components set forth in paragraph (d) of this 
section. In addition, the State agency may approve the use of nonfat dry 
milk in meals served to children participating in activities which make 
the service of fluid milk impracticable, and in locations which are 
unable to obtain fluid milk. Such authorization shall stipulate that 
nonfat dry milk be reconstituted at normal dilution and under sanitary 
conditions consistent with State and local health regulations.

[[Page 155]]

    (8) Additional foods. To improve the nutrition of participating 
children, additional foods may be served with each meal.

[54 FR 18208, Apr. 27, 1989, as amended at 54 FR 27153, June 28, 1989; 
Amdt. 2, 55 FR 1377, Jan. 14, 1990; 55 FR 13470, Apr. 10, 1990; 61 FR 
37672, July 19, 1996; 62 FR 10191, Mar. 6, 1997; 64 FR 72487, Dec. 28, 
1999; 64 FR 72487, Dec. 28, 1999; 65 FR 12437, Mar. 9, 2000; 65 FR 
82251, Dec. 28, 2000]



               Subpart D_General Administrative Provisions



Sec.  225.17  Procurement standards.

    (a) State agencies and sponsors shall comply with the standards 
prescribed in the Department's Uniform Federal Assistance Regulations at 
7 CFR part 3015, subpart S, in the procurement of food, supplies, goods, 
and other services with Program payments.
    (b) The State agency shall make available to sponsors information on 
7 CFR part 3015.
    (c) Sponsors may use their own procurement procedures which reflect 
applicable State and local laws and regulations, provided that 
procurements made with Program funds conform with provisions of this 
section, as well as with procurement requirements which may be 
established by the State agency, with approval of FNS, to prevent fraud, 
waste, and Program abuse.
    (d) The State agency shall ensure that all sponsors are aware of the 
following practices specified in 7 CFR part 3015, with respect to 
minority business enterprises:
    (1) Including qualified minority business enterprises on 
solicitation lists,
    (2) Soliciting minority business enterprises whenever they are 
potential sources,
    (3) When economically feasible, dividing total requirements into 
smaller tasks or quantities so as to permit maximum participation by 
minority business enterprises,
    (4) Establishing delivery schedules which will assist minority 
business enterprises to meet deadlines, and
    (5) Using the services and assistance of the Small Business 
Administration, and the Office of Minority Business Enterprise of the 
Department of Commerce as required.



Sec.  225.18  Miscellaneous administrative provisions.

    (a) Grant closeout procedures. Grant closeout procedures for the 
Program shall be in accordance with the Department's Uniform Federal 
Assistance Regulations (7 CFR part 3015), subpart N.
    (b) Termination for cause. (1) FNS may terminate a State agency's 
participation in the Program in whole, or in part, whenever it is 
determined that the State agency has failed to comply with the 
conditions of the Program. FNS shall promptly notify the State agency in 
writing of the termination and reason for the termination, together with 
the effective date, and shall allow the State 30 calendar days to 
respond. In instances where the State does respond, FNS shall inform the 
State of its final determination no later than 30 calendar days after 
the State responds.
    (2) A State agency shall terminate a sponsor's participation in the 
Program by written notice whenever it is determined by the State agency 
that the sponsor has failed to comply with the conditions of the 
Program.
    (3) When participation in the Program has been terminated for cause, 
any funds paid to the State agency or a sponsor or any recoveries by FNS 
from the State agency or by the State agency from a sponsor shall be in 
accordance with the legal rights and liabilities of the parties.
    (c) Termination for convenience. FNS and the State agency may agree 
to terminate the State agency's participation in the Program in whole, 
or in part, when both parties agree that the continuation of the Program 
would not produce beneficial results commensurate with the further 
expenditure of funds. The two parties shall agree upon the termination 
conditions, including the effective date, and in the case of partial 
termination, the portion to be terminated. The State agency shall not 
incur new obligations for the terminated portion after the effective 
date, and shall cancel as many outstanding obligations as possible. The 
Department shall allow full credit to the State agency for the Federal 
share of the noncancellable obligation properly incurred by the State 
agency prior to

[[Page 156]]

termination. A State agency may terminate a sponsor's participation in 
the manner provided for in this paragraph.
    (d) Maintenance of effort. Expenditure of funds from State and local 
sources for the maintenance of food programs for children shall not be 
diminished as a result of funds received under the Act and a 
certification to this effect shall become part of the agreement provided 
for in Sec.  225.3(c).
    (e) Program benefits. The value of benefits and assistance available 
under the Program shall not be considered as income or resources of 
recipients and their families for any purpose under Federal, State or 
local laws, including, but not limited to, laws relating to taxation, 
welfare, and public assistance programs.
    (f) State requirements. Nothing contained in this part shall prevent 
a State agency from imposing additional operating requirements which are 
not inconsistent with the provisions of this part, provided that such 
additional requirements shall not deny the Program to an area in which 
poor economic conditions exist, and shall not result in a significant 
number of needy children not having access to the Program. Prior to 
imposing any additional requirements, the State agency must receive 
approval from FNSRO.
    (g) Fraud penalty. Whoever embezzles, willfully misapplies, steals, 
or obtains by fraud any funds, assets, or property that are the subject 
of a grant or other form of assistance under this part, whether received 
directly or indirectly from the Department, or whoever receives, 
conceals, or retains such funds, assets, or property to his use or gain, 
knowing such funds, assets, or property have been embezzled, willfully 
misapplied, stolen or obtained by fraud shall, if such funds, assets, or 
property are of the value of $100 or more, be fined not more than 
$100,000 or imprisoned not more than five years, or both, or if such 
funds, assets, or property are of a value of less than $100, shall be 
fined not more than $1,000 or imprisoned for not more than one year, or 
both.
    (h) Claims adjustment authority. The Secretary shall have the 
authority to determine the amount of, to settle, and to adjust any claim 
arising under the Program, and to compromise or deny such claim or any 
part thereof. The Secretary shall also have the authority to waive such 
claims if the Secretary determines that to do so would serve the 
purposes of the Program. This provision shall not diminish the authority 
of the Attorney General of the United States under section 516 of title 
28, U.S. Code, to conduct litigation on behalf of the United States.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13471, Apr. 10, 1990; 
64 FR 72488, Dec. 28, 1999]



Sec.  225.19  Regional office addresses.

    Persons desiring information concerning the Program may write to the 
appropriate State agency or Regional Office of FNS as indicated below:
    (a) In the States of Connecticut, Maine, Massachusetts, New 
Hampshire, New York, Rhode Island, and Vermont: Northeast Regional 
Office, FNS, U.S. Department of Agriculture, 10 Causeway Street, Room 
501, Boston, MA 02222-1065.
    (b) In the States of Delaware, District of Columbia, Maryland, New 
Jersey, Pennsylvania, Puerto Rico, Virginia, Virgin Islands, and West 
Virginia: Mid-Atlantic Regional Office, FNS, U.S. Department of 
Agriculture, Mercer Corporate Park, 300 Corporate Boulevard, 
Robbinsville, NJ 08691-1598.
    (c) In the States of Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee: Southeast 
Regional Office, FNS, U.S. Department of Agriculture, 61 Forsyth Street, 
SW., Room 8T36, Atlanta, GA 30303-3415.
    (d) In the States of Illinois, Indiana, Michigan, Minnesota, Ohio, 
and Wisconsin: Midwest Regional Office, FNS, U.S. Department of 
Agriculture, 77 West Jackson Boulevard, 20th Floor, Chicago, IL 60604-
3507.
    (e) In the States of Arkansas, Louisiana, New Mexico, Oklahoma and 
Texas: Southwest Regional Office, FNS, U.S. Department of Agriculture, 
1100 Commerce Street, Room 5-C-30, Dallas, TX 75242-9980.
    (f) In the States of Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, North Dakota, South Dakota, Utah and Wyoming: Mountain Plains 
Regional

[[Page 157]]

Office, FNS, U.S. Department of Agriculture, 1244 Speer Boulevard, Suite 
903, Denver, CO 80204-3581.
    (g) In the States of Alaska, American Samoa, Arizona, California, 
Guam, Hawaii, Idaho, Nevada, Oregon, the Commonwealth of the Northern 
Mariana Islands, and Washington: Western Regional Office, FNS, U.S. 
Department of Agriculture, 550 Kearney Street, Room 400, San Francisco, 
CA 94108-2518.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13471, Apr. 10, 1990; 
65 FR 12439, Mar. 9, 2000; 65 FR 82251, Dec. 28, 2000]



Sec.  225.20  Information collection/recordkeeping--OMB assigned control numbers.

------------------------------------------------------------------------
                                                             Current OMB
       7 CFR section where requirements are described        control No.
------------------------------------------------------------------------
225.3-225.4................................................    0584-0280
225.6-225.10...............................................    0584-0280
225.12-225.13..............................................    0584-0280
225.15-225.18..............................................    0584-0280
------------------------------------------------------------------------


[61 FR 25554, May 22, 1996]

            Appendix A to Part 225--Alternate Foods for Meals

                       Alternate Protein Products

  A. What Are the Criteria for Alternate Protein Products Used in the 
                      Summer Food Service Program?

    1. An alternate protein product used in meals planned under the 
provisions in Sec.  225.16 must meet all of the criteria in this 
section.
    2. An alternate protein product whether used alone or in combination 
with meat or other meat alternates must meet the following criteria:
    a. The alternate protein product must be processed so that some 
portion of the non-protein constituents of the food is removed. These 
alternate protein products must be safe and suitable edible products 
produced from plant or animal sources.
    b. The biological quality of the protein in the alternate protein 
product must be at least 80 percent that of casein, determined by 
performing a Protein Digestibility Corrected Amino Acid Score (PDCAAS).
    c. The alternate protein product must contain at least 18 percent 
protein by weight when fully hydrated or formulated. (``When hydrated or 
formulated'' refers to a dry alternate protein product and the amount of 
water, fat, oil, colors, flavors or any other substances which have been 
added).
    d. Manufacturers supplying an alternate protein product to 
participating schools or institutions must provide documentation that 
the product meets the criteria in paragraphs A. 2. a through c of this 
appendix.
    e. Manufacturers should provide information on the percent protein 
contained in the dry alternate protein product and on an as prepared 
basis.
    f. For an alternate protein product mix, manufacturers should 
provide information on:
    (1) The amount by weight of dry alternate protein product in the 
package;
    (2) Hydration instructions; and
    (3) Instructions on how to combine the mix with meat or other meat 
alternates.

 B. How Are Alternate Protein Products Used in the Summer Food Service 
                                Program?

    1. Schools, institutions, and service institutions may use alternate 
protein products to fulfill all or part of the meat/meat alternate 
component discussed in Sec.  225.20.
    2. The following terms and conditions apply:
    a. The alternate protein product may be used alone or in combination 
with other food ingredients. Examples of combination items are beef 
patties, beef crumbles, pizza topping, meat loaf, meat sauce, taco 
filling, burritos, and tuna salad.
    b. Alternate protein products may be used in the dry form 
(nonhydrated), partially hydrated or fully hydrated form. The moisture 
content of the fully hydrated alternate protein product (if prepared 
from a dry concentrated form) must be such that the mixture will have a 
minimum of 18 percent protein by weight or equivalent amount for the dry 
or partially hydrated form (based on the level that would be provided if 
the product were fully hydrated).

   C. How Are Commercially Prepared Products Used in the Summer Food 
                            Service Program?

    Schools, institutions, and service institutions may use a 
commercially prepared meat or meat alternate products combined with 
alternate protein products or use a commercially prepared product that 
contains only alternate protein products.

[65 FR 12439, Mar. 9, 2000]

                    Appendix B to Part 225 [Reserved]

      Appendix C to Part 225--Child Nutrition (CN) Labeling Program

    1. The Child Nutrition (CN) Labeling Program is a voluntary 
technical assistance program administered by the Food and Nutrition 
Service (FNS) in conjunction with the Food Safety and Inspection Service 
(FSIS) and Agricultural Marketing Service (AMS) of the U.S. Department 
of Agriculture (USDA), and National Marine Fisheries Service of the U.S. 
Department of Commerce (USDC) for the Child Nutrition Programs.

[[Page 158]]

This program essentially involves the review of a manufacturer's recipe 
or product formulation to determine the contribution a serving of a 
commercially prepared product makes toward meal pattern requirements and 
a review of the CN label statement to ensure its accuracy. CN labeled 
products must be produced in accordance with all requirements set forth 
in this rule.
    2. Products eligible for CN labels are as follows:
    (a) Commercially prepared food products that contribute 
significantly to the meat/meat alternate component of meal pattern 
requirements of 7 CFR 210.10, 225.16, and 226.20 and are served in the 
main dish.
    (b) Juice drinks and juice drink products that contain a minimum of 
50 percent full strength juice by volume.
    3. For the purpose of this appendix the following definitions apply:
    (a) CN label is a food product label that contains a CN label 
statement and CN logo as defined in paragraph 3(b) and (c) below.
    (b) The CN logo (as shown below) is a distinct border which is used 
around the edges of a ``CN label statement'' as defined in paragraph 
3(c).
[GRAPHIC] [TIFF OMITTED] TC17SE91.006

    (c) The CN label statement includes the following:
    (1) The product identification number (assigned by FNS);
    (2) The statement of the product's contribution toward meal pattern 
requirements of 7 CFR 210.10, 220.8, 225.16, and 226.20. The statement 
shall identify the contribution of a specific portion of a meat/meat 
alternate product toward the meat/meat alternate, bread/bread alternate, 
and/or vegetable/fruit component of the meal pattern requirements. For 
juice drinks and juice drink products the statement shall identify their 
contribution toward the vegetable/fruit component of the meal pattern 
requirements.
    (3) Statement specifying that the use of the CN logo and CN 
statement was authorized by FNS, and
    (4) The approval date.
    For example:
    [GRAPHIC] [TIFF OMITTED] TC17SE91.007
    
    (d) Federal inspection means inspection of food products by FSIS, 
AMS or USDC.
    4. Food processors or manufacturers may use the CN label statement 
and CN logo as defined in paragraph 3 (b) and (c) under the following 
terms and conditions:
    (a) The CN label must be reviewed and approved at the national level 
by the Food and Nutrition Service and appropriate USDA or USDC Federal 
agency responsible for the inspection of the product.
    (b) The CN labeled product must be produced under Federal inspection 
by USDA or USDC. The Federal inspection must be performed in accordance 
with an approved partial or total quality control program or standards 
established by the appropriate Federal inspection service.
    (c) The CN label statement must be printed as an integral part of 
the product label along with the product name, ingredient listing, the 
inspection shield or mark for the appropriate inspection program, the 
establishment number where appropriate and the

[[Page 159]]

manufacturer's or distributor's name and address.
    (1) The inspection marking for CN labeled non-meat, non-poultry, and 
non-seafood products with the exception of juice drinks and juice drink 
products is established as follows:
[GRAPHIC] [TIFF OMITTED] TC17SE91.008

    (d) Yields for determining the product's contribution toward meal 
pattern requirements must be calculated using the Food Buying Guide for 
Child Nutrition Programs (Program Aid Number 1331).
    5. In the event a company uses the CN logo and CN label statement 
inappropriately, the company will be directed to discontinue the use of 
the logo and statement and the matter will be referred to the 
appropriate agency for action to be taken against the company.
    6. Products that bear a CN label statement as set forth in paragraph 
3(c) carry a warranty. This means that if a food service authority 
participating in the child nutrition programs purchases a CN labeled 
product and uses it in accordance with the manufacturer's directions, 
the school or institution will not have an audit claim filed against it 
for the CN labeled product for noncompliance with the meal pattern 
requirements of 7 CFR 210.10, 220.8, 225.16, and 226.20. If a State or 
Federal auditor finds that a product that is CN labeled does not 
actually meet the meal pattern requirements claimed on the label, the 
auditor will report this finding to FNS. FNS will prepare a report on 
the findings and send it to the appropriate divisions of FSIS and AMS of 
the USDA, National Marine Fisheries Service of the USDC, Food and Drug 
Administration, or the Department of Justice for action against the 
company. Any or all of the following courses of action may be taken: (a) 
The company's CN label may be revoked for a specific period of time; (b) 
The appropriate agency may pursue a misbranding or mislabeling action 
against the company producing the product; (c) The company's name will 
be circulated to regional FNS offices; and (d) FNS will require the food 
service program involved to notify the State agency of the labeling 
violation.
    7. FNS is authorized to issue operational policies, procedures, and 
instructions for the CN Labeling Program. To apply for a CN label and to 
obtain additional information on CN label application procedures, write 
to: CN Labels, U.S. Department of Agriculture, Food and Nutrition 
Service, Nutrition and Technical Services Division, 3101 Park Center 
Drive, Alexandria, Virginia 22302.



PART 226_CHILD AND ADULT CARE FOOD PROGRAM--Table of Contents




                            Subpart A_General

Sec.
226.1 General purpose and scope.
226.2 Definitions.
226.3 Administration.

                     Subpart B_Assistance to States

226.4 Payments to States and use of funds.
226.5 Donation of commodities.

                    Subpart C_State Agency Provisions

226.6 State agency administrative responsibilities.
226.7 State agency responsibilities for financial management.
226.8 Audits.

                      Subpart D_Payment Provisions

226.9 Assignment of rates of reimbursement for centers.
226.10 Program payment procedures.
226.11 Program payments for child care centers, adult day care centers 
          and outside-school-hours care centers.
226.12 Administrative payments to sponsoring organizations for day care 
          homes.
226.13 Food service payments to sponsoring organizations for day care 
          homes.
226.14 Claims against institutions.

                    Subpart E_Operational Provisions

226.15 Institution provisions.
226.16 Sponsoring organization provisions.
226.17 Child care center provisions.
226.18 Day care home provisions.
226.19 Outside-school-hours care center provisions.
226.19a Adult day care center provisions.
226.20 Requirements for meals.
226.21 Food service management companies.
226.22 Procurement standards.
226.23 Free and reduced-price meals.

               Subpart F_Food Service Equipment Provisions

226.24 Property management requirements.

                       Subpart G_Other Provisions

226.25 Other provisions.
226.26 Program information.
226.27 Information collection/recordkeeping--OMB assigned control 
          numbers.

Appendix A to Part 226--Alternate Foods for Meals
Appendix B to Part 226 [Reserved]
Appendix C to Part 226--Child Nutrition (CN) Labeling Program


[[Page 160]]


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

    Source: 47 FR 36527, Aug. 20, 1982, unless otherwise noted.



                            Subpart A_General



Sec.  226.1  General purpose and scope.

    This part announces the regulations under which the Secretary of 
Agriculture will carry out the Child and Adult Care Food Program. 
Section 17 of the National School Lunch Act, as amended, authorizes 
assistance to States through grants-in-aid and other means to initiate, 
maintain, and expand nonprofit food service programs for children or 
adult participants in nonresidential institutions which provide care. 
The Program is intended to enable such institutions to integrate a 
nutritious food service with organized care services for enrolled 
participants. Payments will be made to State agencies or FNS Regional 
Offices to enable them to reimburse institutions for food service to 
enrolled participants.

[53 FR 52587, Dec. 28, 1988, as amended by Amdt. 22, 55 FR 1377, Jan. 
14, 1990]



Sec.  226.2  Definitions.

    AFDC assistance unit means any individual or group of individuals 
which is currently certified to receive assistance under the Aid to 
Families with Dependent Children Program in a State where the standard 
of eligibility for AFDC benefits does not exceed the income eligibility 
guidelines for free meals under this part.
    Act means the National School Lunch Act, as amended.
    Administrative costs means costs incurred by an institution related 
to planning, organizing, and managing a food service under the Program, 
and allowed by the State agency financial management instruction. These 
administrative costs may include administrative expenses associated with 
outreach and recruitment of unlicensed family or group day care homes 
and the allowable licensing-related expenses of such homes.
    Administrative review means the fair hearing provided upon request 
to:
    (a) An institution that has been given notice by the State agency of 
any action or proposed action that will affect their participation or 
reimbursement under the Program, in accordance with Sec.  226.6(k);
    (b) A principal or individual responsible for an institution's 
serious deficiency after the responsible principal or responsible 
individual has been given a notice of intent to disqualify them from the 
Program; and
    (c) A day care home that has been given a notice of proposed 
termination for cause.
    Administrative review official means the independent and impartial 
official who conducts the administrative review held in accordance with 
Sec.  226.6(k).
    Adult means, for the purposes of the collection of social security 
numbers as a condition of eligibility for free or reduced-price meals, 
any individual 21 years of age or older.
    Adult day care center means any public or private nonprofit 
organization or any proprietary title XIX or title XX center (as defined 
in this section) which (a) is licensed or approved by Federal, State or 
local authorities to provide nonresidential adult day care services to 
functionally impaired adults (as defined in this section) or persons 60 
years of age or older in a group setting outside their homes or a group 
living arrangement on a less than 24-hour basis and (b) provides for 
such care and services directly or under arrangements made by the agency 
or organization whereby the agency or organization maintains 
professional management responsibility for all such services. Such 
centers shall provide a structured, comprehensive program that provides 
a variety of health, social and related support services to enrolled 
adult participants through an individual plan of care.
    Adult day care facility means a licensed or approved adult day care 
center under the auspices of a sponsoring organization.
    Adult participant means a person enrolled in an adult day care 
center who is functionally impaired (as defined in this section) or 60 
years of age or older.
    Advanced payments means financial assistance made available to an 
institution for its Program costs prior to

[[Page 161]]

the month in which such costs will be incurred.
    CACFP child care standards means the Child and Adult Care Food 
Program child care standards developed by the Department for alternate 
approval of child care centers, outside-school-hours care centers, and 
day care homes by the State agency under the provisions of Sec.  
226.6(d)(2) and (3).
    Center means a child care center, an adult day care center, or an 
outside-school-hours care center.
    Child care center means any public or private nonprofit 
organization, or any proprietary title XX center, as defined in this 
section (``Proprietary title XX center''), licensed or approved to 
provide nonresidential child care services to enrolled children, 
primarily of preschool age, including but not limited to day care 
centers, settlement houses, neighborhood centers, Head Start centers and 
organizations providing day care services for children with handicaps. 
Child care centers may participate in the Program as independent centers 
or under the auspices of a sponsoring organization.
    Child care facility means a licensed or approved child care center, 
day care home, or outside-school-hours care center under the auspices of 
a sponsoring organization.
    Children means (a) persons 12 years of age and under, (b) children 
of migrant workers 15 years of age and under, and (c) persons with 
mental or physical handicaps, as defined by the State, enrolled in an 
institution or a child care facility serving a majority of persons 18 
years of age and under.
    Claiming percentage means the ratio of the number of enrolled 
participants in an institution in each reimbursement category (free, 
reduced-price or paid) to the total of enrolled participants in the 
institution.
    Current income means income received during the month prior to 
application for free or reduced-price meals. If such income does not 
accurately reflect the household's annual income, income shall be based 
on the projected annual household income. If the prior year's income 
provides an accurate reflection of the household's current annual 
income, the prior year may be used as a base for the projected annual 
income.
    Day care home means an organized nonresidential child care program 
for children enrolled in a private home, licensed or approved as a 
family or group day care home and under the auspices of a sponsoring 
organization.
    Days means calendar days unless otherwise specified.
    Department means the U.S. Department of Agriculture.
    Disclosure means individual children's program eligibility 
information obtained through the free and reduced price meal eligibility 
process that is revealed or used for a purpose other than for the 
purpose for which the information was obtained. The term refers to 
access, release, or transfer of personal data about children by means of 
print, tape, microfilm, microfiche, electronic communication or any 
other means.
    Disqualified means the status of an institution, a responsible 
principal or responsible individual, or a day care home that is 
ineligible for participation.
    Documentation means:
    (a) The completion of the following information on a free and 
reduced-price application:
    (1) Names of all household members;
    (2) Income received by each household member, identified by source 
of income (such as earnings, wages, welfare, pensions, support payments, 
unemployment compensation, social security and other cash income);
    (3) The signature of an adult household member; and
    (4) The social security number of the adult household member who 
signs the application, or an indication that he/she does not possess a 
social security number; or
    (b) For a child who is a member of a food stamp or FDPIR household 
or an AFDC assistance unit, ``documentation'' means the completion of 
only the following information on a free and reduced price application:
    (1) The name(s) and appropriate food stamp, FDPIR or AFDC case 
number(s) for the child(ren); and
    (2) The signature of an adult member of the household; or

[[Page 162]]

    (c) For a child in a tier II day care home who is a member of a 
household participating in a Federally or State supported child care or 
other benefit program with an income eligibility limit that does not 
exceed the eligibility standard for free or reduced price meals:
    (1) The name(s), appropriate case number(s) (if the program utilizes 
case numbers), and name(s) of the qualifying program(s) for the 
child(ren), and the signature of an adult member of the household; or
    (2) If the sponsoring organization or day care home possesses it, 
official evidence of the household's participation in a qualifying 
program (submission of a free and reduced price application by the 
household is not required in this case); or
    (d) For an adult participant who is a member of a food stamp or 
FDPIR household or is an SSI or Medicaid participant, as defined in this 
section, ``documentation'' means the completion of only the following 
information on a free and reduced price application:
    (1) The name(s) and appropriate food stamp or FDPIR case number(s) 
for the participant(s) or the adult participant's SSI or Medicaid 
identification number, as defined in this section; and
    (2) The signature of an adult member of the household; or
    (e) For a child who is a Head Start participant, the Head Start 
statement of income eligibility issued upon initial enrollment in the 
Head Start Program or, if such statement is unavailable, other 
documentation from Head Start officials that the child's family meets 
the Head Start Program's low-income criteria.
    Emergency shelter means a public or private nonprofit organization 
whose primary purpose is to provide temporary shelter and food services 
to homeless families with children.
    Enrolled child means a child whose parent or guardian has submitted 
to an institution a signed document which indicates that the child is 
enrolled for child care. In addition, for the purposes of calculations 
made by sponsoring organizations of family day care homes in accordance 
with Sec. Sec.  226.13(d)(3)(ii) and 226.13(d)(3)(iii), ``enrolled 
child'' (or ``child in attendance'') means a child whose parent or 
guardian has submitted a signed document which indicates that the child 
is enrolled for child care; who is present in the day care home for the 
purpose of child care; and who has eaten at least one meal during the 
claiming period.
    Enrolled participant means an ``Enrolled child'' (as defined in this 
section) or ``Adult participant'' (as defined in this section).
    Expansion payments means financial assistance made available to a 
sponsoring organization for its administrative expenses associated with 
expanding a food service program to day care homes located in low-income 
or rural areas. These expansion payments may include administrative 
expenses associated with outreach and recruitment of unlicensed family 
or group day care homes and the allowable licensing-related expenses of 
such homes.
    Facility means a sponsored center or a family day care home.
    Family means, in the case of children, a group of related or 
nonrelated individuals, who are not residents of an institution or 
boarding house, but who are living as one economic unit or, in the case 
of adult participants, the adult participant, and if residing with the 
adult participant, the spouse and dependent(s) of the adult participant.
    FDPIR household means any individual or group of individuals which 
is currently certified to receive assistance as a household under the 
Food Distribution Program on Indian Reservations.
    Fiscal Year means a period of 12 calendar months beginning October 1 
of any year and ending with September 30 of the following year.
    FNS means the Food and Nutrition Service of the Department.
    FNSRO means the appropriate Regional Office of the Food and 
Nutrition Service.
    Food service equipment assistance means Federal financial assistance 
formerly made available to State agencies to assist institutions in the 
purchase or rental of equipment to enable institutions to establish, 
maintain or expand food service under the Program.
    Food service management company means an organization other than a 
public or private nonprofit school, with

[[Page 163]]

which an institution may contract for preparing and, unless otherwise 
provided for, delivering meals, with or without milk for use in the 
Program.
    Food Stamp household means any individual or group of individuals 
which is currently certified to receive assistance as a household under 
the Food Stamp Program.
    Free meal means a meal served under the Program to a participant 
from a family which meets the income standards for free school meals; or 
to a child who is automatically eligible for free meals by virtue of 
food stamp, FDPIR, or AFDC recipiency; or to a child who is a Head Start 
participant; or to an adult participant who is automatically eligible 
for free meals by virtue of food stamp or FDPIR recipiency or is a SSI 
or Medicaid participant. Regardless of whether the participant qualified 
for free meals by virtue of meeting one of the criteria of this 
definition, neither the participant nor any member of their family shall 
be required to pay or to work in the food service program in order to 
receive a free meal.
    Functionally impaired adult means chronically impaired disabled 
persons 18 years of age or older, including victims of Alzheimer's 
disease and related disorders with neurological and organic brain 
dysfunction, who are physically or mentally impaired to the extent that 
their capacity for independence and their ability to carry out 
activities of daily living is markedly limited. Activities of daily 
living include, but are not limited to, adaptive activities such as 
cleaning, shopping, cooking, taking public transportation, maintaining a 
residence, caring appropriately for one's grooming or hygiene, using 
telephones and directories, or using a post office. Marked limitations 
refer to the severity of impairment, and not the number of limited 
activities, and occur when the degree of limitation is such as to 
seriously interfere with the ability to function independently.
    Group living arrangement means residential communities which may or 
may not be subsidized by federal, State or local funds but which are 
private residences housing an individual or a group of individuals who 
are primarily responsible for their own care and who maintain a presence 
in the community but who may receive on-site monitoring.
    Household means ``family'', as defined in Sec.  226.2 (``Family'').
    Head Start participant means a child currently receiving assistance 
under a Federally-funded Head Start Program who is categorically 
eligible for free meals in the CACFP by virtue of meeting Head Start's 
low-income criteria.
    Income standards means the family-size and income standards 
prescribed annually by the Secretary for determining eligibility for 
free and reduced-price meals under the National School Lunch Program and 
the School Breakfast Program.
    Income to the program means any funds used in an institution's food 
service program, including, but not limited to all monies, other than 
Program payments, received from other Federal, State, intermediate, or 
local government sources; participant's payments for meals and food 
service fees; income from any food sales to adults; and other income, 
including cash donations or grants from organizations or individuals.
    Independent center means a child care center, outside-school-hours 
care center or adult day care center which enters into an agreement with 
the State agency to assume final administrative and financial 
responsibility for Program operations.
    Infant cereal means any iron-fortified dry cereal specially 
formulated for and generally recognized as cereal for infants that is 
routinely mixed with breast milk or iron-fortified infant formula prior 
to consumption.
    Infant formula means any iron-fortified formula intended for dietary 
use solely as a food for normal, healthy infants; excluding those 
formulas specifically formulated for infants with inborn errors of 
metabolism or digestive or absorptive problems. Infant formula, as 
served, must be in liquid state at recommended dilution.
    Institution means a sponsoring organization, child care center, 
outside-school-hours care center, emergency shelter or adult day care 
center which enters into an agreement with the State agency to assume 
final administrative and financial responsibility for Program 
operations.

[[Page 164]]

    Internal controls means the policies, procedures, and organizational 
structure of an institution designed to reasonably assure that:
    (a) The Program achieves its intended result;
    (b) Program resources are used in a manner that protects against 
fraud, abuse, and mismanagement and in accordance with law, regulations, 
and guidance; and
    (c) Timely and reliable Program information is obtained, maintained, 
reported, and used for decision-making.
    Key Element Reporting System (KERS) means a comprehensive national 
system for reporting critical key element performance data on the 
operation of the program in institutions.
    Low-income area means a geographical area in which at least 50 
percent of the children are eligible for free or reduced price school 
meals under the National School Lunch Program and the School Breakfast 
Program, as determined in accordance with paragraphs (b) and (c), 
definition of tier I day care home.
    Meals means food which is served to enrolled participants at an 
institution, child care facility or adult day care facility and which 
meets the nutritional requirements set forth in this part.
    Medicaid means Title XIX of the Social Security Act.
    Medicaid participant means an adult participant who receives 
assistance under title XIX of the Social Security Act, the Grant to 
States for Medical Assistance Programs--Medicaid.
    Milk means pasteurized fluid types of unflavored or flavored whole 
milk, lowfat milk, skim milk, or cultured buttermilk which meet State 
and local standards for such milk, except that, in the meal pattern for 
infants (0 to 1 year of age), milk means breast milk or iron-fortified 
infant formula. In Alaska, Hawaii, American Samoa, Guam, Puerto Rico, 
the Trust Territory of the Pacific Islands, the Northern Mariana 
Islands, and the Virgin Islands if a sufficient supply of such types of 
fluid milk cannot be obtained, ``milk'' shall include reconstituted or 
recombined milk. All milk should contain vitamins A and D at levels 
specified by the Food and Drug Administration and be consistent with 
State and local standards for such milk.
    National disqualified list means the list, maintained by the 
Department, of institutions, responsible principals and responsible 
individuals, and day care homes disqualified from participation in the 
Program.
    New institution means an institution applying to participate in the 
Program for the first time, or an institution applying to participate in 
the Program after a lapse in participation.
    Nonpricing program means an institution in which there is no 
separate identifiable charge made for meals served to participants.
    Nonprofit food service means all food service operations conducted 
by the institution principally for the benefit of enrolled participants, 
from which all of the Program reimbursement funds are used solely for 
the operations or improvement of such food service.
    Nonresidential means that the same participants are not maintained 
in care for more than 24 hours on a regular basis.
    Notice means a letter sent by certified mail, return receipt (or the 
equivalent private delivery service), by facsimile, or by email, that 
describes an action proposed or taken by a State agency or FNS with 
regard to an institution's Program reimbursement or participation. 
Notice also means a letter sent by certified mail, return receipt (or 
the equivalent private delivery service), by facsimile, or by email, 
that describes an action proposed or taken by a sponsoring organization 
with regard to a day care home's participation. The notice must specify 
the action being proposed or taken and the basis for the action, and is 
considered to be received by the institution or day care home when it is 
delivered, sent by facsimile, or sent by email. If the notice is 
undeliverable, it is considered to be received by the institution, 
responsible principal or responsible individual, or day care home five 
days after being sent to the addressee's last known mailing address, 
facsimile number, or email address.
    OIG means the Office of the Inspector General of the Department.
    Operating costs means expenses incurred by an institution in serving

[[Page 165]]

meals to participants under the Program, and allowed by the State agency 
financial management instruction.
    Outside-school-hours care center means a public or private nonprofit 
organization, or a proprietary title XX center, as defined in this 
section (``Proprietary title XX center''), licensed or approved to 
provide organized nonresidential child care services to enrolled 
children outside of school hours. Outside-school-hours care centers may 
participate in the Program as independent centers or under the auspices 
of a sponsoring organization.
    Participants means ``Children'' or ``Adult participants'' as defined 
in this section.
    Personal property means property of any kind except real property. 
It may be tangible--having physical existence--or intangible--having no 
physical existence such as patents, inventions, and copyrights.
    Pricing program means an institution in which a separate 
identifiable charge is made for meals served to participants.
    Principal means any individual who holds a management position 
within, or is an officer of, an institution or a sponsored center, 
including all members of the institution's board of directors or the 
sponsored center's board of directors.
    Program means the Child and Adult Care Food Program authorized by 
section 17 of the National School Lunch Act, as amended.
    Program payments means financial assistance in the form of start-up 
payments, expansion payments, advance payments, or reimbursement paid or 
payable to institutions for operating costs and administrative costs.
    Proprietary title XIX center means any private, for profit center 
(a) providing nonresidential adult day care services for which it 
receives compensation from amounts granted to the States under title XIX 
of the Social Security Act and (b) in which title XIX beneficiaries were 
not less than 25 percent of enrolled eligible participants in the 
calendar month preceding initial application or annual reapplication for 
Program participation.
    Proprietary title XX center means any private, for profit center:
    (a) Providing nonresidential child care services for which it 
receives compensation from amounts granted to the States under title XX 
of the Social Security Act, and in which title XX child care 
beneficiaries constitute no less than 25 percent of enrolled eligible 
participants or licensed capacity, whichever is less, during the 
calendar month preceding initial application or annual reapplication for 
Program participation; or,
    (b) Providing nonresidential adult day care services for which it 
receives compensation from amounts granted to the States under title XX 
of the Social Security Act and in which adult beneficiaries were not 
less than 25 percent of enrolled eligible participants during the 
calendar month preceding initial application or annual reapplication for 
Program participation.
    Reduced-price meal means a meal served under the Program to a 
participant from a family which meets the income standards for reduced-
price school meals. Any separate charge imposed shall be less than the 
full price of the meal, but in no case more than 40 cents for a lunch or 
supper, 30 cents for a breakfast, and 15 cents for a supplement, and for 
which neither the participant nor any member of his family is required 
to work in the food service program.
    Reimbursement means Federal financial assistance paid or payable to 
institutions for Program costs within the rates assigned by the State 
agency.
    Renewing institution means an institution that is participating in 
the Program at the time it submits a renewal application.
    Responsible principal or responsible individual means:
    (a) A principal, whether compensated or uncompensated, who the State 
agency or FNS determines to be responsible for an institution's serious 
deficiency;
    (b) Any other individual employed by, or under contract with, an 
institution or sponsored center, who the State agency or FNS determines 
to be responsible for an institution's serious deficiency; or
    (c) An uncompensated individual who the State agency or FNS 
determines to be responsible for an institution's serious deficiency.

[[Page 166]]

    Rural area means any geographical area in a county which is not a 
part of a Metropolitan Statistical Area or any ``pocket'' within a 
Metropolitan Statistical Area which, at the option of the State agency 
and with FNSRO concurrence, is determined to be geographically isolated 
from urban areas.
    SSI participant means an adult participant who receives assistance 
under title XVI of the Social Security Act, the Supplemental Security 
Income (SSI) for the Aged, Blind and Disabled Program.
    School year means a period of 12 calendar months beginning July 1 of 
any year and ending June 30 of the following year.
    Seriously deficient means the status of an institution or a day care 
home that has been determined to be non-compliant in one or more aspects 
of its operation of the Program.
    Sponsoring organization means a public or nonprofit private 
organization which is entirely responsible for the administration of the 
food program in: (a) One or more day care homes; (b) a child care 
center, outside-school-hours care centers, or adult day care center 
which is a legally distinct entity from the sponsoring organization; (c) 
two or more child care centers, outside-school-hours care centers, or 
adult day care centers; or (d) any combination of child care centers, 
adult day care centers, day care homes, and outside-school-hours care 
centers. The term ``sponsoring organization'' also includes a for-profit 
organization which is entirely responsible for administration of the 
Program in any combination of two or more child care centers, adult day 
care centers and outside-school-hours care centers which are part of the 
same legal entity as the sponsoring organization, and which are 
proprietary title XIX or XX centers, as defined in this section 
(``Proprietary Title XIX center'', ``Proprietary Title XX center'').
    Start-up payments means financial assistance made available to a 
sponsoring organization for its administrative expenses associated with 
developing or expanding a food service program in day care homes and 
initiating successful Program operations. These start-up payments may 
include administrative expenses associated with outreach and recruitment 
of unlicensed family or group day care homes and the allowable 
licensing-related expenses of such homes.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
the Trust Territory of the Pacific Islands, and the Northern Mariana 
Islands.
    State agency means the State educational agency or any other State 
agency that has been designated by the Governor or other appropriate 
executive, or by the legislative authority of the State, and has been 
approved by the Department to administer the Program within the State or 
in States in which FNS administers the Program, FNSRO. This also may 
include a State agency other than the existing CACFP State Agency, when 
such agency is designated by the Governor of the State to administer 
only the adult day care component of the CACFP.
    State agency list means an actual paper or electronic list, or the 
retrievable paper records, maintained by the State agency, that includes 
a synopsis of information concerning seriously deficient institutions 
and providers terminated for cause in that State. The list must be made 
available to FNS upon request, and must include the following 
information:
    (a) Institutions determined to be seriously deficient by the State 
agency, including the names and mailing addresses of the institutions, 
the basis for each serious deficiency determination, and the status of 
the institutions as they move through the possible subsequent stages of 
corrective action, proposed termination, suspension, agreement 
termination, and/or disqualification, as applicable;
    (b) Responsible principals and responsible individuals who have been 
disqualified from participation by the State agency, including their 
names, mailing addresses, and dates of birth; and
    (c) Day care home providers whose agreements have been terminated 
for cause by a sponsoring organization in the State, including their 
names, mailing addresses, and dates of birth.

[[Page 167]]

    State Children's Health Insurance Program (SCHIP) means the State 
medical assistance program under title XXI of the Social Security Act ( 
42 U.S.C. 1397aa et seq.).
    Suspended means the status of an institution or day care home that 
is temporarily ineligible for participation (including Program 
payments).
    Suspension review means the review provided, upon the institution's 
request, to an institution that has been given a notice of intent to 
suspend participation (including Program payments), based on a 
determination that the institution has knowingly submitted a false or 
fraudulent claim.
    Suspension review official means the independent and impartial 
official who conducts the suspension review.
    Termination for cause means the termination of a day care home's 
Program agreement by the sponsoring organization due to the day care 
home's violation of the agreement.
    Termination for convenience means termination of a day care home's 
Program agreement by either the sponsoring organization or the day care 
home, due to considerations unrelated to either party's performance of 
Program responsibilities under the agreement.
    Tier I day care home means (a) a day care home that is operated by a 
provider whose household meets the income standards for free or reduced-
price meals, as determined by the sponsoring organization based on a 
completed free and reduced price application, and whose income is 
verified by the sponsoring organization of the home in accordance with 
Sec.  226.23(h)(6);
    (b) A day care home that is located in an area served by a school 
enrolling elementary students in which at least 50 percent of the total 
number of children enrolled are certified eligible to receive free or 
reduced price meals; or
    (c) A day care home that is located in a geographic area, as defined 
by FNS based on census data, in which at least 50 percent of the 
children residing in the area are members of households which meet the 
income standards for free or reduced price meals.
    Tier II day care home means a day care home that does not meet the 
criteria for a Tier I day care home.
    Title XVI means Title XVI of the Social Security Act which 
authorizes the Supplemental Security Income for the Aged, Blind, and 
Disabled Program--SSI.
    Title XIX means Title XIX of the Social Security Act which 
authorizes the Grants to States for Medical Assistance Programs--
Medicaid.
    Title XX means Title XX of the Social Security Act.
    Unannounced review means an on-site review for which no prior 
notification is given to the facility or institution.
    Uniform Federal Assistance Regulations means the Department's 
regulations, 7 CFR part 3015, establishing Department-wide policies and 
standards for administration of grants and cooperative agreements.
    Verification means a review of the information reported by 
institutions to the State agency regarding the eligibility of 
participants for free or reduced-price meals, and, in addition, for a 
pricing program, confirmation of eligibility for free or reduced-price 
benefits under the program. Verification for a pricing program shall 
include confirmation of income eligibility and, at State discretion, any 
other information required on the application which is defined as 
documentation in Sec.  226.2. Such verification may be accomplished by 
examining information (e.g., wage stubs, etc.) provided by the household 
or other sources of information as specified in Sec.  226.23(h)(2)(iv). 
However, if a food stamp, FDPIR or AFDC case number is provided for a 
child, verification for such child shall include only confirmation that 
the child is included in a currently certified food stamp or FDPIR 
household or AFDC assistance unit. If a Head Start statement of income 
eligibility is provided for a child, verification for such child shall 
include only confirmation that the child is a Head Start participant. 
For an adult participant, if a food stamp or FDPIR case number or SSI or 
Medicaid assistance identification number is provided, verification for 
such participant shall include only confirmation that the participant is 
included in a currently certified food stamp or FDPIR household or is a 
current SSI or Medicaid participant.

[[Page 168]]

    Yogurt means commercially coagulated milk products obtained by the 
fermentation of specific bacteria, that meet milk fat or milk solid 
requirements to which flavoring foods or ingredients may be added. These 
products are covered by the Food and Drug Administration's Standard of 
Identity for yogurt, lowfat yogurt, and nonfat yogurt, (21 CFR 131.200), 
(21 CFR 131.203), (21 CFR 131.206), respectively.

[47 FR 36527, Aug. 20, 1982; 47 FR 46072, Oct. 15, 1982, as amended at 
48 FR 21529, May 13, 1983; 48 FR 41142, Sept. 14, 1983; 50 FR 19310, May 
8, 1985; 51 FR 31316, Sept. 3, 1986; 52 FR 36906, Oct. 2, 1987; 53 FR 
52587, Dec. 28, 1988; 54 FR 27153, June 28, 1989; Amdt. 22, 55 FR 1377, 
Jan. 14, 1990; 61 FR 25554, May 22, 1996; 62 FR 901, Jan. 7, 1997; 62 FR 
23617, May 1, 1997; 63 FR 9104, Feb. 24, 1998; 63 FR 9727, Feb. 26, 
1998; 64 FR 61775, Nov. 15, 1999; 66 FR 2203, Jan. 11, 2001; 67 FR 
43476, June 27, 2002]



Sec.  226.3  Administration.

    (a) Within the Department, FNS shall act on behalf of the Department 
in the administration of the Program.
    (b) Within the States, responsibility for the administration of the 
Program shall be in the State agency, except that if FNS has 
continuously administered the Program in any State since October 1, 
1980, FNS shall continue to administer the Program in that State. A 
State in which FNS administers the Program may, upon request to FNS, 
assume administration of the Program.
    (c) Each State agency desiring to take part in the Program shall 
enter into a written agreement with the Department for the 
administration of the Program in the State in accordance with the 
provisions of this part. This agreement shall cover the operation of the 
Program during the period specified therein and may be extended by 
consent of both parties.
    (d) FNSRO shall, in each State in which it administers the Program, 
have available all funds and assume all responsibilities of a State 
agency as set forth in this part.



                     Subpart B_Assistance to States



Sec.  226.4  Payments to States and use of funds.

    (a) Availability of funds. For each fiscal year based on funds 
provided to the Department, FNS shall make funds available to each State 
agency to reimburse institutions for their costs in connection with food 
service operations, including administrative expenses, under this part. 
Funds shall be made available in an amount no less than the sum of the 
totals obtained under paragraphs (b), (c), (d), (e) and (h) of this 
section. However, in any fiscal year, the aggregate amount of assistance 
provided to a State under this part shall not exceed the sum of the 
Federal funds provided by the State to participating institutions within 
the State for that fiscal year and any funds used by the State under 
paragraphs (h) and (j) of this section.
    (b) Center funds. For meals served to participants in child care 
centers, adult day care centers and outside-school-hours care centers, 
funds shall be made available to each State agency in an amount no less 
than the sum of the products obtained by multiplying:
    (1) The number of breakfasts served in the Program within the State 
to participants from families that do not satisfy the eligibilty 
standards for free and reduced-price school meals enrolled in 
institutions by the national average payment rate for breakfasts for 
such participants under section 4 of the Child Nutrition Act of 1966;
    (2) The number of breakfasts served in the Program within the State 
to participants from families that satisfy the eligibilty standards for 
free school meals enrolled in institutions by the national average 
payment rate for free breakfasts under section 4 of the Child Nutrition 
Act of 1966;
    (3) The number of breakfasts served to participants from families 
that satisfy the eligibilty standard for reduced-price school meals 
enrolled in institutions by the national average payment rate for 
reduced-price school breakfasts under section 4 of the Child Nutrition 
Act of 1966;
    (4) The number of lunches and suppers served in the Program within 
the State by the national average payment rate for lunches under section 
4 of the National School Lunch Act. (All lunches and suppers served in 
the State are funded under this provision);
    (5) The number of lunches and suppers served in the Program within 
the State to participants from families

[[Page 169]]

that satisfy the eligibilty standard for free school meals enrolled in 
institutions by the national average payment rate for free lunches under 
section 11 of the National School Lunch Act;
    (6) The number of lunches and suppers served in the Program within 
the State to participants from families that satisfy the eligibilty 
standard for reduced-price school meals enrolled in institutions by the 
national average payment rate for reduced-price lunches under section 11 
of the National School Lunch Act;
    (7) The number of supplements served in the Program within the State 
to participants from families that do not satisfy the eligibilty 
standards for free and reduced-price school meals enrolled in 
institutions by 2.75 cents;
    (8) The number of supplements served in the Program within the State 
to participants from families that satisfy the eligibilty standard for 
free school meals enrolled in institutions by 30 cents;
    (9) The number of supplements served in the Program within the State 
to participants from families that satisfy the eligibilty standard for 
reduced-price school meals enrolled in institutions by 15 cents.
    (c) Day care home funds. For meals served to children in day care 
homes, funds shall be made available to each State agency in an amount 
no less than the sum of products obtained by multiplying:
    (1) The number of breakfasts served in the Program within the State 
to children enrolled in tier I day care homes by the current tier I day 
care home rate for breakfasts;
    (2) The number of breakfasts served in the Program within the State 
to children enrolled in tier II day care homes that have been determined 
eligible for free or reduced price meals by the current tier I day care 
home rate for breakfasts;
    (3) The number of breakfasts served in the Program within the State 
to children enrolled in tier II day care homes that do not satisfy the 
eligibility standards for free or reduced price meals, or to children 
from whose households applications were not collected, by the current 
tier II day care home rate for breakfasts;
    (4) The number of lunches and suppers served in the Program within 
the State to children enrolled in tier I day care homes by the current 
tier I day care home rate for lunches/suppers;
    (5) The number of lunches and suppers served in the Program within 
the State to children enrolled in tier II day care homes that have been 
determined eligible for free or reduced price meals by the current tier 
I day care home rate for lunches/suppers;
    (6) The number of lunches and suppers served in the Program within 
the State to children enrolled in tier II day care homes that do not 
satisfy the eligibility standards for free or reduced price meals, or to 
children from whose households applications were not collected, by the 
current tier II day care home rate for lunches/suppers;
    (7) The number of supplements served in the Program within the State 
to children enrolled in tier I day care homes by the current tier I day 
care home rate for supplements;
    (8) The number of supplements served in the Program within the State 
to children enrolled in tier II day care homes that have been determined 
eligible for free or reduced price meals by the current tier I day care 
home rate for supplements; and
    (9) The number of supplements served in the Program within the State 
to children enrolled in tier II day care homes that do not satisfy the 
eligibility standards for free or reduced price meals, or to children 
from whose households applications were not collected, by the current 
tier II day care home rate for supplements.
    (d) Administrative funds. For administrative payments to day care 
home sponsoring organizations, funds shall be made available to each 
State agency in an amount not less than the product obtained each month 
by multiplying the number of day care homes participating under each 
sponsoring organization within the State by the applicable rates 
specified in Sec.  226.12(a)(3).
    (e) Start-up and expansion funds. For start-up and expansion 
payments to eligible sponsoring organizations, funds shall be made 
available to each State agency in an amount equal to the total amount of 
start-up and expansion payments made in the most recent period

[[Page 170]]

for which reports are available for that State or on the basis of 
estimates by FNS.
    (f) Funding assurance. FNS shall ensure that, to the extent funds 
are appropriated, each State has sufficient Program funds available for 
providing start-up, expansion and advance payments in accordance with 
this part.
    (g) Rate adjustments. FNS shall publish a notice in the Federal 
Register to announce each rate adjustment. FNS shall adjust the 
following rates on the specified dates:
    (1) The rates for meals served in tier I and tier II day care homes 
shall be adjusted annually, on July 1 (beginning July 1, 1997), on the 
basis of changes in the series for food at home of the Consumer Price 
Index for All Urban Consumers published by the Department of Labor. Such 
adjustments shall be rounded to the nearest lower cent based on changes 
measured over the most recent twelve-month period for which data are 
available. The adjustments shall be computed using the unrounded rate in 
effect for the preceding school year.
    (2) The rate for supplements served in child care centers, adult day 
care centers and outside-school-hours care centers shall be adjusted 
annually, on July 1, on the basis of changes in the series for food away 
from home of the Consumer Price Index for All Urban Consumers published 
by the Department of Labor. Such adjustments shall be made to the 
nearest $.0025 based on changes measured over the most recent twelve-
month period for which data are available.
    (3) The rate for administrative payments to day care home sponsoring 
organizations shall be adjusted annually, on July 1, on the basis of 
changes in the series for all items of the Consumer Price Index for All 
Urban Consumers published by the Department of Labor. Such adjustments 
shall be made to the nearest dollar based on changes measured over the 
most recent twelve-month period for which data are available.
    (h) Audit funds. For the expense of conducting audits and reviews 
under Sec.  226.8, funds shall be made available to each State agency in 
an amount equal to two percent of the Program reimbursement provided to 
institutions within the State during the second fiscal year preceding 
the fiscal year for which these funds are to be made available. The 
amount of assistance provided to a State under this paragraph in any 
fiscal year may not exceed the State's expenditures under Sec.  226.8 
during such fiscal year.
    (i) Method of funding. FNS shall authorize funds for State agencies 
in accordance with the Uniform Federal Assistance Regulations.
    (j) Special developmental projects. The State agency may use in 
carrying out special developmental projects an amount not to exceed one 
percent of Program funds used in the second prior fiscal year. Special 
developmental projects shall conform to FNS guidance and be approved in 
writing by FNS.

[47 FR 36527, Aug. 20, 1982, as amended at 52 FR 36906, Oct. 2, 1987; 53 
FR 52588, Dec. 28, 1988; 62 FR 902, Jan. 7, 1997; 63 FR 9728, Feb. 26, 
1998]



Sec.  226.5  Donation of commodities.

    (a) USDA foods available under section 6 of this Act, section 416 of 
the Agricultural Act of 1949 (7 U.S.C. 1431) or purchased under section 
32 of the Act of August 24, 1935 (7 U.S.C. 1431), section 709 of the 
Food and Agriculture Act of 1965 (7 U.S.C. 1446a-1), or other authority, 
and donated by the Department shall be made available to each State.
    (b) The value of such commodities donated to each State for each 
school year shall be, at a minimum, the amount obtained by multiplying 
the number of reimbursable lunches and suppers served in participating 
institutions in that State during the preceding school year by the rate 
for commodities established under section 6(e) of the Act for the 
current school year. Adjustments shall be made at the end of each school 
year to reflect the difference between the number of reimbursable 
lunches and suppers served during the preceding year and the number 
served during the current year, and subsequent commodity entitlement 
shall be based on the adjusted meal counts. At the discretion of FNS, 
current-year adjustments may be made for significant variations in the 
number of

[[Page 171]]

reimbursable meals served. Such current-year adjustments will not be 
routine and will only be made for unusual problems encountered in a 
State, such as a disaster that necessitates institutional closures for a 
prolonged period of time. CACFP State agencies electing to receive cash-
in-lieu of commodities will receive payments based on the number of 
reimbursable meals actually served during the current school year.

[47 FR 36527, Aug. 20, 1982, as amended at 62 FR 23618, May 1, 1997]



                    Subpart C_State Agency Provisions



Sec.  226.6  State agency administrative responsibilities.

    (a) State agency personnel. Each State agency shall provide 
sufficient consultative, technical and managerial personnel to 
administer the Program, provide sufficient training and technical 
assistance to institutions and monitor performance to facilitate 
expansion and effective operation of the Program.
    (b) Application Approval. Each State agency must establish an 
application procedure to determine the eligibility under this part of 
applicant institutions, and facilities for which applications are 
submitted by sponsoring organizations. Any institution applying for 
participation in the Program must be notified of approval or disapproval 
by the State agency in writing within 30 days of filing a complete and 
correct application. If an institution submits an incomplete 
application, the State agency must notify the institution within 15 days 
of receipt of the application and must provide technical assistance, if 
necessary, to the institution for the purpose of completing its 
application. Any disapproved applicant must be notified of the 
procedures for seeking an administrative review (in accordance with 
paragraphs (k) or (l) of this section, as appropriate). The application 
procedures must include or conform to the following requirements:
    (1) Agreements. The State agency, by written consent of the State 
agency and the institutions, must renew agreements with institutions not 
less frequently than annually. The State agency is prohibited from 
entering into an agreement that is effective during two fiscal years, 
but may nevertheless establish an ongoing renewal process for the 
purpose of reviewing and approving applications from participating 
institutions throughout the fiscal year;
    (2) Participant eligibility information. Centers must submit current 
information on the number of enrolled participants who are eligible for 
free, reduced price, and paid meals;
    (3) Enrollment information. Sponsoring organizations of day care 
homes must submit the current total number of children enrolled, with an 
assurance that day care home providers' own children enrolled in the 
Program are eligible for free or reduced price meals;
    (4) Nondiscrimination statement. Institutions must issue a non-
discrimination policy statement and media release;
    (5) Management plan. Sponsoring organizations must submit a 
management plan;
    (6) Administrative budget. Institutions must submit an 
administrative budget;
    (7) Licensing/approval. Institutions must document that each 
facility for which application is made meets Program licensing/approval 
requirements;
    (8) Proprietary centers. Institutions must document that each 
proprietary center for which application is made meets the definition of 
a proprietary title XIX center or a proprietary title XX center, as 
applicable and as set forth at Sec.  226.2;
    (9) Commodites/Cash-in-lieu of commodities. Institutions must state 
their preference to receive cash or cash-in-lieu of commodities;
    (10) Advance payments. Institutions must state their preference to 
receive all, part, or none of the advance payment;
    (11) Unserved facilities or participants.
    (i) Criteria. The State agency must develop criteria for determining 
whether a new sponsoring organization's participation will help ensure 
the delivery of benefits to otherwise unserved facilities or 
participants, and must disseminate these criteria to new sponsoring 
organizations when they request information about applying to the 
Program; and
    (ii) Documentation. The new sponsoring organization must submit 
documentation that its participation will

[[Page 172]]

help ensure the delivery of benefits to otherwise unserved facilities or 
participants in accordance with the State agency's criteria.
    (12) National disqualified list. A State agency is prohibited from 
approving an institution's application if the institution or any of its 
principals is on the National disqualified list, and is prohibited from 
approving an application submitted by a sponsoring organization on 
behalf of a facility if the facility or any of its principals is on the 
National disqualified list;
    (13) Other publicly funded programs. (i) General. A State agency is 
prohibited from approving an institution's application if, during the 
past seven years, the institution or any of the institution's principals 
have been declared ineligible for any other publicly funded program by 
reason of violating that program's requirements. However, this 
prohibition does not apply if the institution or the principal has been 
fully reinstated in, or determined eligible for, that program, including 
the payment of any debts owed;
    (ii) Certification. As part of an application, institutions must 
submit a certification regarding their past performance in other 
publicly funded programs. The certification shall include language 
stating that institutions and individuals providing false certifications 
will be placed on the National disqualified list and will be subject to 
any other applicable civil or criminal penalties. This certification 
will include:
    (A) A statement listing the publicly funded programs in which the 
institution and its principals have participated in the past seven 
years; and
    (B) A certification that, during the past seven years, neither the 
institution nor any of its principals have been declared ineligible to 
participate in any other publicly funded program by reason of violating 
that program's requirements; or
    (C) In lieu of the certification, documentation that the institution 
or the principal previously declared ineligible was later fully 
reinstated in, or determined eligible for, the program, including the 
payment of any debts owed; and
    (iii) Follow-up. If the State agency has reason to believe that the 
institution or its principals were determined ineligible to participate 
in another publicly funded program by reason of violating that program's 
requirements, the State agency must follow up with the entity 
administering the publicly funded program to gather sufficient evidence 
to determine whether the institution or its principals were, in fact, 
determined ineligible;
    (14) Criminal convictions.--(i) General. A State agency is 
prohibited from approving an institution's application if the 
institution or any of its principals has been convicted of any activity 
that occurred during the past seven years and that indicated a lack of 
business integrity. A lack of business integrity includes fraud, 
antitrust violations, embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, obstruction of justice, 
or any other activity indicating a lack of business integrity as defined 
by the State agency; and
    (ii) Certification. As part of an application, institutions must 
submit a certification regarding any criminal convictions. The 
certification shall include language stating that institutions and 
individuals providing false certifications will be placed on the 
National disqualified list and will be subject to any other applicable 
civil or criminal penalties. This certification will state that neither 
the institution nor any of its principals has been convicted of any 
activity that occurred during the past seven years and that indicated a 
lack of business integrity. A lack of business integrity includes fraud, 
antitrust violations, embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, obstruction of justice, 
or any other activity indicating a lack of business integrity as defined 
by the State agency;
    (15) Truth of applications and names and addresses. Institutions 
must submit a certification that all information on the application is 
true and correct, along with the name, mailing address, and date of 
birth of the institution's executive director and chairman of the board 
of directors;

[[Page 173]]

    (16) Outside employment policy. Sponsoring organizations must submit 
an outside employment policy. The policy must restrict other employment 
by employees that interferes with an employee's performance of Program-
related duties and responsibilities, including outside employment that 
constitutes a real or apparent conflict of interest. Sponsoring 
organizations that are participating on July 29, 2002 must submit an 
outside employment policy not later than September 27, 2002. The policy 
shall be effective unless disapproved by the State agency;
    (17) Bond. Sponsoring organizations applying for initial 
participation on or after June 20, 2000, must submit a bond, if such 
bond is required by State law, regulation, or policy. If the State 
agency requires a bond for sponsoring organizations pursuant to State 
law, regulation, or policy, the State agency must submit a copy of that 
requirement and a list of sponsoring organizations posting a bond to the 
appropriate FNSRO on an annual basis; and
    (18) Each new or renewing institution must submit information 
sufficient to document that it is financially viable, is 
administratively capable of operating the Program in accordance with 
this part, and has internal controls in effect to ensure accountability. 
To document this, any new institution must demonstrate in its 
application that it is capable of operating in conformance with the 
following performance standards, and any renewing institution must 
demonstrate in its application that it currently operates in conformance 
with the following performance standards. The State agency must only 
approve the applications of those institutions that meet these 
performance standards, and must deny the applications of those 
institutions that do not meet the standards.
    (i) Performance Standard 1--Financial viability and financial 
management. The new or renewing institution must be financially viable. 
Program funds must be expended and accounted for in accordance with the 
requirements of this part, FNS Instruction 796-2 (``Financial Management 
in the Child and Adult Care Food Program''), and 7 CFR Parts 3015 and 
3016. To demonstrate financial viability, the new or renewing 
institution must document that it meets the following criteria:
    (A) Description of Need/Recruitment. A new sponsoring organization 
must demonstrate in its management plan that its participation will help 
ensure the delivery of Program benefits to otherwise unserved facilities 
or participants, in accordance with criteria developed by the State 
agency pursuant to paragraph (b)(11) of this section. All sponsoring 
organizations must demonstrate that they will use appropriate practices 
for recruiting facilities, consistent with paragraph (p) of this section 
and any State agency requirements;
    (B) Fiscal Resources and Financial History. An institution must 
demonstrate that it has adequate financial resources to operate the 
CACFP on a daily basis, has adequate sources of funds to withstand 
temporary interruptions in Program payments and/or fiscal claims against 
the institution, and can document financial viability (for example, 
through audits, financial statements, etc.); and
    (C) Administrative Budgets. Costs in the institution's 
administrative budget must be necessary, reasonable, allowable, and 
appropriately documented;
    (ii) Performance Standard 2--Administrative capability. The new or 
renewing institution must be administratively capable. Appropriate and 
effective management practices must be in effect to ensure that the 
Program operates in accordance with this part. To demonstrate 
administrative capability, the new or renewing institution must document 
that it meets the following criteria:
    (A) Has an adequate number and type of qualified staff to ensure the 
operation of the Program in accordance with this part;
    (B) If a sponsoring organization, documents in its management plan 
that it employs staff sufficient to meet the ratio of monitors to 
facilities set forth in Sec.  226.16(b)(1), and the factors established 
by the State agency in accordance with Sec.  226.6(f)(2); and
    (C) If a sponsoring organization, has Program policies and 
procedures in

[[Page 174]]

writing that assign Program responsibilities and duties, and ensure 
compliance with civil rights requirements; and
    (iii) Performance Standard 3--Program accountability. The new or 
renewing institution must have internal controls and other management 
systems in effect to ensure fiscal accountability and to ensure that the 
Program operates in accordance with the requirements of this part. To 
demonstrate Program accountability, the new or renewing institution must 
document that it meets the following criteria:
    (A) Board of directors. Has adequate oversight of the Program by its 
governing board of directors;
    (B) Fiscal accountability. Has a financial system with management 
controls specified in writing. For sponsoring organizations, these 
written operational policies must assure:
    (1) Fiscal integrity and accountability for all funds and property 
received, held, and disbursed;
    (2) The integrity and accountability of all expenses incurred;
    (3) That claims are processed accurately, and in a timely manner;
    (4) That funds and property are used, and expenses incurred, for 
authorized Program purposes; and
    (5) That a system of safeguards and controls is in place to prevent 
and detect improper financial activities by employees;
    (C) Recordkeeping. Maintains appropriate records to document 
compliance with Program requirements, including budgets, approved budget 
amendments, and, if applicable, management plans and appropriate records 
on facility operations;
    (D) Sponsoring organization operations. A sponsoring organization 
must document in its management plan that it will:
    (1) Provide adequate and regular training of sponsoring organization 
staff and sponsored facilities in accordance with Sec. Sec.  
226.15(e)(13) and 226.16(d);
    (2) Perform monitoring in accordance with Sec.  226.16(d), to ensure 
that sponsored facilities accountably and appropriately operate the 
Program;
    (3) If applicable, accurately classify day care homes as tier I or 
tier II in accordance with Sec.  226.15(f); and
    (4) Have a system in place to ensure that administrative costs 
funded from Program reimbursements do not exceed regulatory limits set 
forth at Sec. Sec.  226.12(a) and 226.16(b)(1); and
    (E) Facility level operations. All independent centers and sponsored 
facilities must follow practices which result in the operation of the 
Program in accordance with the meal service, recordkeeping, and other 
operational requirements of this part. These practices must be 
documented in the independent center's application or in the sponsoring 
organization's management plan and must demonstrate that independent 
centers or sponsored facilities will:
    (1) Provide meals that meet the meal patterns set forth in Sec.  
226.20;
    (2) Comply with licensure or approval requirements set forth in 
paragraph (d) of this section;
    (3) Have a food service that complies with applicable State and 
local health and sanitation requirements;
    (4) Comply with civil rights requirements;
    (5) Maintain complete and appropriate records on file; and
    (6) Claim reimbursement only for eligible meals.
    (c) Denial of applications and termination of agreements. (1) Denial 
of a new institution's application.
    (i) General. If a new institution's application does not meet all of 
the requirements in paragraph (b) of this section and in Sec. Sec.  
226.15(b) and 226.16(b), the State agency must deny the application. If, 
in reviewing a new institution's application, the State agency 
determines that the institution has committed one or more serious 
deficiency listed in paragraph (c)(1)(ii) of this section, the State 
agency must initiate action to:
    (A) Deny the new institution's application; and
    (B) Disqualify the new institution and the responsible principals 
and responsible individuals (e.g., the person who signs the 
application).
    (ii) List of serious deficiencies for new institutions. The list of 
serious deficiencies is not identical for each category of institution 
(new, renewing, participating) because the type of information likely to 
be available to the

[[Page 175]]

State agency is different, depending on whether the State agency is 
reviewing a new or renewing institution's application or is conducting a 
review of a participating institution. Serious deficiencies for new 
institutions are:
    (A) Submission of false information on the institution's 
application, including but not limited to a determination that the 
institution has concealed a conviction for any activity that occurred 
during the past seven years and that indicates a lack of business 
integrity. A lack of business integrity includes fraud, antitrust 
violations, embezzlement, theft, forgery, bribery, falsification or 
destruction of records, making false statements, receiving stolen 
property, making false claims, obstruction of justice, or any other 
activity indicating a lack of business integrity as defined by the State 
agency; or
    (B) Any other action affecting the institution's ability to 
administer the Program in accordance with Program requirements.
    (iii) Serious deficiency notification procedures for new 
institutions. If the State agency determines that a new institution has 
committed one or more serious deficiency listed in paragraph (c)(1)(ii) 
of this section, the State agency must use the following procedures to 
provide the institution and the responsible principals and responsible 
individuals with notice of the serious deficiency(ies) and an 
opportunity to take corrective action.
    (A) Notice of serious deficiency. The State agency must notify the 
institution's executive director and chairman of the board of directors 
that the institution has been determined to be seriously deficient. The 
notice must identify the responsible principals and responsible 
individuals (e.g., for new institutions, the person who signed the 
application) and must be sent to those persons as well. The State agency 
may specify in the notice different corrective action, and time periods 
for completing the corrective action, for the institution and the 
responsible principals and responsible individuals. At the same time the 
notice is issued, the State agency must add the institution to the State 
agency list, along with the basis for the serious deficiency 
determination, and provide a copy of the notice to the appropriate 
FNSRO. The notice must also specify:
    (1) The serious deficiency(ies);
    (2) The actions to be taken to correct the serious deficiency(ies);
    (3) The time allotted to correct the serious deficiency(ies) in 
accordance with paragraph (c)(4) of this section.
    (4) That the serious deficiency determination is not subject to 
administrative review;
    (5) That failure to fully and permanently correct the serious 
deficiency(ies) within the allotted time will result in denial of the 
institution's application and the disqualification of the institution 
and the responsible principals and responsible individuals; and
    (6) That the State agency will not pay any claims for reimbursement 
for eligible meals served or allowable administrative expenses incurred 
until the State agency has approved the institution's application and 
the institution has signed a Program agreement.
    (B) Successful corrective action.
    (1) If corrective action has been taken to fully and permanently 
correct the serious deficiency(ies) within the allotted time and to the 
State agency's satisfaction, the State agency must:
    (i) notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the State agency has rescinded its serious deficiency 
determination; and
    (ii) offer the new institution the opportunity to resubmit its 
application. If the new institution resubmits its application, the State 
agency must complete its review of the application within 30 days after 
receiving a complete and correct application.
    (2) If corrective action is complete for the institution but not for 
all of the responsible principals and responsible individuals (or vice 
versa), the State agency must:
    (i) continue with the actions (as set forth in paragraph 
(c)(1)(iii)(C) of this section) against the remaining parties;
    (ii) at the same time the notice is issued, the State agency must 
also update the State agency list to indicate that the serious 
deficiency(ies) has(ve) been corrected and provide a copy of

[[Page 176]]

the notice to the appropriate FNSRO; and
    (iii) if the new institution has corrected the serious 
deficiency(ies), offer it the opportunity to resubmit its application. 
If the new institution resubmits its application, the State agency must 
complete its review of the application within 30 days after receiving a 
complete and correct application.
    (C) Application denial and proposed disqualification. If timely 
corrective action is not taken to fully and permanently correct the 
serious deficiency(ies), the State agency must notify the institution's 
executive director and chairman of the board of directors, and the 
responsible principals and responsible individuals, that the 
institution's application has been denied. At the same time the notice 
is issued, the State agency must also update the State agency list and 
provide a copy of the notice to the appropriate FNSRO. The notice must 
also specify:
    (1) That the institution's application has been denied and the State 
agency is proposing to disqualify the institution and the responsible 
principals and responsible individuals;
    (2) The basis for the actions; and
    (3) The procedures for seeking an administrative review (in 
accordance with paragraph (k) of this section) of the application denial 
and proposed disqualifications.
    (D) Program payments. The State agency is prohibited from paying any 
claims for reimbursement from a new institution for eligible meals 
served or allowable administrative expenses incurred until the State 
agency has approved its application and the institution and State agency 
have signed a Program agreement.
    (E) Disqualification. When the time for requesting an administrative 
review expires or when the administrative review official upholds the 
State agency's denial and proposed disqualifications, the State agency 
must notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals that the institution and the responsible principal and 
responsible individuals have been disqualified. At the same time the 
notice is issued, the State agency must also update the State agency 
list and provide a copy of the notice and the mailing address and date 
of birth for each responsible principal and responsible individual to 
the appropriate FNSRO.
    (2) Denial of a renewing institution's application.
    (i) General. If a renewing institution's application does not meet 
all of the requirements in paragraph (b) of this section and in 
Sec. Sec.  226.15(b) and 226.16(b), the State agency must deny the 
application. If, in reviewing a renewing institution's application, the 
State agency determines that the institution has committed one or more 
serious deficiency listed in paragraph (c)(2)(ii) of this section, the 
State agency must initiate action to deny the renewing institution's 
application and initiate action to disqualify the renewing institution 
and the responsible principals and responsible individuals.
    (ii) List of serious deficiencies for renewing institutions. The 
list of serious deficiencies is not identical for each category of 
institution (new, renewing, participating) because the type of 
information likely to be available to the State agency is different, 
depending on whether the State agency is reviewing a new or renewing 
institution's application or is conducting a review of a participating 
institution. Serious deficiencies for renewing institutions are:
    (A) Submission of false information on the institution's 
application, including but not limited to a determination that the 
institution has concealed a conviction for any activity that occurred 
during the past seven years and that indicates a lack of business 
integrity. A lack of business integrity includes fraud, antitrust 
violations, embezzlement, theft, forgery, bribery, falsification or 
destruction of records, making false statements, receiving stolen 
property, making false claims, obstruction of justice, or any other 
activity indicating a lack of business integrity as defined by the State 
agency;
    (B) Failure to operate the Program in conformance with the 
performance standards set forth in paragraph (b)(18) of this section;
    (C) Failure to comply with the bid procedures and contract 
requirements of applicable Federal procurement regulations;

[[Page 177]]

    (D) Use of a food service management company that is in violation of 
health codes;
    (E) Failure by a sponsoring organization of day care homes to 
properly classify day care homes as tier I or tier II in accordance with 
Sec.  226.15(f);
    (F) Failure by a sponsoring organization to properly train or 
monitor sponsored facilities in accordance with Sec.  226.16(d);
    (G) Failure to perform any of the other financial and administrative 
responsibilities required by this part;
    (H) Failure to properly implement and administer the day care home 
termination and administrative review provisions set forth at paragraph 
(l) of this section and Sec.  226.16(l); or
    (I) any other action affecting the institution's ability to 
administer the Program in accordance with Program requirements.
    (iii) Serious deficiency notification procedures for renewing 
institutions. If the State agency determines that a renewing institution 
has committed one or more serious deficiency listed in paragraph 
(c)(2)(ii) of this section, the State agency must use the following 
procedures to provide the institution and the responsible principals and 
responsible individuals notice of the serious deficiency(ies) and an 
opportunity to take corrective action.
    (A) Notice of serious deficiency. The State agency must notify the 
institution's executive director and chairman of the board of directors 
that the institution has been determined to be seriously deficient. The 
notice must identify the responsible principals and responsible 
individuals and must be sent to those persons as well. The State agency 
may specify in the notice different corrective action, and time periods 
for completing the corrective action, for the institution and the 
responsible principals and responsible individuals. At the same time the 
notice is issued, the State agency must add the institution to the State 
agency list, along with the basis for the serious deficiency 
determination, and provide a copy of the notice to the appropriate 
FNSRO. The notice must also specify:
    (1) The serious deficiency(ies);
    (2) The actions to be taken to correct the serious deficiency(ies);
    (3) The time allotted to correct the serious deficiency(ies) in 
accordance with paragraph (c)(4) of this section;
    (4) That the serious deficiency determination is not subject to 
administrative review.
    (5) That failure to fully and permanently correct the serious 
deficiency(ies) within the allotted time will result in the State 
agency's denial of the institution's application, the proposed 
termination of the institution's agreement (if the State agency has 
temporarily extended the agreement pursuant to paragraph (c)(2)(iii)(D) 
of this section) and the proposed disqualification of the institution 
and the responsible principals and responsible individuals; and
    (6) That the institution's voluntary termination of its agreement 
with the State agency after having been notified that it is seriously 
deficient will still result in the instituion's formal termination by 
the State agency and placement of the institution and its responsible 
principals and responsible individuals on the National disqualified 
list.
    (B) Successful corrective action.
    (1) If corrective action has been taken to fully and permanently 
correct the serious deficiency(ies) within the allotted time and to the 
State agency's satisfaction, the State agency must:
    (i) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the State agency has rescinded its serious deficiency 
determination; and
    (ii) Offer the renewing institution the opportunity to resubmit its 
application. If the renewing institution resubmits its application, the 
State agency must complete its review of the application within 30 days 
after receiving a complete and correct application.
    (2) If corrective action is complete for the institution but not for 
all of the responsible principals and responsible individuals (or vice 
versa), the State agency must:
    (i) continue with the actions (as set forth in paragraph 
(c)(2)(iii)(C) of this section) against the remaining parties;

[[Page 178]]

    (ii) at the same time the notice is issued, the State agency must 
also update the State agency list to indicate that the serious 
deficiency(ies) has(ve) been corrected and provide a copy of the notice 
to the appropriate FNSRO; and
    (iii) if the renewing institution has corrected the serious 
deficiency(ies), offer it the opportunity to resubmit its application. 
If the renewing institution resubmits its application, the State agency 
must complete its review of the application within 30 days after 
receiving a complete and correct application.
    (C) Application denial and proposed disqualification. If timely 
corrective action is not taken to fully and permanently correct the 
serious deficiency(ies), the State agency must notify the institution's 
executive director and chairman of the board of directors, and the 
responsible principals and responsible individuals, that the 
institution's application has been denied. At the same time the notice 
is issued, the State agency must update the State agency list and 
provide a copy of the notice to the appropriate FNSRO. The notice must 
also specify:
    (1) That the institution's application has been denied and the State 
agency is proposing to terminate the institution's temporarily-extended 
agreement and to disqualify the institution and the responsible 
principals and responsible individuals;
    (2) The basis for the actions;
    (3) That, if the institution voluntarily terminates its agreement 
after receiving the notice of the proposed termination, the institution 
and the responsible principals and responsible individuals will be 
disqualified;
    (4) The procedures for seeking an administrative review (in 
accordance with paragraph (k) of this section) of the application denial 
and proposed disqualifications; and
    (5) That the institution may continue to participate in the Program 
and receive Program reimbursement for eligible meals served and 
allowable administrative costs incurred until its administrative review 
is completed.
    (D) Program payments and extended agreement. If the renewing 
institution's agreement expires before the end of the time allotted for 
corrective action, and/or the conclusion of any administrative review 
requested by the renewing institution:
    (1) The State agency must temporarily extend its current agreement 
with the renewing institution and continue to pay any valid unpaid 
claims for reimbursement for eligible meals served and allowable 
administrative expenses incurred; and
    (2) The actions set forth in paragraph (c)(2)(iii)(D)(1) of this 
section must be taken either until the serious deficiency(ies) is 
corrected or until the institution's agreement is terminated, including 
the period of any administrative review;
    (E) Agreement termination and disqualification. When the time for 
requesting an administrative review expires or when the administrative 
review official upholds the State agency's denial of the institution's 
application, the proposed termination, and the proposed 
disqualifications, the State agency must:
    (1) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the temporarily-extended agreement has been terminated 
and that the institution and the responsible principals and responsible 
individuals have been disqualified;
    (2) Update the State agency list at the time such notice is issued; 
and
    (3) Provide a copy of the notice and the mailing address and date of 
birth for each responsible principal and responsible individual to the 
appropriate FNSRO.
    (3) Termination of a participating institution's agreement. (i) 
General. If the State agency holds an agreement with an institution 
operating in more than one State that has been disqualified from the 
Program by another State agency and placed on the National disqualified 
list, the State agency must terminate the institution's agreement 
effective no later than 45 days of the date of the institution's 
disqualification by the other State agency. At the same time the notice 
of termination is issued, the State agency must add the institution to 
the State agency list and indicate that the institution's agreement has 
been terminated and provide

[[Page 179]]

a copy of the notice to the appropriate FNSRO. If the State agency 
determines that a participating institution has committed one or more 
serious deficiency listed in paragraph (c)(3)(ii) of this section, the 
State agency must initiate action to terminate the agreement of a 
participating institution and initiate action to disqualify the 
institution and any responsible principals and responsible individuals.
    (ii) List of serious deficiencies for participating institutions. 
The list of serious deficiencies is not identical for each category of 
institution (new, renewing, participating) because the type of 
information likely to be available to the State agency is different, 
depending on whether the State agency is reviewing a new or renewing 
institution's application or is conducting a review of a participating 
institution. Serious deficiencies for participating institutions are:
    (A) Submission of false information on the institution's 
application, including but not limited to a determination that the 
institution has concealed a conviction for any activity that occurred 
during the past seven years and that indicates a lack of business 
integrity. A lack of business integrity includes fraud, antitrust 
violations, embezzlement, theft, forgery, bribery, falsification or 
destruction of records, making false statements, receiving stolen 
property, making false claims, obstruction of justice, or any other 
activity indicating a lack of business integrity as defined by the State 
agency;
    (B) Permitting an individual who is on the National disqualified 
list to serve in a principal capacity with the institution or, if a 
sponsoring organization, permitting such an individual to serve as a 
principal in a sponsored center or as a day care home;
    (C) Failure to operate the Program in conformance with the 
performance standards set forth in paragraph (b)(18) of this section;
    (D) Failure to comply with the bid procedures and contract 
requirements of applicable Federal procurement regulations;
    (E) Failure to return to the State agency any advance payments that 
exceeded the amount earned for serving eligible meals, or failure to 
return disallowed start-up or expansion payments;
    (F) Failure to maintain adequate records;
    (G) Failure to adjust meal orders to conform to variations in the 
number of participants;
    (H) Claiming reimbursement for meals not served to participants;
    (I) Claiming reimbursement for a significant number of meals that do 
not meet Program requirements;
    (J) Use of a food service management company that is in violation of 
health codes;
    (K) Failure of a sponsoring organization to disburse payments to its 
facilities in accordance with the regulations at Sec.  226.16(g) and (h) 
or in accordance with its management plan;
    (L) Claiming reimbursement for meals served by a proprietary title 
XX child care center during a calendar month in which less than 25 
percent of its enrolled children, or 25 percent of its licensed 
capacity, whichever is less, were title XX beneficiaries;
    (M) Claiming reimbursement for meals served by a proprietary title 
XIX or title XX adult day care center during a calendar month in which 
less than 25 percent of its enrolled adult participants were title XIX 
or title XX beneficiaries;
    (N) Failure by a sponsoring organization of day care homes to 
properly classify day care homes as tier I or tier II in accordance with 
Sec.  226.15(f);
    (O) Failure by a sponsoring organization to properly train or 
monitor sponsored facilities in accordance with Sec.  226.16(d);
    (P) Use of day care home funds by a sponsoring organization to pay 
for the sponsoring organization's administrative expenses;
    (Q) Failure to perform any of the other financial and administrative 
responsibilities required by this part;
    (R) Failure to properly implement and administer the day care home 
termination and administrative review provisions set forth at paragraph 
(l) of this section and Sec.  226.16(l);
    (S) The fact the institution or any of the institution's principals 
have been declared ineligible for any other publicly funded program by 
reason of violating that program's requirements.

[[Page 180]]

However, this prohibition does not apply if the institution or the 
principal has been fully reinstated in, or is now eligible to 
participate in, that program, including the payment of any debts owed;
    (T) Conviction of the institution or any of its principals for any 
activity that occurred during the past seven years and that indicates a 
lack of business integrity. A lack of business integrity includes fraud, 
antitrust violations, embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, obstruction of justice, 
or any other activity indicating a lack of business integrity as defined 
by the State agency; or
    (U) Any other action affecting the institution's ability to 
administer the Program in accordance with Program requirements.
    (iii) Serious deficiency notification procedures for participating 
institutions. If the State agency determines that a participating 
institution has committed one or more serious deficiency listed in 
paragraph (c)(3)(ii) of this section, the State agency must use the 
following procedures to provide the institution and the responsible 
principals and responsible individuals notice of the serious 
deficiency(ies) and an opportunity to take corrective action. However, 
if the serious deficiency(ies) constitutes an imminent threat to the 
health or safety of participants, or the institution has engaged in 
activities that threaten the public health or safety, the State agency 
must follow the procedures in paragraph (c)(5)(i) of this section 
instead of the procedures below. Further, if the serious deficiency is 
the submission of a false or fraudulent claim, in addition to the 
procedures below, the State agency may suspend the institution's 
participation in accordance with paragraph (c)(5)(ii) of this section.
    (A) Notice of serious deficiency. The State agency must notify the 
institution's executive director and chairman of the board of directors 
that the institution has been determined seriously deficient. The notice 
must identify the responsible principals and responsible individuals and 
must be sent to those persons as well. The State agency may specify in 
the notice different corrective action and time periods for completing 
the corrective action for the institution and the responsible principals 
and responsible individuals. At the same time the notice is issued, the 
State agency must add the institution to the State agency list, along 
with the basis for the serious deficiency determination, and provide a 
copy of the notice to the appropriate FNSRO. The notice must also 
specify:
    (1) The serious deficiency(ies);
    (2) The actions to be taken to correct the serious deficiency(ies);
    (3) The time allotted to correct the serious deficiency(ies) in 
accordance with paragraph (c)(4) of this section;
    (4) That the serious deficiency determination is not subject to 
administrative review.
    (5) That failure to fully and permanently correct the serious 
deficiency(ies) within the allotted time will result in the State 
agency's proposed termination of the institution's agreement and the 
proposed disqualification of the institution and the responsible 
principals and responsible individuals; and
    (6) That the institution's voluntary termination of its agreement 
with the State agency after having been notified that it is seriously 
deficient will still result in the instituion's formal termination by 
the State agency and placement of the institution and its responsible 
principals and responsible individuals on the National disqualified 
list.
    (B) Successful corrective action.
    (1) If corrective action has been taken to fully and permanently 
correct the serious deficiency(ies) within the allotted time and to the 
State agency's satisfaction, the State agency must:
    (i) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the State agency has rescinded its serious deficiency 
determination; and
    (ii) Offer the renewing institution the opportunity to resubmit its 
application. If the renewing institution resubmits its application, the 
State agency must complete its review of the application within 30 days 
after receiving a complete and correct application.

[[Page 181]]

    (2) If corrective action is complete for the institution but not for 
all of the responsible principals and responsible individuals (or vice 
versa), the State agency must:
    (i) Continue with the actions (as set forth in paragraph 
(c)(3)(iii)(C) of this section) against the remaining parties;
    (ii) At the same time the notice is issued, the State agency must 
also update the State agency list to indicate that the serious 
deficiency(ies) has(ve) been corrected and provide a copy of the notice 
to the appropriate FNSRO; and
    (iii) If the renewing institution has corrected the serious 
deficiency(ies), offer it the opportunity to resubmit its application. 
If the renewing institution resubmits its application, the State agency 
must complete its review of the application within 30 days after 
receiving a complete and correct application.
    (C) Proposed termination and proposed disqualification. If timely 
corrective action is not taken to fully and permanently correct the 
serious deficiency(ies), the State agency must notify the institution's 
executive director and chairman of the board of directors, and the 
responsible principals and responsible individuals, that the State 
agency is proposing to terminate the institution's agreement and to 
disqualify the institution and the responsible principals and 
responsible individuals. At the same time the notice is issued, the 
State agency must also update the State agency list and provide a copy 
of the notice to the appropriate FNSRO. The notice must also specify:
    (1) That the State agency is proposing to terminate the 
institution's agreement and to disqualify the institution and the 
responsible principals and responsible individuals;
    (2) The basis for the actions;
    (3) That, if the institution voluntarily terminates its agreement 
after receiving the notice of proposed termination, the institution and 
the responsible principals and responsible individuals will be 
disqualified.
    (4) The procedures for seeking an administrative review (in 
accordance with paragraph (k) of this section) of the application denial 
and proposed disqualifications; and
    (5) That, unless participation has been suspended, the institution 
may continue to participate and receive Program reimbursement for 
eligible meals served and allowable administrative costs incurred until 
its administrative review is completed.
    (D) Program payments. Unless participation has been suspended, the 
State agency must continue to pay any valid unpaid claims for 
reimbursement for eligible meals served and allowable administrative 
expenses incurred until the serious deficiency(ies) is corrected or the 
institution's agreement is terminated, including the period of any 
administrative review.
    (E) Agreement termination and disqualification. When the time for 
requesting an administrative review expires or when the administrative 
review official upholds the State agency's proposed termination and 
disqualifications, the State agency must:
    (1) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the institution's agreement has been terminated and 
that the institution and the responsible principals and responsible 
individuals have been disqualified;
    (2) Update the State agency list at the time such notice is issued; 
and
    (3) Provide a copy of the notice and the mailing address and date of 
birth for each responsible principal and responsible individual to the 
appropriate FNSRO.
    (4) Corrective action timeframes.
    (i) General. Except as noted in this paragraph (c)(4), the State 
agency is prohibited from allowing more than 90 days for corrective 
action from the date the institution receives the serious deficiency 
notice.
    (ii) Unlawful practices. If the State agency determines that the 
institution has engaged in unlawful practices, submitted false or 
fraudulent claims or other information to the State agency, or been 
convicted of or concealed a criminal background, the State agency is 
prohibited from allowing more than 30 days for corrective action.

[[Page 182]]

    (iii) Long-term changes. For serious deficiencies requiring the 
long-term revision of management systems or processes, the State agency 
may permit more than 90 days to complete the corrective action as long 
as a corrective action plan is submitted to and approved by the State 
agency within 90 days (or such shorter deadline as the State agency may 
establish). The corrective action must include milestones and a definite 
completion date that the State agency will monitor. The determination of 
serious deficiency will remain in effect until the State agency 
determines that the serious deficiency(ies) has(ve) been fully and 
permanently corrected within the allotted time.
    (5) Suspension of an institution's participation. A State agency is 
prohibited from suspending an institution's participation (including all 
Program payments) except for the reasons set forth in this paragraph 
(c)(5).
    (i) Public health or safety.
    (A) General. If State or local health or licensing officials have 
cited an institution for serious health or safety violations, the State 
agency must immediately suspend the institution's Program participation, 
initiate action to terminate the institution's agreement, and initiate 
action to disqualify the institution and the responsible principals and 
responsible individuals prior to any formal action to revoke the 
institution's licensure or approval. If the State agency determines that 
there is an imminent threat to the health or safety of participants at 
an institution, or that the institution has engaged in activities that 
threaten the public health or safety, the State agency must immediately 
notify the appropriate State or local licensing and health authorities 
and take action that is consistent with the recommendations and 
requirements of those authorities. An imminent threat to the health or 
safety of participants and engaging in activities that threaten the 
public health or safety constitute serious deficiencies; however, the 
State agency must use the procedures in this paragraph (c)(5)(i) 
(instead of the procedures in paragraph (c)(3) of this section) to 
provide the institution notice of the suspension of participation, 
serious deficiency, proposed termination of the institution's agreement, 
and proposed disqualification of the responsible principals and 
responsible individuals.
    (B) Notice of suspension, serious deficiency, proposed termination, 
and proposed disqualification. The State agency must notify the 
institution's executive director and chairman of the board of directors 
that the institution's participation (including Program payments) has 
been suspended, that the institution has been determined to be seriously 
deficient, and that the State agency proposes to terminate the 
institution's agreement and to disqualify the institution and the 
responsible principals and responsible individuals. The notice must also 
identify the responsible principals and responsible individuals and must 
be sent to those persons as well. At the same time this notice is sent, 
the State agency must add the institution and the responsible principals 
and responsible individuals to the State agency list, along with the 
basis for the serious deficiency determination and provide a copy of the 
notice to the appropriate FNSRO. The notice must also specify:
    (1) That the State agency is suspending the institution's 
participation (including Program payments), proposing to terminate the 
institution's agreement, and proposing to disqualify the institution and 
the responsible principals and responsible individuals;
    (2) The serious deficiency(ies);
    (3) That, if the institution voluntary terminates its agreement with 
the State agency after having been notified of the proposed termination, 
the institution and the responsible principals and responsible 
individuals will be disqualified;
    (4) That the serious deficiency determination is not subject to 
administrative review;
    (5) The procedures for seeking an administrative review (consistent 
with paragraph (k) of this section) of the suspension, proposed 
termination, and proposed disqualifications; and
    (6) That, if the administrative review official overturns the 
suspension, the institution may claim reimbursement for eligible meals 
served and allowable

[[Page 183]]

administrative costs incurred during the suspension period.
    (C) Agreement termination and disqualification. When the time for 
requesting an administrative review expires or when the administrative 
review official upholds the State agency's proposed termination and 
disqualifications, the State agency must:
    (1) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the institution's agreement has been terminated and 
that the institution and the responsible principals and responsible 
individuals have been disqualified;
    (2) update the State agency list at the time such notice is issued; 
and
    (3) provide a copy of the notice and the mailing address and date of 
birth for each responsible principal and responsible individual to the 
appropriate FNSRO.
    (D) Program payments. The State agency is prohibited from paying any 
claims for reimbursement from a suspended institution. However, if the 
suspended institution prevails in the administrative review of the 
proposed termination, the State agency must pay any claims for 
reimbursement for eligible meals served and allowable administrative 
costs incurred during the suspension period.
    (ii) False or fraudulent claims.
    (A) General. If the State agency determines that an institution has 
knowingly submitted a false or fraudulent claim, the State agency may 
initiate action to suspend the institution's participation and must 
initiate action to terminate the institution's agreement and initiate 
action to disqualify the institution and the responsible principals and 
responsible individuals (in accordance with paragraph (c)(3) of this 
section). The submission of a false or fraudulent claim constitutes a 
serious deficiency as set forth in paragraph (c)(3)(ii) of this section, 
which lists serious deficiencies for participating institutions. If the 
State agency wishes to suspend the institution's participation, it must 
use the following procedures to issue the notice of proposed suspension 
of participation at the same time it issues the serious deficiency 
notice, which must include the information described in paragraph 
(c)(3)(iii)(A) of this section.
    (B) Proposed suspension of participation. If the State agency 
decides to propose to suspend an institution's participation due to the 
institution's submission of a false or fraudulent claim, it must notify 
the institution's executive director and chairman of the board of 
directors that the State agency intends to suspend the institution's 
participation (including all Program payments) unless the institution 
requests a review of the proposed suspension. At the same time the 
notice is issued, the State agency must also update the State agency 
list and provide a copy of the notice to the appropriate FNSRO. The 
notice must identify the responsible principals and responsible 
individuals and must be sent to those persons as well. The notice must 
also specify:
    (1) That the State agency is proposing to suspend the institution's 
participation;
    (2) That the proposed suspension is based on the institution's 
submission of a false or fraudulent claim, as described in the serious 
deficiency notice;
    (3) The effective date of the suspension (which may be no earlier 
than 10 days after the institution receives the suspension notice);
    (4) The name, address and telephone number of the suspension review 
official who will conduct the suspension review; and
    (5) That if the institution wishes to have a suspension review, it 
must request a review and submit to the suspension review official 
written documentation opposing the proposed suspension within 10 days of 
the institution's receipt of the notice.
    (C) Suspension review. If the institution requests a review of the 
State agency's proposed suspension of participation, the suspension 
review must be heard by a suspension review official who must:
    (1) Be an independent and impartial person other than, and not 
accountable to, any person involved in the decision to initiate 
suspension proceedings;
    (2) Immediately notify the State agency that the institution has 
contested the proposed suspension and must obtain from the State agency 
its

[[Page 184]]

notice of proposed suspension of participation, along with all 
supporting documentation; and
    (3) Render a decision on suspension of participation within 10 days 
of the deadline for receiving the institution's documentation opposing 
the proposed suspension.
    (D) Suspension review decision. If the suspension review official 
determines that the State agency's proposed suspension is not 
appropriate, the State agency is prohibited from suspending 
participation. If the suspension review official determines, based on a 
preponderance of the evidence, that the State agency's action was 
appropriate, the State agency must suspend the institution's 
participation (including all Program payments), effective on the date of 
the suspension review decision. The State agency must notify the 
institution's executive director and chairman of the board of directors, 
and the responsible principals and responsible individuals, that the 
institution's participation has been suspended. At the same time the 
notice is issued, the State agency must also update the State agency 
list and provide a copy of the notice to the appropriate FNSRO. The 
notice must also specify:
    (1) That the State agency is suspending the institution's 
participation (including Program payments);
    (2) The effective date of the suspension (the date of the suspension 
review decision);
    (3) The procedures for seeking an administrative review (in 
accordance with paragraph (k) of this section) of the suspension; and
    (4) That if the administrative review official overturns the 
suspension, the institution may claim reimbursement for eligible meals 
served and allowable administrative costs incurred during the suspension 
period.
    (E) Program payments. A State agency is prohibited from paying any 
claims for reimbursement submitted by a suspended institution. However, 
if the institution suspended for the submission of false or fraudulent 
claims is a sponsoring organization, the State agency must ensure that 
sponsored facilities continue to receive reimbursement for eligible 
meals served during the suspension period. If the suspended institution 
prevails in the administrative review of the proposed termination, the 
State agency must pay any valid unpaid claims for reimbursement for 
eligible meals served and allowable administrative costs incurred during 
the suspension period.
    (F) Maximum time for suspension. Under no circumstances may the 
suspension of participation remain in effect for more than 120 days 
following the suspension review decision.
    (6) FNS determination of serious deficiency. (i) General. FNS may 
determine independently that a participating institution has committed 
one or more serious deficiency listed in paragraph (c)(3)(ii) of this 
section, which lists serious deficiencies for participating 
institutions.
    (ii) Serious deficiency notification procedures. If FNS determines 
that an institution has committed one or more serious deficiency listed 
in paragraph (c)(3)(ii) of this section (the list of serious 
deficiencies for participating institutions), FNS will use the following 
procedures to provide the institution and the responsible principals and 
responsible individuals with notice of the serious deficiency(ies) and 
an opportunity to take corrective action.
    (A) Notice of serious deficiency. FNS will notify the institution's 
executive director and chairman of the board of directors that the 
institution has been found to be seriously deficient. The notice will 
identify the responsible principals and responsible individuals and will 
be sent to them as well. FNS may specify in the notice different 
corrective action and time periods for completing the corrective action, 
for the institution and the responsible principals and responsible 
individuals. The notice will also specify:
    (1) The serious deficiency(ies);
    (2) The actions to be taken to correct the serious deficiency(ies);
    (3) The time allotted to correct the serious deficiency(ies) in 
accordance with paragraph (c)(4) of this section;
    (4) That failure to fully and permanently correct the serious 
deficiency(ies) within the allotted time, or the institution's voluntary 
termination of its agreement(s) with any State agency after having been 
notified that it is seriously deficient, will result

[[Page 185]]

in the proposed disqualification of the institution and the responsible 
principals and responsible individuals and the termination of its 
agreement(s) with all State agencies; and
    (5) That the serious deficiency determination is not subject to 
administrative review.
    (B) Suspension of participation. If FNS determines that there is an 
imminent threat to the health or safety of participants at an 
institution, or that the institution has engaged in activities that 
threaten the public health or safety, any State agency that holds an 
agreement with the institution must suspend the participation of the 
institution. If FNS determines that the institution has submitted a 
false or fraudulent claim, it may require any State agency that holds an 
agreement with the institution to initiate action to suspend the 
institution's participation for false or fraudulent claims in accordance 
with paragraph (c)(5)(ii) of this section (which deals with an 
institution's suspension by a State agency for submission of false or 
fraudulent claims). In both cases, FNS will provide the State agency the 
information necessary to support these actions and, in the case of a 
false and fraudulent claim, will provide an individual to serve as the 
suspension review official if requested by the State agency.
    (C) Successful corrective action.
    (1) If corrective action has been taken to fully and permanently 
correct the serious deficiency(ies) within the allotted time and to 
FNS's satisfaction, FNS will notify the institution's executive director 
and chairman of the board of directors, and the responsible principals 
and responsible individuals, that it has rescinded its serious 
deficiency determination; and
    (2) If corrective action is complete for the institution but not for 
all of the responsible principals and responsible individuals (or vice 
versa), FNS will continue with the actions (as set forth in paragraph 
(c)(6)(ii)(D) of this section) against the remaining parties.
    (D) Proposed disqualification. If timely corrective action is not 
taken to fully and permanently correct the serious deficiency(ies), FNS 
will notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that FNS is proposing to disqualify them. The notice will 
also specify:
    (1) That FNS is proposing to disqualify the institution and the 
responsible principals and responsible individuals;
    (2) The basis for the actions;
    (3) That, if the institution seeks to voluntarily terminate its 
agreement after receiving the notice of proposed disqualification, the 
institution and the responsible principals and responsible individuals 
will be disqualified;
    (4) The procedures for seeking an administrative review (in 
accordance with paragraph (k) of this section) of the proposed 
disqualifications;
    (5) That unless participation has been suspended, the institution 
may continue to participate and receive Program reimbursement for 
eligible meals served and allowable administrative costs incurred until 
its administrative review is completed; and
    (6) That if the institution does not prevail in the administrative 
review, any State agency holding an agreement with the institution will 
be required to terminate that agreement and the institution is 
prohibited from seeking an administrative review of the termination of 
the agreement by the State agency(ies).
    (E) Disqualification. When the time for requesting an administrative 
review expires or when the administrative review official upholds FNS's 
proposed disqualifications, FNS will notify the institution's executive 
director and chairman of the board of directors, and the responsible 
principals and responsible individuals, that the institution and the 
responsible principal or responsible individual have been disqualified.
    (F) Program payments. If the State agency holds an agreement with an 
institution that FNS has determined to be seriously deficient, the State 
agency must continue to pay any valid unpaid claims for reimbursement 
for eligible meals served and allowable administrative expenses incurred 
until the serious deficiency(ies) is corrected or the State agency 
terminates the institution's agreement, including the period of any

[[Page 186]]

administrative review, unless participation has been suspended.
    (G) Required State agency action. (1) Disqualified institutions. If 
the State agency holds an agreement with an institution that FNS 
determines to be seriously deficient and subsequently disqualifies, the 
State agency must terminate the institution's agreement effective no 
later than 45 days after the date of the institution's disqualification 
by FNS. As noted in paragraph (k)(3)(iv) of this section, the 
termination is not subject to administrative review. At the same time 
the notice of termination is issued, the State agency must add the 
institution to the State agency list and provide a copy of the notice to 
the appropriate FNSRO.
    (2) Disqualified principals. If the State agency holds an agreement 
with an institution whose principal FNS determines to be seriously 
deficient and subsequently disqualifies, the State agency must determine 
the institution to be seriously deficient and initiate action to 
terminate and disqualify the institution in accordance with the 
procedures in paragraph (c)(3) of this section. The State agency must 
initiate these actions no later than 45 days after the date of the 
principal's disqualification by FNS.
    (7) National disqualified list.
    (i) Maintenance and availability of list. FNS will maintain the 
National disqualified list and make it available to all State agencies 
and all sponsoring organizations.
    (ii) Effect on institutions. No organization on the National 
disqualified list may participate in the Program as an institution. As 
noted in paragraph (b)(12) of this section, the State agency must deny 
the application of a new or renewing institution if the institution is 
on the National disqualified list. In addition, as noted in paragraphs 
(c)(3)(i) and (c)(6)(ii)(G)(1) of this section, the State agency must 
terminate the agreement of any participating institution that is 
disqualified by another State agency or by FNS.
    (iii) Effect on sponsored centers. No organization on the National 
disqualified list may participate in the Program as a sponsored center. 
As noted in Sec.  226.16(b) and paragraph (b)(12) of this section, a 
sponsoring organization is prohibited from submitting an application on 
behalf of a sponsored facility (and a State agency is prohibited from 
approving such an application) if the facility is on the National 
disqualified list.
    (iv) Effect on individuals. No individual on the National 
disqualified list may serve as a principal in any institution or 
facility or as a day care home provider.
    (A) Principal for an institution or a sponsored facility. As noted 
in paragraph (b)(12) of this section, the State agency must deny the 
application of a new or renewing institution if any of the institution's 
principals is on the National disqualified list. As noted in paragraphs 
(c)(3)(ii)(B) and (c)(6)(ii)(G)(2) of this section, the State agency 
must declare an institution seriously deficient and initiate action to 
terminate the institution's agreement and disqualify the institution if 
the institution permits an individual who is on the National 
disqualified list to serve in a principal capacity for the institution 
or one of its facilities.
    (B) Principal for a sponsored facility. As noted in Sec.  226.16(b) 
and paragraph (b)(12) of this section, a sponsoring organization is 
prohibited from submitting an application on behalf of a sponsored 
facility (or a State agency from approving such an application) if any 
of the facility's principals are on the National disqualified list.
    (C) Serving as a day care home. As noted in Sec.  226.16(b) and 
paragraph (b)(12) of this section, a sponsoring organization is 
prohibited from submitting an application on behalf of a sponsored 
facility (and a State agency is prohibited from approving such an 
application) if the facility is on the National disqualified list.
    (v) Removal of institutions, principals, and individuals from the 
list. Once included on the National disqualified list, an institution 
and responsible principals and responsible individuals remain on the 
list until such time as FNS, in consultation with the appropriate State 
agency, determines that the serious deficiency(ies) that led to their 
placement on the list has(ve) been corrected, or until seven years have 
elapsed since they were disqualified from participation. However, if the

[[Page 187]]

institution, principal or individual has failed to repay debts owed 
under the Program, they will remain on the list until the debt has been 
repaid.
    (vi) Removal of day care homes from the list. Once included on the 
National disqualified list, a day care home will remain on the list 
until such time as the State agency determines that the serious 
deficiency(ies) that led to its placement on the list has(ve) been 
corrected, or until seven years have elapsed since its agreement was 
terminated for cause. However, if the day care home has failed to repay 
debts owed under the Program, it will remain on the list until the debt 
has been repaid.
    (8) State agency list. (i) Maintenance of the State agency list. The 
State agency must maintain a State agency list (in the form of an actual 
paper or electronic list or retrievable paper records). The list must be 
made available to FNS upon request, and must include the following 
information:
    (A) Institutions determined to be seriously deficient by the State 
agency, including the names and mailing addresses of the institutions 
and the status of the institutions as they move through the possible 
subsequent stages of corrective action, proposed termination, 
suspension, agreement termination, and/or disqualification, as 
applicable;
    (B) Responsible principals and individuals who have been 
disqualified from participation by the State agency, including their 
names, mailing addresses, and dates of birth; and
    (C) Day care home providers whose agreements have been terminated 
for cause by a sponsoring organization in the State, including their 
names, mailing addresses, and dates of birth.
    (ii) Referral of disqualified day care homes to FNS. Within 10 days 
of receiving a notice of termination and disqualification from a 
sponsoring organization, the State agency must provide the appropriate 
FNSRO the name, mailing address, and date of birth of each day care home 
provider whose agreement is terminated for cause on or after July 29, 
2002.
    (iii) Prior lists of disqualified day care homes. If on July 29, 
2002 the State agency maintains a list of day care homes that have been 
disqualified from participation, the State agency may continue to 
prohibit participation by those day care homes. However, the State 
agency must remove a day care home from its prior list no later than the 
time at which the State agency determines that the serious 
deficiency(ies) that led to the day care home's placement on the list 
has(ve) been corrected or July 29, 2009 (unless the day care home has 
failed to repay debts owed under the Program). If the day care home has 
failed to repay its debt, the State agency may keep the day care home on 
its prior list until the debt has been repaid.
    (d) Licensing/approval for child care centers, outside-school-hours 
care centers and day care homes. This section prescribes State agency 
responsibilities to ensure that child care centers and day care homes 
meet the licensing/approval criteria set forth in this part. Sponsoring 
organizations shall submit to the State agency documentation that 
facilities under their jurisdiction are in compliance with licensing/
approval requirements. Independent centers shall submit such 
documentation to the State agency on their own behalf.
    (1) General. Each State agency shall establish procedures to 
annually review information submitted by institutions to ensure that all 
participating child care centers, day care homes, and outside-school-
hours care centers either:
    (i) Are licensed or approved by Federal, State, or local 
authorities, provided that institutions which are approved for Federal 
programs on the basis of State or local licensing shall not be eligible 
for the Program if their licenses lapse or are terminated; or
    (ii) Are complying with applicable procedures to renew licensing or 
approval in situations where the State agency has no information that 
licensing or approval will be denied; or
    (iii) Receive Title XX funds for providing child care, if licensing 
or approval is not available; or
    (iv) Demonstrate compliance with applicable State or local child 
care standards to the State agency, if licensing is not available and 
title XX funds are not received; or
    (v) Demonstrate compliance with CACFP child care standards to the

[[Page 188]]

State agency, if licensing or approval is not available and Title XX 
funds are not received.
    (2) CACFP child care standards. (i) When licensing or approval is 
not available, independent child care centers, and sponsoring 
organizations on behalf of their child care centers or day care homes, 
may elect to demonstrate compliance, annually, with the following CACFP 
child care standards or other standards specified in paragraph (d)(3) of 
this section:
    (A) Staff/child ratios. (1) Day care homes provide care for no more 
than 12 children at any one time. One home caregiver is responsible for 
no more than 6 children ages 3 and above, or no more than 5 children 
ages 0 and above. No more than 2 children under the age of 3 are in the 
care of 1 caregiver. The home provider's own children who are in care 
and under the age of 14 are counted in the maximum ratios of caregivers 
to children.
    (2) Child care centers and outside-school-hours care centers do not 
fall below the following staff/child ratios:
    (i) For children under 6 weeks of age--1:1
    (ii) For children ages 6 weeks up to 3 years--1:4
    (iii) For children ages 3 years up to 6 years--1:6
    (iv) For children ages 6 years up to 10 years--1:15
    (v) For children ages 10 and above--1:20
    (B) Nondiscrimination. Day care services are available without 
discrimination on the basis of race, color, national origin, sex, age, 
or handicap.
    (C) Safety and sanitation. (1) A current health/sanitation permit or 
satisfactory report of an inspection conducted by local authorities 
within the past 12 months shall be submitted.
    (2) A current fire/building safety permit or satisfactory report of 
an inspection conducted by local authorities within the past 12 months 
shall be submitted.
    (3) Fire drills are held in accordance with local fire/building 
safety requirements.
    (D) Suitability of facilities. (1) Ventilation, temperature, and 
lighting are adequate for children's safety and comfort.
    (2) Floors and walls are cleaned and maintained in a condition safe 
for children.
    (3) Space and equipment, including rest arrangements for preschool 
age children, are adequate for the number of age range of participating 
children.
    (E) Social services. Independent centers, and sponsoring 
organizations in coordination with their facilities, have procedures for 
referring families of children in care to appropriate local health and 
social service agencies.
    (F) Health services. (1) Each child is observed daily for 
indications of difficulties in social adjustment, illness, neglect, and 
abuse, and appropriate action is initiated.
    (2) A procedure is established to ensure prompt notification of the 
parent or guardian in the event of a child's illness or injury, and to 
ensure prompt medical treatment in case of emergency.
    (3) Health records, including records of medical examinations and 
immunizations, are maintained for each enrolled child. (Not applicable 
to day care homes.)
    (4) At least one full-time staff member is currently qualified in 
first aid, including artificial respiration techniques. (Not applicable 
to day care homes.)
    (5) First aid supplies are available.
    (6) Staff members undergo initial and periodic health assessments.
    (G) Staff training. The institution provides for orientation and 
ongoing training in child care for all caregivers.
    (H) Parental involvement. Parents are afforded the opportunity to 
observe their children in day care.
    (I) Self-evaluation. The institution has established a procedure for 
periodic self-evaluation on the basis of CACFP child care standards.
    (ii) When licensing or approval is not available, independent 
outside-school-hours care centers, and sponsoring organizations on 
behalf of their outside-school-hours care centers, may elect to 
demonstrate compliance with child care standards developed by the State 
agency which shall include, as a minimum, information on: (A) Fire/
safety, (B) sanitation, (C) organized activities, (D) kitchen and 
restroom facilities, (E)

[[Page 189]]

appropriateness of games and materials, (F) availability of emergency 
medical care, and (G) child-staff ratios as indicated in Sec.  
226.6(d)(2)(i)(A). For items (A) and (B), of this paragraph, appropriate 
State or local permits are required.
    (3) Alternate approval procedures. Each State agency shall establish 
procedures to review information submitted by institutions for centers 
or homes for which licensing or approval is not available in order to 
establish eligibility for the Program. Licensing or approval is not 
available when (i) no Federal, State, or local licensing/approval 
standards have been established for child care centers, outside-school-
hours care centers, or day care homes; or (ii) no mechanism exists to 
determine compliance with licensing/approval standards. In these 
situations, independent centers, and sponsoring organizations on behalf 
of their facilities, may choose to demonstrate compliance with either 
CACFP child care standards, applicable State child care standards, or 
applicable local child care standards. State agencies shall provide 
information about applicable State child care standards and CACFP child 
care standards to institutions, but may require institutions electing to 
demonstrate compliance with applicable local child care standards to 
identify and submit these standards. The State agency may permit 
independent centers, and sponsoring organizations on behalf of their 
facilities, to submit self-certification forms, and may grant approval 
without first conducting a compliance review at the center or facility. 
But the State agency shall require submission of health/sanitation and 
fire/safety permits or certificates for all independent centers and 
facilities seeking alternate child care standards approval. Compliance 
with applicable child care standards are subject to review in accordance 
with Sec.  226.6(o).
    (e) Licensing/approval for adult day care centers. This paragraph 
prescribes State agency responsibilities to ensure that adult day care 
centers meet the licensing/approval criteria set forth in this part. 
Sponsoring organizations shall submit to the State agency documentation 
that facilities under their jurisdiction are in compliance with 
licensing/approval requirements. Independent adult day care centers 
shall submit such documentation to the State agency on their own behalf. 
Each State agency shall establish procedures to annually review 
information submitted by institutions to ensure that all participating 
adult day care centers either:
    (1) Are licensed or approved by Federal, State or local authorities, 
provided that institutions which are approved for Federal programs on 
the basis of State or local licensing shall not be eligible for the 
Program if their licenses lapse or are terminated; or
    (2) Are complying with applicable procedures to renew licensing or 
approval in situations where the State agency has no information that 
licensing or approval will be denied.
    (f) Annual requirements. State agencies shall require institutions 
to comply with applicable provisions of this part. Each State agency 
shall annually:
    (1) Enter into and execute a written Program agreement with each 
institution, or renew such agreement with the written concurrence of the 
institution. The Program agreement shall provide that the institution 
shall accept final financial and administrative responsibility for 
management of an effective food service, comply with all requirements 
under this part, and comply with all requirements of title VI of the 
Civil Rights Act of 1964, title IX of the Education Amendments of 1972, 
Section 504 of the Rehabilitation Act of 1973, the Age Discrimination 
Act of 1975 and the Department's regulations concerning 
nondiscrimination (7 CFR parts 15, 15a and 15b), including requirements 
for racial and ethnic participation data collection, public notification 
of the nondiscrimination policy, and reviews to assure compliance with 
such policy, to the end that no person shall, on the grounds of race, 
color, national origin, sex, age, or handicap be excluded from 
participation in, be denied the benefits of, or be otherwise subjected 
to discrimination under the Program. The Program agreement must also 
notify the institution of the right of the State agency, the Department, 
and other State or

[[Page 190]]

Federal officials to make announced or unannounced reviews of their 
operations during the institution's normal hours of child or adult care 
operations and that anyone making such reviews must show photo 
identification that demonstrates that they are employees of one of these 
entities.
    (2) Require each sponsoring organization to submit a management plan 
with its application for review and approval. Such a plan shall include: 
detailed information on the organizational administrative structure; the 
staff assigned to Program management and monitoring; administrative 
budget; procedures which will be used by the sponsoring organization to 
administer the Program in and disburse payments to the child care 
facilities under its jurisdiction; and, for sponsoring organizations of 
day care homes, a description of the system for making tier I day care 
home determinations, and a description of the system of notifying tier 
II day care homes of their options for reimbursement. The State agency 
must establish factors, consistent with Sec.  226.16(b)(1), that the 
State agency will consider in determining whether a sponsoring 
organization has sufficient staff to perform required monitoring 
responsibilities at all of its sponsored facilities. As part of its 
review of the management plan, the State agency must determine the 
appropriate level of staffing for each sponsoring organization, 
consistent with the staffing range of monitors set forth in Sec.  
226.16(b)(1) and the factors it has established. The State agency must 
ensure that each new sponsoring organization applying for participation 
after July 29, 2002 meets this requirement. The State agency must ensure 
that each currently participating sponsoring organization meets this 
requirement no later than July 29, 2003.
    (3) Require each institution to submit an administrative budget. 
Each sponsoring organization shall be required to incorporate this 
budget into its management plan. For a sponsoring organization of 
centers, the State agency is prohibited from approving the sponsoring 
organization's administrative budget, or any amendments to the budget, 
if the administrative budget shows that the Program will be charged for 
administrative costs in excess of 15 percent of the meal reimbursements 
estimated to be earned during the budget year. However, the State agency 
may waive this limit if the sponsoring organization provides 
justification that it requires Program funds in excess of 15 percent to 
pay its administrative costs and if the State agency is convinced that 
the institution will have adequate funding to provide meals meeting the 
requirements of Sec.  226.20. The State agency must document all waiver 
approvals and denials in writing, and must provide a copy of all such 
letters to the appropriate FNSRO.
    (4) Determine that all meal procurements with food service 
management companies are in conformance with the bid and contractual 
requirements of Sec.  226.22.
    (5) Inquire as to the preference of institutions for commodities or 
cash-in-lieu of commodities.
    (6) Provide institutions with information on foods available in 
plentiful supply, based on information provided by the Department.
    (7) Inform institutions with separate meal charges of their 
responsibility to ensure that free and reduced-price meals are served to 
participants unable to pay the full price and provide to all 
institutions a copy of the income standards to be used by institutions 
for determining the eligibility of participants for free and reduced-
price meals under the Program.
    (8) Perform verification of the eligibility of participants for free 
and reduced-price meals in participating institutions in accordance with 
the procedures outlined in Sec.  226.23(h). State agencies verifying the 
information on free and reduced-price applications shall ensure that 
verification activities are applied without regard to race, color, 
national origin, sex, age, or handicap.
    (9) Coordinate with the State agency which administers the National 
School Lunch Program to ensure the receipt of a list of elementary 
schools in the State in which at least one-half of the children enrolled 
are certified eligible to receive free or reduced price meals. The State 
agency shall provide the list to sponsoring organizations by April 1,

[[Page 191]]

1997, and by February 15 of each year thereafter, unless the State 
agency that administers the National School Lunch Program has elected to 
base data for the list on a month other than October, in which case the 
State agency shall provide the list to sponsoring organizations within 
15 calendar days of its receipt from the State agency that administers 
the National School Lunch Program. The State agency also shall provide 
each sponsoring organization with census data, as provided to the State 
agency by FNS upon its availability on a decennial basis, showing areas 
in the State in which at least 50 percent of the children are from 
households meeting the income standards for free or reduced price meals. 
In addition, the State agency shall ensure that the most recent 
available data is used if the determination of a day care home's 
eligibility as a tier I day care home is made using school or census 
data. Determinations of a day care home's eligibility as a tier I day 
care home shall be valid for one year if based on a provider's household 
income, three years if based on school data, or until more current data 
are available if based on census data. However, a sponsoring 
organization, the State agency, or FNS may change the determination if 
information becomes available indicating that a home is no longer in a 
qualified area. The State agency shall not routinely require annual 
redeterminations of the tiering status of tier I day care homes based on 
updated elementary school data.
    (10) Provide all sponsoring organizations of day care homes in the 
State with a listing of State-funded programs, participation in which by 
a parent or child will qualify a meal served to a child in a tier II 
home for the tier I rate of reimbursement.
    (11) Require each sponsoring organization of day care homes to 
submit the total number of tier I and tier II day care homes that it 
sponsors; a breakdown showing the total number of children enrolled in 
tier I day care homes; the total number of children enrolled in tier II 
day care homes; and the number of children in tier II day care homes 
that have been identified as eligible for free or reduced price meals.
    (g) Program expansion. Each State agency shall take action to expand 
the availability of benefits under this Program. At a minimum, the State 
shall annually notify each nonparticipating child care center, outside-
school-hours care center, and day care home within the State that is 
licensed, approved, registered, or receiving funds under title XX and 
each nonparticipating adult day care center that is licensed or 
approved, of the availability of the Program, the requirements for 
Program participation, and the application procedures to be followed in 
the Program. The State agency shall make the list of child care centers, 
adult day care centers, outside-school-hours care centers, and day care 
homes notified each year available to the public upon request.
    (h) Commodity distribution. The State shall annually inquire as to 
the preference of each institution for commodities or cash-in-lieu of 
commodities. Each institution electing cash-in-lieu of commodities shall 
receive such payments. Each institution which elects to receive 
commodities shall have commodities provided to it unless the State 
agency, after consultation with the State commodity distribution agency, 
demonstrates to FNS that distribution of commodities to the number of 
such institutions would be impracticable. The State agency may then, 
with the concurrence of FNS, provide cash-in-lieu of commodities for all 
institutions. A State agency request for cash-in-lieu of all commodities 
shall be submitted to FNS not later than May 1 of the school year 
preceding the school year for which the request is made. The State 
agency shall, by June 1 of each year, submit a list of institutions 
which have elected to receive commodities to the State commodity 
distribution agency, unless FNS has approved a request for cash-in-lieu 
of commodities for all institutions. The list shall be accompanied by 
information on the average daily number of lunches and suppers to be 
served to participants by each such institution.
    (i) Standard contract. Each State agency shall develop a standard 
contract in accordance with Sec.  226.21 and provide for its use between 
institutions

[[Page 192]]

and food service management companies. The contract shall expressly and 
without exception stipulate:
    (1) The institution shall provide the food service management 
company with a list of the State agency approved child care centers, day 
care homes, adult day care centers, and outside-school-hours care 
centers to be furnished meals by the food service management company, 
and the number of meals, by type, to be delivered to each location;
    (2) The food service management company shall maintain such records 
(supported by invoices, receipts or other evidence) as the institution 
will need to meet its responsibilities under this part, and shall 
promptly submit invoices and delivery reports to the institution no less 
frequently than monthly;
    (3) The food service management company shall have Federal, State or 
local health certification for the plant in which it proposes to prepare 
meals for use in the Program, and it shall ensure that health and 
sanitation requirements are met at all times. In addition, the State 
agency may require the food service management company to provide for 
meals which it prepares to be periodically inspected by the local health 
department or an independent agency to determine bacteria levels in the 
meals being prepared. These bacteria levels shall conform to the 
standards which are applied by the local health authority with respect 
to the level of bacteria which may be present in meals prepared or 
served by other establishments in the locality. Results of these 
inspections shall be submitted to the institution and to the State 
agency;
    (4) The meals served under the contract shall conform to the cycle 
menus upon which the bid was based, and to menu changes agreed upon by 
the institution and food service management company;
    (5) The books and records of the food service management company 
pertaining to the institution's food service operation shall be 
available for inspection and audit by representatives of the State 
agency, of the Department, and of the U.S. General Accounting Office at 
any reasonable time and place, for a period of 3 years from the date of 
receipt of final payment under the contract, or in cases where an audit 
requested by the State agency or the Department remains unresolved, 
until such time as the audit is resolved;
    (6) The food service management company shall operate in accordance 
with current Program regulations;
    (7) The food service management company shall not be paid for meals 
which are delivered outside of the agreed upon delivery time, are 
spoiled or unwholesome at the time of delivery, or do not otherwise meet 
the meal requirements contained in the contract;
    (8) Meals shall be delivered in accordance with a delivery schedule 
prescribed in the contract;
    (9) Increases and decreases in the number of meal orders may be made 
by the institution, as needed, within a prior notice period mutually 
agreed upon in the contract;
    (10) All meals served under the Program shall meet the requirements 
of Sec.  226.20;
    (11) All breakfasts, lunches, and suppers delivered for service in 
outside-school-hours care centers shall be unitized, with or without 
milk, unless the State agency determines that unitization would impair 
the effectiveness of food service operations. For meals delivered to 
child care centers and day care homes, the State agency may require 
unitization, with or without milk, of all breakfasts, lunches, and 
suppers only if the State agency has evidence which indicates that this 
requirement is necessary to ensure compliance with Sec.  226.20.
    (j) Procurement provisions. State agencies shall require 
institutions to adhere to the procurement provisions set forth in Sec.  
226.22.
    (k) Administrative reviews for institutions and responsible 
principals and responsible individuals.
    (1) General. The State agency must develop procedures for offering 
administrative reviews to institutions and responsible principals and 
responsible individuals. The procedures must be consistent with 
paragraph (k) of this section.
    (2) Actions subject to administrative review. Except as provided in 
Sec.  226.8(g),

[[Page 193]]

the State agency must offer an administrative review for the following 
actions:
    (i) Application denial. Denial of a new or renewing institution's 
application for participation (see paragraph (b) of this section, on 
State agency review of an institution's application; and paragraphs 
(c)(1) and (c)(2) of this section, on State agency denial of a new or 
renewing institution's application);
    (ii) Denial of sponsored facility application. Denial of an 
application submitted by a sponsoring organization on behalf of a 
facility;
    (iii) Notice of proposed termination. Proposed termination of an 
institution's agreement (see paragraphs (c)(2)(iii)(C), (c)(3)(iii)(C), 
and (c)(5)(i)(B) of this section, dealing with proposed termination of 
agreements with renewing institutions, participating institutions, and 
participating institutions suspended for health or safety violations);
    (iv) Notice of proposed disqualification of a responsible principal 
or responsible individual. Proposed disqualification of a responsible 
principal or responsible individual (see paragraphs (c)(1)(iii)(C), 
(c)(2)(iii)(C), (c)(3)(iii)(C), and (c)(5)(i)(B) of this section, 
dealing with proposed disqualification of responsible principals or 
responsible individuals in new, renewing, and participating 
institutions, and participating institutions suspended for health or 
safety violations);
    (v) Suspension of participation. Suspension of an institution's 
participation (see paragraphs (c)(5)(i)(B) and (c)(5)(ii)(D) of this 
section, dealing with suspension for health or safety reasons or 
submission of a false or fraudulent claim);
    (vi) Start-up or expansion funds denial. Denial of an institution's 
application for start-up or expansion payments (see Sec.  226.7(h));
    (vii) Advance denial. Denial of a request for an advance payment 
(see Sec.  226.10(b));
    (viii) Recovery of advances. Recovery of all or part of an advance 
in excess of the claim for the applicable period. The recovery may be 
through a demand for full repayment or an adjustment of subsequent 
payments (see Sec.  226.10(b)(3));
    (ix) Claim denial. Denial of all or a part of an institution's claim 
for reimbursement (except for a denial based on a late submission under 
Sec.  226.10(e)) (see Sec. Sec.  226.10(f) and 226.14(a));
    (x) Claim deadline exceptions and requests for upward adjustments to 
a claim. Decision by the State agency not to forward to FNS an exception 
request by an institution for payment of a late claim, or a request for 
an upward adjustment to a claim (see Sec.  226.10(e));
    (xi) Overpayment demand. Demand for the remittance of an overpayment 
(see Sec.  226.14(a)); and
    (xii) Other actions. Any other action of the State agency affecting 
an institution's participation or its claim for reimbursement.
    (3) Actions not subject to administrative review. The State agency 
is prohibited from offering administrative reviews of the following 
actions:
    (i) FNS decisions on claim deadline exceptions and requests for 
upward adjustments to a claim. A decision by FNS to deny an exception 
request by an institution for payment of a late claim, or for an upward 
adjustment to a claim (see Sec.  226.10(e));
    (ii) Determination of serious deficiency. A determination that an 
institution is seriously deficient (see paragraphs (c)(1)(iii)(A), 
(c)(2)(iii)(A), (c)(3)(iii)(A), and (c)(5)(i)(B) of this section, 
dealing with proposed disqualification of responsible principals or 
responsible individuals in new, renewing, and participating 
institutions, and participating institutions suspended for health or 
safety violations);
    (iii) Disqualification and placement on State agency list and 
National disqualified list. Disqualification of an institution or a 
responsible principal or responsible individual, and the subsequent 
placement on the State agency list and the National disqualified list 
(see paragraphs (c)(1)(iii)(E), (c)(2)(iii)(E), (c)(3)(iii)(E), and 
(c)(5)(i)(C) of this section, dealing with proposals to disqualify 
related to new, renewing, and participating institutions, and in 
institutions suspended for health or safety violations); or
    (iv) Termination. Termination of a participating institution's 
agreement, including termination of a participating institution's 
agreement based

[[Page 194]]

on the disqualification of the institution by another State agency or 
FNS (see paragraphs (c)(3)(i) and (c)(7)(ii) of this section).
    (4) Provision of administrative review procedures to institutions 
and responsible principals and responsible individuals. The State 
agency's administrative review procedures must be provided:
    (i) Annually to all institutions;
    (ii) To an institution and to each responsible principal and 
responsible individual when the State agency takes any action subject to 
an administrative review as described in paragraph (k)(2) of this 
section; and
    (iii) Any other time upon request.
    (5) Procedures. Except as described in paragraph (k)(9) of this 
section, which sets forth the circumstances under which an abbreviated 
administrative review is held, the State agency must follow the 
procedures in this paragraph (k)(5) when an institution or a responsible 
principal or responsible individual appeals any action subject to 
administrative review as described in paragraph (k)(2) of this section.
    (i) Notice of action. The institution's executive director and 
chairman of the board of directors, and the responsible principals and 
responsible individuals, must be given notice of the action being taken 
or proposed, the basis for the action, and the procedures under which 
the institution and the responsible principals or responsible 
individuals may request an administrative review of the action.
    (ii) Time to request administrative review. The request for 
administrative review must be submitted in writing not later than 15 
days after the date the notice of action is received, and the State 
agency must acknowledge the receipt of the request for an administrative 
review within 10 days of its receipt of the request.
    (iii) Representation. The institution and the responsible principals 
and responsible individuals may retain legal counsel, or may be 
represented by another person.
    (iv) Review of record. Any information on which the State agency's 
action was based must be available to the institution and the 
responsible principals and responsible individuals for inspection from 
the date of receipt of the request for an administrative review.
    (v) Opposition. The institution and the responsible principals and 
responsible individuals may refute the findings contained in the notice 
of action in person or by submitting written documentation to the 
administrative review official. In order to be considered, written 
documentation must be submitted to the administrative review official 
not later than 30 days after receipt of the notice of action.
    (vi) Hearing. A hearing must be held by the administrative review 
official in addition to, or in lieu of, a review of written information 
only if the institution or the responsible principals and responsible 
individuals request a hearing in the written request for an 
administrative review. If the institution's representative, or the 
responsible principals or responsible individuals or their 
representative, fail to appear at a scheduled hearing, they waive the 
right to a personal appearance before the administrative review 
official, unless the administrative review official agrees to reschedule 
the hearing. A representative of the State agency must be allowed to 
attend the hearing to respond to the testimony of the institution and 
the responsible principals and responsible individuals and to answer 
questions posed by the administrative review official. If a hearing is 
requested, the institution, the responsible principals and responsible 
individuals, and the State agency must be provided with at least 10 days 
advance notice of the time and place of the hearing.
    (vii) Administrative review official. The administrative review 
official must be independent and impartial. This means that, although 
the administrative review official may be an employee of the State 
agency, he/she must not have been involved in the action that is the 
subject of the administrative review, or have a direct personal or 
financial interest in the outcome of the administrative review. The 
institution and the responsible principals and responsible individuals 
must be permitted to contact the administrative review official directly 
if they so desire.

[[Page 195]]

    (viii) Basis for decision. The administrative review official must 
make a determination based solely on the information provided by the 
State agency, the institution, and the responsible principals and 
responsible individuals, and based on Federal and State laws, 
regulations, policies, and procedures governing the Program.
    (ix) Time for issuing a decision. Within 60 days of the State 
agency's receipt of the request for an administrative review, the 
administrative review official must inform the State agency, the 
institution's executive director and chairman of the board of directors, 
and the responsible principals and responsible individuals, of the 
administrative review's outcome. This timeframe is an administrative 
requirement for the State agency and may not be used as a basis for 
overturning the State agency's action if a decision is not made within 
the specified timeframe.
    (x) Final decision. The determination made by the administrative 
review official is the final administrative determination to be afforded 
the institution and the responsible principals and responsible 
individuals.
    (6) Federal audit findings. FNS may assert a claim against the State 
agency, in accordance with the procedures set forth in Sec.  226.14(c), 
when an administrative review results in the dismissal of a claim 
against an institution asserted by the State agency based upon Federal 
audit findings.
    (7) Record of result of administrative reviews. The State agency 
must maintain searchable records of all administrative reviews and their 
disposition.
    (8) Combined administrative reviews for responsible principals and 
responsible individuals. The State agency must conduct the 
administrative review of the proposed disqualification of the 
responsible principals and responsible individuals as part of the 
administrative review of the application denial, proposed termination, 
and/or proposed disqualification of the institution with which the 
responsible principals or responsible individuals are associated. 
However, at the administrative review official's discretion, separate 
administrative reviews may be held if the institution does not request 
an administrative review or if either the institution or the responsible 
principal or responsible individual demonstrates that their interests 
conflict.
    (9) Abbreviated administrative review. The State agency must limit 
the administrative review to a review of written submissions concerning 
the accuracy of the State agency's determination if the application was 
denied or the State agency proposes to terminate the institution's 
agreement because:
    (i) The information submitted on the application was false (see 
paragraphs (c)(1)(ii)(A), (c)(2)(ii)(A), and (c)(3)(ii)(A) of this 
section);
    (ii) The institution, one of its sponsored facilities, or one of the 
principals of the institution or its facilities is on the national 
disqualified list (see paragraph (b)(12) of this section);
    (iii) The institution, one of its sponsored facilities, or one of 
the principals of the institution or its facilities is ineligible to 
participate in any other publicly funded program by reason of violation 
of the requirements of the program (see paragraph (b)(13) and 
(c)(3)(ii)(S) of this section); or
    (iv) The institution, one of its sponsored facilities, or one of the 
principals of the institution or its facilities has been convicted for 
any activity that indicates a lack of business integrity (see paragraphs 
(b)(14) and (c)(3)(ii)(T) of this section).
    (10) Effect of State agency action. The State agency's action must 
remain in effect during the administrative review. The effect of this 
requirement on particular State agency actions is as follows.
    (i) Overpayment demand. During the period of the administrative 
review, the State agency is prohibited from taking action to collect or 
offset the overpayment. However, the State agency must assess interest 
beginning with the initial demand for remittance of the overpayment and 
continuing through the period of administrative review unless the 
administrative review official overturns the State agency's action.
    (ii) Recovery of advances. During the administrative review, the 
State agency must continue its efforts to recover advances in excess of 
the claim for reimbursement for the applicable period. The recovery may 
be through a demand

[[Page 196]]

for full repayment or an adjustment of subsequent payments.
    (iii) Program payments. The availability of Program payments during 
an administrative review of the denial of a new institution's 
application, denial of a renewing institution's application, proposed 
termination of a participating institution's agreement, and suspension 
of an institution are addressed in paragraphs (c)(1)(iii)(D), 
(c)(2)(iii)(D), (c)(3)(iii)(D), (c)(5)(i)(D), and (c)(5)(ii)(E), 
respectively, of this section.
    (l) Administrative reviews for day care homes.
    (1) General. The State agency must ensure that, when a sponsoring 
organization proposes to terminate its Program agreement with a day care 
home for cause, the day care home is provided an opportunity for an 
administrative review of the proposed termination. The State agency may 
do this either by electing to offer a State-level administrative review, 
or by electing to require the sponsoring organization to offer an 
administrative review. The State agency must notify the appropriate 
FNSRO of its election under this option, or any change it later makes 
under this option, by September 25, 2002 or within 30 days of any 
subsequent change under this option. The State agency must make the same 
election with regard to who offers the administrative review to any day 
care home in the Program in that State. The State agency or the 
sponsoring organization must develop procedures for offering and 
providing these administrative reviews, and these procedures must be 
consistent with this paragraph (l).
    (2) Actions subject to administrative review. The State agency or 
sponsoring organization must offer an administrative review to a day 
care home that appeals a notice of intent to terminate their agreement 
for cause or a suspension of their participation (see Sec. Sec.  
226.16(l)(3)(iii) and (l)(4)(ii)).
    (3) Actions not subject to administrative review. Neither the State 
agency nor the sponsoring organization is required to offer an 
administrative review for reasons other than those listed in paragraph 
(l)(2) of this section.
    (4) Provision of administrative review procedures to day care homes. 
The administrative review procedures must be provided:
    (i) Annually to all day care homes;
    (ii) To a day care home when the sponsoring organization takes any 
action subject to an administrative review as described in paragraph 
(l)(2) of this section; and
    (iii) Any other time upon request.
    (5) Procedures. The State agency or sponsoring organization, as 
applicable (depending on the State agency's election pursuant to 
paragraph (l)(1) of this section) must follow the procedures in this 
paragraph (l)(5) when a day care home requests an administrative review 
of any action described in paragraph (l)(2) of this section.
    (i) Uniformity. The same procedures must apply to all day care 
homes.
    (ii) Representation. The day care home may retain legal counsel, or 
may be represented by another person.
    (iii) Review of record and opposition. The day care home may review 
the record on which the decision was based and refute the action in 
writing. The administrative review official is not required to hold a 
hearing.
    (iv) Administrative review official. The administrative review 
official must be independent and impartial. This means that, although 
the administrative review official may be an employee of the State 
agency or an employee or board member of the sponsoring organization, 
he/she must not have been involved in the action that is the subject of 
the administrative review or have a direct personal or financial 
interest in the outcome of the administrative review;
    (v) Basis for decision. The administrative review official must make 
a determination based on the information provided by the sponsoring 
organization and the day care home and on Federal and State laws, 
regulations, polices, and procedures governing the Program.
    (vi) Time for issuing a decision. The administrative review official 
must inform the sponsoring organization and the day care home of the 
administrative review's outcome within the period of time specified in 
the State agency's or sponsoring organization's administrative review 
procedures. This

[[Page 197]]

timeframe is an administrative requirement for the State agency or 
sponsoring organization and may not be used as a basis for overturning 
the termination if a decision is not made within the specified 
timeframe.
    (vii) Final decision. The determination made by the administrative 
review official is the final administrative determination to be afforded 
the day care home.
    (m) Program assistance.
    (1) General. The State agency must provide technical and supervisory 
assistance to institutions and facilities to facilitate effective 
Program operations, monitor progress toward achieving Program goals, and 
ensure compliance with all requirements of title VI of the Civil Rights 
Act of 1964, title IX of the Education amendments of 1972, Section 504 
of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
and the Department's regulations concerning nondiscrimination (7 CFR 
Parts 15, 15a, and 15b). The State agency must maintain documentation of 
supervisory assistance activities, including reviews conducted, 
corrective actions prescribed, and follow-up efforts.
    (2) Review priorities. In choosing institutions for review, in 
accordance with paragraph (m)(4) of this section, the State agency must 
target for more frequent review institutions whose prior review included 
a finding of serious deficiency.
    (3) Review content. Reviews must:
    (i) Assess institutional compliance with the provisions of this part 
and with any applicable instructions of FNS and the Department;
    (ii) Evaluate the documentation used by sponsoring organizations to 
classify their day care homes as tier I day care homes; and
    (iii) Evaluate sponsoring organizations' implementation of serious 
deficiency and termination procedures and, if delegated to sponsoring 
organizations pursuant to paragraph (l)(1) of this section, the 
administrative review procedures for day care homes.
    (4) Review frequency. The State agency must annually review 33.3 
percent of all institutions. At least 15 percent of the total number of 
facility reviews required must be unannounced. The State agency must 
review institutions according to the following schedule:
    (i) Independent centers and sponsoring organizations of 1-100 
facilities must be reviewed at least once every three years. A review of 
a sponsoring organization must include 10 percent of its facilities;
    (ii) Sponsoring organizations with more than 100 facilities must be 
reviewed at least once every two years. These reviews must include 
reviews of 5 percent of the first 1,000 facilities and 2.5 percent of 
the facilities in excess of 1,000; and
    (iii) New institutions that are sponsoring organizations of five or 
more facilities must be reviewed within the first 90 days of Program 
operation.
    (n) Program irregularities. Each State agency shall promptly 
investigate complaints received or irregularities noted in connection 
with the operation of the Program, and shall take appropriate action to 
correct any irregularities. State agencies shall maintain on file 
evidence of such investigations and actions. FNS and OIG may make 
investigations at the request of the State agency, or whenever FNS or 
OIG determines that investigations are appropriate.
    (o) Child care standards compliance. The State agency shall, when 
conducting administrative reviews of child care centers, outside-school-
hours care centers, and day care homes approved by the State agency 
under paragraph (d)(3) of this section, determine compliance with the 
child care standards used to establish eligibility, and the institution 
shall ensure that all violations are corrected and the State shall 
ensure that the institution has corrected all violations. If violations 
are not corrected within 60 calendar days of written notification to the 
institution, the State agency shall terminate the Program participation 
of the violating institution or facility. However, if the health or 
safety of the children is imminently threatened, the State agency may 
immediately terminate participation of the institution or facility. If, 
during an administrative review of a child care center, outside-school-
hours care center, or day care home not approved by the State agency 
under paragraph (d)(3) of this section, the State

[[Page 198]]

agency observes violations of applicable health, safety, or staff-child 
ratio standards, or attendance in excess of licensed capacity, the State 
agency shall promptly refer such violations to the appropriate 
authority. The State agency may deny reimbursement for meals served to 
attending children in excess of authorized capacity.
    (p) Sponsoring organization agreement. Each State agency shall 
develop and provide for the use of a standard form of agreement between 
each day care home sponsoring organization and all day care homes 
participating in the Program under such organization. The State agency 
must also include in this agreement its policy to restrict transfers of 
day care homes between sponsoring organizations. The policy must 
restrict the transfers to no more frequently than once per year, except 
under extenuating circumstances, such as termination of the sponsoring 
organization's agreement or other circumstances defined by the State 
agency. However, the State agency may, at the request of the sponsor, 
approve an agreement developed by the sponsor. State agencies may 
develop a similar form for use between sponsoring organizations and 
other types of facilities.
    (q) Following its reviews of institutions and facilities under 
Sec. Sec.  226.6(m) and 226.23(h) conducted prior to July 1, 1988, the 
State agency shall report data on key elements of program operations on 
a form designated by FNS. These key elements include but are not limited 
to the program areas of meal requirements, determination of eligibility 
for free and reduced price meals, and the accuracy of reimbursement 
claims. These forms shall be submitted within 90 days of the completion 
of the data collection for the institutions except that, if the State 
has elected to conduct reviews of verification separate from its 
administrative reviews, the State shall retain data until all key 
elements have been reviewed and shall report all data for each 
institution on one form within 90 days of the completion of the data 
collection for all key elements for that institution. States shall 
ensure that all key element data for an institution is collected during 
a 12-month period.

[47 FR 36527, Aug. 20, 1982]

    Editorial Note: For Federal Register citations affecting Sec.  
226.6, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  226.7  State agency responsibilities for financial management.

    (a) This section prescribes standards of financial management 
systems in administering Program funds by the State agency and 
institutions.
    (b) Each State agency shall maintain an acceptable financial 
management system, adhere to financial management standards and 
otherwise carry out financial management policies as delineated in the 
Uniform Federal Assistance Regulations, at 7 CFR part 3015. State 
agencies or FNSRO's, where applicable, shall also have a system in place 
for monitoring and reviewing the institutions' documentation of their 
nonprofit status to ensure that all Program reimbursement funds are 
used: (1) Solely for the conduct of the food service operation; or (2) 
to improve such food service operations, principally for the benefit of 
the participants.
    (c) Management evaluations and audits. State agencies shall provide 
FNS with full opportunity to conduct management evaluations (including 
visits to institutions and facilities) of all operations of the State 
agency under the Program and shall provide OIG with full opportunity to 
conduct audits (including visits to institutions and facilities) of all 
operations of the State agency under the Program. Within 60 calendar 
days of receipt of each management evaluation report, the State agency 
shall submit to FNSRO a written plan for correcting serious 
deficiencies, including specific timeframes for accomplishing corrective 
actions and initiating follow-up efforts. If a State agency makes a 
showing of good cause, however, FNS may allow more than 60 days in which 
to submit a plan. Each State agency shall make available its records, 
including records of the receipt and expenditure of funds, upon request 
by FNS or OIG. OIG shall also have the right to make audits of the 
records and operation of any institution.
    (d) Reports. Each State agency shall submit to FNS the final Report 
of the Child and Adult Care Food Program

[[Page 199]]

(FNS 44) for each month which shall be limited to claims submitted in 
accordance with Sec.  226.10(e) and which shall be postmarked and/or 
submitted no later than 90 days following the last day of the month 
covered by the report. States shall not receive Program funds for any 
month for which the final report is not submitted within this time limit 
unless FNS grants an exception. Upward adjustments to a State agency's 
report shall not be made after 90 days from the month covered by the 
report unless authorized by FNS. Downward adjustments shall always be 
made, without FNS authorization, regardless of when it is determined 
that such adjustments are necessary. Adjustments shall be reported to 
FNS in accordance with procedures established by FNS. Each State agency 
shall also submit to FNS a quarterly Financial Status Report (SF-269) on 
the use of Program funds. Such reports shall be postmarked and/or 
submitted no later than 30 days after the end of each fiscal year 
quarter. Obligations shall be reported only for the fiscal year in which 
they occur. A final Financial Status Report for each fiscal year shall 
be postmarked and/or submitted to FNS within 120 days after the end of 
the fiscal year. FNS shall not be responsible for reimbursing unpaid 
Program obligations reported later than 120 days after the close of the 
fiscal year in which they were incurred.
    (e) Annual plan. Each State shall submit to the Secretary for 
approval by August 15 of each year an annual plan for the use of State 
administrative expense funds, including a staff formula for State 
personnel.
    (f) Rate assignment. Each State agency shall require institutions 
(other than sponsoring organizations for day care homes) to submit, not 
less frequently than annually, information necessary to assign rates of 
reimbursement as outlined in Sec.  226.9.
    (g) Administrative budget approval. The State agency shall approve 
institution administrative budgets, and shall limit allowable 
administrative costs claimed by each sponsoring organization for day 
care homes to administrative costs approved in its annual budget. The 
State agency may establish such administrative costs limits for other 
institutions. For sponsoring organizations of centers, the State agency 
is prohibited from approving the sponsoring organization's 
administrative budget, or any amendments to the budget, if the 
administrative budget shows the Program will be charged for 
administrative costs in excess of 15 percent of the meal reimbursements 
estimated to be earned during the budget year. However, the State agency 
may waive this limit if the sponsoring organization provides 
justification that it requires Program funds in excess of 15 percent to 
pay its administrative costs and if the State agency is convinced that 
the institution will have adequate funding to provide meals meeting the 
requirements of Sec.  226.20. Administrative budget levels may be 
adjusted to reflect changes in Program activities.
    (h) Start-up and expansion payments. Each State agency shall 
establish procedures for evaluating requests for start-up and expansion 
payments, issuing these payments to eligible sponsoring organizations, 
and monitoring the use of these payments.
    (i) Advance payments. Each State agency shall establish procedures 
for issuing advance payments by the first day of each month and 
comparing these payments with earned reimbursement on a monthly basis. 
The State agency shall maintain on file a statement of the State's law 
and policy governing the use of interest earned on advanced funds by 
sponsors, institutions, child care facilities and adult day care 
facilities.
    (j) Recovery of overpayments. Each State agency shall establish 
procedures to recover outstanding start-up, expansion and advance 
payments from institutions which, in the opinion of the State agency, 
will not be able to earn these payments.
    (k) Claims processing. Each State agency shall establish procedures 
for institutions to properly submit claims for reimbursement. All valid 
claims shall be paid within 45 calendar days of receipt. Within 15 
calendar days of receipt of any incomplete or incorrect claim which must 
be revised for payment, the State agency shall notify the institution as 
to why and how such claim must be revised. If the State

[[Page 200]]

agency disallows partial or full payment for a claim for reimbursement, 
it shall notify the institution which submitted the claim of its right 
to appeal under Sec.  226.6(k). State agencies may permit disallowances 
to be appealed separately from claims for reimbursement.
    (l) Participation controls. The State agency may establish control 
procedures to ensure that payment is not made for meals served to 
participants attending in excess of the authorized capacity of each 
independent center, adult day care facility or child care facility.
    (m) Financial management system. Each State agency shall establish a 
financial management system in accordance with the Uniform Federal 
Assistance Regulations, 7 CFR part 3015, and FNS guidance to identify 
allowable Program costs and establish standards for institutional 
recordkeeping and reporting. These standards shall (1) prohibit claiming 
reimbursement for meals provided by a participant's family, except as 
authorized by Sec.  226.18(e) and (2) allow the cost of meals served to 
adults who perform necessary food service labor under the Program, 
except in day care homes. The State agency shall provide guidance on 
financial management requirements to each institution.

[47 FR 36527, Aug. 20, 1982, as amended at 48 FR 21530, May 13, 1983; 
Amdt. 5, 49 FR 18988, May 4, 1984; 50 FR 8580, Mar. 4, 1985; 50 FR 
26975, July 1, 1985; 53 FR 52589, Dec. 28, 1988; Amdt. 22, 55 FR 1378, 
Jan. 14, 1990; 63 FR 9728, Feb. 26, 1998; 67 FR 43490, June 27, 2002]



Sec.  226.8  Audits.

    (a) Unless otherwise exempt, audits at the State and institution 
levels shall be conducted in accordance with the Office of Management 
and Budget's Circulars A-128 and A-110 and the Department's Uniform 
Federal Assistance Regulations (7 CFR part 3015). Title XIX and title XX 
proprietary institutions not subject to organization-wide audits shall 
be audited by the State agency at least once every two years.
    (b) The funds provided to the State agency under Sec.  226.4(h) may 
be made available to institutions to fund a portion of organization-wide 
audits, provided that the organization-wide audit includes tests of the 
CACFP in accordance with section 10.558 of the Compliance Supplement to 
OMB Circular A-128. The funds provided to an institution for an 
organization-wide audit shall not exceed the portion of the audit's cost 
equal to the CACFP's portion of the total Federal grant.
    (c) Funds provided under Sec.  226.4(h) may be used by the State 
agency to conduct program-specific audits of institutions not subject to 
organization-wide audits, or for which the State agency considers 
program specific audits to be needed. The State agency may use any funds 
remaining after all required program-specific audits have been performed 
to conduct administrative reviews of institutions.
    (d) Funds provided under Sec.  226.4(h) may only be obligated during 
the fiscal year for which those funds are allocated. If funds provided 
under Sec.  226.4(h) are not sufficient to meet the requirements of this 
section, the State agency may then use available State administrative 
expense funds to conduct audits, provided that the State agency is 
arranging for the audits and has not passed the responsibility down to 
the institution.
    (e) In conducting management evaluations or audits for any fiscal 
year, FNS or OIG may disregard any overpayment which does not exceed 
$100. In conducting State agency sponsored audits in State administered 
programs, the State agency may disregard any overpayment which does not 
exceed the amount established by State law, regulations or procedures as 
a minimum for which claims will be made for State losses generally. No 
overpayment shall be disregarded, however, where there are unpaid claims 
of the same fiscal year from which the overpayment can be deducted, or 
where there is evidence of violation of criminal law or civil fraud 
statutes.
    (f) While OIG shall rely to the fullest extent feasible upon State 
sponsored audits, OIG may, whenever it considers necessary:
    (1) Make audits on a statewide basis;
    (2) Perform on-site test audits;
    (3) Review audit reports and related working papers of audits 
performed by or for State agencies.

[[Page 201]]

    (g) State agencies are not required to provide a hearing to an 
institution for State actions taken on the basis of a Federal audit 
determination. If a State agency does not provide a hearing in such 
situations, FNS will provide a hearing, upon request, in accordance with 
procedures set forth in Sec.  226.6(k).

[47 FR 36527, Aug. 20, 1982, as amended at 50 FR 8580, Mar. 4, 1985; 51 
FR 4295, Feb. 4, 1986; 52 FR 5526, Feb. 25, 1987; 53 FR 52590, Dec. 28, 
1988; Amdt. 22, 55 FR 1378, Jan. 14, 1990; 67 FR 43490, June 27, 2002]



                      Subpart D_Payment Provisions



Sec.  226.9  Assignment of rates of reimbursement for centers.

    (a) The State agency shall assign rates of reimbursement, not less 
frequently than annually, on the basis of family-size and income 
information reported by each institution. Assigned rates of 
reimbursement may be changed more frequently than annually if warranted 
by changes in family-size and income information. Assigned rates of 
reimbursement shall be adjusted annually to reflect changes in the 
national average payment rates.
    (b) The State agency shall either:
    (1) Require that institutions submit each month's figures for meals 
served daily to participants from families meeting the eligibility 
standards for free meals, to participants from families meeting the 
eligibility standards for reduced-price meals, and to participants from 
families not meeting such guidelines; or
    (2) Establish claiming percentages, not less frequently that 
annually, for each institution on the basis of the number of enrolled 
participants eligible for free, reduced-price, and paid meals; or
    (3) Determine a blended per-meal rate of reimbursement, not less 
frequently than annually, by adding the products obtained by multiplying 
the applicable national average payment rate of reimbursement for each 
category (free, reduced-price, paid) by the claiming percentage for that 
category.
    (c) States have two methods of reimbursing institutions. The method 
chosen by the State agency must be applied to all institutions 
participating in the Program in that State. These methods are:
    (1) Meals times rates payment, which involves reimbursing an 
institution for meals served at the assigned rate for each meal. This 
method entails no comparison to the costs incurred by the institution 
for the meal service; and,
    (2) Meals times rates or actual costs, whichever is the lesser, 
which involves reimbursing an institution for meals served at the 
assigned rate for each meal or at the level of the costs actually 
incurred by the institution for the meal service. This method does 
entail a comparison of the costs incurred to the meal rates, with the 
costs being a limiting factor on the level of reimbursement an 
institution may receive.
    (d) In those States where the State agency has chosen the option to 
implement a meals times rates payment system State-wide, the State 
agency may elect to pay an institution's final claim for reimbursement 
for the fiscal year at higher reassigned rates of reimbursement for 
lunches and suppers; however, the reassigned rates may not exceed the 
applicable maximum rates of reimbursement established under Sec.  
210.11(b) of the National School Lunch Program regulations. In those 
States which use the method of comparing meals times rates or actual 
costs, whichever is lesser, the total payments made to an institution 
shall not exceed the total net costs incurred for the fiscal year.

[47 FR 36527, Aug. 20, 1982, as amended at 48 FR 21530, May 13, 1983; 53 
FR 52590, Dec. 28, 1988; Amdt. 22, 55 FR 1378, Jan. 14, 1990]



Sec.  226.10  Program payment procedures.

    (a) By the first day of each month of operation, the State agency 
shall provide an advance payment to each institution electing to receive 
such payments, in accordance with Sec.  226.6(b)(10). Advance payments 
shall equal the full level of claims estimated by the State agency to be 
submitted in accordance with paragraph (c) of this section, considering 
prior reimbursement claims and other information such as fluctuations in 
enrollment. The institution may decline to receive all or any part of 
the advance.

[[Page 202]]

    (b) For each fiscal year, the amount of payment made, including 
funds advanced to an institution, shall not exceed the amount of valid 
reimbursement claimed by that institution. To ensure that institutions 
do not receive excessive advance payments, the State agency shall 
observe the following procedures:
    (1) After three advance payments have been made to an institution, 
the State agency shall ensure that no subsequent advance is made until 
the State agency has validated the institution's claim for reimbursement 
for the third month prior to the month for which the next advance is to 
be paid.
    (2) If the State agency has audit or monitoring evidence of 
extensive program deficiencies or other reasons to believe that an 
institution will not be able to submit a valid claim for reimbursement, 
advance payments shall be withheld until the claim is received or the 
deficiencies are corrected.
    (3) Each month the State agency shall compare incoming claims 
against advances to ensure that the level of funds authorized under 
paragraph (a) of this section does not exceed the claims for 
reimbursement received from the institution. Whenever this process 
indicates that excessive advances have been authorized, the State agency 
shall either demand full repayment or adjust subsequent payments, 
including advances.
    (4) If, as a result of year end reconciliation as required by the 
Department's Uniform Federal Assistance Regulations (7 CFR part 3015), 
the State agency determines that reimbursement earned by an institution 
during a fiscal year is less than the amount paid, including funds 
advanced to that institution, the State agency shall demand repayment of 
the outstanding balance or adjust subsequent payments.
    (c) Claims for Reimbursement shall report information in accordance 
with the financial management system established by the State agency, 
and in sufficient detail to justify the reimbursement claimed and to 
enable the State agency to provide the final Report of the Child and 
Adult Care Food Program (FNS 44) required under Sec.  226.7(d). In 
submitting a Claim for Reimbursement, each institution shall certify 
that the claim is correct and that records are available to support that 
claim. Independent proprietary title XX child care centers shall submit 
the number and percentage of the enrolled participants, or the licensed 
capacity receiving title XX benefits for the month claimed for months in 
which not less than 25 percent of the enrolled children or 25 percent of 
licensed capacity, whichever is less, were title XX beneficiaries. 
Sponsoring organizations of such child care centers shall submit the 
number and percentage of the enrolled children or licensed capacity, 
whichever is less, receiving title XX benefits for each center for the 
claim. Sponsoring organizations of such centers shall not submit claims 
for child care centers in which less than 25 percent of the enrolled 
children and licensed capacity were title XX beneficiaries for the month 
claimed. Independent proprietary title XIX or title XX adult day care 
centers shall submit the percentages of enrolled adult participants 
receiving title XIX or title XX benefits for the month claimed for 
months in which not less than 25 percent of enrolled adult participants 
were title XIX or title XX beneficiaries. Sponsoring organizations of 
such adult day care centers shall submit the percentage of enrolled 
adult participants receiving title XIX or title XX benefits for each 
center for the claim. Sponsoring organizations of such centers shall not 
submit claims for adult day care centers in which less than 25 percent 
of enrolled adult participants were title XIX or title XX beneficiaries 
for the month claimed.
    (d) All records to support the claim shall be retained for a period 
of three years after the date of submission of the final claim for the 
fiscal year to which they pertain, except that if audit findings have 
not been resolved, the records shall be retained beyond the end of the 
three year period as long as may be required for the resolution of the 
issues raised by the audit. All accounts and records pertaining to the 
Program shall be made available, upon request, to representatives of the 
State agency, of the Department, and of the U.S. General Accounting 
Office for

[[Page 203]]

audit or review, at a reasonable time and place.
    (e) Unless otherwise approved by FNS, the Claim for Reimbursement 
for any month shall cover only Program operations for that month except 
if the first or last month of Program operations in any fiscal year 
contains 10 operating days or less, such month may be added to the Claim 
for Reimbursement for the appropriate adjacent month; however, Claims 
for Reimbursement may not combine operations occurring in two fiscal 
years. A final Claim for Reimbursement shall be postmarked and/or 
submitted to the State agency not later than 60 days following the last 
day of the full month covered by the claim. State agencies may establish 
shorter deadlines at their discretion. Claims not postmarked and/or 
submitted within 60 days shall not be paid with Program funds unless FNS 
determines that an exception should be granted. The State agency shall 
promptly take corrective action with respect to any Claim for 
Reimbursement as determined necessary through its claim review process 
or otherwise. In taking such corrective action, State agencies may make 
upward adjustments in Program funds claimed on claims filed within the 
60 day deadline if such adjustments are completed within 90 days of the 
last day of the claim month and are reflected in the final Report of the 
Child and Adult Care Food Programs (FNS-44) for the claim month which is 
required under 226.7(d). Upward adjustments in Program funds claimed 
which are not reflected in the final FNS-44 for the claim month shall 
not be made unless authorized by FNS. Downward adjustments in Program 
funds claimed shall always be made without FNS authorization regardless 
of when it is determined that such adjustments are necessary.
    (f) If a State agency has reason to believe that an institution or 
food service management company has engaged in unlawful acts with 
respect to Program Operations, evidence found in audits, investigations 
or other reviews shall be a basis for non-payment of claims for 
reimbursement.

[47 FR 36527, Aug. 20, 1982, as amended by Amdt. 5, 49 FR 18988, May 4, 
1984; 50 FR 26975, July 1, 1985; 53 FR 52590, Dec. 28, 1988; Amdt. 22, 
55 FR 1378, Jan. 14, 1990; 62 FR 23618, May 1, 1997]



Sec.  226.11  Program payments for child care centers, adult day care 
centers and outside-school-hours care centers.

    (a) Payments shall be made only to institutions operating under an 
agreement with the State agency for the meal types specified in the 
agreement served at approved child care centers, adult day care centers 
and outside-school-hours care centers. A State agency may make payment 
for meals served in accordance with provisions of the Program in the 
calendar month preceding the calendar month in which the agreement is 
executed.
    (b) Each child care institution shall report each month to the State 
agency the total number of meals, by type (breakfasts, lunches, suppers, 
and supplements), served to children, except that such reports shall be 
made for a proprietary title XX center only for calendar months during 
which not less than 25 percent of enrolled children, or 25 percent of 
licensed capacity, whichever is less, were title XX beneficiaries. Each 
adult day care institution shall report each month to the State agency 
the total number of meals, by type (breakfasts, lunches, suppers, and 
supplements), served to adult participants, except that such reports 
shall be made for a proprietary title XIX or title XX center only for 
calendar months during which no less than 25 percent of enrolled adult 
participants were title XIX or title XX beneficiaries.
    (c) Each State agency shall base reimbursement to each child care 
institution on the number of meals, by type, served to children 
multiplied by the assigned rates of reimbursement, except that 
reimbursement shall be payable to proprietary title XX child care 
centers only for calendar months during which not less than 25 percent 
of enrolled children, or 25 percent of licensed capacity, whichever is 
less, were title XX beneficiaries. Each State

[[Page 204]]

agency shall base reimbursement to each adult day care institution on 
the number of meals, by type, served to adult participants multiplied by 
the assigned rates of reimbursement, except that reimbursement shall be 
payable to proprietary title XIX and title XX adult day care centers 
only for calendar months during which not less than 25 percent of 
enrolled adult participants were title XIX or Title XX beneficiaries. In 
computing reimbursement, the State agency shall either:
    (1) Base reimbursement to institutions on actual daily counts of 
meals served, and multiply the number of meals, by type, served to 
participants eligible to receive free meals, served to participants 
eligible to receive reduced-price meals, and served to participants from 
families not meeting such standards by the applicable national average 
payment rate; or
    (2) Apply the applicable claiming percentage or percentages to the 
total number of meals, by type, served to participants and multiply the 
product or products by the assigned rate of reimbursement for each meal 
type; or
    (3) Multiply the assigned blended per meal rate of reimbursement by 
the total number of meals, by type, served to participants.
    (d) If the State agency elects to reimburse its institutions 
according to the lesser of rates or actual costs, total Program payments 
to an institution during any fiscal year, including any cash payments in 
lieu of commodities, shall not exceed allowable Program operating and 
administrative costs, less income to the Program. The State agency may 
limit payments for administrative costs to the amount approved in the 
annual administrative budget of the institution. The State agency may 
prohibit an institution from using payments for operating costs to pay 
for administrative expenses.
    (e) Each institution shall maintain records as prescribed by the 
State agency's financial management system.

[47 FR 36527, Aug. 20, 1982, as amended at 48 FR 21530, May 13, 1983; 52 
FR 36907, Oct. 2, 1987; 53 FR 52590, Dec. 28, 1988; 62 FR 23618, May 1, 
1997]



Sec.  226.12  Administrative payments to sponsoring organizations for 
day care homes.

    (a) General. Sponsoring organizations for day care homes shall 
receive payments for administrative costs. During any fiscal year, 
administrative costs payments to a sponsoring organization may not 
exceed the lesser of (1) actual expenditures for the costs of 
administering the Program less income to the Program, or (2) the amount 
of administrative costs approved by the State agency in the sponsoring 
organization's budget, or (3) the sum of the products obtained by 
multiplying each month the sponsoring organization's:
    (i) Initial 50 day care homes by 42 dollars;
    (ii) Next 150 day care homes by 32 dollars;
    (iii) Next 800 day care homes by 25 dollars; and
    (iv) Additional day care homes by 22 dollars.


During any fiscal year, administrative payments to a sponsoring 
organization may not exceed 30 percent of the total amount of 
administrative payments and food service payments for day care home 
operations.
    (b) Start-up and expansion payments. (1) Prospective sponsoring 
organizations of day care homes, participating sponsoring organizations 
of child care centers or outside-school-hours care centers, independent 
centers, and participating sponsoring organizations of less than 50 
homes which meet the criteria in paragraph (b)(2) of this section shall 
be entitled to receive start-up payments to develop or expand successful 
Program operations in day care homes. Participating sponsoring 
organizations of day care homes which meet the criteria in paragraph 
(b)(2) of this section shall be entitled to receive expansion payments 
to initiate or expand Program operations in day care homes in low-income 
or rural areas. The State agency shall approve start-up payments only 
once for any eligible sponsoring organization, but may approve expansion 
payments for any eligible sponsoring organization more than once, 
provided that: the request must be for expansion into an area(s) other 
than that specified in their initial or prior request; and 12 months has

[[Page 205]]

elapsed since the sponsoring organization has satisfied all obligations 
under its initial or prior expansion agreement. Eligible sponsoring 
organizations which have received start-up payments shall be eligible to 
apply for expansion payments at a date no earlier than 12 months after 
it has satisfied all its obligations under its start-up agreement with 
the State agency.
    (2) Sponsoring organizations which apply for start-up or expansion 
payments shall evidence:
    (i) Public status or tax exempt status under the Internal Revenue 
Code of 1986;
    (ii) An organizational history of managing funds and ongoing 
activities (i.e., administering public or private programs);
    (iii) An acceptable and realistic plan for recruiting day care homes 
to participate in the Program (such as the method of contacting 
providers), which may be based on estimates of the number of day care 
homes to be recruited and information supporting their existence, and in 
the case of sponsoring organizations applying for expansion payments, 
documentation that the day care homes to be recruited are located in 
low-income or rural areas; and
    (iv) An acceptable preliminary sponsoring organization management 
plan including, but not limited to, plans for preoperational visits and 
training.
    (3) The State agency shall deny start-up and expansion payments to 
applicant sponsoring organizations which fail to meet the criteria of 
paragraph (b)(2) of this section or which have not been financially 
responsible in the operation of other programs funded by Federal, State, 
or local governments. The State agency shall notify the sponsoring 
organization of the reasons for denial and allow the sponsoring 
organization full opportunity to submit evidence on appeal as provided 
for in Sec.  226.6(k). Any sponsoring organization applying for start-up 
or expansion funds shall be notified of approval or disapproval by the 
State agency in writing within 30 calendar days of filing a complete and 
correct application. If a sponsoring organization submits an incomplete 
application, the State agency shall notify the sponsoring organization 
within 15 calendar days of receipt of the application and shall provide 
technical assistance, if necessary, to the sponsoring organization for 
the purpose of completing its application.
    (4) Sponsoring organizations which apply for and meet the criteria 
for start-up or expansion payments shall enter into an agreement with 
the State agency. The agreement shall specify:
    (i) Activities which the sponsoring organization will undertake to 
initiate or expand Program operations in day care homes;
    (ii) The amount of start-up or expansion payments to be issued to 
the sponsoring organization, together with an administrative budget 
detailing the costs which the sponsoring organization shall incur, 
document, and claim;
    (iii) The time allotted to the sponsoring organization for the 
initiation or expansion of Program operations in family day care homes;
    (iv) The responsibility of the applicant sponsoring organization to 
repay, upon demand by the State agency, start-up or expansion payments 
not expended in accordance with the agreement.
    (5) Upon execution of the agreement, the State agency shall issue a 
start-up or expansion payment to the sponsoring organization in an 
amount equal to not less than one, but not more than two month's 
anticipated administrative reimbursement to the sponsoring organization 
as determined by the State agency. However, no sponsoring organization 
may receive start-up or expansion payments for more than 50 day care 
homes. Eligible sponsoring organizations with fewer than 50 homes under 
their jurisdiction at the time of application for start-up payments may 
receive such payments for up to 50 homes, less the number of homes under 
their jurisdiction. Eligible sponsoring organizations applying for 
expansion funds may receive at a maximum such payments for up to 50 
homes at the currently assigned administrative payment for the first 50 
homes. In determining the amount of start-up or expansion payments to be 
made to a sponsoring organization, the State agency shall consider the 
anticipated level of start-up or expansion costs to

[[Page 206]]

be incurred by the sponsoring organization and alternate sources of 
funds available to the sponsoring organization.
    (6) Upon expiration of the time allotted to the sponsoring 
organization for initiating or expanding Program operations in day care 
homes, the State agency shall obtain and review documentation of 
activities performed and costs incurred by the sponsoring organization 
under the terms of the start-up or expansion agreement. If the 
sponsoring organization has not made every reasonable effort to carry 
out the activities specified in the agreement, the State agency shall 
demand repayment of all or part of the payment. The sponsoring 
organization may retain start-up or expansion payments for all day care 
homes which initiate Program operations. However, no sponsoring 
organization may retain any start-up or expansion payments in excess of 
its actual costs for the expenditures specified in the agreement.

[47 FR 36527, Aug. 20, 1982; 47 FR 46072, Oct. 15, 1982, as amended at 
53 FR 52590, Dec. 28, 1988; 63 FR 9728, Feb. 26, 1998; 67 FR 43490, June 
27, 2002]



Sec.  226.13  Food service payments to sponsoring organizations for day 
care homes.

    (a) Payments shall be made only to sponsoring organizations 
operating under an agreement with the State agency for the meal types 
specified in the agreement served to enrolled nonresident children and 
eligible enrolled children of day care home providers, at approved day 
care homes.
    (b) Each sponsoring organization shall report each month to the 
State agency the total number of meals, by type (breakfasts, lunches, 
suppers, and supplements) and by category (tier I and tier II), served 
to children enrolled in approved day care homes.
    (c) Each sponsoring organization shall receive payment for meals 
served to children enrolled in approved day care homes at the tier I and 
tier II reimbursement rates, as applicable, and as established by law 
and adjusted in accordance with Sec.  226.4. However, the rates for 
lunches and suppers shall be reduced by the value of commodities 
established under Sec.  226.5(b) for all sponsoring organizations for 
day care homes which have elected to receive commodities. For tier I day 
care homes, the full amount of food service payments shall be disbursed 
to each day care home on the basis of the number of meals served, by 
type, to enrolled children. For tier II day care homes, the full amount 
of food service payments shall be disbursed to each day care home on the 
basis of the number of meals served to enrolled children by type, and by 
category (tier I and tier II) as determined in accordance with 
paragraphs (d)(2) and (d)(3) of this section. However, the sponsoring 
organization may withhold from Program payments to each home an amount 
equal to costs incurred for the provision of Program foodstuffs or meals 
by the sponsoring organization on behalf of the home and with the home 
provider's written consent.
    (d) As applicable, each sponsoring organization for day care homes 
shall:
    (1) Require that tier I day care homes submit the number of meals 
served, by type, to enrolled children.
    (2) Require that tier II day care homes in which the provider elects 
not to have the sponsoring organization identify enrolled children who 
are eligible for free or reduced price meals submit the number of meals 
served, by type, to enrolled children.
    (3) Not more frequently than annually, select one of the methods 
described in paragraphs (d)(3) (i)-(iii) of this section for all tier II 
day care homes in which the provider elects to have the sponsoring 
organization identify enrolled children who are eligible for free or 
reduced price meals. In such homes, the sponsoring organization shall 
either:
    (i) Require that such day care homes submit the number and types of 
meals served each day to each enrolled child by name. The sponsoring 
organization shall use the information submitted by the homes to produce 
an actual count, by type and by category (tier I and tier II), of meals 
served in the homes; or
    (ii) Establish claiming percentages, not less frequently than 
semiannually, for each such day care home on the basis of one month's 
data concerning the number of enrolled children determined eligible for 
free or reduced-price

[[Page 207]]

meals. Sponsoring organizations shall obtain one month's data by 
collecting either enrollment lists (which show the name of each enrolled 
child in the day care home), or attendance lists (which show, by days or 
meals, the rate of participation of each enrolled child in the day care 
home). The State agency may require a sponsoring organization to 
recalculate the claiming percentage for any of its day care homes before 
the required semiannual calculation if the State agency has reason to 
believe that a home's percentage of income-eligible children has changed 
significantly or was incorrectly established in the previous 
calculation. Under this system, day care homes shall be required to 
submit the number of meals served, by type, to enrolled children; or
    (iii) Determine a blended per-meal rate of reimbursement, not less 
frequently than semiannually, for each such day care home by adding the 
products obtained by multiplying the applicable rates of reimbursement 
for each category (tier I and tier II) by the claiming percentage for 
that category, as established in accordance with paragraph (d)(3)(ii) of 
this section. The State agency may require a sponsoring organization to 
recalculate the blended rate for any of its day care homes before the 
required semiannual calculation if the State agency has reason to 
believe that a home's percentage of income-eligible children has changed 
significantly or was incorrectly established in the previous 
calculation. Under this system, day care homes shall be required to 
submit the number of meals served, by type, to enrolled children.

[47 FR 36527, Aug. 20, 1982, as amended at 62 FR 903, Jan. 7, 1997; 62 
FR 5519, Feb. 6, 1997; 63 FR 9105, Feb. 24, 1998]



Sec.  226.14  Claims against institutions.

    (a) State agencies shall disallow any portion of a claim for 
reimbursement and recover any payment to an institution not properly 
payable under this part. State agencies may consider claims for 
reimbursement not properly payable if an institution does not comply 
with the recordkeeping requirements contained in this part. The State 
agency may permit institutions to pay overclaims over a period of one or 
more years. However, the State agency must assess interest beginning 
with the initial demand for remittance. Further, when an institution 
requests and is granted an administrative review of the State agency's 
overpayment demand, the State agency is prohibited from taking action to 
collect or offset the overpayment until the administrative review is 
concluded. The State agency must maintain searchable records of funds 
recovery activities. If the State agency determines that a sponsoring 
organization of centers has spent more than 15 percent of its meal 
reimbursements for a budget year for administrative costs (or more than 
any higher limit established pursuant to a waiver granted under Sec.  
226.6(f)(3)), the State agency must take appropriate fiscal action. In 
addition, except with approval from the appropriate FNSRO, State 
agencies shall consider claims for reimbursement not payable when an 
institution fails to comply with the recordkeeping requirements that 
pertain to records directly supporting claims for reimbursement. Records 
that directly support claims for reimbursement include, but are not 
limited to, daily meal counts, menu records, and enrollment and 
attendance records, as required by Sec.  226.15(e). State agencies shall 
assert overclaims against any sponsoring organization of day care homes 
which misclassifies a day care home as a tier I day care home unless the 
misclassification is determined to be inadvertent under guidance issued 
by FNS. However, the State agency shall notify the institution of the 
reasons for any disallowance or demand for repayment, and allow the 
institution full opportunity to submit evidence on appeal as provided 
for in Sec.  226.6(k). Miminum State agency collection procedures for 
unearned payments shall include:
    (1) Written demand to the institution for the return of improper 
payments; (2) if, after 30 calendar days, the institution fails to remit 
full payment or agree to a satisfactory repayment schedule, a second 
written demand for the return of improper payments sent by certified 
mail return receipt requested; and (3) if, after 60 calendar days, the 
institution fails to remit full

[[Page 208]]

payment or agree to a satisfactory repayment schedule, the State agency 
shall refer the claim against the institution to appropriate State or 
Federal authorities for pursuit of legal remedies.
    (b) In the event that the State agency finds that an institution 
which prepares its own meals is failing to meet the meal requirements of 
Sec.  226.20, the State agency need not disallow payment or collect an 
overpayment arising out of such failure if the institution takes such 
other action as, in the opinion of the State agency, will have a 
corrective effect. However, the State agency shall not disregard any 
overpayments or waive collection action arising from the findings of 
Federal audits.
    (c) If FNS does not concur with the State agency's action in paying 
an institution or in failing to collect an overpayment, FNS shall notify 
the State agency of its intention to assert a claim against the State 
agency. In all such cases, the State agency shall have full opportunity 
to submit evidence concerning the action taken. The State agency shall 
be liable to FNS for failure to collect an overpayment, unless FNS 
determines that the State agency has conformed with this part in issuing 
the payment and has exerted reasonable efforts to recover the improper 
payment.

[47 FR 36527, Aug. 20, 1982; 47 FR 46072, Oct. 15, 1982, as amended at 
50 FR 8580, Mar. 4, 1985; 53 FR 52590, Dec. 28, 1988; 62 FR 903, Jan. 7, 
1997; 64 FR 72260, Dec. 27, 1999; 67 FR 43490, June 27, 2002]



                    Subpart E_Operational Provisions



Sec.  226.15  Institution provisions.

    (a) Tax exempt status. Except for proprietary title XIX and title XX 
centers, and sponsoring organizations of such centers, institutions must 
be public, or have tax exempt status under the Internal Revenue Code of 
1986.
    (b) New applications and renewals. Each institution must submit to 
the State agency with its application all information required for its 
approval as set forth in Sec. Sec.  226.6(b) and 226.6(f). Such 
information must demonstrate that the institution has the administrative 
and financial capability to operate the Program in accordance with this 
part and with the performance standards set forth at Sec.  226.6 
(b)(18). The State agency must deny the application of any institution 
that does not demonstrate in its application that it is administratively 
and financially capable of operating the Program in accordance with this 
part, and may approve only those applicant institutions that meet the 
performance standards. No institution may submit an application if the 
institution or any of its principals is on the National disqualified 
list, and no sponsoring organization may submit an application on behalf 
of a facility if the facility or any of its principals is on the 
National disqualified list. At a minimum, such information must include:
    (1) Except for proprietary title XIX and title XX centers and 
sponsoring organizations or proprietary title XIX and title XX centers, 
evidence of nonprofit status, in accordance with Sec.  226.15(a).
    (2) An application for participation, or application renewal 
materials, accompanied by all necessary supporting documentation;
    (3) An administrative budget;
    (4) If an independent child care center or independent outside-
school-hours care center, documentation that it meets the licensing/
approval requirements of Sec.  226.6(d)(1); or, if an independent adult 
day care center, the licensing/approval requirements of Sec.  
226.19a(b)(3).
    (5) A nondiscrimination and free and reduced-price policy statement, 
and information regarding a public release, in accordance with Sec.  
226.23;
    (6) For each proprietary title XX child care center, documentation 
that it provides nonresidential day care services for which it receives 
compensation under title XX of the Social Security Act, and 
certification that not less than 25 percent of the enrolled children, or 
25 percent of the licensed capacity, whichever is less, during the most 
recent calendar month were title XX beneficiaries. For each proprietary 
title XIX or title XX adult day care center, documentation that it 
provides nonresidential day care services for which it receives 
compensation under

[[Page 209]]

title XIX or title XX of the Social Security Act, and certification that 
not less than 25 percent of the adult participants enrolled during the 
most recent calendar month were title XIX or title XX beneficiaries. 
Sponsoring organizations shall provide documentation and certification 
for each proprietary title XIX or title XX center under its 
jurisdiction;
    (7) A list of the publicly funded programs in which the institution 
and its principals have participated in the past seven years and a 
certification that, during the preceding seven years, neither the 
institution nor any of its principals has been declared ineligible to 
participate in any publicly funded program by reason of violating that 
program's requirements. Instead of such a certification, the institution 
may submit documentation that the institution or the principal 
previously declared ineligible was later fully reinstated in, or 
determined eligible for, the program, including the payment of any debts 
owed;
    (8) A statement certifying that neither the institution nor any of 
its principals has been convicted of any activity that occurred during 
the past seven years and that indicated a lack of business integrity. A 
lack of business integrity includes fraud, antitrust violations, 
embezzlement, theft, forgery, bribery, falsification or destruction of 
records, making false statements, receiving stolen property, making 
false claims, obstruction of justice, or any other activity indicating a 
lack of business integrity as defined by the State agency; and
    (9) A statement certifying that all information on the application 
is true and correct, along with the name, mailing address, and date of 
birth of the institution's executive director and chairman of the board 
of directors.
    (c) Responsibility. Each institution shall accept final 
administrative and financial responsibility for Program operations. No 
institution may contract out for management of the Program.
    (d) Staffing. Each institution shall provide adequate supervisory 
and operational personnel for management and monitoring of the Program.
    (e) Recordkeeping. Each institution shall establish procedures to 
collect and maintain all program records required under this part, as 
well as any records required by the State agency. Failure to maintain 
such records shall be grounds for the denial of reimbursement for meals 
served during the period covered by the records in question and for the 
denial of reimbursement for costs associated with such records. At a 
minimum, the following records shall be collected and maintained:
    (1) Copies of all applications and supporting documents submitted to 
the State agency;
    (2) Documentation of the enrollment of each participant at child 
care centers, adult day care centers and outside-school-hours care 
centers including information used to determine eligibility for free or 
reduced price meals in accordance with Sec.  226.23(e)(1).
    (3) Documentation of: The enrollment of each child at day care 
homes; information used to determine the eligibility of enrolled 
providers' children for free or reduced price meals; information used to 
classify day care homes as tier I day care homes, including official 
source documentation obtained from school officials when the 
classification is based on elementary school data; and information used 
to determine the eligibility of enrolled children in tier II day care 
homes that have been identified as eligible for free or reduced price 
meals in accordance with Sec.  226.23(e)(1).
    (4) Daily records indicating the number of participants in 
attendance and the number of meals, by type (breakfast, lunch, supper, 
and supplements), served to participants.
    (5) For child care centers and outside-school-hours care centers 
claiming reimbursement for two meals and two supplements or three meals 
and one supplement per child per day, either:
    (i) Documentation of total time-in-attendance for each child at the 
center for each day for which the fourth meal service was claimed, 
including a time-in/time-out form which records time-in-attendance for 
each child at the center; or, at the discretion of the State agency,
    (ii) Documentation which demonstrates that at least eight hours

[[Page 210]]

elapse between the end of the first meal service and the beginning of 
the fourth meal service on any day in which reimbursement is claimed for 
a fourth meal; service.
    (6) Except at day care homes, daily records indicating the number of 
meals, by type, served to adults performing labor necessary to the food 
service;
    (7) Copies of invoices, receipts, or other records required by the 
State agency financial management instruction to document:
    (i) Administrative costs claimed by the institution;
    (ii) Operating costs claimed by the institution except sponsoring 
organizations of day care homes; and
    (iii) Income to the Program.
    (8) Copies of all claims for reimbursement submitted to the State 
agency;
    (9) Receipts for all Program payments received from the State 
agency;
    (10) If applicable, information concerning the dates and amounts of 
disbursement to each child care facility or adult day care facility 
under its auspices;
    (11) Copies of menus, and any other food service records required by 
the State agency;
    (12) If applicable, information concerning the location and dates of 
each child care or adult day care facility review, any problems noted, 
and the corrective action prescribed and effected;
    (13) Information on training session date(s) and location(s), as 
well as topics presented and names of participants; and
    (14) Documentation of nonprofit food service to ensure that all 
Program reimbursement funds are used: (i) Solely for the conduct of the 
food service operation; or (ii) to improve such food service operations, 
principally for the benefit of the enrolled participants.
    (f) Day care home classifications. Each sponsoring organization of 
day care homes shall determine which of the day care homes under its 
sponsorship are eligible as tier I day care homes. A sponsoring 
organization may use current school or census data provided by the State 
agency or free and reduced price applications collected from day care 
home providers in making a determination for each day care home. When 
using elementary school or census data for making tier I day care home 
determinations, a sponsoring organization shall first consult school 
data, except in cases in which busing or other bases of attendance, such 
as magnet or charter schools, result in school data not being 
representative of an attendance area's household income levels. In these 
cases, census data should generally be consulted instead of school data. 
A sponsoring organization may also use census data if, after reasonable 
efforts are made, as defined by the State agency, the sponsoring 
organization is unable to obtain local elementary school attendance area 
information. A sponsoring organization may also consult census data 
after having consulted school data which fails to support a tier I day 
care home determination for rural areas with geographically large 
elementary school attendance areas, for other areas in which an 
elementary school's free and reduced price enrollment is above 40 
percent, or in other cases with State agency approval. However, if a 
sponsoring organization believes that a segment of an otherwise eligible 
elementary school attendance area is above the criteria for free or 
reduced price meals, then the sponsoring organization shall consult 
census data to determine whether the homes in that area qualify as tier 
I day care homes based on census data. If census data does not support a 
tier I classification, then the sponsoring organization shall reclassify 
homes in segments of such areas as tier II day care homes unless the 
individual providers can document tier I eligibility on the basis of 
their household income. When making tier I day care home determinations 
based on school data, a sponsoring organization shall use attendance 
area information that it has obtained, or verified with appropriate 
school officials to be current, within the last school year. 
Determinations of a day care home's eligibility as a tier I day care 
home shall be valid for one year if based on a provider's household 
income, three years if based on school data, or until more current data 
are available if based on census data. However, a sponsoring 
organization, State agency, or FNS may

[[Page 211]]

change the determination if information becomes available indicating 
that a home is no longer in a qualified area. The State agency shall not 
routinely require annual redeterminations of the tiering status of tier 
I day care homes based on updated elementary school data.
    (g) Claims submission. Each institution shall submit claims for 
reimbursement to the State agency in accordance with Sec.  226.10.
    (h) Program agreement. Each institution shall enter into a Program 
agreement with the State agency in accordance with Sec.  226.6(f)(1).
    (i) Commodities. Each institution receiving commodities shall ensure 
proper commodity utilization.
    (j) Special Milk Program. No institution may participate in both the 
Child and Adult Care Food Program and the Special Milk Program at the 
same time.
    (k) Elderly feeding programs. Institutions which are school food 
authorities (as defined in part 210 of this chapter) may use facilities, 
equipment and personnel supported by funds provided under this part to 
support a nonprofit nutrition program for the elderly, including a 
program funded under the Older Americans Act of 1965 (42 U.S.C. 3001 et 
seq.).

[47 FR 36527, Aug. 20, 1982, as amended at 48 FR 21530, May 13, 1983; 50 
FR 8580, Mar. 4, 1985; 52 FR 15298, Apr. 28, 1987; 52 FR 36907, Oct. 2, 
1987; 53 FR 52590, Dec. 28, 1988; 54 FR 26724, June 26, 1989; Amdt. 22, 
55 FR 1378, Jan. 14, 1990; 56 FR 58174, Nov. 16, 1991; 61 FR 25554, May 
22, 1996; 62 FR 903, Jan. 7, 1997; 62 FR 23619, May 1, 1997; 63 FR 9105, 
Feb. 24, 1998; 64 FR 72260, Dec. 27, 1999; 67 FR 43490, June 27, 2002]



Sec.  226.16  Sponsoring organization provisions.

    (a) Each sponsoring organization shall comply with all provisions of 
Sec.  226.15.
    (b) A sponsoring organization is prohibited from submitting an 
application on behalf of a facility if either the facility or any of its 
principals is on the National disqualified list. Each sponsoring 
organization shall submit to the State agency all information required 
for its approval and the approval of all child care and adult day care 
facilities under its jurisdiction, including:
    (1) A sponsoring organization management plan and administrative 
budget, in accordance with Sec.  226.6(f)(2), which includes information 
sufficient to document the sponsoring organization's compliance with the 
performance standards set forth at Sec.  226.6(b)(18). As part of its 
management plan, a sponsoring organization of day care homes must 
document that, to perform monitoring, it will employ the equivalent of 
one full-time staff person for each 50 to 150 day care homes it 
sponsors. As part of its monitoring plan, a sponsoring organization of 
centers must document that, to perform monitoring, it will employ the 
equivalent of one full-time staff person for each 25 to 150 centers it 
sponsors. It is the State agency's responsibility to determine the 
appropriate level of staffing for monitoring for each sponsoring 
organization, consistent with the specified ranges and the factors 
established by the State agency in accordance with Sec.  226.6(f)(2). 
The monitoring staff equivalent may include the employee's time spent on 
scheduling, travel time, review time, follow-up activity, and report 
writing. Sponsoring organizations that are participating in the Program 
on July 29, 2002 must submit a management plan or plan amendment that 
meets the monitoring staffing requirement no later than July 29, 2003. 
For sponsoring organizations of centers, the portion of the 
administrative costs to be charged to the Program as shown on the 
administrative budget and the actual administrative costs charged to the 
Program may not exceed 15 percent of the meal reimbursements estimated 
or actually earned during the budget year, unless the State agency 
grants a waiver in accordance with Sec.  226.6(f)(3). A sponsoring 
organization of centers must include in its administrative budget all 
administrative costs, whether incurred by the sponsoring organization or 
its sponsored centers. If at any point a sponsoring organization 
determines that the meal reimbursements estimated to be earned during 
the budget year will be lower than that estimated in its administrative 
budget, the sponsoring organization must amend its administrative budget 
to stay within the 15 percent limitation

[[Page 212]]

(or any higher limit established pursuant to a waived granted under 
Sec.  226.6(f)(3)) or seek a waiver. Failure to do so will result in 
appropriate fiscal action in accordance with Sec.  226.14(a).
    (2) An application for participation, or renewal materials, for each 
child care and adult day care facility accompanied by all necessary 
supporting documentation;
    (3) Timely information concerning the eligibility status of child 
care and adult day care facilities (such as licensing/approval actions);
    (4) For sponsoring organizations applying for initial participation 
on or after June 20, 2000, if required by State law, regulation, or 
policy, a bond in the form prescribed by such law, regulation, or 
policy;
    (5) A copy of the sponsoring organization's notice to parents, in a 
form and, to the maximum extent practicable, language easily 
understandable by the participant's parents or guardians. The notice 
must inform them of their facility's participation in CACFP, the 
Program's benefits, the name and telephone number of the sponsoring 
organization, and the name and telephone number of the State agency 
responsible for administration of CACFP;
    (6) If the sponsoring organization chooses to establish procedures 
for determining a day care home seriously deficient that supplement the 
procedures in paragraph (l) of this section, a copy of those 
supplemental procedures. If the State agency has made the sponsoring 
organization responsible for the administrative review of a proposed 
termination of a day care home's agreement for cause, pursuant to Sec.  
226.6(l)(1), a copy of the sponsoring organization's administrative 
review procedures. The sponsoring organization's supplemental serious 
deficiency and administrative review procedures must comply with 
paragraph (l) of this section and Sec.  226.6(l);
    (7) A copy of their outside employment policy. The policy must 
restrict other employment by employees that interferes with an 
employee's performance of Program-related duties and responsibilities, 
including outside employment that constitutes a real or apparent 
conflict of interest; and
    (8) For sponsoring organizations of day care homes, the name, 
mailing address, and date of birth of each provider.
    (c) Each sponsoring organization shall accept final administrative 
and financial responsibility for food service operations in all child 
care and adult day care facilities under its jurisdiction.
    (d) Each sponsoring organization must provide adequate supervisory 
and operational personnel for the effective management and monitoring of 
the program at all facilities it sponsors. Each sponsoring organization 
must employ monitoring staff sufficient to meet the requirements of 
paragraph (b)(1) of this section. At a minimum, Program assistance must 
include:
    (1) Pre-approval visits to each child care and adult day care 
facility for which application is made to discuss Program benefits and 
verify that the proposed food service does not exceed the capability of 
the child care facility;
    (2) Staff training for all child care and adult day care facilities 
in Program duties and responsibilities prior to beginning Program 
operations;
    (3) Additional training sessions, to be provided not less frequently 
than annually; and
    (4) Reviews of food service operations to assess compliance with 
meal pattern, recordkeeping, and other Program requirements.
    (i) Reviews of sponsored centers. Reviews must be made at least 
three times each year at each center. In addition:
    (A) At least two of the three reviews must be unannounced;
    (B) At least one unannounced review must include observation of a 
meal service;
    (C) At least one review must be made during the center's first six 
weeks of Program operation; and
    (D) Not more than six months may elapse between reviews.
    (ii) Reviews of day care homes. Reviews must be made at least three 
times each year at each day care home, except as described at paragraph 
(d)(4)(iii) of this section. In addition:
    (A) At least two of the three reviews must be unannounced;

[[Page 213]]

    (B) At least one unannounced review must include observation of a 
meal service;
    (C) At least one review must be made during the day care home's 
first four weeks of Program operation; and
    (D) Not more than six months may elapse between reviews.
    (iii) Variation for sponsoring organizations of day care homes. If 
the State agency believes that improved efficiency and more effective 
management will result, and subject to FNSRO approval, the State agency 
may allow a sponsoring organization to conduct reviews an average of at 
least three times each year per day care home, provided that:
    (A) Each day care home receives at least two unannounced reviews;
    (B) At least one review is made during each day care home's first 
four weeks of Program operations; and
    (C) No more than six months elapse between reviews;
    (iv) Follow-up reviews. If, in a review of a facility, a sponsoring 
organization detects one or more serious deficiency, the next review of 
that facility must be unannounced. Serious deficiencies are those set 
forth at paragraph (l)(2) of this section, regardless of the type of 
sponsored facility.
    (v) Notification. Sponsoring organizations must provide each 
sponsored center written notification of the right of the sponsoring 
organization, the State agency, the Department, and other State and 
Federal officials to make announced or unannounced reviews of their 
operations during the center's normal hours of child or adult care 
operations, and must also notify sponsored centers that anyone making 
such reviews must show photo identification that demonstrates that they 
are employees of one of these entities. For sponsored centers 
participating July 29, 2002, the sponsoring organization must provide 
this notice sent no later than August 29, 2002. For sponsored centers 
that are approved after July 29, 2002, the sponsoring organization must 
provide the notice before meal service under the Program begins. 
Sponsoring organizations must provide day care homes notification of 
unannounced visits in accordance with Sec.  226.18(b)(1).
    (vi) Other requirements pertaining to unannounced reviews. 
Unannounced reviews must be made only during the facility's normal hours 
of child or adult care operations, and monitors making such reviews must 
show photo identification that demonstrates that they are employees of 
the sponsoring organization.
    (e) Each sponsoring organization shall comply with the recordkeeping 
requirements established in Sec.  Sec.  226.10(d) and 226.15(e) and any 
recordkeeping requirements established by the State agency in order to 
justify the administrative payments made in accordance with Sec.  
226.12(a). Failure to maintain such records shall be grounds for the 
denial of reimbursement.
    (f) The State agency may require a sponsoring organization to enter 
into separate agreements for the administration of separate types of 
facilities (child care centers, day care homes, adult day care centers, 
and outside-school-hours care centers).
    (g) Each sponsoring organization electing to receive advance 
payments of program funds for day care homes shall disburse the full 
amount of such payments within five working days of receipt from the 
State agency. If the sponsor requests the full operating advance to 
which it is entitled, the advances to day care homes shall be the full 
amount which the sponsor expects the home to earn based on the number of 
meals projected to be served to enrolled children during the period 
covered by the advance multiplied by the applicable payment rate as 
specified in Sec.  226.13(c). If a sponsor elects to receive only a part 
of the operating advance to which it is entitled, or if the full 
operating advance is insufficient to provide a full advance to each 
home, the advance shall be disbursed to its homes in a manner and an 
amount the sponsor deems appropriate. Each sponsor shall disburse any 
reimbursement payments for food service due to each day care home within 
five working days of receipt from the State agency. Such payment shall 
be based on the number of meals served to enrolled children at each day 
care home, less any payments advanced to such home. However, the 
sponsoring organization may withhold from Program payments to each home

[[Page 214]]

an amount equal to food service operating costs incurred by the 
sponsoring organization in behalf of the home and with the home 
provider's written consent. If payments from the State agency are not 
sufficient to provide all day care homes under the sponsoring 
organization's jurisdiction with advance payments and reimbursement 
payments, available monies shall be used to provide all due 
reimbursement payments before advances are disbursed.
    (h) Sponsoring organizations shall make payments of program funds to 
child care centers, adult day care centers or outside-school-hours care 
centers within five working days of receipt from the State agency, on 
the basis of the management plan approved by the State agency, and may 
not exceed the Program costs documented at each facility during any 
fiscal year; except in those States where the State agency has chosen 
the option to implement a meals times rates payment system. In those 
States which implement this optional method of reimbursement, such 
disbursements may not exceed the rates times the number of meals 
documented at each facility during any fiscal year.
    (i) Disbursements of advance payments may be withheld from child and 
adult day care facilities which fail to submit reports required by Sec.  
226.15(e).
    (j) A for-profit organization shall be eligible to serve as a 
sponsoring organization for proprietary title XIX or title XX centers 
which have the same legal identity as the organization, but shall not be 
eligible to sponsor proprietary title XIX or title XX centers which are 
legally distinct from the organization, day care homes, or public or 
private nonprofit centers.
    (k) Before sponsoring organizations expend administrative funds to 
assist family day care homes in becoming licensed, they shall obtain the 
following information from each such home: a completed free and reduced 
price application which documents that the provider meets the Program's 
income standards; evidence of its application for licensing and official 
documentation of the defects that are impeding its licensing approval; 
and a completed CACFP application. These funding requests are limited to 
$300 per home and are only available to each home once.
    (l) Termination of agreements for cause. (1) General. The sponsoring 
organization must initiate action to terminate the agreement of a day 
care home for cause if the sponsoring organization determines the day 
care home has committed one or more serious deficiency listed in 
paragraph (l)(2) of this section.
    (2) List of serious deficiencies for day care homes. Serious 
deficiencies for day care homes are:
    (i) Submission of false information on the application;
    (ii) Submission of false claims for reimbursement;
    (iii) Simultaneous participation under more than one sponsoring 
organization;
    (iv) Non-compliance with the Program meal pattern;
    (v) Failure to keep required records;
    (vi) Conduct or conditions that threaten the health or safety of a 
child(ren) in care, or the public health or safety;
    (vii) A determination that the day care home has been convicted of 
any activity that occurred during the past seven years and that 
indicated a lack of business integrity. A lack of business integrity 
includes fraud, antitrust violations, embezzlement, theft, forgery, 
bribery, falsification or destruction of records, making false 
statements, receiving stolen property, making false claims, obstruction 
of justice, or any other activity indicating a lack of business 
integrity as defined by the State agency, or the concealment of such a 
conviction; or
    (viii) Any other circumstance related to non-performance under the 
sponsoring organization-day care home agreement, as specified by the 
sponsoring organization or the State agency.
    (3) Serious deficiency notification procedures. If the sponsoring 
organization determines that a day care home has committed one or more 
serious deficiency listed in paragraph (l)(2) of this section, the 
sponsoring organization must use the following procedures to provide the 
day care home notice of the serious deficiency(ies) and offer it an 
opportunity to take corrective action.

[[Page 215]]

However, if the serious deficiency(ies) constitutes an imminent threat 
to the health or safety of participants, or the day care home has 
engaged in activities that threaten the public health or safety, the 
sponsoring organization must follow the procedures in paragraph (l)(4) 
of this section instead of those in this paragraph (l)(3).
    (i) Notice of serious deficiency. The sponsoring organization must 
notify the day care home that it has been found to be seriously 
deficient. The sponsoring organization must provide a copy of the 
serious deficiency notice to the State agency. The notice must specify:
    (A) The serious deficiency(ies);
    (B) The actions to be taken by the day care home to correct the 
serious deficiency(ies);
    (C) The time allotted to correct the serious deficiency(ies) (as 
soon as possible, but not to exceed 30 days);
    (D) That the serious deficiency determination is not subject to 
administrative review.
    (E) That failure to fully and permanently correct the serious 
deficiency(ies) within the allotted time will result in the 
institution's proposed termination of the day care home's agreement and 
the proposed disqualification of the day care home and its principals; 
and
    (F) That the day care home's voluntary termination of its agreement 
with the institution after having been notified that it is seriously 
deficient will still result in the day care home's formal termination by 
the State institution and placement of the day care home and its 
principals on the National disqualified list.
    (ii) Successful corrective action. If the day care home corrects the 
serious deficiency(ies) within the allotted time and to the sponsoring 
organization's satisfaction, the sponsoring organization must notify the 
day care home that it has rescinded its determination of serious 
deficiency. The sponsoring organization must also provide a copy of the 
notice to the State agency.
    (iii) Proposed termination of agreement and proposed 
disqualification. If timely corrective action is not taken to fully and 
permanently correct the serious deficiency(ies) cited, the sponsoring 
organization must issue a notice proposing to terminate the day care 
home's agreement for cause. The notice must explain the day care home's 
opportunity for an administrative review of the proposed termination in 
accordance with Sec.  226.6(l). The sponsoring organization must provide 
a copy of the notice to the State agency. The notice must:
    (A) Inform the day care home that it may continue to participate and 
receive Program reimbursement for eligible meals served until its 
administrative review is concluded;
    (B) Inform the day care home that termination of the day care home's 
agreement will result in the day care home's termination for cause and 
disqualification; and
    (C) State that if the day care home seeks to voluntarily terminate 
its agreement after receiving the notice of intent to terminate, the day 
care home will still be placed on the National disqualified list.
    (iv) Program payments. The sponsoring organization must continue to 
pay any claims for reimbursement for eligible meals served until the 
serious deficiency(ies) is corrected or the day care home's agreement is 
terminated, including the period of any administrative review.
    (v) Agreement termination and disqualification. The sponsoring 
organization must immediately terminate the day care home's agreement 
and disqualify the day care home when the administrative review official 
upholds the sponsoring organization's proposed termination and proposed 
disqualification, or when the day care home's opportunity to request an 
administrative review expires. At the same time the notice is issued, 
the sponsoring organization must provide a copy of the termination and 
disqualification letter to the State agency.
    (4) Suspension of participation for day care homes.
    (i) General. If State or local health or licensing officials have 
cited a day care home for serious health or safety violations, the 
sponsoring organization must immediately suspend the home's

[[Page 216]]

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

[47 FR 36527, Aug. 20, 1982; 47 FR 46072, Oct. 15, 1982, as amended at 
48 FR 21530, May 13, 1983; 50 FR 8580, Mar. 4, 1985; 50 FR 26975, July 
1, 1985; 53 FR 52591, Dec. 28, 1988; 63 FR 9729, Feb. 26, 1998; 64 FR 
72260, Dec. 27, 1999; 67 FR 43490, June 27, 2002]



Sec.  226.17  Child care center provisions.

    (a) Child care centers may participate in the Program either as 
independent centers or under the auspices of a sponsoring organization; 
provided, however, that public and private nonprofit centers shall not 
be eligible to participate in the Program under the auspices of a for-
profit sponsoring organization. Child care centers participating as 
independent centers shall comply with the provisions of Sec.  226.15.
    (b) All child care centers, independent or sponsored, shall meet the 
following requirements
    (1) Child care centers shall have Federal, State, or local licensing 
or approval to provide day care services to children. Child care centers 
which are complying with applicable procedures to renew licensing or 
approval may participate in the Program during the

[[Page 217]]

renewal process, unless the State agency has information which indicates 
that renewal will be denied. If licensing or approval is not available, 
a center may participate if:
    (i) It receives title XX funds for child care; or
    (ii) It demonstrates compliance with the CACFP child care standards 
or any applicable State or local child care standards to the State 
agency.
    (2) Except for proprietary title XX centers, child care centers 
shall be public, or have tax exempt status under the Internal Revenue 
Code of 1986.
    (3) Each child care center participating in the Program shall serve 
one or more of the following meal types: (i) Breakfast, (ii) lunch, 
(iii) supper, and (iv) supplemental food. Reimbursement shall not be 
claimed for more than two meals and one supplement provided daily to 
each child, except that reimbursement may be claimed for two meals and 
two supplements or three meals and one supplement served to a child for 
each day in which that child is maintained in care for eight or more 
hours.
    (4) Each child care center participating in the Program shall claim 
only the meal types specified in its approved application in accordance 
with the meal pattern requirements specified in Sec.  226.20. 
Reimbursement may not be claimed for meals served to children who are 
not enrolled, or for meals served to children at any one time in excess 
of the child care center's authorized capacity, or for any meal served 
at a proprietary title XX center during a calendar month when less than 
25 percent of enrolled children or 25 percent of licensed capacity, 
whichever is less, were title XX beneficiaries. Menus and any other 
nutritional rec ords required by the State agency shall be maintained to 
document compliance with such requirements.
    (5) A child care center with pre-school children may also be 
approved to serve a breakfast, supplement, and supper to school-age 
children enrolled in an outside-school-hours care program meeting the 
criteria of Sec.  226.19(b) which is distinct from its day care program 
for preschool-age children. The State agency may authorize the service 
of lunch to such enrolled children who attend a school which does not 
offer a lunch program provided the limit of not more than two meals and 
one supplement per child per day is not exceeded. If the majority of 
children served by the center are participating in an outside-school-
hours care program, the center shall comply with reporting requirements 
of Sec.  226.19 and, if it is a facility, shall be monitored by the 
sponsoring organization at the frequency specified in Sec.  
226.16(d)(4)(iii).
    (6) A child care center may utilize existing school food service 
facilities or obtain meals from a school food service facility, and the 
pertinent requirements of this part shall be embodied in a written 
agreement between the child care center and school. The center shall 
maintain responsibility for all Program requirements set forth in this 
part.
    (7) Child care centers shall collect and maintain documentation of 
the enrollment of each child, including information used to determine 
eligibility for free and reduced price meals in accordance with Sec.  
226.23(e)(1). In addition, Head Start participants need only have a Head 
Start statement of income eligibility, or a statement of Head Start 
enrollment from an authorized Head Start representative, to be eligible 
for free meal benefits under the CACFP.
    (8) Each child care center shall maintain daily records of the 
number of meals by type (breakfast, lunch, supper, and supplements) 
served to enrolled children, and to adults performing labor necessary to 
the food service.
    (c) Each child care center shall comply with the recordkeeping 
requirements established in Sec.  226.10(d), in paragraph (b) of this 
section and, if applicable, in Sec.  226.15(e). Failure to maintain such 
records shall be grounds for the denial of reimbursement.
    (d) If so instructed by its sponsoring organization, a sponsored 
center must distribute to parents a copy of the

[[Page 218]]

sponsoring organization's notice to parents.

[47 FR 36527, Aug. 20, 1982, as amended at 52 FR 36907, Oct. 2, 1987; 53 
FR 52591, Dec. 28, 1988; 54 FR 26724, June 26, 1989; Amdt. 22, 55 FR 
1378, Jan. 14, 1990; 61 FR 25554, May 22, 1996; 62 FR 23619, May 1, 
1997; 63 FR 9729, Feb. 26, 1998; 64 FR 72261, Dec. 27, 1999; 67 FR 
43493, June 27, 2002]



Sec.  226.18  Day care home provisions.

    (a) Day care homes shall have current Federal, State or local 
licensing or approval to provide day care services to children. Day care 
homes which cannot obtain their license because they lack the funding to 
comply with licensing standards may request a total limit per home of 
$300 in administrative funds from a sponsoring organization to assist 
them in obtaining their license. Day care homes that, at the option of 
their sponsoring organization, receive administrative funds for 
licensing-related expenses must complete documentation requested by 
their sponsor as described in Sec.  226.16(k) prior to receiving any 
funds. The agreement must be signed by the sponsoring organization and 
the provider and must include the provider's full name, mailing address, 
and date of birth. Day care homes which are complying with applicable 
procedures to renew licensing or approval may participate in the Program 
during the renewal process, unless the State agency has information 
which indicates that renewal will be denied. If licensing or approval is 
not available, a day care home may participate in the Program if:
    (1) The right of the sponsoring organization, the State agency, the 
Department, and other State and Federal officials to make announced or 
unannounced reviews of the day care home's operations and to have access 
to its meal service and records during its normal hours of child care 
operations. For day care homes participating July 29, 2002, the 
sponsoring organization must amend the current agreement no later than 
August 29, 2002;
    (2) It demonstrates compliance with CACFP child care standards or 
applicable State or local child care standards to the State agency.
    (b) Day care homes participating in the program shall operate under 
the auspices of a public or private nonprofit sponsoring organization. 
Sponsoring organizations shall enter into a written agreement with each 
sponsored day care home which specifies the rights and responsibilities 
of both parties. This agreement shall be developed by the State agency, 
unless the State agency elects, at the request of the sponsor, to 
approve an agreement developed by the sponsor. At a minimum, the 
agreement shall embody:
    (1) The right of the sponsoring organization, the State agency, and 
the Department to visit the day care home and review its meal service 
and records during its hours of child care operations;
    (2) The responsibility of the sponsoring organization to train the 
day care home's staff in program requirements;
    (3) The responsibility of the day care home to prepare and serve 
meals which meet the meal patterns specified in Sec.  226.20;
    (4) The responsibility of the day care home to maintain records of 
menus, and of the number of meals, by type, served to enrolled children;
    (5) The responsibility of the day care home to promptly inform the 
sponsoring organization about any change in the number of children 
enrolled for care or in its licensing or approval status;
    (6) The meal types approved for reimbursement to the day care home 
by the State agency;
    (7) The right of the day care home to receive in a timely manner the 
full food service rate for each meal served to enrolled children for 
which the sponsoring organization has received payment from the State 
agency. However, if, with the home provider's consent, the sponsoring 
organization will incur costs for the provision of program foodstuffs or 
meals in behalf of the home, and subtract such costs from Program 
payments to the home, the particulars of this arrangement shall be 
specified in the agreement;
    (8) The right of the sponsoring organization or the day care home to 
terminate the agreement for cause or, subject to stipulations by the 
State agency, convenience;

[[Page 219]]

    (9) A prohibition of any sponsoring organization fee to the day care 
home for its Program administrative services;
    (10) If the State agency has approved a time limit for submission of 
meal records by day care homes, that time limit shall be stated in the 
agreement;
    (11) The responsibility of the sponsoring organization to inform 
tier II day care homes of all of their options for receiving 
reimbursement for meals served to enrolled children. These options 
include: electing to have the sponsoring organization attempt to 
identify all income-eligible children enrolled in the day care home, 
through collection of free and reduced price applications and/or 
possession by the sponsoring organization or day care home of other 
proof of a child or household's participation in a categorically 
eligible program, and receiving tier I rates of reimbursement for the 
meals served to identified income-eligible children; electing to have 
the sponsoring organization identify only those children for whom the 
sponsoring organization or day care home possess documentation of the 
child or household's participation in a categorically eligible program, 
under the expanded categorical eligibility provision contained in Sec.  
226.23(e)(1), and receiving tier I rates of reimbursement for the meals 
served to these children; or receiving tier II rates of reimbursement 
for all meals served to enrolled children;
    (12) The responsibility of the sponsoring organization, upon the 
request of a tier II day care home, to collect applications and 
determine the eligibility of enrolled children for free or reduced price 
meals;
    (13) The State agency's policy to restrict transfers of day care 
homes between sponsoring organizations;
    (14) The responsibility of the day care home to notify their 
sponsoring organization in advance whenever they are planning to be out 
of their home during the meal service period. The agreement must also 
state that, if this procedure is not followed and an unannounced review 
is conducted when the children are not present in the day care home, 
claims for meals that would have been served during the unannounced 
review will be disallowed;
    (15) The day care home's opportunity to request an administrative 
review if a sponsoring organization issues a notice of proposed 
termination of the day care home's Program agreement, or if a sponsoring 
organization suspends participation due to health and safety concerns, 
in accordance with Sec.  226.6(1)(2); and
    (16) If so instructed by its sponsoring organization, the day care 
home's responsibility to distribute to parents a copy of the sponsoring 
organization's notice to parents.
    (c) Each day care home shall serve one or more of the following meal 
types:
    (1) Breakfast,
    (2) Lunch,
    (3) Supper and
    (4) Supplemental food.

Reimbursement shall not be claimed for more than two meals and one 
supplement provided daily to each child.
    (d) Each day care home participating in the program shall serve the 
meal types specified in its approved application in accordance with the 
meal pattern requirements specified in Sec.  226.20. Menu records shall 
be maintained to document compliance with these requirements. Meals 
shall be served at no separate charge to enrolled children;
    (e) Each day care home shall maintain daily records of the number of 
children in attendance and the number of meals, by type, served to 
enrolled children. Each tier II day care home in which the provider 
elects to have the sponsoring organization identify enrolled children 
who are eligible for free or reduced price meals, and in which the 
sponsoring organization employs a meal counting and claiming system in 
accordance with Sec.  226.13(d)(3)(i), shall maintain and submit each 
month to the sponsoring organization daily records of the number and 
types of meals served to each enrolled child by name. Payment may be 
made for meals served to the provider's own children only when (1) such 
children are enrolled and participating in the child care program during 
the time of the meal service, (2) enrolled nonresident children are 
present and participating in the child care program and (3) providers' 
children are eligible to receive

[[Page 220]]

free or reduced-price meals. Reimbursement may not be claimed for meals 
served to children who are not enrolled, or for meals served at any one 
time to children in excess of the home's authorized capacity or for 
meals served to providers' children who are not eligible for free or 
reduced-price meals.
    (f) The State agency may not require a day care home or sponsoring 
organization to maintain documentation of home operating costs.
    (g) Each day care home shall comply with the recordkeeping 
requirements established in Sec.  226.10(d) and in this section. Failure 
to maintain such records shall be grounds for the denial of 
reimbursement.

[47 FR 36527, Aug. 20, 1982, as amended by Amdt. 5, 49 FR 18989, May 4, 
1984; 50 FR 8580, Mar. 4, 1985; 52 FR 36907, Oct. 2, 1987; Amdt. 22, 55 
FR 1378, Jan. 14, 1990; 61 FR 25554, May 22, 1996; 62 FR 903, Jan. 7, 
1997; 63 FR 9105, Feb. 24, 1998; 63 FR 9729, Feb. 26, 1998; 64 FR 72261, 
Dec. 27, 1999; 67 FR 43493, June 27, 2002]



Sec.  226.19  Outside-school-hours care center provisions.

    (a) Outside-school-hours care centers may participate in the Program 
either as independent centers or under the auspices of a sponsoring 
organization; Provided, however, That public and private nonprofit 
centers shall not be eligible to participate in the Program under the 
auspices of a for-profit sponsoring organization. Outside-school-hours 
care centers participating as independent centers shall comply with the 
provisions of Sec.  226.15.
    (b) All outside-school-hours care centers, independent or sponsored, 
shall meet the following requirements:
    (1) Outside-school-hours care centers shall have current Federal, 
State or local licensing or approval to provide organized child care 
services to enrolled school-age children outside of school hours. The 
main purpose of the Program shall be the care and supervision of 
children. Outside-school-hours care centers which are complying with 
applicable procedures to renew licensing or approval may participate in 
the Program during the renewal process, unless the State agency has 
information which indicates the renewal will be denied. If licensing or 
approval is not available, an outside-school-hours care center may 
participate in the Program if:
    (i) It receives title XX funds for providing child care; or
    (ii) It demonstrates compliance with CACFP child care standards or 
any applicable State or local child care standards to the State agency.
    (2) Except for proprietary title XX centers, outside-school-hours 
care centers shall be public, or have tax-exempt status under the 
Internal Revenue Code of 1986.
    (3) Nonresidential public or private nonprofit schools which provide 
organized child care programs for school children may participate in the 
Program as outside-school-hours care centers if:
    (i) Children are enrolled in a regularly scheduled child care 
program which meets the criteria of paragraph (b)(1) of this section. 
The program is organized for the purpose of providing child care 
services and is distinct from any extracurricular programs organized 
primarily for scholastic, cultural, and athletic purposes; and
    (ii) Separate Program records are maintained.
    (4) Outside-school-hours care centers shall be eligible to serve one 
or more of the following meal types: breakfasts, supplements and 
suppers. In addition, outside-school-hours care centers shall be 
eligible to serve lunches to enrolled children during periods of school 
vacation, including weekends and holidays, and to enrolled children 
attending schools which do not offer a lunch program. Notwithstanding 
the eligibility of outside-school-hours care centers to serve Program 
meals to children on school vacation, including holidays and weekends, 
such centers shall not operate under the Program on weekends only.
    (5) Each outside-school-hours care center participating in the 
Program shall claim only the meal types specified in its approved 
application and served in compliance with the meal pattern requirements 
of Sec.  226.20. Reimbursement shall not be claimed for more than two 
meals and one supplement provided daily to each child, except that 
reimbursement may be

[[Page 221]]

claimed for two meals and two supplements or three meals and one 
supplement served to a child for each day in which that child is 
maintained in care for eight or more hours. In addition, reimbursement 
shall not be claimed for meals served to children who are not enrolled, 
for meals served to children at any one time in excess of authorized 
capacity, or for any meal served at a proprietary title XX center during 
a calendar month when less than 25 percent of enrolled children or 25 
percent of licensed capacity, whichever is less, were title XX 
beneficiaries.
    (6) Three hours shall elapse between the beginning of one meal 
service and the beginning of another, except that 4 hours shall elapse 
between the service of a lunch and supper when no supplement is served 
between lunch and supper. The service of a supper shall begin no later 
than 7 p.m. and end no later than 8 p.m. The duration of the meal 
service shall be limited to 2 hours for lunches and supper and 1 hour 
for other meals.
    (7) Each outside-school-hours care center shall ensure that each 
meal service is supervised by an adequate number of operational 
personnel trained in Program requirements. Operational personnel shall 
ensure that:
    (i) Meals are served only to children enrolled for care and adults 
who perform necessary food service labor; (ii) meals served to children 
meet the meal pattern requirements specified in Sec.  226.20; (iii) each 
meal service is consistent with the meal time requirements of paragraph 
(b)(7) of this section; (iv) meals served are consumed on the premises 
of the centers; (v) accurate records are maintained; and (vi) the number 
of meals prepared or ordered is promptly adjusted on the basis of 
participation trends.
    (8) Each outside-school-hours care center shall accurately maintain 
the following records:
    (i) Documentation of enrollment for all children, including 
information used to determine eligibility for free or reduced price 
meals in accordance with Sec.  226.23(e)(1);
    (ii) Number of meals prepared or delivered for each meal service;
    (iii) Daily menu records for each meal service;
    (iv) Number of meals served to enrolled children at each meal 
service;
    (v) Number of enrolled children in attendance during each meal 
service;
    (vi) Number of meals served to adults performing necessary food 
service labor for each meal service; and
    (vii) All other records required by the State agency financial 
management system.
    (9) An outside-school-hours care center may utilize existing school 
food service facilities or obtain meals from a school food service 
facility, and the pertinent requirements of this part shall be embodied 
in a written agreement between the outside-school-hours care center and 
the school. The center shall maintain responsibility for all Program 
requirements set forth in this part.
    (c) Each outside-school-hours care center shall comply with the 
recordkeeping requirements established in Sec.  226.10(d), in paragraph 
(b) of this section and, if applicable, in Sec.  226.15(e). Failure to 
maintain such records shall be grounds for the denial of reimbursement.

[47 FR 36527, Aug. 20, 1982, as amended at 52 FR 36907, Oct. 2, 1987; 54 
FR 26724, June 26, 1989; Amdt. 22, 55 FR 1378, Jan. 14, 1990; 56 FR 
58175, Nov. 16, 1991; 61 FR 25554, May 22, 1996; 62 FR 23619, May 1, 
1997; 64 FR 72261, Dec. 27, 1999; 67 FR 43493, June 27, 2002]



Sec.  226.19a  Adult day care center provisions.

    (a) Adult day care centers may participate in the Program either as 
independent centers or under the auspices of a sponsoring organization; 
provided, however, that public and private nonprofit centers shall not 
be eligible to participate in the Program under the auspices of a for-
profit sponsoring organization. Adult day care centers participating as 
independent centers shall comply with the provisions of Sec.  226.15.
    (b) All adult day care centers, independent or sponsored, shall meet 
the following requirements:
    (1) Adult day care centers shall provide a community-based group 
program designed to meet the needs of functionally impaired adults 
through an individual plan of care. Such a program

[[Page 222]]

shall be a structured, comprehensive program that provides a variety of 
health, social and related support services to enrolled adult 
participants.
    (2) Adult day care centers shall provide care and services directly 
or under arrangements made by the agency or organization whereby the 
agency or organization maintains professional management responsibility 
for all such services.
    (3) Adult day care centers shall have Federal, State or local 
licensing or approval to provide day care services to functionally 
impaired adults (as defined in Sec.  226.2) or individuals 60 years of 
age or older in a group setting outside their home or a group living 
arrangement on a less than 24-hour basis. Adult day care centers which 
are complying with applicable procedures to renew licensing or approval 
may participate in the Program during the renewal process, unless the 
State agency has information which indicates that renewal will be 
denied.
    (4) Except for proprietary title XIX or title XX centers, adult day 
care centers shall be public, or have tax-exempt status under the 
Internal Revenue Code of 1986.
    (5) Each adult day care center participating in the Program shall 
serve one or more of the following meal types:
    (i) Breakfast,
    (ii) Lunch,
    (iii) Supper, and
    (iv) Supplemental food.

Reimbursement shall not be claimed for more than two meals and one 
supplement provided daily to each adult participant.
    (6) Each adult day care center participating in the Program shall 
claim only the meal types specified in its approved application in 
accordance with the meal pattern requirements specified in Sec.  226.20. 
Participating centers may not claim CACFP reimbursement for meals 
claimed under part C of title III of the Older Americans Act of 1965. 
Reimbursement may not be claimed for meals served to persons who are not 
enrolled, or for meals served to participants at any one time in excess 
of the center's authorized capacity, or for any meal served at a 
proprietary title XIX or title XX center during a calendar month when 
less than 25 percent of enrolled participants were title XIX or title XX 
beneficiaries. Menus and any other nutritional records required by the 
State agency shall be maintained to document compliance with such 
requirements.
    (7) An adult day care center may obtain meals from a school food 
service facility, and the pertinent requirements of this part shall be 
embodied in a written agreement between the center and school. The 
center shall maintain responsibility for all Program requirements set 
forth in this part.
    (8) Adult day care centers shall collect and maintain documentation 
of the enrollment of each adult participant including information used 
to determine eligibility for free and reduced price meals in accordance 
with Sec.  226.23(e)(1).
    (9) Each adult day care center shall maintain daily records of the 
number of meals by type (breakfast, lunch, supper, and supplements) 
served to enrolled participants, and to adults performing labor 
necessary to the food service.
    (10) Each adult day care center shall maintain records on the age of 
each enrolled person. In addition, each adult day care center shall 
maintain records which demonstrate that each enrolled person under the 
age of 60 meets the functional impairment eligibility requirements 
established under the definition of ``functionally impaired adult'' 
contained in this part. Finally, each adult day care center shall 
maintain records which document that qualified adult day care 
participants reside in their own homes (whether alone or with spouses, 
children or guardians) or in group living arrangements as defined in 
Sec.  226.2.
    (c) Each adult day care center shall comply with the recordkeeping 
requirements established in Sec.  226.10(d), in paragraph (b) of this 
section and, if applicable, in Sec.  226.15(e). Failure to maintain such 
records shall be grounds for the denial of reimbursement.

[53 FR 52591, Dec. 28, 1988, as amended by Amdt. 22, 55 FR 1378, Jan. 
14, 1990; 61 FR 25554, May 22, 1996; 62 FR 23619, May 1, 1997; 64 FR 
72261, Dec. 27, 1999; 67 FR 43493, June 27, 2002]

[[Page 223]]



Sec.  226.20  Requirements for meals.

    (a) Except as otherwise provided in this section, each meal served 
in the Program shall contain, as a minimum, the indicated food 
components:
    (1) A breakfast shall contain: (i) Fluid milk as a beverage or on 
cereal, or used in part for each purpose;
    (ii) Vegetable(s) or fruit(s) or full-strength vegetable or fruit 
juice, or any combination of these foods;
    (iii) Whole-grain or enriched bread; or cornbread, biscuits, rolls, 
muffins, etc., made with whole-grain or enriched meal or flour; or 
whole-grain or enriched or fortified cereal; or cooked whole-grain or 
enriched pasta or noodle products such as macaroni, or cereal grains 
such as rice, bulgur, or corn grits; or any combination of these foods.
    (2) Lunch shall contain: (i) Fluid milk as a beverage;
    (ii)(A) Lean meat, poultry or fish; alternate protein products; or 
cheese; or an egg; or cooked dry beans or peas; or peanut butter; or any 
combination of these foods. These foods must be served in a main dish, 
or in a main dish and one other menu item, to meet this requirement. 
Cooked dry beans or dry peas may be used as the meat alternate or as 
part of the vegetable/fruit component but not as both food components in 
the same meal;
    (B) Nuts and seeds and their butters listed in program guidance are 
nutritionally comparable to meat or other meat alternates based on 
available nutritional data. Acorns, chestnuts, and coconuts shall not be 
used as meat alternates due to their low protein content. Nut or seed 
meals or flours may be used as an ingredient in a bread/bread alternate, 
but shall not be used as a meat alternate except as defined in this part 
under Appendix A: Alternate Foods for Meals, and in program guidance 
materials. As noted in paragraph (c)(2) of this section, nuts or seeds 
may be used to meet no more than one-half of the meat/meat alternate 
requirements. Therefore, nuts or seeds must be combined with another 
meat/meat alternate to fulfill the requirement;
    (C) Yogurt may be used to meet all or part of the meat/meat 
alternate requirement. Yogurt served may be either plain or flavored, 
unsweetened or sweetened. Noncommercial and/or nonstandardized yogurt 
products, such as frozen yogurt, homemade yogurt, yogurt flavored 
products, yogurt bars, yogurt covered fruit and/or nuts or similar 
products shall not be credited. Four ounces (weight) or \1/2\ cup 
(volume) of yogurt fulfills the equivalent of one ounce of the meat/meat 
alternate requirement in the meal pattern.
    (iii) Two or more vegetables or fruits, or a combination of both. 
Full-strength vegetable or fruit juice may be counted to meet not more 
than one-half of this requirement;
    (iv) Whole-grain or enriched bread; or cornbread, biscuits, rolls, 
muffins, etc., made with whole-grain or enriched meal or flour; or 
whole-grain or enriched pasta or noodle products such as macaroni, or 
cereal grains such as rice, bulgur, or corn grits; or any combination of 
these foods.
    (3) Supper shall contain the food components and servings listed for 
lunch in Sec.  226.20(a)(2), except that, for adult participants in 
adult day care centers, it does not require a serving of fluid milk.
    (4) Supplemental food shall contain two of the following four 
components:
    (i) Fluid milk as a beverage, or on cereal, or used in part for each 
purpose;
    (ii) Meat or meat alternate. Nuts and seeds and their butters listed 
in program guidance are nutritionally comparable to meat or other meat 
alternates based on available nutritional data. Acorns, chestnuts, and 
coconuts are excluded and shall not be used as meat alternates due to 
their low protein content. Nut or seed meals or flours shall not be used 
as a meat alternate except as defined in this part under Appendix A: 
Alternate Foods for Meals;
    (iii) Vegetable(s) or fruit(s) or full-strength vegetable or fruit 
juice, or any combination of these foods. For children, juice may not be 
served when milk is served as the only other component;
    (iv) Whole-grain or enriched bread; or cornbread, biscuits, rolls, 
muffins, etc., made with whole-grain or enriched meal or flour; or 
cooked whole-grain or enriched pasta or noodle products such as 
macaroni, or cereal grains such as

[[Page 224]]

rice, bulgar, or corn grits; or any combination of these foods.
    (b) What are the requirements for the infant meal pattern?
    (1) Feeding meals to infants. Meals served to infants ages birth 
through 11 months must meet the requirements described in paragraph 
(b)(6) of this section. Foods included in the infant meal must be of a 
texture and a consistency that are appropriate for the age of the infant 
being served. The foods must be served during a span of time consistent 
with the infant's eating habits. For those infants whose dietary needs 
are more individualized, exceptions to the meal pattern must be made in 
accordance with the requirements found in paragraph (h) of this section.
    (2) Breastmilk and iron-fortified formula. Either breastmilk or 
iron-fortified infant formula, or portions of both, must be served for 
the entire first year. Meals containing breastmilk and meals containing 
iron-fortified infant formula supplied by the facility are eligible for 
reimbursement. However, infant formula provided by a parent (or 
guardian) and breastmilk fed directly by the infant's mother, during a 
visit to the facility, contribute to a reimbursable meal only when the 
facility supplies at least one component of the infant's meal.
    (3) Fruit juice. Juice should not be offered to infants until they 
are 6 months of age and ready to drink from a cup. Feeding fruit juice 
only from a cup will help develop behaviors that may prevent early 
childhood caries. Fruit juice served as part of the meal pattern for 
infants 8 through 11 months must be full-strength.
    (4) Solid foods. Solid foods of an appropriate texture and 
consistency are required only when the infant is developmentally ready 
to accept them. The facility should consult with the infant's parent (or 
guardian) in making the decision to introduce solid foods. Solid foods 
should be introduced one at a time on a gradual basis with the intent of 
ensuring the infant's health and nutritional well-being.
    (5) Infant meal pattern. Infant meals must have, at a minimum, each 
of the food components indicated, in the amount that is appropriate for 
the infant's age. For some breastfed infants who regularly consume less 
than the minimum amount of breastmilk per feeding, a serving of less 
than the minimum amount of breastmilk may be offered. In these 
situations, additional breastmilk must be offered if the infant is still 
hungry. Meals may include portions of breastmilk and iron-fortified 
infant formula as long as the total number of ounces meets, or exceeds, 
the minimum amount required of this food component. Similarly, to meet 
the component requirements for vegetables and fruit, portions of both 
may be served.
    (i) Birth through 3 months. Only breastmilk or iron-fortified 
formula is required to meet the infant's nutritional needs.
    (A) Breakfast--4 to 6 fluid ounces of breastmilk or iron-fortified 
infant formula.
    (B) Lunch or supper--4 to 6 fluid ounces of breastmilk or iron-
fortified infant formula.
    (C) Snack--4 to 6 fluid ounces of breastmilk or iron-fortified 
infant formula.
    (ii) 4 through 7 months. Breastmilk or iron-fortified formula is 
required. Some infants may be developmentally ready for solid foods of 
an appropriate texture and consistency. Meals are reimbursable when 
facilities provide all of the components in the meal pattern that the 
infant is developmentally ready to accept.
    (A) Breakfast--4 to 8 fluid ounces of breastmilk or iron-fortified 
infant formula; and 0 to 3 tablespoons of iron-fortified dry infant 
cereal.
    (B) Lunch or supper--4 to 8 fluid ounces of breastmilk or iron-
fortified infant formula; and 0 to 3 tablespoons of iron-fortified dry 
infant cereal; and 0 to 3 tablespoons of fruit or vegetable.
    (C) Snack--4 to 6 fluid ounces of breastmilk or iron-fortified 
infant formula.
    (iii) 8 through 11 months. Breastmilk or iron-fortified formula and 
solid foods of an appropriate texture and consistency are required. 
Meals are reimbursable when facilities provide all of the components in 
the meal pattern that the infant is developmentally ready to accept.

[[Page 225]]

    (A) Breakfast--6 to 8 fluid ounces of breastmilk or iron-fortified 
infant formula; 2 to 4 tablespoons of iron-fortified dry infant cereal; 
and 1 to 4 tablespoons of fruit or vegetable.
    (B) Lunch or supper--6 to 8 fluid ounces of breastmilk or iron-
fortified infant formula; 2 to 4 tablespoons of iron-fortified dry 
infant cereal; and/or 1 to 4 tablespoons of meat, fish, poultry, egg 
yolk, or cooked dry beans or peas; or \1/2\ to 2 ounces (weight) of 
cheese; or 1 to 4 ounces (volume) of cottage cheese; or 1 to 4 ounces 
(weight) of cheese food or cheese spread; and 1 to 4 tablespoons of 
fruit or vegetable.
    (C) Snack--2 to 4 fluid ounces of breastmilk, iron-fortified infant 
formula, or full strength fruit juice; and 0 to \1/2\ slice of crusty 
bread (if developmentally ready) or 0 to 2 cracker type products (if 
developmentally ready), which are made from whole-grain or enriched meal 
or flour, and suitable as a finger food for an infant.
    (6) Infant meal pattern table. The minimum amounts of food 
components to serve to infants, as described in paragraph (b)(5) of this 
section, are:

                                         Child Care Infant Meal Pattern
----------------------------------------------------------------------------------------------------------------
         Type of meal service           Birth through 3 months     4 through 7 months      8 through 11 months
----------------------------------------------------------------------------------------------------------------
Breakfast............................  4-6 fluid ounces of      4-8 fluid ounces of      6-8 fluid ounces of
                                        formula\1\ or            formula\1\ or            formula\1\ or
                                        breastmilk \2\ \3\.      breastmilk\2\ \3\; and.  breastmilk\2\ \3\; and
                                                                0-3 tablespoons of       2-4 tablespoons of
                                                                 infant cereal\1\ \4\.    infant cereal \1\; and
                                                                                         1-4 tablespoons of
                                                                                          fruit or vegetable or
                                                                                          both.
Lunch or Supper......................  4-6 fluid ounces of      4-8 fluid ounces of      6-8 fluid ounces of
                                        formula\1\ or            formula\1\ or            formula\1\ or
                                        breastmilk\2\ \3\.       breastmilk\2\ \3\; and.  breastmilk\2\ \3\; and
                                                                0-3 tablespoons of       2-4 tablespoons of
                                                                 infant cereal \1\ \4\;   infant cereal \1\; and/
                                                                 and.                     or
                                                                0-3 tablespoons of       1-4 tablespoons of
                                                                 fruit or vegetable or    meat, fish, poultry,
                                                                 both \4\.                egg yolk, cooked dry
                                                                                          beans or peas; or
                                                                                         \1/2\-2 ounces of
                                                                                          cheese; or
                                                                                         1-4 ounces (volume) of
                                                                                          cottage cheese; or
                                                                                         1-4 ounces (weight) of
                                                                                          cheese food or cheese
                                                                                          spread; and
                                                                                         1-4 tablespoons of
                                                                                          fruit or vegetable or
                                                                                          both.
Snack................................  4-6 fluid ounces of      4-6 fluid ounces of      2-4 fluid ounces of
                                        formula\1\ or            formula\1\ or            formula\1\,
                                        breastmilk\2\ \3\.       breastmilk\2\ \3\.       breastmilk\2\ \3\, or
                                                                                          fruit juice\5\; and
                                                                                         0-\1/2\ slice of
                                                                                          bread\4\ \6\ or 0-2
                                                                                          crackers\4\ \6\.
----------------------------------------------------------------------------------------------------------------
\1\ Infant formula and dry infant cereal must be iron-fortified.
\2\ Breastmilk or formula, or portions of both, may be served; however, it is recommended that breastmilk be
  served in place of formula from birth through 11 months.
\3\ For some breastfed infants who regularly consume less than the minimum amount of breastmilk per feeding, a
  serving of less than the minimum amount of breastmilk may be offered, with additional breastmilk offered if
  the infant is still hungry.
\4\ A serving of this component is required only when the infant is developmentally ready to accept it.
\5\ Fruit juice must be full-strength.
\6\ A serving of this component must be made from whole-grain or enriched meal or flour.

    (c) Meal patterns for children age one through 12 and adult 
participants. When individuals over age one participate in the Program, 
the total amount of food authorized in the meal patterns set forth below 
shall be provided in order to qualify for reimbursement.
    (1) Breakfast. The minimum amount of food components to be served as 
breakfast as set forth in paragraph (a)(1) of this section are as 
follows:

----------------------------------------------------------------------------------------------------------------
                                                                           Age 6 through 12
        Food components              Age 1 and 2        Age 3 through 5           \1\         Adult participants
----------------------------------------------------------------------------------------------------------------
Milk, fluid....................  \1/2\ cup \2\......  \3/4\ cup.........  1 cup.............  1 cup.\2\
Vegetables and Fruits or.......  \1/4\ cup..........  \1/2\ cup.........  \1/2\ cup.........  \1/2\ cup.

[[Page 226]]

 
Full-strength vegetable or       \1/4\ cup..........  \1/2\ cup.........  \1/2\ cup.........  \1/2\ cup.
 fruit juice or an equivalent
 quantity of any combination of
 vegetable(s), fruit(s), and
 juice.
 
 Bread and Bread Alternates \3\
 
Bread or.......................  \1/2\ slice........  \1/2\ slice.......  1 slice...........  2 slices
                                                                                               (servings).
Cornbread, biscuits, rolls,      \1/2\ serving......  \1/2\ serving.....  1 serving.........  2 servings.
 muffins, etc.\4\ or.
Cold dry cereal \5\ or.........  \1/4\ cup or \1/3\   \1/3\ cup or \1/2\  \3/4\ cup or 1      1\1/2\ cup or 2
                                  ounce.               ounce.              ounce.              ounces.
Cooked cereal or...............  \1/4\ cup..........  \1/4\ cup.........  \1/2\ cup.........  1 cup.
Cooked pasta or noodle products  \1/4\ cup..........  \1/4\ cup.........  \1/2\ cup.........  1 cup.
 or.
Cooked cereal grains or an       \1/4\ cup..........  \1/4\ cup.........  \1/2\ cup.........  1 cup.
 equivalent quantity of any
 combination of bread/bread
 alternate.
----------------------------------------------------------------------------------------------------------------
\1\ Children age 12 and up may be served adult size portions based on the greater food needs of older boys and
  girls, but shall be served not less than the minimum quantities specified in this section for children age 6
  up to 12.
\2\ For purposes of the requirements outlined in this subsection, a cup means a standard measuring cup.
\3\ Bread, pasta or noodle products, and cereal grains, shall be whole grain or enriched; cornbread, biscuits,
  rolls, muffins, etc., shall be made with whole grain or enriched meal or flour; cereal shall be whole grain or
  enriched or fortified.
\4\ Serving sizes and equivalents to be published in guidance materials by FNS.
\5\ Either volume (cup) or weight (ounces) whichever is less.

    (2) Lunch. The minimum amount of food components to be served as 
lunch as set forth in paragraph (a)(2) of this section are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                           Age 6 through 12
        Food components              Age 1 and 2        Age 3 through 5           \1\         Adult participants
----------------------------------------------------------------------------------------------------------------
Milk, fluid....................  \1/2\ cup \2\......  \3/4\ cup.........  1 cup.............  1 cup \2\.
   Vegetables and Fruits \3\
 
Vegetables(s) and/or fruit(s)..  \1/4\ cup total....  \1/2\ cup total...  \3/4\ cup total...  1 cup total.
 
 Bread and Bread Alternates \4\
 
Bread or.......................  \1/2\ slice........  \1/2\ slice.......  1 slice...........  2 slices
                                                                                               (servings).
Cornbread, biscuits, rolls,      \1/2\ serving......  \1/2\ serving.....  1 serving.........  2 servings.
 muffins, etc.\5\ or.
Cooked pasta or noodle products  \1/4\ cup..........  \1/4\ cup.........  \1/2\ cup.........  1 cup.
 or.
Cooked cereal grains or an       \1/4\ cup..........  \1/4\ cup.........  \1/2\ cup.........  1 cup.
 equivalent quantity of any
 combination of bread/bread
 alternate.
 
    Meat and Meat Alternates
 
Lean meat or poultry or fish     1 ounce............  1\1/2\ ounces.....  2 ounces..........  2 ounces.
 \6\ or.
Alternate protein products \7\   1 ounce............  1\1/2\ ounces.....  2 ounces..........  2 ounces.
 or.
Cheese or......................  1 ounce............  1\1/2\ ounces.....  2 ounces..........  2 ounces.
Egg (large) or.................  \1/2\..............  \3/4\.............  1.................  1.
Cooked dry beans or peas or....  \1/4\ cup..........  \3/8\ cup.........  \1/2\ cup.........  \1/2\ cup.
Peanut butter or soynut butter   2 tablespoons......  3 tablespoons.....  4 tablespoons.....  4 tablespoons.
 or other nut or seed butters
 or.
Peanuts or soynuts or tree nuts  \1/2\ ounce \9\=50%  \3/4\ ounce         1 ounce \9\=50%...  1 ounce \9\=50%.
 or seeds \8\ or.                                      \9\=50%.
Yogurt, plain or flavored,       4 ounces or \1/2\    6 ounces or \3/4\   8 ounces or 1 cup.  8 ounces or 1 cup.
 unsweetened or sweetened or an   cup.                 cup.
 equivalent quantity of any
 combination of the above meat/
 meat alternates.
----------------------------------------------------------------------------------------------------------------
\1\ Children age 12 and up may be served adult size portions based on the greater food needs of older boys and
  girls, but shall be served not less than the minimum quantities specified in this section for children age 6
  up to 12.
\2\ For purposes of the requirements outlined in this subsection, a cup means a standard measuring cup.
\3\ Serve 2 or more kinds of vegetable(s) and/or fruit(s). Full-strength vegetable or fruit juice may be counted
  to meet not more than one-half of this requirement.
\4\ Bread, pasta or noodle products, and cereal grains, shall be whole grain or enriched; cornbread, biscuits,
  rolls, muffins, etc., shall be made with whole grain or enriched meal or flour.
\5\ Serving sizes and equivalents to be published in guidance materials by FNS.
\6\ Edible portion as served.
\7\ Must meet the requirements in appendix A of this part.
\8\ Tree nuts and seeds that may be used as meat alternates are listed in program guidance.
\9\ No more than 50% of the requirement shall be met with nuts or seeds. Nuts or seeds shall be combined with
  another meat/meat alternate to fulfill the requirement. For purpose of determining combinations, 1 ounce of
  nuts or seeds is equal to 1 ounce of cooked lean meat, poultry, or fish.


[[Page 227]]

    (3) Supper. The minimum amount of food components to be served as 
supper as set forth in paragraph (a)(3) of this section are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                           Age 6 through 12
        Food components              Age 1 and 2        Age 3 through 5           \1\         Adult participants
----------------------------------------------------------------------------------------------------------------
Milk, fluid....................  \1/2\ cup \2\......  \3/4\ cup \2\.....  1 cup.............  None.
   Vegetables and Fruits \3\
 
Vegetables(s) and/or fruit(s)..  \1/4\cup total.....  \1/2\ cup total...  \3/4\ cup total...  1 cup total.
 
 Bread and Bread Alternates \4\
 
Bread or.......................  \1/2\ slice........  \1/2\ slice.......  1 slice...........  2 slices
                                                                                               (servings).\5\
Cornbread, biscuits, rolls,      \1/2\ serving......  \1/2\ serving.....  1 serving.........  2 servings.
 muffins, etc.\5\ or.
Cooked cereal grains or an       \1/4\ cup..........  \1/4\ cup.........  \1/2\ cup.........  1 cup.
 equivalent quantity of any
 combination of bread/bread
 alternate.
 
    Meat and Meat Alternates
 
Lean meat or poultry or fish     1 ounce............  1\1/2\ ounces.....  2 ounces..........  2 ounces.
 \6\ or.
Alternate protein products \7\   1 ounce............  1\1/2\ ounces.....  2 ounces..........  2 ounces.
 or.
Cheese or......................  1 ounce............  1\1/2\ ounces.....  2 ounces..........  2 ounces.
Egg (large) or.................  \1/2\..............  \3/4\.............  1.................  1.
Cooked dry beans or peas or....  \1/4\ cup..........  \3/8\ cup.........  \1/2\ cup.........  \1/2\ cup.
Peanut butter or soynut butter   2 tablespoons......  3 tablespoons.....  4 tablespoons.....  4 tablespoons.
 or other nut or seed butters
 or.
Peanuts or soynuts or tree nuts  \1/2\ ounce \9\=50%  \3/4\ ounce         1 ounce \9\=50%...  1 ounce \9\=50%.
 or seeds \8\ or.                                      \9\=50%.
Yogurt, plain or flavored,       4 ounces or \1/2\    6 ounces or \3/4\   8 ounces or 1 cup.  8 ounces or 1 cup.
 unsweetened or sweetened or an   cup.                 cup.
 equivalent quantity of any
 combination of the above meat/
 meat alternates.
----------------------------------------------------------------------------------------------------------------
\1\ Children age 12 and up may be served adult size portions based on the greater food needs of older boys and
  girls, but shall be served not less than the minimum quantities specified in this section for children age 6
  up to 12.
\2\ For purposes of the requirements outlined in this subsection, a cup means a standard measuring cup.
\3\ Serve 2 or more kinds of vegetable(s) and/or fruit(s). Full-strength vegetable or fruit juice may be counted
  to meet not more than one-half of this requirement.
\4\ Bread, pasta or noodle products, and cereal grains, shall be whole grain or enriched; cornbread, biscuits,
  rolls, muffins, etc., shall be made with whole grain or enriched meal or flour.
\5\ Serving sizes and equivalents to be published in guidance materials by FNS.
\6\ Edible portion as served.
\7\ Must meet the requirements in appendix A of this part.
\8\ Tree nuts and seeds that may be used as meat alternates are listed in program guidance.
\9\ No more than 50% of the requirement shall be met with nuts or seeds. Nuts or seeds shall be combined with
  another meat/meat alternate to fulfill the requirement. For purpose of determining combinations, 1 ounce of
  nuts or seeds is equal to 1 ounce of cooked lean meat, poultry, or fish.

    (4) Snack. The minimum amounts of food components to be served as 
snack as set forth in paragraph (a)(4) of this section are as follow. 
Select two of the following four components. (For children, juice may 
not be served when milk is served as the only other component.)

----------------------------------------------------------------------------------------------------------------
                                                                           Age 6 through 12   Adult participants
         Food components              Age 1 and 2       Age 3 through 5           \1\                 \1\
----------------------------------------------------------------------------------------------------------------
                                                      MILK
----------------------------------------------------------------------------------------------------------------
Milk, fluid.....................  \1/2\ cup \2\.....  \1/2\ cup.........  1 cup.............  1 cup.
---------------------------------
                                              VEGETABLES AND FRUIT
----------------------------------------------------------------------------------------------------------------
Vegetable(s) and/or fruit(s) or.  \1/2\ cup.........  \1/2\ cup.........  \3/4\ cup.........  \1/2\ cup.
Full-strength vegetable or fruit  \1/2\ cup.........  \1/2\ cup.........  \3/4\ cup.........  \1/2\ cup.
 juice or an equivalent quantity
 of any combination of
 vegetable(s), fruit(s), and
 juice.
---------------------------------
 
                                          BREAD AND BREAD ALTERNATES \3\
----------------------------------------------------------------------------------------------------------------
Bread or........................  \1/2\ slice.......  \1/2\ slice.......  1 slice...........  1 slice (serving).
Cornbread, biscuits, rolls,       \1/2\ serving.....  \1/2\ serving.....  1 serving.........  1 serving.
 muffins, etc.\4\ or.
Cold dry cereal \5\.............  \1/4\ cup or......  \1/3\ cup or......  \3/4\ cup or......  \3/4\ cup or.
                                  \1/3\ ounce.......  \1/2\ ounce.......  1 ounce...........  1 ounce.
Cooked pasta or noodle products   \1/4\ cup.........  \1/4\ cup.........  \1/2\ cup.........  \1/2\ cup.
 or.

[[Page 228]]

 
Cooked cereal or grains or an     \1/4\ cup.........  \1/4\ cup.........  \1/2\ cup.........  \1/2\ cup.
 equivalent quantity of any
 combination of bread/bread
 alternates.
---------------------------------
                                            MEAT AND MEAT ALTERNATES
----------------------------------------------------------------------------------------------------------------
Lean meat or poultry or fish \6\  \1/2\ ounce.......  \1/2\ ounce.......  1 ounce...........  1 ounce.
 or.
Alternate protein products \7\    \1/2\ ounce.......  \1/2\ ounce.......  1 ounce...........  1 ounce.
 or.
Cheese or.......................  \1/2\ ounce.......  \1/2\ ounce.......  1 ounce...........  1ounce.
Egg (large) \8\ or..............  \1/2\ egg.........  \1/2\ egg.........  \1/2\ egg.........  \1/2\ egg.
Cooked dry beans or peas or.....  \1/8\ cup.........  \1/8\ cup.........  \1/4\ cup.........  \1/4\ cup.
Peanut butter or soynut butter    1 tablespoon......  1 tablespoon......  2 tablespoons.....  2 tablespoons.
 or other nut or seed butters or.
Peanuts or soynuts or tree nuts   \1/2\ ounce.......  \1/2\ ounce.......  1 ounce...........  1 ounce.
 or seeds \9\ or.
Yogurt, plain or flavored,        2 ounces or \1/4\   2 ounces or \1/4\   4 ounces or \1/2\   4 ounces or \1/2\
 unsweetened or sweetened, or an   cup.                cup.                cup.                cup.
 equivalent quantity of any
 combination of meat/meat
 alternates.
----------------------------------------------------------------------------------------------------------------
\1\ Children age 12 and up may be served adult size portions based on the greater food needs of older boys and
  girls, but shall be served not less than the minimum quantities specified in this section for children age 6
  up to 12.
\2\ For purposes of the requirements outlined in this subsection, a cup means a standard measuring cup.
\3\ Bread, pasta or noodle products, and cereal grains shall be whole-grain or enriched; cornbread, biscuits,
  rolls, muffins, etc. shall be made with whole-grain or enriched meal or flour; cereal shall be whole-grain or
  enriched or fortified.
\4\ Serving size and equivalents to be published in guidance materials by FNS.
\5\ Either volume (cup) or weight (ounce), whichever is less.
\6\ Edible portion as served.
\7\ Must meet the requirements in Appendix A of this part.
\8\ One-half egg meets the required minimum amount (one ounce or less) of meat alternate.
\9\ Tree nuts and seeds that may be used as meat alternates are listed in program guidance.

    (d) Additional food. To improve the nutrition of participating 
children over 1 year of age additional foods may be served with each 
meal as follows:
    (1) Breakfast. Include as often as practical one-half egg; or a 1-
ounce serving (edible portion as served) of meat, poultry or fish; or 1-
ounce of cheese; or 2 tablespoons of peanut butter; or 4 oz. of yogurt; 
or an equivalent quantity of any combination of these foods. Additional 
foods may be served as desired.
    (2) Lunch, supper or supplemental food. Additional foods may be 
served as desired.
    (e) Temporary unavailability of milk. If emergency conditions 
prevent an institution normally having a supply of milk from temporarily 
obtaining milk deliveries, the State agency may approve the service of 
breakfasts, lunches, or suppers without milk during the emergency 
period.
    (f) Continuing unavailability of milk. The inability of an 
institution to obtain a supply of milk on a continuing basis shall not 
bar it from participation in the Program. In such cases, the State 
agency may approve service of meals without milk, provided that an 
equivalent amount of canned, whole dry or nonfat dry milk is used in the 
preparation of the components of the meal set forth in paragraphs 
(a)(1), (2) and (3) of this section.
    (g) Statewide substitutions. In American Samoa, Puerto Rico, Guam, 
the Virgin Islands, the Trust Territory of the Pacific Islands, and the 
Northern Mariana Islands the following variations from the meal 
requirements are authorized: A serving of a starchy vegetable, such as 
yams, plantains, or sweet potatoes may be substituted for the bread 
requirements.
    (h) Individual substitutions. Substitutions may be made in food 
listed in paragraphs (b) and (c) of this section if individual 
participants are unable, because of medical or other special dietary 
needs, to consume such foods. Substitutions because of medical needs 
shall be made only when supported by a statement from a recognized 
medical authority which includes recommended alternate foods.
    (i) Special variations. FNS may approve variations in the food 
components of the meals on an experimental or a continuing basis in any 
institution where there is evidence that such variations are 
nutritionally sound and are necessary to meet ethnic, religious, 
economic, or physical needs.
    (j) Meal planning. Institutions shall plan for and order meals on 
the basis of current participation trends, with the

[[Page 229]]

objective of providing only one meal per participant at each meal 
service. Records of participation and of ordering or preparing meals 
shall be maintained to demonstrate positive action toward this 
objective. In recognition of the fluctuation in participation levels 
which makes it difficult to estimate precisely the number of meals 
needed and to reduce the resultant waste, any excess meals that are 
ordered may be served to participants and may be claimed for 
reimbursement, unless the State agency determines that the institution 
has failed to plan and prepare or order meals with the objective of 
providing only one meal per participant at each meal service.
    (k) Sanitation. Institutions shall ensure that in storing, 
preparing, and serving food, proper sanitation and health standards are 
met which conform with all applicable State and local laws and 
regulations. Institutions shall ensure that adequate facilities are 
available to store food or hold meals.
    (l) Donated commodities. Institutions shall efficiently use in the 
Program any foods donated by the Department and accepted by the 
institution.
    (m) Plentiful foods. Institutions shall, insofar as practical, 
purchase and efficiently use in the Program foods designated as 
plentiful by the Department.
    (n) Additional provision. The State agency may allow institutions 
which serve meals prepared in schools participating in the National 
School Lunch and School Breakfast Programs to substitute the meal 
pattern requirements of the regulations governing those Programs (7 CFR 
part 210 and 7 CFR part 220, respectively) for the meal pattern 
requirements contained in this section.
    (o) Family-style meal service. Meals may be served in a family-style 
setting.
    (p) Offer versus serve. (1) Each adult day care center shall offer 
its adult participants all of the required food servings as set forth in 
paragraph (c)(1), (c)(2) and (c)(3) of this section. However, at the 
discretion of the adult day care center, adult participants may be 
permitted to decline:
    (i) One of the four food items (one serving of milk, one serving of 
vegetable and/or fruit, and two servings of bread or bread alternate) 
required at breakfast;
    (ii) Two of the six food items (one serving of milk, two servings of 
vegetable and/or fruit, two servings of bread or bread alternate, and 
one serving of meat or meat alternate) required at lunch;
    (iii) Two of the five food items (two servings of vegetables and/or 
fruit, two servings of bread or bread alternate, and one serving of meat 
or meat alternate) required at supper.
    (2) The price of a reimbursable meal shall not be affected if an 
adult participant declines a food item.

[47 FR 36527, Aug. 20, 1982; 48 FR 40197, Sept. 16, 1983, as amended at 
50 FR 8581, Mar. 4, 1985; 51 FR 16811, May 7, 1986; 51 FR 23515, June 
30, 1986; 53 FR 25308, July 6, 1988; 53 48632, Dec. 2, 1988; 53 FR 
52592, Dec. 28, 1988; 54 FR 27153, June 28, 1989; 58 FR 37850, July 14, 
1993; 62 FR 10191, Mar. 6, 1997; 64 FR 61775, Nov. 15, 1999; 64 FR 
72261, Dec. 27, 1999; 65 FR 12439, Mar. 9, 2000; 66 FR 65597, Dec. 20, 
2001; 67 FR 36786, May 28, 2002]



Sec.  226.21  Food service management companies.

    (a) Any institution may contract with a food service management 
company. An institution which contracts with a food service management 
company shall remain responsible for ensuring that the food service 
operation conforms to its agreement with the State agency. All 
procurements of meals from food service management companies shall 
adhere to the procurement standards set forth in Sec.  226.22. Public 
institutions shall follow applicable State or local laws governing bid 
procedures. In the absence of any applicable State or local laws, and in 
addition to the procurement provisions set forth in Sec.  226.22, the 
State agency may mandate that each institution with Program meal 
contracts of an aggregate value in excess of $10,000 formally advertise 
such contracts and comply with the following procedures intended to 
prevent fraud, waste, and Program abuse:
    (1) All proposed contracts shall be publicly announced at least once 
14 calendar days prior to the opening of bids. The announcement shall 
include the time and place of the bid opening;

[[Page 230]]

    (2) The institution shall notify the State agency at least 14 
calendar days prior to the opening of the bids of the time and place of 
the bid opening;
    (3) The invitation to bid shall not provide for loans or any other 
monetary benefit or terms or conditions to be made to institutions by 
food service management companies;
    (4) Nonfood items shall be excluded from the invitation to bid, 
except where such items are essential to the conduct of the food 
service;
    (5) The invitation to bid shall not specify special meal 
requirements to meet ethnic or religious needs unless special 
requirements are necessary to meet the needs of the participants to be 
served;
    (6) The bid shall be publicly opened;
    (7) All bids totaling $50,000 or more shall be submitted to the 
State agency for approval before acceptance. All bids shall be submitted 
to the State agency for approval before accepting a bid which exceeds 
the lowest bid. State agencies shall respond to any request for approval 
within 10 working days of receipt;
    (8) The institutions shall inform the State agency of the reason for 
selecting the food service management company chosen. State agencies may 
require institutions to submit copies of all bids submitted under this 
section.
    (b) The institution and the food service management company shall 
enter into a standard contract as required by Sec.  226.6(i). However, 
public institutions may, with the approval of the State agency, use 
their customary form of contract if it incorporates the provisions of 
Sec.  226.6(i).
    (c) A copy of the contract between each institution and food service 
management company shall be submitted to the State agency prior to the 
beginning of Program operations under the subject contract.
    (d) Each proposed additional provision to the standard form of 
contract shall be submitted to the State agency for approval.
    (e) A food service management company may not subcontract for the 
total meal, with or without milk, or for the assembly of the meal.

[47 FR 36527, Aug. 20, 1982, as amended at 53 FR 52594, Dec. 28, 1988]



Sec.  226.22  Procurement standards.

    (a) This section establishes standards and guidelines for the 
procurement of foods, supplies, equipment, and other goods and services. 
These standards are furnished to ensure that such materials and services 
are obtained efficiently and economically and in compliance with the 
provisions of applicable Federal law and Executive orders.
    (b) These standards shall not relieve the institution of any 
contractual responsibilities under its contracts. The institution is 
responsible, in accordance with good administrative practice and sound 
business judgment, for the settlement of all contractual and 
administrative issues arising out of procurements entered into in 
support of the Program. These include, but are not limited to: source 
evaluation, protests of award, disputes, and claims. Violations of the 
law shall be referred to the local, State, or Federal authority having 
proper jurisdiction.
    (c) Institutions may use their own procurement procedures which 
reflect applicable State or local laws and regulations, provided that 
procurements made with Program payments conform to the standards set 
forth in this section and in Attachment O of Office of Management and 
Budget Circulars A-102 and A-110, as well as to procurement requirements 
which may be established by the State agency, with the approval of FNS 
to prevent fraud, waste, and Program abuse.
    (d) Institutions shall maintain a written code of standards of 
conduct which shall govern the performance of their officers, employees 
or agents engaged in the award and administration of contracts supported 
by Program payments. No employee, officer or agent of the grantee shall 
participate in selection, or in the award or administration of a 
contract supported by Federal funds if a conflict of interest, real or 
apparent, would be involved. Such a conflict would arise when:
    (1) The employee, officer or agent;
    (2) Any member of his immediate family;
    (3) His or her partner; or
    (4) An organization which employs, or is about to employ, any of the 
above, has a financial or other interest in the firm selected for award.


[[Page 231]]



The institution's officers, employees or agents shall neither solicit 
nor accept gratuities, favors or anything of monetary value from 
contractors, potential contractors, or parties to subagreements. 
Institutions may set minimum rules where the financial interest is not 
substantial or the gift is an unsolicited item of nominal intrinsic 
value. To the extent permitted by State or local law or regulations, 
such standards of conduct shall provide for penalties, sanctions, or 
other disciplinary actions for violations of such standards by the 
institution's officers, employees, or agents, or by contractors or their 
agents.
    (e) The institution shall establish procurement procedures which 
provide that proposed procurement actions shall be reviewed by 
institution officials to avoid the purchase of unnecessary or 
duplicative items. Where appropriate, an analysis shall be made of lease 
versus purchase alternatives, and any other appropriate analysis to 
determine which approach would be the most economical.
    (f) Affirmative steps shall be taken to assure that small and 
minority businesses are utilized when possible. Affirmative steps shall 
include the following:
    (1) Including qualified small and minority businesses on 
solicitation lists;
    (2) Assuring that small and minority businesses are solicited 
whenever they are potential sources;
    (3) When economically feasible, dividing total requirements into 
smaller tasks or quantities so as to permit maximum small and minority 
business participation;
    (4) Where the requirement permits, establishing delivery schedules 
which will encourage participation by small and minority businesses;
    (5) Using the services and assistance of the Small Business 
Administration and the Minority Business Enterprise of the Department of 
Commerce as required;
    (6) If any subcontracts are to be let, requiring the prime 
contractor to take the affirmative steps in paragraphs (b) (1) through 
(5) of this section; and
    (7) Taking similar appropriate affirmative action in support of 
women's business enterprises.
    (g) All procurement transactions, regardless of whether by sealed 
bids or by negotiation and without regard to dollar value, shall be 
conducted in a manner that provides maximum open and free competition 
consistent with this section. Procurement procedures shall not restrict 
or eliminate competition. Examples of what is considered to be 
restrictive of competition include, but are not limited to (1) placing 
unreasonable requirements on firms in order for them to qualify to do 
business, (2) noncompetitive practices between firms, (3) organizational 
conflicts of interest, and (4) unnecessary experience and bonding 
requirements.
    (h) The institution shall have written selection procedures which 
shall provide, as a minimum, the following procedural requirements:
    (1) Solicitations of offers, whether by competitive sealed bids or 
competitive negotiation, shall:
    (i) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. Such 
description shall not, in competitive procurements, contain features 
which unduly restrict competition. The description may include a 
statement of the qualitative nature of the material, product or service 
to be procured, and when necessary, shall set forth those minimum 
essential characteristics and standards to which it must conform if it 
is to satisfy its intended use. Detailed product specifications should 
be avoided if at all possible. When it is impractical or uneconomical to 
make a clear and accurate description of the technical requirements, a 
``brand name or equal'' description may be used as a means to define the 
performance or other salient requirements of a procurement. The specific 
features of the named brand which must be met by offerors shall be 
clearly stated; and
    (ii) Clearly set forth all requirements which offerors must fulfill 
and all other factors to be used in evaluating bids or proposals.
    (2) Awards shall be made only to responsible contractors that 
possess the potential ability to perform successfully under the terms 
and conditions of a proposed procurement. Consideration

[[Page 232]]

shall be given to such matters as contractor integrity, compliance with 
public policy, record of past performance, and financial and technical 
resources.
    (i) Program procurements shall be made by one of the following 
methods:
    (1) Small purchase procedures are those relatively simple and 
informal procurement methods that are sound and appropriate for the 
procurement of services, supplies or other property, costing in the 
aggregate not more than $10,000. Institutions shall comply with State or 
local small purchase dollar limits under $10,000. If small purchase 
procedures are used for a procurement under the Program, price or rate 
quotation shall be obtained from an adequate number of qualified 
sources; or
    (2) In competitive sealed bids (formal advertising), sealed bids are 
publicly solicited and a firm-fixed-price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is 
lowest in price.
    (i) In order for formal advertising to be feasible, appropriate 
conditions must be present, including as a minimum, the following:
    (A) A complete, adequate and realistic specification or purchase 
description is available.
    (B) Two or more responsible suppliers are willing and able to 
compete effectively for the institution's business.
    (C) The procurement lends itself to a firm-fixed price contract, and 
selection of the successful bidder can appropriately be made principally 
on the basis of price.
    (ii) If formal advertising is used for a procurement under the 
Program, the following requirements shall apply:
    (A) A sufficient time prior to the date set for opening of bids, 
bids shall be solicited from an adequate number of known suppliers. In 
addition, the invitation shall be publicly advertised.
    (B) The invitation for bids, including specifications and pertinent 
attachments, shall clearly define the items or services needed in order 
for the bidders to properly respond to the invitation.
    (C) All bids shall be opened publicly at the time and place stated 
in the invitation for bids.
    (D) A firm-fixed-price contract award shall be made by written 
notice to that responsible bidder whose bid, conforming to the 
invitation for bids, is lowest. Where specified in the bidding 
documents, factors such as discounts, transportation costs and life 
cycle costs shall be considered in determining which bid is lowest. 
Payment discounts may only be used to determine low bid when prior 
experience of the grantee indicates that such discounts are generally 
taken.
    (E) Any or all bids may be rejected when there are sound documented 
business reasons in the best interest of the Program.
    (3) In competitive negotiation, proposals are requested from a 
number of sources and the Request for Proposal is publicized. 
Negotiations are normally conducted with more than one of the sources 
submitting offers, and either a fixed-price or cost-reimbursable type 
contract is awarded, as appropriate. Competitive negotiation may be used 
if conditions are not appropriate for the use of formal advertising. If 
competitive negotiation is used for a procurement under a grant, the 
following requirements shall apply:
    (i) Proposals shall be solicited from an adequate number of 
qualified sources to permit reasonable competition consistent with the 
nature and requirements of the procurement. The Request for Proposals 
shall be publicized and reasonable requests by other sources to compete 
shall be honored to the maximum extent practicable:
    (ii) The Request for Proposal shall identify all significant 
evaluation factors, including price or cost where required and their 
relative importance;
    (iii) The institution shall provide mechanisms for technical 
evaluation of the proposal received, determinations of responsible 
offerors for the purpose of written or oral discussions, and selection 
for contract award; and
    (iv) Award may be made to the responsible offeror whose proposal 
will be most advantageous to the procuring party, price and other 
factors considered. Unsuccessful offerors should be notified promptly.
    (4) Noncompetitive negotiation is procurement through solicitation 
of a

[[Page 233]]

proposal from only one source, or after solicitation of a number of 
sources, competition is determined inadequate. Noncompetitive 
negotiation may be used when the award of a contract is infeasible under 
small purchase, competitive bidding (formal advertising), or competitive 
negotiation procedures. Circumstances under which a contract may be 
awarded by noncompetitive negotiation are limited to the following:
    (i) The item is available only from a single source;
    (ii) Public exigency or emergency when the urgency for the 
requirement will not permit a delay incident to competitive 
solicitation;
    (iii) FNS authorizes noncompetitive negotiation; or
    (iv) After solicitation of a number of sources, competition is 
determined inadequate.
    (j) The cost plus a percentage of cost method of contracting shall 
not be used. Instructions shall perform some form of cost or price 
analysis in connection with every procurement action including contract 
modifications. Costs or prices based on estimated costs for contracts 
under the Program shall be allowed only to the extent that costs 
incurred or cost estimates included in negotiated prices are consistent 
with Federal cost principles.
    (k) Institutions shall maintain rec ords sufficient to detail the 
significant history of a procurement. These records shall include, but 
are not necessarily limited to information pertinent to the following: 
rationale for the method of procurement, selection of contract type, 
contractor selection or rejection, and the basis for the cost or price.
    (l) In addition to provisions defining a sound and complete 
procurement contract, institutions shall include the following contract 
provisions or conditions in all procurement contracts and subcontracts 
as required by the provision, Federal Law or FNS:
    (1) Contracts other than small purchases shall contain provisions or 
conditions which will allow for administrative, contractual, or legal 
remedies in instances where contractors violate or breach contract 
terms, and provide for such sanctions and penalties as may be 
appropriate;
    (2) All contracts in excess of $10,000 shall contain suitable 
provisions for termination by the institution including the manner by 
which it will be effected and the basis for settlement. In addition, 
such contracts shall describe conditions under which the contract may be 
terminated for default as well as conditions where the contract may be 
terminated because of circumstances beyond the control of the 
contractor;
    (3) All contracts awarded in excess of $10,000 by institutions and 
their contractors shall contain a provision requiring compliance with 
Executive Order 11246, entitled ``Equal Employment Opportunity,'' as 
amended by Executive Order 11375, and as supplemented in Department of 
Labor regulations (41 CFR part 60);
    (4) Where applicable, all contracts awarded by institutions in 
excess of $2,500 which involve the employment of mechanics or laborers 
shall include a provision for compliance with section 103 of the 
Contract Work Hours and Safety Standards Act (40 U.S.C. 327 through 330) 
as supplemented by Department of Labor regulations (29 CFR part 5). 
Under section 103 of the Act, each contractor shall be required to 
compute the wages of every mechanic and laborer on the basis of a 
standard work day of 8 hours and a standard work week of 40 hours. Work 
in excess of the standard work day or week is permissible provided that 
the worker is compensated at a rate of not less than 1\1/2\ times the 
basic rate of pay for all hours worked in excess of 8 hours in any 
calendar day or 40 hours in the work week. These requirements do not 
apply to the purchases of supplies or materials or articles ordinarily 
available on the open market, or contracts for transportation or 
transmission of intelligence;
    (5) The contract shall include notice of USDA requirements and 
regulations pertaining to reporting and patent rights under any contract 
involving research, developmental, experimental or demonstration work 
with respect to any discovery or invention which arises or is developed 
in the course of or under such contract, and of USDA requirements and 
regulations pertaining to copyrights and rights in

[[Page 234]]

data. These requirements are in Sec.  3015.175 of the USDA Uniform 
Federal Assistance Regulations 7 CFR part 3015. All negotiated contracts 
(except those awarded by small purchases procedures) awarded by 
institutions shall include a provision to the effect that the 
institution, FNS, the Comptroller General of the United States or any of 
their duly authorized representatives, shall have access to any books, 
documents, papers, and records of the contractor which are directly 
pertinent to that specific contract, for the purpose of making audit, 
examination, excerpts, and transcriptions. Institutions shall require 
contractors to maintain all required records for three years after 
institutions make final payment and all other pending matters are 
closed;
    (6) Contracts and subcontracts of amounts in excess of $100,000 
shall contain a provision which requires compliance with all applicable 
standards, orders, or requirements issued under section 306 of the Clean 
Air Act (42 U.S.C. 1837(h)), section 508 of the Clean Water Act (33 
U.S.C. 1368), Executive Order 11738, and Environmental Protection Agency 
regulations (40 CFR part 15), which prohibit the use under nonexempt 
Federal contracts, grants or loans of facilities included on the EPA 
List of Violating Facilities. The provision shall require reporting of 
violations to FNS and to the U.S. EPA Assistant Administrator for 
Enforcement (EN-329); and
    (7) Contracts shall recognize mandatory standards and policies 
relating to energy efficiency which are contained in the State energy 
efficiency conservation plan issued in compliance with the Energy Policy 
and Conservation Act (Pub. L. 94-163).
    (m) Institutions shall maintain a contract administration system 
insuring that contractors perform in accordance with the terms, 
conditions, and specifications of their contracts or purchase orders.



Sec.  226.23  Free and reduced-price meals.

    (a) The State agency shall require each institution to submit, at 
the time the institution applies for Program participation, a written 
policy statement concerning free and reduced-price meals to be used 
uniformly in all child care and adult day care facilities under its 
jurisdiction as required in this section. Institutions shall not be 
approved for participation nor agreements renewed unless the free and 
reduced-price policy statement has been approved. Pending approval of a 
revision of a policy statement, the existing policy shall remain in 
effect.
    (b) Sponsoring organizations of day care homes (which may not serve 
meals at a separate charge to children) and other institutions which 
elect to serve meals at no separate charge, shall develop a policy 
statement consisting of an assurance to the State agency that all 
participants are served the same meals at no separate charge, regardless 
of race, color, national origin, sex, age, or handicap and that there is 
no discrimination in the course of the food service. This statement 
shall also contain an assurance that there will be no identification of 
children in day care homes in which meals are reimbursed at both the 
tier I and tier II reimbursement rates, and that the sponsoring 
organization will not make any free and reduced price eligibility 
information concerning individual households available to day care homes 
and will otherwise limit the use of such information to persons directly 
connected with the administration and enforcement of the Program.
    (c) Independent centers and sponsoring organizations of centers 
which charge separately for meals shall develop a policy statement for 
determining eligibility for free and reduced-price meals which shall 
include the following:
    (1) The specific criteria to be used in determining eligibility for 
free and reduced-price meals. The institution's standards of eligibility 
shall conform to the Secretary's income standards;
    (2) A description of the method or methods to be used in accepting 
applications from families for free and reduced-price meals. Such 
methods will ensure that applications are accepted from households on 
behalf of children who are members of AFDC assistance units or food 
stamp or FDPIR households or, for adult participants, who are members of 
a food stamp or FDPIR

[[Page 235]]

household or SSI or Medicaid participants;
    (3) A description of the method or methods to be used to collect 
payments from those participants paying the full or reduced price of the 
meal which will protect the anonymity of the participants receiving a 
free or reduced-price meal;
    (4) An assurance which provides that the institution will establish 
a hearing procedure for use when benefits are denied or terminated as a 
result of verification:
    (i) A simple, publicly announced method for a family to make an oral 
or written request for a hearing;
    (ii) An opportunity for the family to be assisted or represented by 
an attorney or other person in presenting its appeal;
    (iii) An opportunity to examine, prior to and during the hearing, 
the documents and records presented to support the decision under 
appeal;
    (iv) That the hearing shall be held with reasonable promptness and 
convenience to the family and that adequate notice shall be given to the 
family as to the time and place of the hearing;
    (v) An opportunity for the family to present oral or documentary 
evidence and arguments supporting its position;
    (vi) An opportunity for the family to question or refute any 
testimony or other evidence and to confront and cross-examine any 
adverse witnesses;
    (vii) That the hearing shall be conducted and the determination made 
by a hearing official who did not participate in making the initial 
decision;
    (viii) The determination of the hearing official shall be based on 
the oral and documentary evidence presented at the hearing and made a 
part of that hearing record;
    (ix) That the family and any designated representatives shall be 
notified in writing of the decision of the hearing official;
    (x) That a written record shall be prepared with respect to each 
hearing, which shall include the decision under appeal, any documentary 
evidence and a summary of any oral testimony presented at the hearing, 
the decision of the hearing official, including the reasons therefor, 
and a copy of the notification to the family of the decision of the 
hearing official; and
    (xi) That such written record of each hearing shall be preserved for 
a period of three years and shall be available for examination by the 
family or its representatives at any reasonable time and place during 
such period;
    (5) An assurance that there will be no overt identification of free 
and reduced-price meal recipients and no discrimination against any 
participant on the basis of race, color, national origin, sex, age, or 
handicap;
    (6) An assurance that the charges for a reduced-price lunch or 
supper will not exceed 40 cents, that the charge for a reduced-price 
breakfast will not exceed 30 cents, and that the charge for a reduced-
price supplement will not exceed 15 cents.
    (d) Each institution shall annually provide the information media 
serving the area from which the institution draws its attendance with a 
public release. All media releases issued by institutions other than 
sponsoring organizations of day care homes, shall include the 
Secretary's Income Eligibility Guidelines for Free and Reduced-Price 
Meals. The release issued by all sponsoring organizations of day care 
homes, and by other institutions which elect not to charge separately 
for meals, shall announce the availability of meals at no separate 
charge. The release issued by child care institutions which charge 
separately for meals shall announce the availability of free and 
reduced-price meals to children meeting the approved eligibility 
criteria. The release issued by child care institutions shall also 
announce that children who are members of AFDC assistance units, food 
stamp or FDPIR households, or are Head Start participants are 
automatically eligible to receive free meal benefits. The release issued 
by adult day care centers which charge separately for meals shall 
announce the availability of free and reduced-price meals to 
participants meeting the approved eligibility criteria. The release 
issued by adult day care centers shall also announce that adult 
participants who are members of food stamp or FDPIR households or who 
are SSI or Medicaid participants are automatically eligible to receive

[[Page 236]]

free meal benefits. All releases shall state that meals are available to 
all participants without regard to race, color, national origin, sex, 
age or handicap.
    (e)(1) Application for free and reduced-price meals. (i) For the 
purpose of determining eligibility for free and reduced price meals, 
institutions shall distribute applications for free and reduced price 
meals to the families of participants enrolled in the institution. 
Sponsoring organizations of day care homes shall distribute applications 
for free and reduced price meals to day care home providers who wish to 
enroll their own eligible children in the Program. At the request of a 
provider in a tier II day care home, sponsoring organizations of day 
care homes shall distribute applications for free and reduced price 
meals to the households of all children enrolled in the home, except 
that applications need not be distributed to the households of enrolled 
children that the sponsoring organization determines eligible for free 
and reduced price meals under the circumstances described in paragraph 
(e)(1)(vi) of this section. These applications, and any other 
descriptive material distributed to such persons, shall contain only the 
family-size income levels for reduced price meal eligibility with an 
explanation that households with incomes less than or equal to these 
levels are eligible for free or reduced price meals. Such forms and 
descriptive materials may not contain the income standards for free 
meals. However, such forms and materials distributed by child care 
institutions other than sponsoring organizations of day care homes shall 
state that, if a child is a member of a food stamp or FDPIR household or 
AFDC assistance unit, the child is automatically eligible to receive 
free Program meal benefits, subject to the completion of the application 
as described in paragraph (e)(1)(ii) of this section; such forms and 
materials distributed by sponsoring organizations of day care homes 
shall state that, if a child or a child's parent is participating in or 
subsidized under a Federally or State supported child care or other 
benefit program with an income eligibility limit that does not exceed 
the eligibility standard for free or reduced price meals, meals served 
to the child are automatically eligible for tier I reimbursement, 
subject to the completion of the application as described in paragraph 
(e)(1)(ii) of this section, and shall list any programs identified by 
the State agency as meeting this standard; such forms and materials 
distributed by adult day care centers shall state that, if an adult 
participant is a member of a food stamp or FDPIR household or is a SSI 
or Medicaid participant, the adult participant is automatically eligible 
to receive free Program meal benefits, subject to the completion of the 
application as described in paragraph (e)(1)(iii) of this section. 
Sponsoring organizations of day care homes shall not make free and 
reduced price eligibility information concerning individual households 
available to day care homes and shall otherwise limit the use of such 
information to persons directly connected with the administration and 
enforcement of the Program. However, sponsoring organizations may inform 
tier II day care homes of the number of identified income-eligible 
enrolled children. If a State agency distributes, or chooses to permit 
its sponsoring organizations to distribute, applications to the 
households of children enrolled in tier II day care homes which include 
household confidentiality waiver statements, such applications shall 
include a statement informing households that their participation in the 
program is not dependent upon signing the waivers. Furthermore, such 
forms and materials distributed by child care institutions shall state 
that if a child is a Head Start participant, the child is automatically 
eligible to receive free Program meal benefits, subject to submission by 
Head Start officials of a Head Start statement of income eligibility or 
income eligibility documentation.
    (ii) Except as provided in paragraph (e)(1)(iv) of this section, the 
application for children shall contain a request for the following 
information:
    (A) The names of all children for whom application is made;
    (B) The names of all other household members;
    (C) The social security number of the adult household member who 
signs the

[[Page 237]]

application, or an indication that he/she does not possess a social 
security number;
    (D) The income received by each household member identified by 
source of income (such as earnings, wages, welfare, pensions, support 
payments, unemployment compensation, social security, and other cash 
income received or withdrawn from any other source, including savings, 
investments, trust accounts, and other resources);
    (E) A statement to the effect that ``In certain cases, foster 
children are eligible for free and reduced-price meals regardless of 
household income. If such children are living with you and you wish to 
apply for such meals, please contact us.'';
    (F) A statement that includes substantially the following 
information: ``Unless you include your child's case number for the Food 
Stamp Program, the Food Distribution Program on Indian Reservations (or 
other identifier for the Food Distribution Program on Indian 
Reservations) or the Temporary Assistance for Needy Families Program, 
you must include the social security number of the adult household 
member signing the application or indicate that the household member 
does not have a social security number. This is required by section 9 of 
the National School Lunch Act. The social security number is not 
mandatory, but the application cannot be approved if a social security 
number is not given or an indication is not made that the signer does 
not have a social security number. The social security number will be 
used in the administration and enforcement of the program.'' State 
agencies and institutions must ensure that the notice complies with 
section 7(b) of the Privacy Act of 1974 (5 U.S.C. 552a note); and
    (G) The signature of an adult member of the household which appears 
immediately below a statement that the person signing the application 
certifies that all information furnished is true and correct; that the 
application is being made in connection with the receipt of Federal 
funds; that Program officials may verify the information on the 
application; and that the deliberate misrepresentation of any of the 
information on the application may subject the applicant to prosecution 
under applicable State and Federal criminal statutes.
    (iii) Except as provided in paragraph (e)(1)(v) of this section, the 
application for adults shall contain a request for the following 
information:
    (A) The names of all adults for whom application is made;
    (B) The names of all other household members;
    (C) The social security number of the adult household member who 
signs the application, or an indication that he/she does not possess a 
social security number;
    (D) The income received by source of income (such as earnings, 
wages, welfare, pensions, support payments, unemployment compensation, 
social security, and other cash income received or withdrawn from any 
other source, including savings, investments, trust accounts and other 
resources);
    (E) A statement which includes substantially the following 
information: ``Section 9 of the National School Lunch Act requires that, 
unless a food stamp, or FDPIR case number or SSI or Medicaid assistance 
identification number is provided for the adult for whom benefits are 
sought, you must include a social security number on the application. 
This must be the social security number of the adult household member 
signing the application. If the adult household member signing the 
application does not possess a social security number, he/she must 
indicate so on the application. Provision of a social security number is 
not mandatory, but if a social security number is not provided or an 
indication is not made that the adult household member signing the 
application does not have one, the application cannot be approved. This 
notice must be brought to the attention of the household member whose 
social security number is disclosed. The social security number may be 
used to identify the household member in carrying out efforts to verify 
the correctness of information stated on

[[Page 238]]

the application. These verification efforts may be carried out through 
program reviews, audits and investigations and may include contacting 
employers to determine income, contacting a food stamp, Indian tribal 
organization or welfare office to determine current certification for 
receipt of food stamps or FDPIR benefits, contacting the issuing office 
of SSI or Medicaid benefits to determine current certification for 
receipt of these benefits, contacting the State employment security 
office to determine the amount of benefits received, and checking the 
documentation produced by household members to provide the amount of 
income received. These efforts may result in loss or reduction of 
benefits, administrative claims or legal action if incorrect information 
is reported.'' State agencies and institutions shall ensure that the 
notice complies with section 7 of Pub. L. 93-579. If a State or local 
agency plans to use the social security numbers for CCFP verification 
purposes in a manner not described by this notice, the notice shall be 
altered to include a description of those uses; and
    (F) The signature of an adult member of the household which appears 
immediately below a statement that the person signing the application 
certifies that all information furnished is true and correct; that the 
application is being made in connection with the receipt of Federal 
funds; that Program officials may verify the information on the 
application; and that the deliberate misrepresentation of any of the 
information on the application may subject the applicant to prosecution 
under applicable State and Federal criminal statutes.
    (iv) If they so desire, households applying on behalf of children 
who are members of food stamp or FDPIR households or AFDC assistance 
units may apply under this paragraph rather than under the procedures 
described in paragraph (e)(1)(ii) of this section. In addition, 
households of children enrolled in tier II day care homes who are 
participating in a Federally or State supported child care or other 
benefit program with an income eligibility limit that does not exceed 
the eligibility standard for free and reduced price meals may apply 
under this paragraph rather than under the procedures described in 
paragraph (e)(1)(ii) of this section. Households applying on behalf of 
children who are 0members of food stamp or FDPIR households; AFDC 
assistance units; or for children enrolled in tier II day care homes, 
other qualifying Federal or State program, shall be required to provide:
    (A) For the child(ren) for whom automatic free meal eligibility is 
claimed, their names and food stamp, FDPIR, or AFDC case number; or for 
the households of children enrolled in tier II day care homes, their 
names and other program case numbers (if the program utilizes case 
numbers); and
    (B) The signature of an adult member of the household as provided 
for in paragraph (e)(1)(ii)(G) of this section. In accordance with 
paragraph (e)(1)(ii)(F) of this section, if a case number is provided, 
it may be used to verify the current certification for the child(ren) 
for whom free meal benefits are claimed. Whenever households apply for 
children not receiving food stamp, FDPIR, or AFDC benefits; or for tier 
II homes, other qualifying Federal or State program benefits, they must 
apply in accordance with the requirements set forth in paragraph 
(e)(1)(ii) of this section.
    (v) If they so desire, households applying on behalf of adults who 
are members of food stamp or FDPIR households or SSI or Medicaid 
participants may apply for free meal benefits under this paragraph 
rather than under the procedures described in paragraph (e)(1)(iii) of 
this section. Households applying on behalf of adults who are members of 
food stamp or FDPIR households or SSI or Medicaid participants shall be 
required to provide:
    (A) The names and food stamp or FDPIR case numbers or SSI or 
Medicaid assistance identification numbers of the adults for whom 
automatic free meal eligibility is claimed; and
    (B) The signature of an adult member of the household as provided in 
paragraph (e)(1)(iii)(F) of this section. In accordance with paragraph 
(e)(1)(iii)(G) of this section, if a food stamp or FDPIR case number or 
SSI or Medicaid assistance identification number is provided, it may be 
used to verify the

[[Page 239]]

current food stamp, FDPIR, SSI, or Medicaid certification for the 
adult(s) for whom free meal benefits are being claimed. Whenever 
households apply for benefits for adults not receiving food stamp, 
FDPIR, SSI, or Medicaid benefits, they must apply in accordance with the 
requirements set forth in paragraph (e)(1)(iii) of this section.
    (vi) A sponsoring organization of day care homes may identify 
enrolled children eligible for free and reduced price meals (i.e., tier 
I rates), without distributing free and reduced price applications, by 
documenting the child's or household's participation in or receipt of 
benefits under a Federally or State supported child care or other 
benefit program with an income eligibility limit that does not exceed 
the eligibility standard for free and reduced price meals. Documentation 
shall consist of official evidence, available to the tier II day care 
home or sponsoring organization, and in the possession of the sponsoring 
organization, of the household's participation in the qualifying 
program.
    (2) Letter to households. Institutions shall distribute a letter to 
households or guardians of enrolled participants in order to inform them 
of the procedures regarding eligibility for free and reduced-price 
meals. The letter shall accompany the application required under 
paragraph (e)(1) of this section and shall contain:
    (i) The income standards for reduced-price meals, with an 
explanation that households with incomes less than or equal to the 
reduced-price standards would be eligible for free or reduced-price 
meals (the income standards for free meals shall not be included in 
letters or notices to such applicants);
    (ii) How a participant's household may make application for free or 
reduced-price meals;
    (iii) An explanation that an application for free or reduced price 
benefits cannot be approved unless it contains complete 
``documentation'' as defined in Sec.  226.2.
    (iv) The statement: ``In the operation of child feeding programs, no 
person will be discriminated against because of race, color, national 
origin, sex, age, or handicap'';
    (v) A statement to the effect that participants having family 
members who become unemployed are eligible for free or reduced-price 
meals during the period of unemployment, provided that the loss of 
income causes the family income during the period of unemployment to be 
within the eligibility standards for those meals;
    (vi) Except in the case of adult participants, a statement to the 
effect that in certain cases foster children are eligible for free or 
reduced-price meals regardless of the income of such household with whom 
they reside and that households wishing to apply for such benefits for 
foster children should contact the institution; and
    (vii) An explanation that households receiving free and reduced-
price meals must notify appropriate institution officials during the 
year of any decreases in household size or increases in income of over 
$50 per month or $600 per year or--
    (A) In the case of households of enrolled children that provide a 
food stamp, FDPIR or AFDC case number to establish a child's eligibility 
for free meals, any termination in the child's certification to 
participate in the Food Stamp, FDPIR or AFDC Programs, or
    (B) In the case of households of adult participants that provide a 
food stamp or FDPIR case number or an SSI or Medicaid assistance 
identification number to establish an adult's eligibility for free 
meals, any termination in the adult's certification to participate in 
the Food Stamp, FDPIR, SSI or Medicaid Programs.
    (3) In addition to the information listed in paragraph (e)(2) of 
this section pricing institutions must include in their letter to 
household an explanation that indicates that: (i) The information in the 
application may be verified at any time during the year; and (ii) how a 
family may appeal a decision of the institution to deny, reduce, or 
terminate benefits as described under the hearing procedure set forth in 
paragraph (c)(4) of this section.
    (4) Determination of eligibility. The institution shall take the 
income information provided by the household on the application and 
calculate the household's total current income.

[[Page 240]]

When a completed application furnished by a family indicates that the 
family meets the eligibility criteria for free or reduced-price meals, 
the participants from that family shall be determined eligible for free 
or reduced-price meals. Institutions that are pricing programs shall 
promptly provide written notice to each family informing them of the 
results of the eligibility determinations. When the information 
furnished by the family is not complete or does not meet the eligibility 
criteria for free or reduced-price meals, institution officials must 
consider the participants from that family as not eligible for free or 
reduced-price meals, and must consider the participants as eligible for 
``paid'' meals. When information furnished by the family of participants 
enrolled in a pricing program does not meet the eligibility criteria for 
free or reduced-price meals, pricing program officials shall provide 
written notice to each family denied free or reduced-price benefits. At 
a minimum, this notice shall include:
    (i) The reason for the denial of benefits, e.g., income in excess of 
allowable limits or incomplete application;
    (ii) Notification of the right to appeal;
    (iii) Instructions on how to appeal; and
    (iv) A statement reminding the household that they may reapply for 
free or reduced-price benefits at any time during the year,

The reasons for ineligibility shall be properly documented and retained 
on file at the institution.
    (5) Appeals of denied benefits. A family that wishes to appeal the 
denial of an application in a pricing program shall do so under the 
hearing procedures established under paragraph (c)(4) of this section. 
However, prior to initiating the hearing procedures, the household may 
request a conference to provide all affected parties the opportunity to 
discuss the situation, present information and obtain an explanation of 
the data submitted on the application or the decision rendered. The 
request for a conference shall not in any way prejudice or diminish the 
right to a fair hearing. The institution shall promptly schedule a fair 
hearing, if requested.
    (f) Free, reduced-price and paid meal eligibility figures must be 
reported by institutions to State agencies at least once each year and 
shall be based on current family-size and income information of enrolled 
participants. Such information shall be no more than 12 months old.
    (g) Sponsoring organizations for family day care homes shall ensure 
that no separate charge for food service is imposed on families of 
children enrolled in participating family day care homes.
    (h) Verification of eligibility. State agencies shall conduct 
verification of eligibility for free and reduced-price meals on an 
annual basis, in accordance with the verification procedures outlined in 
paragraphs (h) (1) and (2) of this section. Verification may be 
conducted in accordance with Program assistance requirements of Sec.  
226.6(m); however, the performance of verification for individual 
institutions shall occur no less frequently than once every three years. 
Any State may, with the written approval of FNSRO, use alternative 
approaches in the conduct of verification, provided that the results 
achieved meet the requirements of this part. If the verification process 
discloses deficiencies with the determination of eligibility and/or 
application procedures which exceed maximum levels established by FNS, 
State agencies shall conduct follow-up reviews for the purpose of 
determining that corrective action has been taken by the institution. 
These reviews shall be conducted within one year of the date the 
verification process was completed. The verification effort shall be 
applied without regard to race, color, national origin, sex, age, or 
handicap. State agencies shall maintain on file for review a description 
of the annual verification to be accomplished in order to demonstrate 
compliance with paragraphs (h) (1) and (2) of this section.
    (1) Verification procedures for nonpricing programs. Except for 
sponsoring organizations of family day care homes, State agency 
verification procedures for nonpricing programs shall consist of a 
review of all approved free and reduced price applications on file. For 
sponsoring organizations of family

[[Page 241]]

day care homes, State agency verification procedures shall consist of a 
review only of the approved free and reduced price applications (or 
other documentation, if vouchers or other documentation are used in lieu 
of free and reduced price applications) on file for those day care homes 
that are required to be reviewed when the sponsoring organization is 
reviewed, in accordance with the review requirements set forth in Sec.  
226.6(m). However, the State agency shall ensure that the day care homes 
selected for review are representative of the proportion of tier I, tier 
II, and tier II day care homes with a mix of income-eligible and non-
income-eligible children in the sponsorship, and shall ensure that at 
least 10 percent of all free and reduced price applications (or other 
documentation, if applicable) on file for the sponsorship are verified. 
The review of applications shall ensure that:
    (i) The application has been correctly and completely executed by 
the household;
    (ii) The institution has correctly determined and classified the 
eligibility of enrolled participants for free or reduced price meals or, 
for family day care homes, for tier I or tier II reimbursement, based on 
the information included on the application submitted by the household;
    (iii) The institution has accurately reported to the State agency 
the number of enrolled participants meeting the criteria for free or 
reduced price meal eligibility or, for day care homes, the number of 
participants meeting the criteria for tier I reimbursement, and the 
number of enrolled participants that do not meet the eligibility 
criteria for those meals; and
    (iv) In addition, the State agency may conduct further verification 
of the information provided by the household on the approved application 
for program meal eligibility. If this effort is undertaken, the State 
agency shall conduct this further verification for nonpricing programs 
in accordance with the procedures described in paragraph (h)(2) of this 
section.
    (2) Verification procedures for pricing programs. (i) For pricing 
programs, in addition to the verification procedures described in 
paragraph (h)(1) of this section, State agencies shall also conduct 
verification of the income information provided on the approved 
application for free and reduced price meals and, at State agency 
discretion, verification may also include confirmation of other 
information required on the application. However,
    (A) If a food stamp, FDPIR or AFDC case number is provided for a 
child, verification for such child shall include only confirmation that 
the child is included in a currently certified food stamp or FDPIR 
household or AFDC assistance unit; or
    (B) If a food stamp or FDPIR case number or SSI or Medicaid 
assistance identification number is provided for an adult, verification 
for such adult shall include only confirmation that the adult is 
included in a currently certified food stamp or FDPIR household or is 
currently certified to receive SSI or Medicaid benefits.
    (ii) State agencies shall perform verification on a random sample of 
no less than 3 percent of the approved free and reduced price 
applications in an institution which is a pricing program.
    (iii) Households shall be informed in writing that they have been 
selected for verification and they are required to submit the requested 
verification information to confirm their eligibility for free or 
reduced-price benefits by such date as determined by the State agency. 
Those households shall be informed of the type or types of information 
and/or documents acceptable to the State agency and the name and phone 
number of an official who can answer questions and assist the household 
in the verification effort. This information must include a social 
security number for each adult household member or an indication that 
he/she does not have one. State agencies shall inform selected 
households that:
    (A) Section 9 of the National School Lunch Act requires that, unless 
households provide the child's food stamp, FDPIR or AFDC case number, or 
the adult participant's food stamp or FDPIR case number or SSI or 
Medicaid assistance identification number, those selected for 
verification must provide the social security number of each adult 
household member;

[[Page 242]]

    (B) In lieu of providing a social security number, an adult 
household member may indicate that he/she does not possess one;
    (C) Provision of a social security number is not mandatory, but if a 
social security number is not provided for each adult household member 
or an indication is not made that he/she does not possess one, benefits 
will be terminated;
    (D) The social security number may be used to identify household 
members in carrying out efforts to verify the correctness of information 
stated on the application and continued eligibility for the program. 
These verification efforts may be carried out through program reviews, 
audits, and investigations and may include contacting employers to 
determine income, contacting Federal, State or local agencies to 
determine current certification for receipt of food stamps or FDPIR, 
AFDC, SSI or Medicaid benefits, contacting the State employment security 
office to determine the amount of benefits received, and checking the 
documentation produced by household members to prove the amount of 
income received. These efforts may result in loss or reduction of 
benefits, administrative claims or legal actions if incorrect 
information was reported; and
    (E) This information must be provided to the attention of each adult 
household member disclosing his/her social security number. State 
agencies shall ensure that the notice complies with section 7 of Pub. L. 
93-579 (Privacy Act of 1974). These households shall be provided with 
the name and phone number of an official who can assist in the 
verification effort.
    (iv) Households of enrolled children selected for verification shall 
also be informed that if they are currently certified to participate in 
the Food Stamp, FDPIR, or AFDC Program they may submit proof of that 
certification in lieu of income information. In those cases, such proof 
shall consist of a current ``Notice of Eligibility'' for Food Stamp, 
FDPIR, or AFDC Program benefits or equivalent official documentation 
issued by a food stamp, Indian Tribal Organization, or welfare office 
which shows that the children are members of households or assistance 
units currently certified to participate in the Food Stamp, FDPIR, or 
AFDC Programs. An identification card for any of these programs is not 
acceptable as verification unless it contains an expiration date. 
Households of enrolled adults selected for verification shall also be 
informed that if they are currently certified to participate in the Food 
Stamp Program or FDPIR or SSI or Medicaid Programs, they may submit 
proof of that certification in lieu of income information. In those 
cases, such proof shall consist of:
    (A) A current ``Notice of Eligibility'' for Food Stamp or FDPIR 
benefits or equivalent official documentation issued by a food stamp, 
Indian Tribal Organization, or welfare office which shows that the adult 
participant is a member of a household currently certified to 
participate in the Food Stamp Program or FDPIR. An identification card 
is not acceptable as verification unless it contains an expiration date; 
or
    (B) Official documentation issued by an appropriate SSI or Medicaid 
office which shows that the adult participant currently receives SSI or 
Medicaid assistance. An identification card is not acceptable as 
verification unless it contains an expiration date. All households 
selected for verification shall be advised that failure to cooperate 
with verification efforts will result in a termination of benefits.
    (v) Sources of information for verification may include written 
evidence, collateral contacts, and/or systems of records.
    (A) Written evidence shall be used as the primary source of 
information for verification. Written evidence includes written 
confirmation of a household's circumstances, such as wage stubs, award 
letters, letters from employers, and, for enrolled children, current 
certification to participate in the Food Stamp, FDPIR or AFDC Programs, 
or, for adult participants, current certification to participate in the 
Food Stamp, FDPIR, SSI or Medicaid Programs. Whenever written evidence 
is insufficient to confirm eligibility, the State agency may use 
collateral contacts.

[[Page 243]]

    (B) Collateral contact is a verbal confirmation of a household's 
circumstances by a person outside of the household. The collateral 
contact may be made in person or by phone and shall be authorized by the 
household. The verifying official may select a collateral contact if the 
household fails to designate one or designates one which is unacceptable 
to the verifying official. If the verifying official designates a 
collateral contact, the contact shall not be made without providing 
written or oral notice to the household. At the time of this notice, the 
household shall be informed that it may consent to the contact or 
provide acceptable verification in another form. The household shall be 
informed that its eligibility for free or reduced price meals shall be 
terminated if it refuses to choose one of these options. Termination 
shall be made in accordance with paragraph (h)(2)(vii) of this section. 
Collateral contacts could include employers, social service agencies, 
and migrant agencies.
    (C) Systems of records to which the State agency may have routine 
access are not considered collateral contacts. Information concerning 
income, family size, or food stamp/FDPIR/AFDC certification for enrolled 
children, or food stamp/FDPIR/SSI/Medicaidcertification for enrolled 
adults, which is maintained by other government agencies and to which a 
State agency can legally gain access may be used to confirm a 
household's eligibility for Program meal benefits. One possible source 
could be wage and benefit information maintained by the State 
unemployment agency, if that information is available. The use of any 
information derived from other agencies must be used with applicable 
safeguards concerning disclosure.
    (vi) Verification by State agencies of receipt of food stamps, 
FDPIR, AFDC, SSI or Medicaid benefits shall be limited to a review to 
determine that the period of eligibility is current. If the benefit 
period is found to have expired, or if the household's certification has 
been terminated, the household shall be required to document their 
income eligibility.
    (vii) The State agency may work with the institution to verify the 
documentation submitted by the household on the application; however, 
the responsibility to complete the verification process may not be 
delegated to the institution.
    (viii) If a household refuses to cooperate with efforts to verify, 
or the verification of income indicates that the household is ineligible 
to receive benefits or is eligible to receive reduced benefits, the 
State agency shall require the pricing program institution to terminate 
or adjust eligibility in accordance with the following procedures. 
Institution officials shall immediately notify families of the denial of 
benefits in accordance with paragraphs (e)(4) and (e)(5) of this 
section. Advance notification shall be provided to families which 
receive a reduction or termination of benefits 10 calendar days prior to 
the actual reduction or termination. The 10-day period shall begin the 
day the notice is transmitted to the family. The notice shall advise the 
household of: (A) The change; (B) the reasons for the change; (C) 
notification of the right to appeal the action and the date by which the 
appeal must be requested in order to avoid a reduction or termination of 
benefits; (D) instructions on how to appeal; and (E) the right to 
reapply at any time during the year. The reasons for ineligibility shall 
be properly documented and retained on file at the institution.
    (ix) When a household disagrees with an adverse action which affects 
its benefits and requests a fair hearing, benefits shall be continued as 
follows while the household awaits the hearing:
    (A) Households which have been approved for benefits and which are 
subject to a reduction or termination of benefits later in the same year 
shall receive continued benefits if they appeal the adverse action 
within the 10-day advance notice period; and
    (B) Households which are denied benefits upon application shall not 
received benefits.
    (3) State agencies shall inform institution officials of the results 
of the verification effort and the action which will be taken in 
response to the verification findings. This notification shall be made 
in accordance with the procedures outlined in Sec.  226.14(a).

[[Page 244]]

    (4) If the verification results disclose that an institution has 
inaccurately classified or reported the number of participants eligible 
for free, reduced-price or paid meals, the State agency shall adjust 
institution rates of reimbursement retroactive to the month in which the 
incorrect eligibility figures were reported by the institution to the 
State agency.
    (5) If the verification results disclose that a household has not 
reported accurate documentation on the application which would support 
continued eligibility for free or reduced-price meals, the State agency 
shall immediately adjust institution rates of reimbursement. However, 
this rate adjustment shall not become effective until the affected 
households have been notified in accordance with the procedures of 
paragraph (h)(2)(vi) of this section and any ensuing appeals have been 
heard as specified in paragraph (h)(2)(viii) of this section.
    (6) Verification procedures for sponsoring organizations of day care 
homes. Prior to approving an application for a day care home that 
qualifies as tier I day care home on the basis of the provider's 
household income, sponsoring organizations of day care homes shall 
conduct verification of such income in accordance with the procedures 
contained in paragraph (h)(2)(i) of this section. Sponsoring 
organizations of day care homes may verify the information on 
applications submitted by households of children enrolled in day care 
homes in accordance with the procedures contained in paragraph (h)(2)(i) 
of this section.
    (i) Disclosure of program eligibility information to State Medicaid 
(Medicaid) and the State Children's Health Insurance Program (SCHIP) 
Program eligibility information about children eligible for free and 
reduced price meals may be disclosed to Medicaid and SCHIP as described 
in this section.
    (1) Who decides whether to disclose program eligibility information 
to Medicaid and/or SCHIP? The State agency may elect to allow 
institutions to disclose children's free and reduced price meal 
eligibility information to Medicaid and SCHIP. Institutions may then 
elect to do so. Children's program eligibility information may only be 
disclosed to Medicaid or SCHIP when both the State agency and the 
institution so elect, the parent/guardian does not decline to have their 
eligibility information disclosed as described in paragraph (i)(5), and 
the requirements in this paragraph (i) are met.
    (2) What information may we disclose for use by Medicaid and SCHIP? 
The State agency or institution, as appropriate, may disclose children's 
names, eligibility status (whether they are eligible for free or reduced 
price meals), and any other eligibility information obtained through the 
free and reduced price meal application to persons directly connected 
with the administration of Medicaid or SCHIP.
    (3) Who are persons ``directly connected'' with the administration 
of Medicaid and SCHIP? State employees and persons authorized under 
Federal and State Medicaid and SCHIP requirements to carry out initial 
processing of Medicaid or SCHIP applications or to make eligibility 
determinations are persons directly connected with the administration of 
Medicaid and SCHIP for purposes of disclosure of children's free and 
reduced price meal eligibility information.
    (4) What are the restrictions on how Medicaid and SCHIP use 
children's free and reduced price meal eligibility information? Medicaid 
and SCHIP agencies and health insurance program operators receiving 
children's free and reduced price meal eligibility information may only 
use the information to seek to enroll children in Medicaid or SCHIP. The 
Medicaid and SCHIP enrollment process may include targeting and 
identifying children from low-income households who are potentially 
eligible for Medicaid or SCHIP for the purpose of seeking to enroll them 
in Medicaid or SCHIP.
    (5) What are the requirements for notifying households of potential 
disclosure to Medicaid or SCHIP? The State agency or institution, as 
appropriate, must notify parents/guardians that children's free or 
reduced price meal eligibility information will be disclosed to Medicaid 
and/or SCHIP unless the parent/guardian elects not to have their 
information disclosed. Additionally, the State agency or institution, as 
appropriate, must give parents/guardians an

[[Page 245]]

opportunity to elect not to have their information disclosed to Medicaid 
or SCHIP. Only the parent or guardian who is a member of the household 
or family for purposes of the free and reduced price meal or free milk 
application may decline the disclosure of eligibility information. The 
notification must inform parents/guardians that they are not required to 
consent to the disclosure, that the information, if disclosed, will be 
used to identify children eligible for and to seek to enroll children in 
a health insurance program, and that their decision will not affect 
their children's eligibility for free or reduced price meals. The 
notification may be included in the letter/notice to parents/guardians 
that accompanies the free and reduced price application, on the 
application itself or in a separate notice provided to parents/
guardians. The notice must give parents/guardians adequate time to 
respond. For children determined eligible through direct certification, 
the notice of potential disclosure may be included in the document 
informing parents/guardians of their children's eligibility for free 
meals through direct certification.
    (6) May social security numbers be disclosed? The State agency or 
institution, as appropriate, may disclose social security numbers to any 
programs or persons authorized to receive all program eligibility 
information under this paragraph (i), provided parents/guardians have 
not declined to have their information disclosed. However, State 
agencies and institutions that plan to disclose social security numbers 
must give notice of the planned use of the social security numbers. This 
notice must be in accordance with section 7(b) of the Privacy Act of 
1974 (5 U.S.C. 552a note). The application must include substantially 
the following language for disclosures of social security numbers to 
Medicaid or SCHIP: ``The social security number may also be disclosed to 
Medicaid and the State Children's Health Insurance Program for the 
purpose of identifying and seeking to enroll eligible children in one of 
these health insurance programs.'' This language is in addition to the 
notice required in paragraph (e)(1)(i)(F) of this section. State 
agencies and institutions are responsible for drafting the appropriate 
notice for disclosures of social security numbers.
    (7) Are agreements required before disclosing program eligibility 
information? The State agency or institution, as appropriate, must have 
a written agreement with the State or local agency or agencies 
administering Medicaid or SCHIP prior to disclosing children's free and 
reduced price eligibility information. At a minimum, the agreement must:
    (i) Identify the health insurance program or health agency receiving 
children's eligibility information;
    (ii) Describe the information that will be disclosed;
    (iii) Require that the Medicaid or SCHIP agency use the information 
obtained and specify that the information must only be used to seek to 
enroll children in Medicaid or SCHIP;
    (iv) Describe how the information will be protected from 
unauthorized uses and disclosures;
    (v) Describe the penalties for unauthorized disclosure; and
    (vi) Be signed by both the Medicaid or SCHIP program or agency and 
the State agency or institution, as appropriate.
    (8) What are the penalties for unauthorized disclosure or misuse of 
information? In accordance with section 9(b)(2)(C)(v) of the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1758(b)(2)(C)(v)), any 
individual who publishes, divulges, discloses or makes known in any 
manner, or to any extent not authorized by statute or this section, any 
information obtained under this paragraph (i) will be fined not more 
than $1,000 or imprisoned for up to 1 year, or both.
    (9) What are the State agency's responsibilities regarding 
disclosures? State agencies that elect to allow disclosure of children's 
free and reduced price meal eligibility information to Medicaid or 
SCHIP, as provided in this paragraph (i), must ensure that any 
institution acting in accordance with that option:
    (i) Has a written agreement with the State or local agency or 
agencies administering health insurance programs for children under 
titles XIX and XXI of the Social Security Act (42 U.S.C.

[[Page 246]]

1396 et seq. and 1397aa et seq.) that requires the health agencies to 
use children's free and reduced price meal eligibility information to 
seek to enroll children in those health insurance programs; and
    (ii) Notifies each household of the information that will be 
disclosed, that the information disclosed will be used only to seek to 
enroll children in Medicaid or SCHIP and provides each parent/guardian 
with an opportunity to elect not to have the information disclosed.

[47 FR 36527, Aug. 20, 1982, as amended at 49 FR 14078, Apr. 10, 1984; 
50 FR 19310, May 8, 1985; 50 FR 20197, May 15, 1985; 52 FR 36907, Oct. 
2, 1987; 53 FR 52594, Dec. 28, 1988; Amdt. 22, 55 FR 1378, Jan. 14, 
1990; 61 FR 25555, May 22, 1996; 62 FR 904, Jan. 7, 1997; 62 FR 5519, 
Feb. 6, 1997; 62 FR 23619, May 1, 1997; 63 FR 9105, Feb. 24, 1998; 63 FR 
9729, Feb. 26, 1998; 66 FR 2203, Jan. 11, 2001; 67 FR 43494, June 27, 
2002]



               Subpart F_Food Service Equipment Provisions



Sec.  226.24  Property management requirements.

    Institutions and administering agencies shall follow the policies 
and procedures governing title, use, and disposition of equipment 
obtained by purchase, whose cost was acquired in whole or part with food 
service equipment assistance funds in accordance with the Department's 
Uniform Federal Assistance Regulations (7 CFR part 3015).

[48 FR 41142, Sept. 14, 1983]



                       Subpart G_Other Provisions



Sec.  226.25  Other provisions.

    (a) Grant closeout procedures. Grant closeout procedures for the 
Program shall be in accordance with the Uniform Federal Assistance 
Regulations.
    (b) State requirements. Nothing contained in this part shall prevent 
a State agency from imposing additional requirements for participation 
in the Program which are not inconsistent with the provisions of this 
part; however, any additional requirements shall be approved by FNSRO 
and may not deny the Program to an eligible institution.
    (c) Value of assistance. The value of assistance to participants 
under the Program shall not be considered to be income or resources for 
any purposes under any Federal or State laws, including, but not limited 
to laws relating to taxation, welfare, and public assistance programs.
    (d) Maintenance of effort. Expenditure of funds from State and local 
sources for the maintenance of food programs for children shall not be 
diminished as a result of funds received under the Act.
    (e) Fraud penalty. Whoever embezzles, willfully misapplies, steals, 
or obtains by fraud any funds, assets, or property that are the subject 
of a grant or other form of assistance under this part, whether received 
directly or indirectly from the Department or whoever receives, 
conceals, or retains such funds, assets, or property to his use or gain, 
knowing such funds, assets, or property have been embezzled, willfully 
misapplied, stolen, or obtained by fraud shall, if such funds, assets, 
or property are of the value of $100 or more, be fined not more than 
$10,000 or imprisoned not more than five years, or both, or, if such 
funds, assets, or property are of value of less than $100, shall be 
fined not more than $1,000 or imprisoned for not more than one year, or 
both.
    (f) Claims adjustment authority. The Secretary shall have the 
authority to determine the amount of, to settle, and to adjust any claim 
arising under the Program, and to compromise or deny such claim or any 
part thereof. The Secretary shall also have the authority to waive such 
claims if the Secretary determines that to do so would serve the 
purposes of the program. This provision shall not diminish the authority 
of the Attorney General of the United States under section 516 of title 
28, U.S. Code, to conduct litigation on behalf of the United States.
    (g) Special retroactivity provisions. Notwithstanding any other 
provisions contained in this part, the following shall apply:
    (1) State agencies shall provide reimbursement for meals served by 
any adult day care center between October 1, 1987 and the date of the 
initial Program agreement between the State

[[Page 247]]

agency and the center under the following conditions, provided that:
    (i) The center can document that, for any meals claimed:
    (A) Meals served met all requirements including items and quantities 
served;
    (B) Free and reduced-price applications were on file if 
reimbursement for free or reduced-price meals is sought;
    (C) Meal counts by category (free, reduced-price and paid) and type 
served (breakfast, lunch, supper and supplement) are available;
    (D) Appropriate food service revenue and expenditure records are 
available;
    (E) Reimbursement has not been received under title III of the Older 
Americans Act for the claimed meals and CCFP reimbursement does not 
duplicate other funding for the claimed meals; and
    (ii) The application for Program participation is postmarked or 
submitted to the State agency no later than April 17, 1989, and the 
claims for reimbursement for the meals served between October 1, 1987 
and the date of the initial agreement between the State agency and the 
center are postmarked or submitted to the State agency no later than 
April 17, 1989 or the date set by Sec.  226.10(e), whichever is later.
    (2) Alternative documentation for free meal eligibility for adult 
participants shall be based on the following:
    (i) Beginning with October 1, 1987, documentation of membership in a 
food stamp household;
    (ii) For the period October 1, 1987 through September 30, 1988, 
documentation of membership in an AFDC assistance unit; and
    (iii) Beginning October 1, 1988, documentation of receipt of 
assistance under Medicaid or SSI.
    (3) For the period October 1, 1987 through September 30, 1988, the 
family of an adult participant applying for free or reduced-price meals 
shall include a group of related or nonrelated individuals, who are not 
residents of an institution or boarding house, but who are living as one 
economic unit. However, beginning October 1, 1988, the family of an 
adult participant applying for free or reduced-price meals shall include 
only the adult participant and any spouse or dependent(s) residing with 
the adult participant.

[47 FR 36527, Aug. 20, 1982, as amended at 53 FR 52597, Dec. 28, 1988; 
54 FR 13049, Mar. 30, 1989]



Sec.  226.26  Program information.

    Persons desiring information concerning the Program may write to the 
appropriate State agency or Regional Office of FNS as indicated below:
    (a) In the States of Connecticut, Maine, Massachusetts, New 
Hampshire, New York, Rhode Island, and Vermont: Northeast Regional 
Office, FNS, U.S. Department of Agriculture, 10 Causeway Street, Room 
501, Boston, MA 02222-1065.
    (b) In the States of Delaware, District of Columbia, Maryland, New 
Jersey, Pennsylvania, Puerto Rico, Virginia, Virgin Islands, and West 
Virginia: Mid-Atlantic Regional Office, FNS, U.S. Department of 
Agriculture, 300 Corporate Boulevard, Robbinsville, NJ 08691-1598.
    (c) In the States of Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee: Southeast 
Regional Office, FNS, U.S. Department of Agriculture, 61 Forsyth Street, 
SW., Room 8T36, Atlanta, GA 30303.
    (d) In the States of Illinois, Indiana, Michigan, Minnesota, Ohio 
and Wisconsin: Midwest Regional Office, FNS, U.S. Department of 
Agriculture, 77 Jackson Boulevard, 20th Floor, Chicago, IL 60604-3507.
    (e) In the States of Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, North Dakota, South Dakota, Utah and Wyoming: Mountain Plains 
Regional Office, FNS, U.S. Department of Agriculture, 1244 Speer 
Boulevard, Suite 903, Denver, CO 80204.
    (f) In the States of Arkansas, Louisiana, New Mexico, Oklahoma and 
Texas: Southwest Regional Office, FNS, U.S. Department of Agriculture, 
1100 Commerce Street, Room 5-C-30, Dallas, TX 75242.
    (g) In the States of Alaska, American Samoa, Arizona, California, 
Guam, Hawaii, Idaho, Nevada, Oregon, the Commonwealth of the Northern 
Mariana Islands, and Washington: Western Regional Office, FNS, U.S. 
Department of

[[Page 248]]

Agriculture, 550 Kearney Street, Room 400, San Francisco, CA 94108.

[47 FR 36527, Aug. 20, 1982; 47 FR 46072, Oct. 15, 1982, as amended at 
48 FR 40197, Sept. 6, 1983; 53 FR 52598, Dec. 28, 1988; 65 FR 12442, 
Mar. 9, 2000]



Sec.  226.27  Information collection/recordkeeping--OMB assigned control numbers.

------------------------------------------------------------------------
                                                             Current OMB
       7 CFR section where requirements are described          control
                                                                number
------------------------------------------------------------------------
226.3-226.4................................................    0584-0055
226.6-226.10...............................................    0584-0055
226.14-226.16..............................................    0584-0055
226.23-226.24..............................................    0584-0055
------------------------------------------------------------------------


[50 FR 53258, Dec. 31, 1985]

            Appendix A to Part 226--Alternate Foods for Meals

                       Alternate Protein Products

  A. What are the criteria for alternate protein products used in the 
                   Child and Adult Care Food Program?

    1. An alternate protein product used in meals planned under the 
provisions in Sec.  226.20 must meet all of the criteria in this 
section.
    2. An alternate protein product whether used alone or in combination 
with meat or meat alternate must meet the following criteria:
    a. The alternate protein product must be processed so that some 
portion of the non-protein constituents of the food is removed. These 
alternate protein products must be safe and suitable edible products 
produced from plant or animal sources.
    b. The biological quality of the protein in the alternate protein 
product must be at least 80 percent that of casein, determined by 
performing a Protein Digestibility Corrected Amino Acid Score (PDCAAS).
    c. The alternate protein product must contain at least 18 percent 
protein by weight when fully hydrated or formulated. (``When hydrated or 
formulated'' refers to a dry alternate protein product and the amount of 
water, fat, oil, colors, flavors or any other substances which have been 
added).
    d. Manufacturers supplying an alternate protein product to 
participating schools or institutions must provide documentation that 
the product meets the criteria in paragraphs A.2. through c of this 
appendix.
    e. Manufacturers should provide information on the percent protein 
contained in the dry alternate protein product and on an as prepared 
basis.
    f. For an alternate protein product mix, manufacturers should 
provide information on:
    (1) The amount by weight of dry alternate protein product in the 
package;
    (2) Hydration instructions; and
    (3) Instructions on how to combine the mix with meat or other meat 
alternates.

 B. How are alternate protein products used in the Child and Adult Care 
                              Food Program?

    1. Schools, institutions, and service institutions may use alternate 
protein products to fulfill all or part of the meat/meat alternate 
component discussed in Sec.  226.20.
    2. The following terms and conditions apply:
    a. The alternate protein product may be used alone or in combination 
with other food ingredients. Examples of combination items are beef 
patties, beef crumbles, pizza topping, meat loaf, meat sauce, taco 
filling, burritos, and tuna salad.
    b. Alternate protein products may be used in the dry form 
(nonhydrated), partially hydrated or fully hydrated form. The moisture 
content of the fully hydrated alternate protein product (if prepared 
from a dry concentrated form) must be such that the mixture will have a 
minimum of 18 percent protein by weight or equivalent amount for the dry 
or partially hydrated form (based on the level that would be provided if 
the product were fully hydrated).
    C. How are commercially prepared products used in the Child and 
Adult Care Food Program?
    Schools, institutions, and service institutions may use a 
commercially prepared meat or meat alternate product combined with 
alternate protein products or use a commercially prepared product that 
contains only alternate protein products.

[65 FR 12442, Mar. 9, 2000]

                    Appendix B to Part 226 [Reserved]

      Appendix C to Part 226--Child Nutrition (CN) Labeling Program

    1. The Child Nutrition (CN) Labeling Program is a voluntary 
technical assistance program administered by the Food and Nutrition 
Service (FNS) in conjunction with the Food Safety and Inspection Service 
(FSIS), and Agricultural Marketing Service (AMS) of the U.S. Department 
of Agriculture (USDA), and National Marine Fisheries Service of the U.S. 
Department of Commerce (USDC) for the Child Nutrition Programs. This 
program essentially involves the review of a manufacturer's recipe or 
product formulation to determine the contribution a serving of a 
commercially prepared product makes toward meal pattern requirements and 
a review of the CN label statement to ensure its accuracy. CN labeled 
products must be produced in accordance with all requirements set forth 
in this rule.

[[Page 249]]

    2. Products eligible for CN labels are as follows:
    (a) Commercially prepared food products that contribute 
significantly to the meat/meat alternate component of meal pattern 
requirements of 7 CFR 210.10, 225.21, and 226.20 and are served in the 
main dish.
    (b) Juice drinks and juice drink products that contain a minimum of 
50 percent full-strength juice by volume.
    3. For the purpose of this appendix the following definitions apply:
    (a) CN label is a food product label that contains a CN label 
statement and CN logo as defined in paragraph 3 (b) and (c) below.
    (b) The CN logo (as shown below) is a distinct border which is used 
around the edges of a ``CN label statement'' as defined in paragraph 
3(c).
[GRAPHIC] [TIFF OMITTED] TC17SE91.009

    (c) The CN label statement includes the following:
    (1) The product identification number (assigned by FNS),
    (2) The statement of the product's contribution toward meal pattern 
requirements of 7 CFR 210.10, 220.8, 225.21, and 226.20. The statement 
shall identify the contribution of a specific portion of a meat/meat 
alternate product toward the meat/meat alternate, bread/bread alternate, 
and/or vegetable/fruit component of the meal pattern requirements. For 
juice drinks and juice drink products the statement shall identify their 
contribution toward the vegetable/fruit component of the meal pattern 
requirements,
    (3) Statement specifying that the use of the CN logo and CN 
statement was authorized by FNS, and
    (4) The approval date.
    For example:
    [GRAPHIC] [TIFF OMITTED] TC17SE91.010
    
    (d) Federal inspection means inspection of food products by FSIS, 
AMS or USDC.
    4. Food processors or manufacturers may use the CN label statement 
and CN logo as defined in paragraph 3 (b) and (c) under the following 
terms and conditions:
    (a) The CN label must be reviewed and approved at the national level 
by the Food and Nutrition Service and appropriate USDA or USDC Federal 
agency responsible for the inspection of the product.
    (b) The CN labeled product must be produced under Federal inspection 
by USDA or USDC. The Federal inspection must be performed in accordance 
with an approved partial or total quality control program or standards 
established by the appropriate Federal inspection service.
    (c) The CN label statement must be printed as an integral part of 
the product label along with the product name, ingredient listing, the 
inspection shield or mark for the appropriate inspection program, the 
establishment number where appropriate, and the manufacturer's or 
distributor's name and address.
    (1) The inspection marking for CN labeled non-meat, non-poultry, and 
non-seafood products with the exception of juice drinks and juice drink 
products is established as follows:

[[Page 250]]

[GRAPHIC] [TIFF OMITTED] TC17SE91.011

    (d) Yields for determining the product's contribution toward meal 
pattern requirements must be calculated using the Food Buying Guide for 
Child Nutrition Programs (Program Aid Number 1331).
    5. In the event a company uses the CN logo and CN label statement 
inappropriately, the company will be directed to discontinue the use of 
the logo and statement and the matter will be referred to the 
appropriate agency for action to be taken against the company.
    6. Products that bear a CN label statement as set forth in paragraph 
3(c) carry a warranty. This means that if a food service authority 
participating in the child nutrition programs purchases a CN labeled 
product and uses it in accordance with the manufacturer's directions, 
the school or institution will not have an audit claim filed against it 
for the CN labeled product for noncompliance with the meal pattern 
requirements of 7 CFR 210.10, 220.8, 225.21, and 226.20. If a State or 
Federal auditor finds that a product that is CN labeled does not 
actually meet the meal pattern requirements claimed on the label, the 
auditor will report this finding to FNS. FNS will prepare a report of 
the findings and send it to the appropriate divisions of FSIS and AMS of 
the USDA, National Marine Fisheries Services of the USDC, Food and Drug 
Administration, or the Department of Justice for action against the 
company.
    Any or all of the following courses of action may be taken:
    (a) The company's CN label may be revoked for a specific period of 
time;
    (b) The appropriate agency may pursue a misbranding or mislabeling 
action against the company producing the product;
    (c) The company's name will be circulated to regional FNS offices;
    (d) FNS will require the food service program involved to notify the 
State agency of the labeling violation.
    7. FNS is authorized to issue operational policies, procedures, and 
instructions for the CN Labeling Program.
    To apply for a CN label and to obtain additional information on CN 
label application procedures write to: CN Labels, U.S. Department of 
Agriculture, Food and Nutrition Service, Nutrition and Technical 
Services Division, 3101 Park Center Drive, Alexandria, Virginia 22302.

[49 FR 18457, May 1, 1984; 49 FR 45109, Nov. 15, 1984]



PART 227_NUTRITION EDUCATION AND TRAINING PROGRAM--Table of Contents




                            Subpart A_General

Sec.
227.1 General purpose and scope.
227.2 Definitions.
227.3 Administration.
227.4 Application and agreement.
227.5 Program funding.

                    Subpart B_State Agency Provisions

227.30 Responsibilities of State agencies.
227.31 Audits, management reviews, and evaluations.

                 Subpart C_State Coordinator Provisions

227.35 Responsibilities of State coordinator.
227.36 Requirements of needs assessment.
227.37 State plan for nutrition education and training.

                         Subpart D_Miscellaneous

227.40 Program information.
227.41 Recovery of funds.
227.42 Grant closeout procedures.
227.43 Participation of adults.
227.44 Management evaluations and reviews.

Appendix to Part 227--Apportionment of Funds for Nutrition Education and 
          Training

    Authority: Sec. 15, Pub. L. 95-166, 91 Stat. 1340 (42 U.S.C. 1788), 
unless otherwise noted.

    Source: 44 FR 28282, May 15, 1979, unless otherwise noted.



                            Subpart A_General



Sec.  227.1  General purpose and scope.

    The purpose of these regulations is to implement section 19 of the 
Child Nutrition Act (added by Pub. L. 95-166, effective November 10, 
1977) which authorizes the Secretary to formulate and carry out a 
nutrition information and education program through a system of grants 
to State agencies to provide for (a) the nutritional training of 
educational and foodservice personnel, (b) the foodservice management 
training of school foodservice personnel, and (c) the conduct of 
nutrition education activities in schools and child care institutions. 
To the maximum extent possible, the Program shall fully utilize the 
child nutrition programs as a learning experience.

[[Page 251]]



Sec.  227.2  Definitions.

    (a) Administrative costs means costs allowable under Federal 
Management Circular 74-4, other than program costs, incurred by a State 
agency for overall administrative and supervisory purposes, including, 
but not limited to, costs of financial management, data processing, 
recordkeeping and reporting, personnel management, and supervising the 
State Coordinator.
    (b) Child Care Food Program means the program authorized by section 
17 of the National School Lunch Act, as amended.
    (c) Child Nutrition Programs means any or all of the following: 
National School Lunch Program, School Breakfast Program, Child Care Food 
Program.
    (d) Commodity only school means a school which has entered into an 
agreement under Sec.  210.15a(b) of this subchapter to receive 
commodities donated under part 250 of this chapter for a nonprofit lunch 
program.
    (e) Department means the U.S. Department of Agriculture.
    (f) Federal fiscal year means a period of 12 calendar months 
beginning October 1 of any calendar year and ending September 30 of the 
following calendar year.
    (g) FNS means the Food and Nutrition Service of the Department.
    (h) FNSRO means the appropriate Regional Office of the Food and 
Nutrition Service of the Department.
    (i) Institution means any licensed, nonschool, public or private 
nonprofit organization providing day care services where children are 
not maintained in permanent residence, including but not limited to day 
care centers, settlement houses, after school recreation centers, 
neighborhood centers, Head Start centers, and organizations providing 
day care services for handicapped children and includes a sponsoring 
organization under the Child Care Food Program regulations.
    (j) National School Lunch Program means the lunch program authorized 
by the National School Lunch Act.
    (k) Needs assessment means a systematic process for delineating the 
scope, extent (quantity), reach and success of any current nutrition 
education activities, including those relating to:
    (1) Methods and materials available inside and outside the 
classroom; (2) training of teachers in the principles of nutrition and 
in nutrition education strategies, methods, and techniques; (3) training 
of school foodservice personnel in the principles and practices of 
foodservice management; and (4) compilation of existing data concerning 
factors impacting on nutrition education and training such as statistics 
on child health and competency levels achieved by foodservice personnel.
    (l) Program costs means costs, other than administrative costs, 
incurred in connection with any or all of the following:
    (1) The State Coordinator's salary, and related support personnel 
costs, including fringe benefits and travel expenses; (2) applying for 
assessment and planning funds; (3) the conduct of the needs assessment; 
(4) the development of the State Plan; and (5) the implementation of the 
approved State Plan, including related support services.
    (m) Program means the Nutrition Education and Training Program 
authorized by section 19 of the Child Nutrition Act of 1966, as amended.
    (n) School means: (1) An educational unit of high school grade or 
under operating under public or nonprofit private ownership in a single 
building or complex of buildings. The term ``high school grade or 
under'' includes classes of preprimary grade when they are conducted in 
a school having classes of primary or higher grade, or when they are 
recognized as a part of the educational system in the State, regardless 
of whether such preprimary grade classes are conducted in a school 
having classes of primary or higher grade.
    (2) With the exception of residential summer camps which participate 
in the Summer Food Service Program for Children and private foster 
homes, any distinct part of a public or nonprofit private institution or 
any public or nonprofit private child care institution, which (i) 
maintains children in residence, (ii) operates principally for the care 
of children and (iii) if private, is licensed to provide residential 
child care services under the appropriate licensing code by the State or 
a subordinate level of government. The term

[[Page 252]]

``child care institution'' includes, but is not limited to: Homes for 
the mentally retarded, the emotionally disturbed, the physically 
handicapped, and unmarried mothers and their infants; group homes; 
halfway houses; orphanages; temporary shelters for abused children and 
for runaway children; long term care facilities of chronically ill 
children; and juvenile detention centers.
    (3) With respect to the Commonwealth of Puerto Rico, non-profit 
child care centers certified as such by the Governor of Puerto Rico.
    (o) School Breakfast Program means the program authorized by section 
4 of the Child Nutrition Act of 1966, as amended.
    (p) Foodservice personnel means those individuals responsible for 
planning, preparing, serving and otherwise operating foodservice 
programs funded by USDA grants as provided for in the National School 
Lunch Act and the Child Nutrition Act of 1966.
    (q) State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
the Trust Territory of the Pacific Islands, and the Northern Mariana 
Islands.
    (r) State agency means the State educational agency.
    (s) State educational agency means, as the State legislature may 
determine:
    (1) The Chief State School Officer (such as the State Superintendent 
of Public Instruction, Commissioner of Education, or similar officer), 
or (2) a board of education controlling the State Department of 
Education.



Sec.  227.3  Administration.

    (a) Within the Department, FNS shall act on behalf of the Department 
in the administration of the Program.
    (b) Within the States, responsibility for administration of the 
Program shall be in the State agency, except that FNSRO shall administer 
the Program with respect to nonprofit private schools or institutions in 
any State where the State agency is prohibited by law from administering 
the Program in nonprofit private schools or institutions.



Sec.  227.4  Application and agreement.

    After the initial fiscal year of participation each State agency 
desiring to take part in the Program shall enter into a written 
agreement with the Department for the administration of the Program in 
accordance with the provisions of this part. The State agency shall 
execute Form FNS-74, which shall constitute the written agreement.

(Approved by the Office of Management and Budget under control number 
0584-0062)

(44 U.S.C. 3506)

[44 FR 28282, May 15, 1979, as amended at 47 FR 746, Jan. 2, 1982]



Sec.  227.5  Program funding.

    (a) Total grant. The total grant to each State agency for each 
fiscal year for program costs and administrative costs shall consist of 
an amount equal to 50 cents per child enrolled in schools and 
institutions within the State during such year, but in no event shall 
such grant be less than $50,000: Provided, however, That a State's total 
grant shall be reduced proportionately if the State does not administer 
the program in nonprofit private schools and institutions. If funds 
appropriated for a fiscal year are insufficient to pay the amount to 
which each State is entitled, the amount of such grant shall be ratably 
reduced to the extent necessary so that the total of the amounts paid to 
each State does not exceed the amount of appropriated funds. Each State 
agency which receives funds based on all children enrolled in public and 
nonprofit private schools and institutions shall make the Program 
available to those schools and institutions. Enrollment figures shall be 
the latest available as certified by the Department of Education.
    (b) First fiscal year participation--(1) Assessment and planning 
grant. A portion of the total grant shall be made available to each 
State agency during its first fiscal year of participation as an 
assessment and planning grant for:
    (i) Employing a State Coordinator, as provided for in Sec.  227.30, 
and related support personnel costs including fringe benefits and travel 
expenses, (ii) undertaking a needs assessment in the State, (iii) 
developing a State Plan for nutrition education and training within the

[[Page 253]]

State, and (iv) applying for the State assessment and planning grant.
    (2) Advances for the assessment and planning grant. FNS shall make 
advances to any State desiring to participate in the Program, to enable 
the State to carry out the responsibilities set forth in paragraph 
(b)(1) of this section. Advances shall be made in two phases, in 
accordance with the following procedures:
    (i) Initially, State agencies may receive an advance up to $35,000 
for the purpose of hiring a State coordinator, as provided for in Sec.  
227.30. Application for such an advance shall be made on Form AD-623 
when the State agency applies for participation in the Program. The 
information required for this advance shall be set out in Part III, 
Budget Information, Section B, Budget Categories. The State agency shall 
there indicate the funds required for the salary, travel, and fringe 
benefits of the State Coordinator, and related personnel costs necessary 
to carry out the duties and responsibilities of the State Coordinator.
    (ii) After appointment of the State Coordinator, the State agency 
may receive an additional advance of up to 50 percent of the total grant 
to which the State agency is entitled for the first year of 
participation, after deduction of the advance made for the State 
Coordinator under Sec.  227.5(b)(2), but not to exceed $100,000, for the 
purpose of undertaking a needs assessment in the State, developing a 
State Plan for nutrition education and training, and applying for the 
assessment and planning grant. Application for such advance shall be 
made by amending Part III, Budget Information, of Form AD-623.
    (3) Funds for implementing State plan. (i) States receiving 
advances. Each State agency shall receive the remaining portion of its 
total grant in order to implement its State plan, which has been 
approved by FNS, if the State agency has carried out the 
responsibilities for which advances were received. With the submission 
of the State plan each State agency may apply for the funds remaining of 
its total grant.
    (ii) States previously participating. Those States which previously 
participated may apply for their total grant upon submission of the 
State Plan.
    (c) Administrative costs. Each State agency may use up to 15 percent 
of its total grant for up to 50 percent of its cash expenditures for 
administrative costs.
    (d) Payment to State agencies. Approval of the State plan by FNS is 
a prerequisite to the payment of funds to the State agency. All funds 
made available for the Program shall be provided through a letter of 
credit or check, as determined by FNS.
    (e) Unobligated funds. The State agency will release to FNS any 
Federal funds made available to it under the Program which are 
unobligated by September 30 of each fiscal year.
    (f) Funds for existing programs. State agencies shall maintain their 
present level of funding for existing nutrition education and training 
programs. FNS funds for the Program shall augment current nutrition 
education and training programs and proj ects. Funds made available by 
FNS for this Program shall not replace such funds.

[44 FR 28282, May 15, 1979, as amended at 52 FR 8223, Mar. 17, 1987]



                    Subpart B_State Agency Provisions



Sec.  227.30  Responsibilities of State agencies.

    (a) General. Except to the extent that it would be inconsistent with 
this part, the Program shall be administered in accordance with the 
applicable provisions of the Departmental regulations 7 CFR part 3015.
    (b) Application. For the initial fiscal year of participation States 
shall make application for administration of the Program on Form and are 
responsible for amending Form AD-623 to request advance funding. In the 
initial application, in connection with the request for advance funding 
for the State Coordinator, part IV, Program Narrative, of Form AD-623 
shall indicate the State agency's procedures for hiring a State 
Coordinator and contain a justification for the dollar value of salary 
requested. The narrative shall also indicate the time frame for hiring 
the State Coordinator. In amending Form AD-623 in connection with the 
request for advance funding for the remaining portion of the assessment 
and planning

[[Page 254]]

grant, part IV, Program Narrative, shall set forth the details for areas 
of the assessment and planning grant, other than employment of the State 
Coordinator.
    (b-1) If any State does not apply for participation in the Program, 
by April 1 of a fiscal year by submitting Form AD 623 as required in 
Sec.  227.30(b) and Sec.  227.5(b)(2)(i), the State's share of the funds 
shall be provided to the remaining States, so long as this does not take 
the remaining States' grants above 50 cents per child enrolled in 
schools or institutions, except in those States which receive a minimum 
grant of $75,000 for a fiscal year.
    (c) State Coordinator. After execution of the agreement the State 
agency shall appoint a nutrition education specialist to serve as a 
State Coordinator for the Program who may be employed on a full-time or 
part-time basis. The State Coordinator may be a State employee who 
reports directly or indirectly to the Chief State School Officer or an 
individual under contract with the State agency to serve as the State 
Coordinator. A State agency shall not contract with an organization to 
provide for the services of a State Coordinator. The State Coordinator, 
at a minimum, shall meet both of the following requirements:
    (1) The State Coordinator shall have a Masters degree or equivalent 
experience. Equivalent experience is experience related to the position 
being filled or as defined by State civil service or personnel policies. 
If the Masters degree is not in foods and nutrition or dietetics, the 
Bachelors degree shall include academic preparations in foods and 
nutrition or dietetics.
    (2) In addition, the State Coordinator shall have recognized and 
demonstrated skills in management and education through at least three 
years experience in one or more of these areas: Elementary or secondary 
education, but not limited to classroom teaching; foodservice management 
and training for adults; community nutrition or public health programs; 
foodservice operations for children; or community action or assistance 
programs.
    (d) Needs assessment. Each State agency shall conduct an ongoing 
needs assessment in accordance with Sec.  227.36 The needs assessment 
shall be the data base utilized in formulating the State plan for each 
fiscal year. For the first year of participation a State agency may 
apply for funds in order to carry out the needs assessment in accordance 
with Sec.  227.5.
    (e) Developing and submitting the State plan. Each State agency 
shall submit to the Secretary a State plan for Nutrition Education and 
Training in accordance with Sec.  227.37 prior to the beginning of each 
fiscal year. The date of submission for the State plan shall be 
designated by the Secretary. The Secretary shall act on the submitted 
State plan within 60 days after it is received. For the first year of 
participation the State agency shall submit to the Secretary, within 
nine months after the award of the planning and assessment grant, a 
State plan for nutrition education and training in accordance with Sec.  
227.37.
    (f) Records and reports. (1) Each State agency shall maintain full 
and complete records concerning Program operations and shall retain such 
records in accordance with OMB Circular A-102 Attachment C.
    (2) Each State agency shall submit to FNS a quarterly Financial 
Status Report, Form SF-269, as required by OMB Circular A-102, 
Attachment H.
    (3) Each State agency shall submit an annual performance report 
(Form FNS-42) to FNS within 30 days after the close of the Fiscal Year.
    (4) Each State agency shall maintain a financial management system 
in accordance with Federal Management Circular 74-4 and OMB Circular A-
102, Attachment G.
    (5) Each State agency shall comply with the requirements of OMB 
Circular A-102, Attachments N and O, and Federal Management Circular 74-
4, for property management and the procurement of supplies, equipment 
and other services with these Program funds.
    (6) Any income accruing to a State or local agency because of the 
Program shall be used in accordance with OMB Circular A-102, Attachment 
E.

[[Page 255]]

    (g) Nondiscrimination. Each State agency shall ensure that Program 
operations are in compliance with the Department's nondiscrimination 
regulations (part 15 of this title) issued under title VI of the Civil 
Rights Act of 1964.

(Approved by the Office of Management and Budget under control number 
0584-0062)

(44 U.S.C. 3506; E.O. 12372, July 14, 1982, 47 FR 30959, sec. 401(b) of 
the Intergovernmental Cooperation Act of 1968 (31 U.S.C. 6506(c))

[44 FR 28282, May 15, 1979, as amended at 45 FR 14842, Mar. 7, 1980; 47 
FR 746, Jan. 7, 1982; 47 FR 22072, May 21, 1982; 48 FR 29123, June 24, 
1983; 48 FR 39213, Aug. 30, 1983]



Sec.  227.31  Audits, management reviews, and evaluations.

    (a) Audits. (1) Examinations by the State agencies in the form of 
audits or internal audits shall be performed in accord with OMB Circular 
A-102, Attachment G.
    (b) Management reviews. The State agency is responsible for meeting 
the following requirements:
    (1) The State agency shall establish management evaluation and 
review procedures to monitor compliance with the State plan for local 
educational agencies and land grant colleges, other institutions of 
higher education and public or private nonprofit educational or research 
agencies, institutions, or organizations.
    (2) The State agency shall require participating agencies to 
establish program review procedures to be used in reviewing the Agencies 
operations and those of subsidiaries or contractors.
    (c) Evaluations. The State agency shall conduct formal evaluations 
of program activities at least annually. These evaluations shall be 
aimed at assessing the effectiveness of the various activities 
undertaken by the State and local agencies. State officials shall 
analyze why some activities have proved effective while others have not 
and shall initiate appropriate improvements. The results of the 
evaluations shall be used to make adjustments in ongoing activities and 
to plan activities and programs for the next year's State plan. The 
State agency shall submit a plan for evaluation of Program activities as 
part of the State plan in accordance with Sec.  227.37(b)(14).

(Approved by the Office of Management and Budget under control number 
0584-0062)

(44 U.S.C. 3506; E.O. 12372 (July 14, 1982, 47 FR 30959); sec. 401(b) 
Intergovernmental Cooperation Act of 1968 (31 U.S.C. 6506(c))

[44 FR 28282, May 15, 1979, as amended at 47 FR 746, Jan. 7, 1982; 48 FR 
29123, June 24, 1983]



                 Subpart C_State Coordinator Provisions



Sec.  227.35  Responsibilities of State coordinator.

    At a minimum, the State Coordinator shall be responsible for: (a) 
Preparation of a budget, (b) the conduct of the needs assessment, (c) 
development of a State plan, (d) implementation of the approved State 
Plan, (e) evaluation of the progress and implementation of the State 
Plan, (f) coordination of the Program with the Child Nutrition Programs 
at the State and local levels, (g) coordination of the Program with 
other nutrition education and training programs conducted with Federal 
or State funds, (h) communication of needs and accomplishments of State 
nutrition education and training programs to parents and the communty at 
large, (i) use of Program funds in compliance with all regulations, 
instructions, or other guidance material provided by FNS, (j) 
coordinating the submission and preparation of the Program financial 
status report (SF-269), and (k) annual evaluation of the effectiveness 
of the State Plan.



Sec.  227.36  Requirements of needs assessment.

    (a) The needs assessment is an ongoing process which identifies the 
discrepancies between ``what should be'' and ``what is'' and shall be 
applied to each category listed below to enable State agencies to 
determine their nutrition education and training needs for each year. 
The needs assessment shall identify the following as a minimum:
    (1) Children, teachers, and food service personnel in need of 
nutrition education and training; (2) existing State or federally funded 
nutrition education and training programs including their:

[[Page 256]]

(i) Goals and objectives; (ii) source and level of funding; (iii) any 
available documentation of their relative success or failure; and (iv) 
factors contributing to their success or failure; (3) offices or 
agencies at the State and local level designated to be responsible for 
nutrition education and training of teachers and school food service 
personnel; (4) any relevant State nutrition education mandates; (5) 
funding levels at the State and local level for preservice and inservice 
nutrition education and training of food service personnel and teachers; 
(6) State and local individuals, and groups conducting nutrition 
education and training; (7) materials which are currently available for 
nutrition education and training programs, and determine for each: (i) 
Subject area and content covered; (ii) grade level; (iii) how utilized; 
(iv) acceptability by user; (v) currency of materials; (8) any major 
child nutrition related health problems in each State; (9) existing 
sources of primary and secondary data, including any data that has been 
collected for documenting the State's nutrition education and training 
needs; (10) available documentation of the competencies of teachers in 
the area of nutrition education; (11) available documentation of the 
competencies of food service personnel; (12) problems encountered by 
schools and institutions in procuring nutritious food economically and 
in preparing nutritious appetizing meals and areas where training can 
assist in alleviating these problems; (13) problems teachers encounter 
in conducting effective nutrition education activities and areas where 
inservice training or materials can assist in alleviating these 
problems; (14) problems in dietary habits of children and areas where 
nutrition education may assist in positive changes; (15) problems 
encountered in coordinating the nutrition education by teachers with the 
meal preparation and activities of the food service facility and areas 
where training might alleviate these problems.
    (b) The needs assessment should be an ongoing process and provide 
not only data on current activities but also a description of the 
problems and needs in each category and whether training or materials 
would help alleviate the identified problems.



Sec.  227.37  State plan for nutrition education and training.

    (a) General. Each fiscal year the State agency shall submit a State 
plan for Nutrition Education and Training for approval to FNS. The State 
plan shall be based on the needs identified from the ongoing needs 
assessment and evaluation of the State plans from previous years. The 
State plan shall be submitted in accordance with Sec.  227.30(e). 
Guidance for the preparation and submission of the State plan shall be 
provided by FNS.
    (b) Requirements for the State plan. The State plan shall provide 
the following:
    (1) Description of the ongoing needs assessment conducted within the 
State;
    (2) The findings of the needs assessment within the State used to 
determine the goals and objectives of the State plan and results of the 
evaluation of the previous years' State plans for:
    (i) Inservice training of food service personnel, (ii) nutrition 
education of children, (iii) inservice training in nutrition education 
for teachers;
    (3) Goals and objectives of the State plan;
    (4) Identification of the priority populations to be reached during 
the fiscal year;
    (5) Provisions for coordinating the nutrition education and training 
programs carried out with funds made available under this part with any 
related publicly supported programs being carried out within the State 
to include:
    (i) Identification of existing programs that may be utilized, (ii) 
description of how representatives of such groups are to be involved in 
the planning and implementation of the State program; (iii) criteria and 
procedure for selection of such representatives;
    (6) Plans to solicit advice and recommendations of the National 
Advisory Council on Child Nutrition, State educational or other 
appropriate agencies; the U.S. Department of Education; the U.S. 
Department of Health

[[Page 257]]

and Human Services; and other interested groups and individuals 
concerned with improvement of child nutrition.
    (7) Plans, including a timetable, for reaching all children in the 
State with instruction in the nutritional value of foods and the 
relationship among food, nutrition and health, for inservice training of 
food service personnel in the principles and skills of food service 
management and nutrition and for inservice instruction for teachers in 
sound principles of nutrition education;
    (8) Any plans for using, on a priority basis, the resources of the 
land-grant colleges eligible to receive funds under the Act of July 2, 
1862 (12 Stat. 503; 7 U.S.C. 301 through 305, 307, and 308) or the Act 
of August 30, 1890 (26 Stat. 417, as amended; 7 U.S.C. 312 through 326 
and 328), including the Tuskegee Institute;
    (9) A brief description of the program or activities to be 
contracted with land-grant colleges, described above, and other 
institutions of higher education, and other public or private nonprofit 
educational or research agencies, institutions or organizations for 
carrying out nutrition education and training activities;
    (10) A brief description of pilot projects, including objectives, 
subject matter and expected outcomes, to be contracted with the land-
grant colleges described above, other institutions of higher education, 
public and nonprofit educational or research agencies, institutions, or 
organizations for but not limited to proj ects for development, 
demonstration, testing and evaluation of curricula for use in early 
childhood, elementary, and secondary education programs;
    (11) Identification of schools, school districts, and sponsoring 
agencies which may agree to participate in the nutrition education and 
training program;
    (12) A brief description of (i) State agency sponsored pilot 
projects including objectives, subject matter and anticipated outcomes 
and (ii) nutrition education and training programs to be conducted by 
schools, school districts, and sponsoring agencies receiving funds under 
this provision including objectives, subject matter and expected 
outcomes;
    (13) Time frame and milestones for implementation of State plans;
    (14) Plans to evaluate program activities including an evaluation 
component for each objective of the State plan;
    (15) Description of staff available to perform State agency 
responsibilities of the State nutrition education and training program 
which includes:
    (i) Definition of duties and responsibilities, (ii) minimum 
professional qualifications, (iii) number and classification of 
personnel;
    (16) A description of the procedures used to comply with the 
requirements of Title VI of the Civil Rights Act of 1964, including 
racial and ethnic participation data collection, public notification 
procedures and the annual civil rights compliance review process;
    (17) Plans for the conduct of audits in accordance with Sec.  
227.31;
    (18) A budget detailing the use of program funds;
    (19) Description of the financial management system in accordance 
with Sec.  227.30(e);
    (20) Description of the management evaluation and review procedures 
established in accordance with Sec.  227.31(b); and
    (21) Other components that the States determine necessary.
    (c) States eligible to receive additional funds pursuant to Sec.  
227.30(b-1) shall submit an amendment to the State plan to the Food and 
Nutrition Service Regional Office for prior approval.

[44 FR 28282, May 15, 1979, as amended at 45 FR 14842, Mar. 7, 1980; 48 
FR 39213, Aug. 30, 1983]



                         Subpart D_Miscellaneous



Sec.  227.40  Program information.

    Persons desiring information concerning the program may write to the 
appropriate State agency or Regional Office of FNS as indicated below:
    (a) In the States of Connecticut, Maine, Massachusetts, New 
Hampshire, Rhode Island, and Vermont: New England Regional Office, FNS, 
U.S. Department of Agriculture, 33 North Avenue, Burlington, Mass. 
01803.

[[Page 258]]

    (b) In the States of Delaware, District of Columbia, Maryland, New 
Jersey, New York, Pennsylvania, Puerto Rico, Virginia, Virgin Islands, 
and West Virginia: Mid-Atlantic Regional Office, FNS, U.S. Department of 
Agriculture, One Vahlsing Center, Robbinsville, N.J. 08691.
    (c) In the States of Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee: Southeast 
Regional Office, FNS, U.S. Department of Agriculture, 1100 Spring Street 
NW., Atlanta, Ga. 30309.
    (d) In the States of Illinois, Indiana, Michigan, Minnesota, Ohio, 
and Wisconsin: Midwest Regional Office, FNS, U.S. Department of 
Agriculture, 536 South Clark Street, Chicago, Ill. 60605.
    (e) In the States of Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, North Dakota, South Dakota, Utah, and Wyoming: Mountain Plains 
Regional Office, FNS, U.S. Department of Agriculture, 2420 West 26th 
Avenue, Room 430D, Denver, Colo. 80211.
    (f) In the States of Arkansas, Louisiana, New Mexico, Oklahoma, and 
Texas: Southwest Regional Office, FNS, U.S. Department of Agriculture, 
1100 Commerce Street, Room 5-C-30, Dallas, Tex. 75242.
    (g) In the States of Alaska, American Samoa, Arizona, California, 
Guam, Hawaii, Idaho, Nevada, Oregon, Trust Territory of the Pacific 
Islands, the Northern Mariana Islands, and Washington: Western Regional 
Office, FNS, U.S. Department of Agriculture, 550 Kearny Street, Room 
400, San Francisco, Calif. 94108.



Sec.  227.41  Recovery of funds.

    (a) FNS may recover funds from a State agency under any of the 
following conditions:
    (1) If FNS determines, through a review of the State agency's 
reports, program, or financial analysis, monitoring, audit or otherwise, 
that the State agency's performance is inadequate or that the State 
agency has failed to comply with this part or FNS instructions and 
guidelines.
    (2) If FNS determines that the State agency is not expending funds 
at a rate commensurate with the amount of funds distributed or provided 
for expenditure under the program.
    (3) If FNS determines that a State agency is not providing full and 
timely reports.
    (b) FNS shall effect such recoveries of funds through adjustments in 
the amount of funds provided under the program.



Sec.  227.42  Grant closeout procedures.

    The requirements of OMB Circular A-102, Attachment L, are applicable 
in the termination of any grant under this part.



Sec.  227.43  Participation of adults.

    Nothing in this part shall prohibit a State or local educational 
agency from making available or distributing to adults education 
materials, resources, activities or programs authorized by this part.



Sec.  227.44  Management evaluations and reviews.

    FNS shall establish evaluation procedures to determine whether State 
agencies carry out the purpose and provisions of this part, the State 
agency plan and FNS guidelines and instructions. To the maximum extent 
possible the State's performance shall be reviewed and evaluated by FNS 
on a regular basis including the use of public hearings.

Appendix to Part 227--Apportionment of Funds for Nutrition Education and 
                                Training

    Pursuant to sections 19(j) of the Child Nutrition Act of 1966, as 
amended (42 U.S.C. 1788), funds available for the fiscal year ending 
September 30, 1980, are apportioned among the States as follows:

                  [See footnotes at the end of Table.]

----------------------------------------------------------------------------------------------------------------
                                                                         Residential  Nonresidential
                                                   Public     Private    child care     child care
                     State                         schools    schools   institutions   institutions    Total \5\
                                                     \1\        \2\          \3\            \4\
----------------------------------------------------------------------------------------------------------------
Connecticut....................................     231,069     38,488       1,260          2,866        273,683

[[Page 259]]

 
Maine..........................................      93,406      6,538         387            808        101,139
Massachusetts..................................     420,866     68,337       2,697          5,352        497,252
New Hampshire..................................      67,087      7,978         331          1,160         76,556
Rhode Island...................................      62,521     12,570         304            767         76,162
Vermont........................................      39,419      3,814         247            579         75,000
                                                    914,368    137,725       5,226         11,532      1,099,792
Delaware.......................................      43,210      7,277         107          1,339         75,000
District of Columbia...........................      44,309      7,511         447          2,458         75,000
Maryland.......................................     315,196     51,992       1,292          5,234        373,714
New Jersey.....................................     520,438    117,060       3,930          8,588        650,016
New York.......................................   1,204,026    274,593      14,068         19,756      1,512,443
Pennsylvania...................................     796,518    182,089       9,026          7,312        994,945
Puerto Rico....................................     280,750     36,776           0              0        317,526
Virginia.......................................     410,660     34,947       6,239          6,068        457,914
Virgin Islands.................................       9,783      2,452          11              0         75,000
West Virginia..................................     154,000      4,942         770            854        160,566
                                                  3,778,890    719,639      35,890         51,609      4,692,124
Alabama........................................     296,412     21,949         892         10,607        329,860
Florida........................................     589,122     57,440       2,116         19,074        667,752
Georgia \5\....................................     424,042     27,708       2,783         14,806        469,339
Kentucky.......................................     269,690     27,786       3,685          3,652        304,813
Mississippi....................................     192,134     25,802         541         12,175        230,652
North Carolina.................................     452,523     22,104       3,052         19,722        497,401
South Carolina \5\.............................     243,200     19,225       1,255          6,559        270,239
Tennessee......................................     339,753     17,396       1,448          7,847        366,444
                                                  2,806,876    219,410      15,772         94,442      3,136,500
Illinois.......................................     793,671    160,491       5,343         15,971        975,476
Indiana........................................     433,267     39,967       2,814          5,279        481,327
Michigan.......................................     747,374     85,655       3,069          7,817        843,915
Minnesota......................................     314,333     38,994       1,245          3,135        357,707
Ohio...........................................     818,192    110,561       5,836         10,767        945,356
Wisconsin......................................     344,962     73,707       1,922          3,579        424,170
                                                  3,451,799    509,375      20,229         46,548      4,027,951
Arkansas.......................................     177,730      8,095         385          4,453        190,663
Louisiana......................................     317,817     64,562       1,551          6,307        390,237
New Mexico.....................................     108,673      5,448         235          2,619        116,975
Oklahoma.......................................     229,166      3,969       1,916          8,639        243,690
Texas..........................................   1,115,829     52,654       4,163         38,934      1,211,580
                                                  1,949,215    134,728       8,250         60,952      2,153,145
Colorado \5\...................................     217,264     15,800         937          4,399        238,400
Iowa...........................................     221,255     25,957       3,204          2,631        253,047
Kansas.........................................     168,720     12,765         330          1,062        182,877
Missouri.......................................     350,248     54,950       1,271          6,629        413,098
Montana........................................      63,950      3,425          75            677         75,000
Nebraska.......................................     115,891     17,629         376          1,694        135,590
North Dakota \5\...............................      47,486      4,826         309            383         75,000
South Dakota...................................      53,792      5,760         267            390         75,000
Utah...........................................     126,488      1,518         541          1,325        129,872
Wyoming........................................      36,709      1,206          74            497         75,000
                                                  1,401,803    143,836       7,384         19,687      1,652,884
Alaska.........................................      35,308        739         310            392         75,000
Samoa..........................................       3,616        778           0              0         75,000
Arizona........................................     198,407     21,871         661          4,712        225,651
California.....................................   1,629,801    170,376      28,777         44,277      1,873,231
Guam...........................................      11,118      1,985           0              0         75,000
Hawaii.........................................      66,454     13,348       1,854          3,352         85,008
Idaho..........................................      79,009      1,868         119            860         81,856
Nevada.........................................      56,927      2,179         473          1,643         75,000
Oregon.........................................     183,441      9,379         859          3,703        197,382
Trust Territory................................      11,590          0           0              0         75,000
Washington.....................................     299,362     17,318       2,140          5,656        324,476
N Marianas.....................................       1,945          0           0              0         75,000
                                                  2,576,978    239,841      35,193         64,595      3,237,604
                                                 16,879,929  2,104,554     127,944        349,365     20,000,000
----------------------------------------------------------------------------------------------------------------
\1\ Sources: (1) U.S. Department of Health, Education, and Welfare, Education Division, NCES, Statistics of
  Public Schools, Fall 1977, prepublication data, Table 5 for States and areas, except (2) Northern Marianas and
  Trust Territory, 1975-76 data from Department of Interior, adjust to include pre-school; Puerto Rico and Guam,
  Fall 1976 data.
\2\ U.S. Department of Health, Education, and Welfare, Education Division, (NCES). Digest of Education
  Statistics, 1976, Table 46, p. 47, Northern Marianas and Trust Territory 1975-76 data from Department of
  Interior, adjust to include pre-school.
\3\ U.S. Department of Agriculture, Food and Nutrition Service, Annual Report of Meal Service in Schools (Form
  FNS-47), October 1978.

[[Page 260]]

 
\4\ U.S. Department of Health, Education, and Welfare, Day Care Centers In the U.S.; A National Profile 1976-77,
  Volume 3 of the Final Report of the National Day Care Study, Table 63.
\5\ A portion of these funds will be withheld from the States' allocations for use by FNS in administering the
  Program in nonprofit private schools or institutions.


[44 FR 70451, Dec. 7, 1979]



PART 235_STATE ADMINISTRATIVE EXPENSE FUNDS--Table of Contents




Sec.
235.1 General purpose and scope.
235.2 Definitions.
235.3 Administration.
235.4 Allocation of funds to States.
235.5 Payments to States.
235.6 Use of funds.
235.7 Records and reports.
235.8 Management evaluations and audits.
235.9 Procurement and property management standards.
235.10 [Reserved]
235.11 Other provisions.
235.12 Information collection/recordkeeping--OMB assigned control 
          numbers.

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

    Source: 41 FR 32405, Aug. 3, 1976, unless otherwise noted.



Sec.  235.1  General purpose and scope.

    This part announces the policies and prescribes the regulations 
necessary to carry out the provisions of section 7 of the Child 
Nutrition Act of 1966, as amended. It prescribes the methods for making 
payments of funds to State agencies for use for administrative expenses 
incurred in supervising and giving technical assistance in connection 
with activities undertaken by them under the National School Lunch 
Program (7 CFR part 210), the Special Milk Program (7 CFR part 215), the 
School Breakfast Program (7 CFR part 220), the Child and Adult Care Food 
Program (7 CFR part 226) and the Food Distribution Program (7 CFR part 
250).

(Sec. 7, Pub. L. 95-627, 92 Stat. 3621 (42 U.S.C. 1776))

[44 FR 51185, Aug. 31, 1979, as amended by Amdt. 17, 55 FR 1378, Jan. 
16, 1990; 60 FR 15461, Mar. 24, 1995]



Sec.  235.2  Definitions.

    For the purpose of this part, the term:
    (a) Act means the Child Nutrition Act of 1966, as amended.
    (b) CND means the Child Nutrition Division of the Food and Nutrition 
Service of the U.S. Department of Agriculture.
    (c) Department means the U.S. Department of Agriculture.
    (d) Distributing agency means a State agency which enters into an 
agreement with the Department for the distribution of donated foods 
pursuant to part 250 of this title.
    (e) [Reserved]
    (f) FNS means the Food and Nutrition Service of the U.S. Department 
of Agriculture.
    (g) FNSRO means the appropriate Food and Nutrition Service Regional 
Office of the Food and Nutrition Service of the U.S. Department of 
Agriculture.
    (h) Fiscal year means a period of 12 calendar months beginning 
October 1, 1976, and October 1 of each calendar year thereafter and 
ending with September 30 of the following calendar year.
    (i) Institution means a child or adult care center or a sponsoring 
organization as defined in part 226 of this chapter.
    (j)-(k) [Reserved]
    (l) OIG means the Office of the Inspector General of the Department.
    (m) [Reserved]
    (n) SAE means federally provided State administrative expense funds 
for State agencies under this part.
    (o) School means the term as defined in sections 210.2, 215.2(v), 
220.2(u), and 226.2 of this chapter, as applicable.
    (p) School Food Authority means the governing body which is 
responsible for the administration of one or more schools and which has 
the legal authority to operate a breakfast or a lunch program therein. 
The term ``School Food Authority'' also includes a nonprofit agency or 
organization to which such governing body has delegated authority to 
operate the lunch or breakfast program in schools under its 
jurisdiction, provided the governing body retains the responsibility to 
comply with breakfast or lunch program regulations.

[[Page 261]]

    (q) Secretary means the Secretary of Agriculture.
    (q-1) 7 CFR part 3015 means the Uniform Federal Assistance 
Regulations published by the Department to implement OMB Circulars A-21, 
A-87, A-102, A-110, and A-122; and Executive Order 12372. (For 
availability of OMB Circulars referenced in this definition, see 5 CFR 
1310.3.)
    (q-2) 7 CFR part 3017 means the Department's regulation to implement 
Executive Order 12549, covering governmentwide rules on suspension and 
debarment as well as The Drug Free Workplace Act of 1988.
    (q-3) 7 CFR part 3018 means the Department's Common Rule regarding 
Governmentwide New Restrictions on Lobbying. Part 3018 implements the 
requirements established by section 319 of the 1990 Appropriations Act 
for the Department of Interior and Related Agencies (Pub. L. 101-121).
    (q-4) 7 CFR part 3052 means the Department's regulations 
implementing OMB Circular A-133, ``Audits of State, Local Governments, 
and Non-Profit Organizations.'' (For availability of OMB Circulars 
referenced in this definition, see 5 CFR 1310.3.)
    (r) State means any of the 50 States, District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, and, as 
applicable, American Samoa and the Commonwealth of the Northern 
Marianas.
    (s) State agency means (1) the State educational agency or (2) such 
other agency of the State as has been designated by the Governor or 
other appropriate executive or legislative authority of the State and 
approved by the Department to administer programs under part 210, 215, 
220, 226 or 250 of this title. Unless otherwise indicated, ``State 
agency'' shall also mean ``distributing agency'', as defined in Sec.  
235.2(d), when such agency is receiving funds directly from FNS under 
this part.
    (t) State educational agency means, as the State legislature may 
determine: (1) The chief State school officer (such as the State 
Superintendent of Public Instruction, Commissioner of Education, or 
similar officer), or (2) a board of education controlling the State 
department of education.

(Sec. 7, Pub. L. 95-627, 92 Stat. 3621 (42 U.S.C. 1776); sec. 205, Pub. 
L. 96-499, The Omnibus Reconciliation Act of 1980, 94 Stat. 2599; secs. 
807 and 808, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1772, 1784, 
1760); Pub. L. 79-396, 60 Stat. 231 (42 U.S.C. 1751); Pub. L. 89-642, 80 
Stat. 885-890 (42 U.S.C. 1773); Pub. L. 91-248, 84 Stat. 207 (42 U.S.C. 
1759)

[41 FR 32405, Aug. 3, 1976, as amended at 44 FR 48957, Aug. 21, 1979; 44 
FR 51185, Aug. 31, 1979; Amdt. 9, 48 FR 19355, Apr. 29, 1983; Amdt. 14, 
51 FR 27151, July 30, 1986; 54 FR 2991, Jan. 23, 1989; Amdt. 17, 55 FR 
1378, Jan. 16, 1990; 60 FR 15461, Mar. 24, 1995; 64 FR 50743, Sept. 20, 
1999]



Sec.  235.3  Administration.

    (a) Within the Department, FNS shall act on behalf of the Department 
in the administration of the program for payment to States of State 
administrative expense funds covered by this part. Within FNS, CND shall 
be responsible for administration of the program.
    (b) Each State agency desiring to receive payments under this part 
shall enter into a written agreement with the Department. Each agreement 
shall cover the operation of the Program during the period specified 
therein and may be extended at the option of the Department.

(Sec. 14, Pub. L. 95-166, 91 Stat. 1338 (42 U.S.C. 1776); sec. 7, Pub. 
L. 95-627, 92 Stat. 3621 (42 U.S.C. 1776))

[41 FR 32405, Aug. 3, 1976, as amended at 44 FR 48957, Aug. 21, 1979; 
Amdt. 14, 51 FR 27151, July 30, 1986]



Sec.  235.4  Allocation of funds to States.

    (a) Nondiscretionary SAE Funds. For each fiscal year, FNS shall 
allocate the following:
    (1) To each State which administers the National School Lunch, 
School Breakfast or Special Milk Programs an amount equal to one (1) 
percent of the funds expended by such State during the second preceding 
fiscal year under sections 4 and 11 of the National School Lunch Act, as 
amended, and sections 3, 4 and 17A of the Child Nutrition Act of 1966, 
as amended. However, the total amount allocated to any State under this 
paragraph shall not be less than $100,000 or the amount allocated to the

[[Page 262]]

State in the fiscal year ending September 30, 1981, whichever is 
greater.
    (2) To each State which administers the Child and Adult Care Food 
Program an amount equal to the sum of: Twenty percent of the first 
$50,000; ten percent of the next $100,000; five percent of the next 
$250,000; and two and one-half percent of any remaining funds expended 
within the State under section 17 of the National School Lunch Act, as 
amended, during the second preceding fiscal year. FNS may adjust the 
amount of any such allocation in accordance with changes in the size of 
the Child and Adult Care Food Program in a State.
    (b) Discretionary SAE Funds. For each fiscal year, FNS shall provide 
the following additional allocations:
    (1) Allocate $30,000 to each State which administers the Child and 
Adult Care Food Program (7 CFR part 226).
    (2) $30,000 to each State which administers the Food Distribution 
Program (part 250 of this chapter) in schools and/or institutions which 
participate in programs under parts 210, 220, 226 of this chapter.
    (3) Amounts derived by application of the following four-part 
formula to each State agency which is allocated funds under paragraph 
(a) of this section:
    (i) One equal share of forty (40) percent of the funds designated by 
FNS for the reviews conducted under Sec.  210.18 of this title.
    (ii) The ratio of the number of School Food Authorities 
participating in the National School Lunch or Commodity School Programs 
under the jurisdiction of the State agency to such School Food 
Authorities in all States times twenty (20) percent of the funds 
designated by FNS for reviews conducted under Sec.  210.18 or of this 
title.
    (iii) The ratio of the number of free and reduced price meals served 
in School Food Authorities under the jurisdiction of the State agency 
during the second preceding fiscal year to the number of free and 
reduced price meals served in all States in the second preceding fiscal 
year times twenty (20) percent of the funds designated by FNS for 
reviews conducted under Sec.  210.18 of this title.
    (iv) Equal shares of twenty (20) percent of the funds designated by 
FNS for reviews conducted under Sec.  210.18 of this title for each 
School Food Authority under the jurisdiction of the State agency 
participating in the National School Lunch or Commodity School Programs 
which has an enrollment of 40,000 or more; Provided, however, That for 
State agencies with fewer than two School Food Authorities with 
enrollments of 40,000 or more, an equal share shall be provided to the 
State agency, for either, or both, of the two largest School Food 
Authorities which have enrollments of more than 2,000; and Provided, 
further, That State agencies with only one School Food Authority, 
regardless of size, shall be provided with one equal share. For each 
fiscal year, the amount of State Administrative Expense Funds designated 
by FNS for reviews conducted under Sec.  210.18 of this title and 
subject to allocation under this paragraph shall be equal to or greater 
than the amount designated by FNS for program management improvements 
for the fiscal year ending September 30, 1980.
    (4) Funds which remain after the allocations required in paragraphs 
(a)(1), (a)(2), (b)(1), (b)(2) and (b)(3) of this section, and after any 
payments provided for under paragraph (c) of this section, as determined 
by the Secretary, to those States which administer the Food Distribution 
Program (part 250 of this chapter) in schools and/or institutions which 
participate in programs under parts 210, 220, or 226 of this chapter and 
to those States which administer part 226 of this chapter. The amount of 
funds to be allocated to each State for the Food Distribution Program 
for any fiscal year shall bear the same ratio to the total amount of 
funds made available for allocation to the State for the Food 
Distribution Program under this paragraph as the value of USDA donated 
foods delivered to the State for schools and institutions participating 
in programs under parts 210, 220 and 226 of this chapter during the 
second preceding fiscal year bears to the value of USDA donated foods 
delivered to all the States for such schools and institutions during the 
second preceding fiscal year. The amount of funds to be allocated to 
each State which administers the Child and Adult Care Food Program for 
any fiscal

[[Page 263]]

year shall bear the same ratio to the total amount of funds made 
available for allocation to all such States under this paragraph as the 
amount of funds allocated to each State under paragraph (a)(2) of this 
section bears to the amount allocated to all States under that 
paragraph.
    (c) SAE Funds for the Child and Adult Care Food Program. If a State 
elects to have a separate State agency administer the adult care 
component of the Child and Adult Care Food Program, such separate State 
agency shall receive a pro rata share of the SAE funds allocated to the 
State under paragraphs (a)(2), (b)(1), and (b)(4) of this section which 
is equal to the ratio of funds expended by the State for the adult care 
component of the Child and Adult Care Food Program during the second 
preceding fiscal year to the funds expended by the State for the entire 
Child and Adult Care Food Program during the second preceding fiscal 
year. The remaining funds shall be allocated to the State agency 
administering the child care component of the Child and Adult Care Food 
Program.
    (d) SAE Start-up Cost Assistance for State Administration of Former 
ROAPs. For any State agency which agrees to assume responsibility for 
the administration of food service programs in nonprofit private schools 
or child and adult care institutions that were previously administered 
by FNS, an appropriate adjustment in the administrative funds paid under 
this part to the State shall be made by FNS not later than the 
succeeding fiscal year. Such an adjustment shall consist of an amount of 
start-up cost assistance, negotiated with the State agency, of no less 
than $10,000 and not exceeding $100,000, per State.
    (e) SAE Funding Reduction Upon State Agency Termination of a Food 
Service Program. For any State agency which terminates its 
administration of any food service program for which State 
administrative expense funds are provided under this part, a reduction 
in the amount of such funds, negotiated with the State agency, shall be 
made by FNS.
    (f) SAE Funds for ROAPs. FNS shall have available to it the 
applicable amounts provided for in paragraphs (a)(1), (a)(2), and (b)(1) 
of this section, and part 225 of this title, when it is responsible for 
the administration of a program or programs within a State.
    (g) Reallocation. Funds allotted to State agencies under this 
section shall be subject to the reallocation provisions of Sec.  
235.5(d).
    (h) Withholding SAE funds. The Secretary may withhold some or all of 
the funds allocated to the State agency under this section if the 
Secretary determines that the State agency is seriously deficient in the 
administration of any program for which State administrative expense 
funds are provided under this part or in the compliance of any 
regulation issued pursuant to those programs. On a subsequent 
determination by the Secretary that State agency administration of the 
programs or compliance with regulations is no longer seriously deficient 
and is operated in an acceptable manner, the Secretary may allocate some 
or all of the funds withheld.

(Sec. 14, Pub. L. 95-166, 91 Stat. 1338 (42 U.S.C. 1776); sec. 7, Pub. 
L. 95-627, 92 Stat. 3621 (42 U.S.C. 1776); sec. 7(a), Pub. L. 95-627, 92 
Stat. 3622 (42 U.S.C. 1751); Pub. L. 96-499, secs. 201 and 204, 94 Stat. 
2599; secs. 805, 812, 814 and 819, Pub. L. 97-35, 95 Stat. 521-535 (42 
U.S.C. 1754, 1759a, 1774 and 1776); E.O. 12372 (July 14, 1982, 47 FR 
30959); sec. 401(b) Intergovernmental Cooperation Act of 1968 (31 U.S.C. 
6506(c))

[44 FR 48957, Aug. 21, 1979, as amended at 44 FR 51185, Aug. 31, 1979; 
44 FR 53489, Sept. 14, 1979; 45 FR 3566, Jan. 18, 1980; Amdt. 11, 48 FR 
27892, June 17, 1983; Amdt. 14, 51 FR 27151, July 30, 1986; Amdt. 15, 51 
FR 33862, Sept. 24, 1986; Amdt. 17, 55 FR 1378, Jan. 16, 1990; 56 FR 
32949, July 17, 1991; 58 FR 42489, Aug. 10, 1993; 60 FR 15462, Mar. 24, 
1995; 64 FR 50743, Sept. 20, 1999]



Sec.  235.5  Payments to States.

    (a) Method of payment. FNS will specify the terms and conditions of 
the State agency's annual grant of SAE funds in conjunction with the 
grant award document and will make funds available for payment by means 
of a Letter of Credit issued in favor of the State agency. The total 
amount of a State agency's grant shall be equal to the sum of the 
amounts allocated to such agency under Sec.  235.4 plus or minus

[[Page 264]]

any adjustments resulting from the reallocation provisions under 
paragraph (d) of this section plus any transfers under Sec.  235.6(a) 
and/or Sec.  235.6(c) of this part. The amount of SAE funds made 
available for payment to a State agency in any fiscal year shall be 
determined by FNS upon approval of the State agency's administrative 
plan under paragraph (b) of this section and any amendments to such plan 
under paragraph (c) of this section. Funds shall not be made available 
before the State agency's plan or amendment to such plan, as applicable, 
has been approved by FNS. However, if the plan has not been approved by 
October 1 of the base year, FNS may advance SAE funds to the State 
agency, in amounts determined appropriate by FNS, pending approval of 
the plan.
    (b) Administrative plan. (1) Each State agency shall submit, subject 
to FNS approval, an initial State Administrative Expense plan based upon 
guidance provided by FNS. This base year plan shall include:
    (i) The staffing pattern for State level personnel;
    (ii) A budget for the forthcoming fiscal year showing projected 
amounts (combined SAE and State funds) by cost category;
    (iii) The total amount of budgeted funds to be provided from State 
sources;
    (iv) The total amount of budgeted funds to be provided under this 
part;
    (v) The State agency's estimate of the total amount of budgeted 
funds (combined SAE and State funds) attributable to administration of 
the School Nutrition Programs (National School Lunch, School Breakfast 
and Special Milk Programs), Child and Adult Care Food Program, and/or 
Food Distribution Program in schools and child and adult care 
institutions and to each of the major activity areas of the State 
agency; and
    (vi) The State agency's estimate of the total Child and Adult Care 
Food Program audit funds to be used for the forthcoming fiscal year.
    (2) These activity areas shall be defined and described by the State 
agency in accordance with guidance issued by FNS and may include such 
activities as program monitoring, technical assistance, Federal 
reporting/claims processing, policy implementation, and allocation of 
foods to recipient agencies.
    (3) Except in specific instances where determined necessary by FNS, 
State agencies shall not be required to maintain expenditure records by 
activity area or program. State agencies shall refer to Office of 
Management and Budget Circular A-87, Attachment B, to establish cost 
categories.
    (4) FNS shall approve a State agency's plan, or any amendment to 
such plan under paragraph (c) of this section, if it determines that the 
plan or amendment is consistent with program administrative needs and 
SAE requirements under this part.
    (5) To the extent practicable, State agencies shall implement their 
approved plans (as amended). FNS shall monitor State agency 
implementation of the plans through management evaluations, State agency 
reports submitted under this part, audits, and through other available 
means.
    (6) FNS may expand plan requirements for individual State agencies 
in order to address specific administrative deficiencies which affect 
compliance with program requirements and which have been identified by 
FNS through its monitoring activities.
    (c) Amendments to the administrative plan. A State agency may amend 
its plan at any time to reflect changes in funding or activities, except 
that, if such changes are substantive as defined in the June 5, 1997 
guidance, and any amendments or updates to this guidance, the State 
agency shall amend its plan in accordance with guidance provided by FNS. 
Plan amendments shall provide information in a format consistent with 
that provided in the State agency's plan, but shall only require FNS 
approval if it results in a substantive change as defined by FNS.
    (d) Reallocation of funds. Annually, between March 1 and May 1 on a 
date specified by FNS, of each year, each State agency shall submit to 
FNS a State Administrative Expense Funds Reallocation Report (FNS-525) 
on the use of SAE funds. At such time, a State agency may release to FNS 
any funds that have been allocated, reallocated or transferred to it 
under this part or

[[Page 265]]

may request additional funds in excess of its current grant level. Based 
on this information or on other available information, FNS shall 
reallocate, as it determines appropriate, any funds allocated to State 
agencies in the current fiscal year which will not be expended in the 
following fiscal year and any funds carried over from the prior fiscal 
year which will not be expended in the current fiscal year. Reallocated 
funds shall be made available for payment to a State agency upon 
approval by FNS of the State agency's amendment to the base year plan 
which covers the reallocated funds, if applicable. Notwithstanding any 
other provision of this part, a State agency may, at any time, release 
to FNS for reallocation any funds that have been allocated, reallocated 
or transferred to it under this part and are not needed to implement its 
approved plan under this section.
    (e) Return of funds. (1) In Fiscal Year 1991, up to 25 per cent of 
the SAE funds allocated to each State agency under Sec.  235.4 may 
remain available for obligation and expenditure in the second fiscal 
year of the grant. In subsequent fiscal years, up to 20 percent may 
remain available for obligation and expenditure in the second fiscal 
year. The maximum amount to remain available will be calculated at the 
time of the formula allocation by multiplying the appropriate percentage 
by each State agency's formula allocation as provided under Sec.  
235.4(a) through (c). At the end of the first fiscal year, the amount 
subject to the retention limit is determined by subtracting the amount 
reported by the State agency as Total Federal share of outlays and 
unliquidated obligations on the fourth quarter Standard Form (SF) 269, 
Financial Status Report, from the total amount of SAE funds made 
available for that fiscal year (i.e., the formula allocation adjusted 
for any transfers or reallocations). However, funds provided under Sec.  
235.4(d) are not subject to the retention limit. Any funds in excess of 
the amount that remains available to each State agency shall be returned 
to FNS.
    (2) At the end of the fiscal year following the fiscal year for 
which funds were allocated, each State agency shall return any funds 
made available which are unexpended.
    (3) Return of funds by the State agency shall be made as soon as 
practicable, but in any event, not later than 30 days following demand 
by FNS.

[Amdt. 14, 51 FR 27151, July 30, 1986, as amended by Amdt. 17, 55 FR 
1378, Jan. 16, 1990; 60 FR 15462, Mar. 24, 1995]

[41 FR 32405, Aug. 3, 1976, as amended at 64 FR 50743, Sept. 20, 1999]



Sec.  235.6  Use of funds.

    (a) Funds allocated under this part and 7 CFR part 225 shall be used 
for State agency administrative costs incurred in connection with the 
programs governed by 7 CFR parts 210, 215, 220, 225, 226, and 250 of 
this title. Except as provided under Sec.  235.6(c), funds allocated 
under Sec.  235.4, paragraphs (a) and (b) and 7 CFR part 225 shall be 
used for the program(s) for which allocated, except that the State 
agency may transfer funds allocated for any such program(s) to other 
such program(s). Subject to the provisions of this paragraph, a State 
agency may also transfer SAE funds that are not needed to implement its 
approved plan Sec.  235.5(b) to another State agency within the State 
that is eligible to receive SAE funds under this part. Up to 25 per cent 
of funds allocated under Sec.  235.4(a) through (c) for Fiscal Year 1991 
and up to 20 per cent of funds allocated in subsequent fiscal years to a 
State agency may, subject to the provisions of Sec.  235.5 of this part, 
remain available for obligation and expenditure by such State agency 
during the following fiscal year.
    (a-1) State administrative expense funds paid to any State may be 
used by State agencies to pay salaries, including employee benefits and 
travel expenses for administrative and supervisory personnel, for 
support services, for office equipment, and for staff development, 
particularly for monitoring and training of food service personnel at 
the local level in areas such as food purchasing and merchandizing. Such 
funds shall be used to employ additional personnel, as approved in the 
applicable State plan to supervise, improve management, and give 
technical assistance to school food authorities and to institutions in 
their initiation,

[[Page 266]]

expansion, and conduct of any programs for which the funds are made 
available. State agencies may also use these funds for their general 
administrative expenses in connection with any such programs, including 
travel and related expenses. Additional personnel or part-time personnel 
hired are expected to meet professional qualifications and to be paid at 
salary scales of positions of comparable difficulty and responsibility 
under the State agency. Personnel may be used on a staff year equivalent 
basis, thus permitting new personnel and existing staff to be cross-
utilized for most effective and economical operation under existing and 
new programs.
    (a-2) State Administrative Expense Funds paid to any State agency 
under Sec.  235.4(b)(3) shall be available for reviews conducted under 
Sec.  210.18 activities associated with carrying out actions to ensure 
adherence to the program performance standards.
    (b) State administrative expense funds shall be used consistent with 
the cost principles and constraints on allowable and unallowable costs 
and indirect cost rates as prescribed in Office of Management and Budget 
Circular A-87.
    (c) In addition to State Administrative Expense funds made available 
specifically for food distribution purposes under Sec.  235.4 (b)(2) and 
(b)(4), State Administrative Expense funds allocated under Sec.  235.4 
(a)(1), (a)(2), (b)(1), (b)(3), and (d), and under (b)(4) for the Child 
and Adult Care Food Program may be used to assist in the administration 
of the Food Distribution Program (7 CFR part 250) in schools and 
institutions which participate in programs governed by parts 210, 220, 
and 226 of this title when such Food Distribution Program is 
administered within the State agency and may also be used to pay 
administrative expenses of a distributing agency, when such agency is 
other than the State agency and is responsible for administering all or 
part of such Food Distribution Program.
    (d) FNS shall allocate, for the purpose of providing grants on an 
annual basis to public entities and private nonprofit organizations 
participating in projects under section 18(c) of the National School 
Lunch Act, not more than $4,000,000 in each of Fiscal Years 1993 and 
1994. Subject to the maximum allocation for such projects for each 
fiscal year, at the beginning of each of Fiscal Years 1993 and 1994, FNS 
shall allocate, from funds available under Sec.  235.5(d) that have not 
otherwise been allocated to States, an amount equal to the estimates by 
FNS of the funds to be returned under paragraph (a) of this section, but 
not less than $1,000,000 in each fiscal year. To the extent that amounts 
returned to FNS are less than estimated or are insufficient to meet the 
needs of the projects, FNS may allocate amounts to meet the needs of the 
projects from funds available under this section that have not been 
otherwise allocated to States. FNS shall reallocate any of the excess 
funds above the minimum level in accordance with Sec.  235.5(d).
    (e) Where State Administrative Expense Funds are used to acquire 
personal property or services the provisions of Sec. Sec.  235.9 and 
235.10 must be observed.
    (f) Each State agency shall adequately safeguard all assets and 
assure that they are used solely for authorized purposes.
    (g) Whoever embezzles, willfully misapplies, steals, or obtains by 
fraud any funds, assets, or property provided under this part, whether 
received directly or indirectly from the Department, shall:
    (1) If such funds, assets, or property are of a value of $100 or 
more, be fined not more than $25,000 or imprisoned not more than five 
years or both; or
    (2) If such funds, assets, or property are of a value of less than 
$100, be fined not more than $1,000 or imprisoned not more than one year 
or both.
    (h) Whoever receives, conceals, or retains to his use or gain funds, 
assets, or property provided under this part, whether received directly 
or indirectly from the Department, knowing such funds, assets, or 
property have been embezzled, willfully misapplied, stolen, or obtained 
by fraud, shall be subject

[[Page 267]]

to the same penalties provided in paragraph (h) of this section.

(Sec. 14, Pub. L. 95-166, 91 Stat. 1338, 1339, 1340 (42 U.S.C. 1751, 
1753, 1759a, 1761, 1766, 1772-1775, 1776, 1786); sec. 7(a), Pub. L. 95-
627, 92 Stat. 3621, 3622 (42 U.S.C. 1751, 1776))

[41 FR 32405, Aug. 3, 1976, as amended at 43 FR 37172, Aug. 22, 1978; 44 
FR 37901, June 29, 1979; 44 FR 48958, Aug. 21, 1979; 44 FR 51185, Aug. 
31, 1979; 45 FR 3566, Jan. 18, 1980; Amdt. 11, 48 FR 27892, June 17, 
1983; Amdt. 14, 51 FR 27152, July 30, 1986; 56 FR 32949, July 17, 1991; 
60 FR 15462, Mar. 24, 1995; 60 FR 57148, Nov. 14, 1995; 64 FR 50744, 
Sept. 20, 1999]



Sec.  235.7  Records and reports.

    (a) Each State agency shall keep records on the expenditure of State 
administrative expense funds provided under this part and part 225 of 
this title. Such records shall conform with the applicable State plan 
for use of State administrative expense funds. The State agency shall 
make such records available, upon a reasonable request, to FNS, OIG, or 
the U.S. Comptroller General and shall maintain current accounting 
records of State administrative expense funds which shall adequately 
identify fund authorizations, obligations, unobligated balances, assets, 
liabilities, outlays and income. The records may be kept in their 
original form or on microfilm, and shall be retained for a period of 
three years after the date of the submission of the final Financial 
Status Report, subject to the exceptions noted below:
    (1) If audit findings have not been resolved, the records shall be 
retained beyond the three-year period as long as required for the 
resolution of the issues raised by the audit.
    (2) Records for nonexpendable property acquired with State 
Administrative Expense Funds shall be retained for three years after its 
final disposition.
    (b) Each State agency shall submit to FNS a quarterly Financial 
Status Report (SF-269) on the use of State administrative expense funds 
provided for each fiscal year under this part. Reports shall be 
postmarked and/or submitted to FNS no later than 30 days after the end 
of each quarter of the fiscal year and, in case of funds carried over 
under Sec.  235.6(a), each quarter of the following fiscal year until 
all such funds have been obligated and expended. Obligations shall be 
reported for the fiscal year in which they occur. Each State agency 
shall submit a final Financial Status Report for each fiscal year's 
State administrative expense funds. This report shall be postmarked and/
or submitted to FNS no later than 30 days after the end of the fiscal 
year following the fiscal year for which the funds were initially made 
available. Based on guidance provided by FNS, each State agency shall 
also use the quarterly SF-269 to report on the use of State funds 
provided during the fiscal year. Each State agency shall also submit an 
annual report containing information on School Food Authorities under 
agreement with the State agency to participate in the National School 
Lunch or Commodity School programs.
    (c) State agencies operating those programs governed by parts 210, 
215, 220 and 226 and those State agencies which are distributing 
agencies eligible for SAE funds shall participate in surveys and studies 
of programs authorized under the National School Lunch Act, as amended, 
and the Child Nutrition Act of 1966, as amended, when such studies and 
surveys are authorized by the Secretary of Agriculture. The 
aforementioned State agencies shall encourage individual School Food 
Authorities, child and adult care institutions, and distributing 
agencies (as applicable) to participate in such studies and surveys. 
Distribution of State Administrative Expense funds to an individual 
State agency is contingent upon that State agency's cooperation in such 
studies and surveys.

(Sec. 14, Pub. L. 95-166, 91 Stat. 1338 (42 U.S.C. 1776); sec. 7, Pub. 
L. 95-627, 92 Stat. 3621 (42 U.S.C. 1776); 93 Stat. 837, Pub. L. 96-108 
(42 U.S.C. 1776); secs. 804, 816, 817 and 819, Pub. L. 97-35, 95 Stat. 
521-535 (42 U.S.C. 1753, 1756, 1759, 1771, 1773 and 1785); sec. 7(a), 
Pub. L. 95-627, 92 Stat. 3622, 42 U.S.C. 1751)

[41 FR 32405, Aug. 3, 1976, as amended at 43 FR 37173, Aug. 22, 1978; 44 
FR 48958, Aug. 21, 1979; 45 FR 8563, Feb. 8, 1980; Amdt. 9, 48 FR 195, 
Jan. 4, 1983; Amdt. 11, 48 FR 27892, June 17, 1983; Amdt. 12, 49 FR 
18989, May 4, 1984; Amdt. 14, 51 FR 27152, July 30, 1986; Amdt. 17, 55 
FR 1378, Jan. 16, 1990; 60 FR 15463, Mar. 24, 1995]

[[Page 268]]



Sec.  235.8  Management evaluations and audits.

    (a) Each State agency shall provide for audits of State agency 
operations under this part to be made with reasonable frequency, but 
beginning in fiscal year 1978 once every two years. The audits shall 
determine the fiscal integrity of financial transactions and reports, 
and the compliance with applicable laws and regulations and with the 
administrative requirements set forth in 7 CFR part 3015. Audits may be 
made by State Auditors General, by State Controllers, or other 
comparable State audit groups, or by Certified Public Accountants or 
State licensed public accountants.
    (b) Each State agency shall develop a plan for the conduct of such 
audits which shall (1) provide a description of the State agency in 
adequate detail to demonstrate the independence of the audit 
organization, and (2) provide a systematic method to assure timely and 
appropriate resolution of audit findings and recommendations.
    (c) While OA shall rely to the fullest extent feasible upon State 
sponsored audits, it shall, whenever considered necessary, (1) perform 
on-site test audits, and (2) review audit reports and related working 
papers of audits performed by or for State agencies.
    (d) Use of audit guides available from OA is encouraged. When these 
guides are utilized, OA will coordinate its audits with State sponsored 
audits to form a network of intergovernmental audit systems.
    (e) Each State agency shall provide FNS with full opportunity to 
conduct management evaluations of all operations of the State agency 
under this part and shall provide OA with full opportunity to conduct 
audits of all such operations. Each State agency shall make available 
its records, including records of the receipt and expenditure of funds, 
upon a reasonable request by FNS, OA, or the U.S. Comptroller General.

(Sec. 7, Pub. L. 95-627, 92 Stat. 3621 (42 U.S.C. 1776); secs. 804, 805, 
812, 814, 816, 817 and 819, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 
1753, 1754, 1756, 1759, 1759a, 1771, 1773, 1774, 1776, and 1785))

[41 FR 32405, Aug. 3, 1976, as amended at 44 FR 51186, Aug. 31, 1979; 
Amdt. 7, 47 FR 18567, Apr. 30, 1982; Amdt. 9, 48 FR 195, Jan. 4, 1983; 
54 FR 2991, Jan. 23, 1989]



Sec.  235.9  Procurement and property management standards.

    (a) Requirements. State agencies shall comply with the requirements 
of the Office of Management and Budget (OMB) Circular A-102 and the 
Department's Uniform Federal Assistance Regulations, 7 CFR part 3015, 
subpart S (46 FR 55658) concerning the procurement of supplies, 
equipment and other services with State Administrative Expense Funds. 
These requirements are adopted by FNS to ensure that such materials and 
services are obtained for the Program efficiently and economically and 
in compliance with applicable laws and executive orders.
    (b) Contractual responsibilities. The standards contained in OMB 
Circular A-102 and 7 CFR part 3015 do not relieve the State agency of 
any contractual responsibilities under its contract. The State agency is 
the responsible authority, without recourse to FNS, regarding the 
settlement and satisfaction of all contractual and administrative issues 
arising out of procurements entered into in connection with the Program. 
This includes, but is not limited to source evaluation, protests, 
disputes, claims, or other matters of a contractual nature. Matters 
concerning violation of law are to be referred to the local, State or 
Federal authority that has proper jurisdiction.
    (c) Procurement procedure. The State agency may use its own 
procurement procedures which reflect applicable State and local laws and 
regulations, provided that procurements made with Program funds adhere 
to the standards

[[Page 269]]

set forth in OMB Circular A-102 and 7 CFR part 3015.
    (d) Property acquired with State administrative expense funds. State 
Agencies shall comply with the requirements of OMB Circular A-102 and 7 
CFR part 3015, subpart R (46 FR 55654) in their utilization and 
disposition of property acquired in whole or in part with State 
Administrative Expense Funds.

(Pub. L. 79-396, 60 Stat. 231 (42 U.S.C. 1751); Pub. L. 89-642, 80 Stat. 
885-890 (42 U.S.C. 1773); Pub. L. 91-248, 84 Stat. 207 (42 U.S.C. 1759))

[Amdt. 9, 48 FR 19355, Apr. 29, 1983]



Sec.  235.10  [Reserved]



Sec.  235.11  Other provisions.

    (a) State funds. Expenditures of funds from State sources in any 
fiscal year for the administration of the National School Lunch Program, 
School Breakfast Program, Special Milk Program, Child and Adult Care 
Food Program shall not be less than that expended or obligated in fiscal 
year 1977. Failure of a State to maintain this level of funding will 
result in the total withdrawal of SAE funds. State agencies shall 
follow, as applicable, the provisions of Office of Management and Budget 
Circular A-102, Attachments F and G and 7 CFR part 3015, subparts G and 
H in identifying and documenting expenditures of funds from State 
revenues to meet the State funding requirement of this paragraph.
    (b) Sanctions imposed. (1) FNS may recover, withhold or cancel 
payment of up to one hundred (100) percent of the funds payable to a 
State agency under this part, whenever it is determined by FNS that the 
State agency has failed to comply with the requirements contained in 
this part and in parts 210, 215, 220 and 226 of this title and in part 
250 of this title as it applies to the operation of the Food 
Distribution Program in schools and child and adult care institutions.
    (2) In addition to the general provisions found in paragraph (b)(1) 
of this section, FNS may, for any fiscal year, recover, withhold or 
cancel payment of up to thirty-three and one-third (33\1/3\) percent of 
the funds payable to, and to be used by, a State agency under Sec.  
235.4(a)(1) and Sec.  235.4(b)(3) for administration of school nutrition 
programs in FNS determines that a State agency is deficient in one or 
more of the following:
    (i) Implementing the requirements in Sec.  210.18;
    (ii) Conducting the number of reviews required in Sec.  210.18 
within the timeframes specified;
    (iii) Covering the areas of review set forth in the Sec.  210.18, 
carrying out corrective action, and assessing and recovering claims as 
prescribed in Sec.  210.18 and Sec.  210.19 of this title;
    (iv) Conducting reviews with sufficient thoroughness to identify 
violations of the areas of review identified in Sec.  210.18; and
    (v) Meeting the reporting deadlines prescribed for the forms (FNS-10 
and SF-269) required under Sec.  210.5(d) of this title.
    (3) Furthermore, FNS may for any fiscal year, recover, withhold or 
cancel payment of up to thirty-three and one-third (33\1/3\) percent of 
the funds payable to, and to be used by, a State agency under Sec.  
235.4(a)(2), Sec.  235.4(b)(1) and Sec.  235.4(b)(4) for administration 
of the Child and Adult Care Food Program if FNS determines that a State 
agency is deficient in meeting the reporting deadlines prescribed for 
the forms (FNS-44 and SF-269) required under Sec.  226.7(d) of this 
title.
    (4) In establishing the amounts of funds to be recovered, withheld 
or cancelled under paragraph (b)(2) and (b)(3) of this section, FNS 
shall determine the current or projected rate of funds usage by the 
State agency for all funds subject to sanction, and after considering 
the severity and longevity of the cumulative deficiencies, shall apply 
an appropriate sanction percentage to the amount so determined. During 
the fiscal year under sanction, a State agency may not use funds not 
included in the determination of funds usage to replace sanctioned 
funds. The maximum sanction percentage that may be imposed against a 
State agency for failure within one or more of the five deficiency areas 
specified in paragraph (b)(2) of this section for any fiscal year shall 
be thirty-three and one-third (33\1/3\) percent of the funds payable 
under

[[Page 270]]

Sec.  235.4(a)(1) and Sec.  235.4(b)(3) for administration of school 
nutrition programs for such fiscal year.
    (5) Before carrying out any sanction against a State agency under 
this section, the following procedures shall be implemented:
    (i) FNS shall notify the Chief State School Officer or equivalent of 
the deficiencies found and of its intention to impose sanctions unless 
an acceptable corrective action plan is submitted and approved by FNS 
within 60 calendar days.
    (ii) The State agency shall develop a corrective action plan with 
specific timeframes to correct the deficiencies and/or prevent their 
future recurrence. The plan will include dates by which the State agency 
will accomplish such corrective action.
    (iii) FNS shall review the corrective action plan. If it is 
acceptable, FNS shall issue a letter to the Chief State School Officer 
or equivalent approving the corrective action plan, and detailing the 
technical assistance that is available to the State agency to correct 
the deficiencies. The letter shall advise the Chief State School Officer 
or equivalent of the specific sanctions to be imposed if the corrective 
action plan is not implemented within timeframes set forth in the 
approved plan.
    (iv) Upon advice from the State agency that corrective action has 
been taken, FNS shall assess such action and, if necessary, shall 
perform a follow-up review to determine if the noted deficiencies have 
been corrected. FNS shall then advise the State agency if the actions 
taken are in compliance with the corrective action plan or if additional 
corrective action is needed.
    (v) If an acceptable corrective action plan is not submitted and 
approved within 60 calendar days, or if corrective action is not 
completed within the time limits established in the corrective action 
plan, FNS may impose a sanction by assessing a claim against the State 
agency or taking action in accordance with 7 CFR part 3015, subpart L. 
FNS shall notify the Chief State School Officer or equivalent of any 
such action.
    (vi) If, subsequent to the imposition of any sanction, FNS 
determines that the noted deficiencies have been resolved and that the 
programs for which SAE funds were made available are being operated in 
an acceptable manner, FNS may return to the State agency or restore to 
the State agency's Letter of Credit (LOC) part or all of any sanctioned 
SAE funds.
    (6) In carrying out sanctions under this part for any fiscal year, 
FNS may reduce the amount of allocated SAE funds payable to a State 
agency in whole or in part during such fiscal year and during following 
fiscal years if necessary.
    (7) Any State agency which has a sanction imposed against it in 
accordance with this paragraph shall not be eligible to participate in 
any reallocation of SAE funds under Sec.  235.5(d) of this part during 
any fiscal year in which such sanction is being applied.
    (c) Termination for convenience. FNS and the State agency may 
terminate the State agency's participation under this part in whole, or 
in part, when both parties agree that continuation would not produce 
beneficial results commensurate with the further expenditure of funds. 
The two parties shall agree upon the termination conditions, including 
the effective date and, in the case of partial termination, the portion 
to be terminated. The State agency shall not incur new obligations for 
the terminated portion after the effective date, and shall cancel as 
many outstanding obligations as possible. FNS shall allow full credit to 
the State agency for the Federal share of the noncancellable 
obligations, properly incurred by the State agency prior to termination.
    (d) In taking any action under paragraphs (b) or (c) of this 
section, FNS and the State agency shall comply with the provisions of 
the Department's Uniform Federal Assistance Regulations, 7 CFR part 3015 
subpart N concerning grant suspension, termination and closeout 
procedures.
    (e) State requirements. Nothing contained in this part shall prevent 
a State agency from imposing additional operating requirements which are 
not inconsistent with the provisions of this part.
    (f) Administrative review process. When FNS asserts a sanction 
against a State

[[Page 271]]

agency under the provisions of paragraph (b) of this section, the State 
agency may appeal the case and be afforded a review by an FNS 
Administrative Review Officer of the record including any additional 
written submissions prepared by the State agency.
    (1) FNS shall provide a written notice and shall ensure the receipt 
of such notice when asserting a sanction against a State agency.
    (2) A State agency aggrieved by a sanction asserted against it may 
file a written request with the Director, Administrative Review Staff, 
U.S. Department of Agriculture, Food and Nutrition Service, 3101 Park 
Center Drive, Alexandria, Va. 22302 for a review of the record. Such 
request must be postmarked within 30 calendar days of the date of 
delivery of the sanction notice and the envelope containing the request 
shall be prominently marked ``REQUEST FOR REVIEW.'' If the State agency 
does not request a review within 30 calendar days of the date of 
delivery of the sanction notice, the administrative decision on the 
sanction shall be final.
    (3) Upon receipt of a request for review, FNS shall promptly provide 
the State agency with a written acknowledgment of the request. The 
acknowledgment shall include the name and address of the FNS 
Administrative Review Officer reviewing the sanction. The acknowledgment 
shall also notify the State agency that any additional information in 
support of its position must be submitted within 30 calendar days of the 
receipt of the acknowledgment.
    (4) When a review is requested, the FNS Administrative Review 
Officer shall review all available information and shall make a final 
determination within 45 calendar days after receipt of the State 
agency's additional information. The final determination shall take 
effect upon delivery of the written notice of this final decision to the 
State agency.
    (5) The final determination of the FNS Administrative Review Officer 
will be the Department's final decision in the case and will not be 
subject to reconsideration.

(Sec. 14, Pub. L. 95-166, 91 Stat. 1338 (42 U.S.C. 1776); sec. 7, Pub. 
L. 95-627, 92 Stat. 3621 (42 U.S.C. 1776); secs. 805 and 819, Pub. L. 
97-35, 95 Stat. 521-535 (42 U.S.C. 1773); sec. 7(a), Pub. L. 95-627, 93 
Stat. 3622, 42 U.S.C. 1751)

[41 FR 32405, Aug. 3, 1976, as amended at 44 FR 48958, Aug. 21, 1979; 
Amdt. 6, 47 FR 14135, Apr. 2, 1982; Amdt. 11, 48 FR 27892, June 17, 
1983; Amdt. 12, 49 FR 18989, May 4, 1984; Amdt. 14, 51 FR 27152, July 
30, 1986; Amdt. 15, 51 FR 33862, Sept. 24, 1986; Amdt. 17, 55 FR 1378, 
Jan. 16, 1990; 56 FR 32950, July 17, 1991; 60 FR 15463, Mar. 24, 1995; 
64 FR 50744, Sept. 20, 1999]



Sec.  235.12  Information collection/recordkeeping--OMB assigned control numbers.

------------------------------------------------------------------------
                                                             Current OMB
       7 CFR section where requirements are described          control
                                                                number
------------------------------------------------------------------------
235.3(b)...................................................    0584-0067
235.4(d), (e)..............................................    0584-0067
235.7(a)...................................................    0584-0067
235.7(b)...................................................    0584-0067
235.7(c)...................................................    0584-0067
235.8(a), (b)..............................................    0584-0067
235.9(c), (d)..............................................    0584-0067
235.11(b)(2)...............................................    0584-0067
235.11(b)(5)(ii)...........................................    0584-0067
235.11(f)..................................................    0584-0067
------------------------------------------------------------------------


[64 FR 50744, Sept. 20, 1999]



PART 240_CASH IN LIEU OF DONATED FOODS--Table of Contents




Sec.
240.1 General purpose and scope.
240.2 Definitions.
240.3 Cash in lieu of donated foods for program schools.
240.4 Cash in lieu of donated foods for nonresidential child and adult 
          care institutions.
240.5 Cash in lieu of donated foods for commodity schools.
240.6 Funds for States which have phased out facilities.
240.7 Payments to States.
240.8 Payments to program schools, service institutions, nonresidential 
          child care institutions and commodity schools.
240.9 Use of funds.
240.10 Unobligated funds.
240.11 Records and reports.

    Authority: 42 U.S.C. 612c note, 1751, 1755, 1762a, 1765, 1766, 1779.

[[Page 272]]


    Source: 47 FR 15982, Apr. 13, 1982, unless otherwise noted.



Sec.  240.1  General purpose and scope.

    (a) Each school year the Department programs agricultural 
commodities and other foods to States for delivery to program and 
commodity schools, nonresidential child care institutions, and service 
institutions pursuant to the regulations governing the donation of foods 
for use in the United States, its territories and possessions and areas 
under its jurisdiction (7 CFR part 250).
    (b) Section 6(b) of the Act requires that not later than June 1 of 
each school year, the Secretary shall make an estimate of the value of 
the agricultural commodities and other foods that will be delivered 
during that school year for use in lunch programs by schools 
participating in the National School Lunch Program (7 CFR part 210). If 
this estimate is less than the total level of assistance authorized 
under section 6(e) of the Act the Secretary shall pay to the State 
administering agency not later than July 1 of that school year, an 
amount of funds equal to the difference between the value of donated 
foods as then programmed for that school year and the total level of 
assistance authorized under such section.
    (c) Section 6(e)(1) of the Act requires:
    (1) That for each school year, the total commodity assistance, or 
cash in lieu thereof, available to each State for the National School 
Lunch Program shall be the amount obtained by multiplying the national 
average value of donated foods, described in paragraph (c)(2) of this 
section, by the number of lunches served in that State in the preceding 
school year; and
    (2) That the national average value of foods donated to schools 
participating in the National School Lunch Program, or cash payments 
made in lieu thereof, shall be 11 cents, adjusted on July 1, 1982, and 
each July 1 thereafter to reflect changes in the Price Index for Food 
Used in Schools and Institutions. Section 6(e)(1) further requires that 
not less than 75 percent of the assistance under that section shall be 
in the form of donated foods for the National School Lunch Program. 
After the end of each school year, FNS shall reconcile the number of 
lunches served by schools in each State with the number served in the 
preceding school year and, based on such reconciliation, shall increase 
or reduce subsequent commodity assistance or cash in lieu thereof 
provided to each State.
    (d) Section 12(g) of the Act provides that whoever embezzles, 
willfully misapplies, steals, or obtains by fraud any funds, assets, or 
property that are the subject of a grant or other form of assistance 
under this Act or the Child Nutrition Act of 1966, whether received 
directly or indirectly from the United States Department of Agriculture, 
or whoever receives, conceals, or retains such funds, assets, or 
property to his use or gain, knowing such funds, assets, or property 
have been embezzled, willfully misapplied, stolen, or obtained by fraud 
shall, if such funds, assets, or property are of the value of $100 or 
more, be fined not more than $10,000 or imprisoned not more than five 
years, or both, or, if such funds, assets, or property are of a value of 
less than $100, shall be fined not more than $1,000 or imprisoned for 
not more than one year, or both.
    (e) Section 14(f) of the Act provides that the value of foods 
donated to States for use in commodity schools for any school year shall 
be the sum of the national average value of donated foods established 
under section 6(e) of the Act and the national average payment 
established under section 4 of the Act. Section 14(f) also provides that 
such schools shall be eligible to receive up to five cents of such value 
in cash for processing and handling expenses related to the use of the 
donated foods.
    (f) Sections 17(h)(1) (B) and (C) of the Act provide that the value 
of commodities, or cash in lieu thereof, donated to States for use in 
nonresidential child or adult care institutions participating in the 
Child and Adult Care Food Program (7 CFR part 226) for any school year 
shall be, at a minimum, the amount obtained by multiplying the number of 
lunches and suppers served during the preceding school year by the rate 
established for lunches for that school year under section 6(e) of the 
Act. At the end of each school year, FNS shall reconcile the number of

[[Page 273]]

lunches and suppers served in participating institutions in each State 
during such school year with the number of lunches and suppers served in 
the preceding school year and, based on such reconciliation, shall 
increase or reduce subsequent commodity assistance or cash in lieu of 
commodities provided to each State.
    (g) Section 16 of the Act provides that a State which has phased out 
its food distribution facilities prior to June 30, 1974, may elect to 
receive cash payments in lieu of donated foods for the purposes of the 
applicable child nutrition programs--i.e., the National School Lunch 
Program, the Summer Food Service Program for Children (7 CFR part 225) 
and the Child Care Food Program.
    (h) These regulations prescribe the methods for determination of the 
amount of payments, the manner of disbursement and the requirements for 
accountability for funds when these respective statutory authorities 
require the Department to make cash payments in lieu of donating 
agricultural commodities and other foods.

[47 FR 15982, Apr. 13, 1982, as amended at 52 FR 7267, Mar. 10, 1987; 58 
FR 39120, July 22, 1993]



Sec.  240.2  Definitions.

    For the purpose of this part the term:
    Act means the National School Lunch Act, as amended.
    Child Care Food Program means the Program authorized by section 17 
of the Act.
    Commodity school means a school that does not participate in the 
National School Lunch Program under part 210 of this chapter but which 
operates a nonprofit lunch program under agreement with the State 
educational agency or FNSRO and receives donated foods, or donated foods 
and cash or services of a value of up to 5 cents per lunch in lieu of 
donated foods under this part for processing and handling the foods.
    Department means the U.S. Department of Agriculture.
    Distributing agencies means State, Federal or private agencies which 
enter into agreements with the Department for the distribution of 
donated foods to program schools, commodity schools, and nonresidential 
child care institutions.
    Donated-food processing and handling expenses means any expenses 
incurred by or on behalf of a commodity school for processing or other 
aspects of the preparation, delivery, and storage of donated foods for 
use in its lunch program.
    Donated foods means foods donated, or available for donation, by the 
Department under any of the legislation referred to in part 250 of this 
chapter.
    Fiscal year means the period of 12 months beginning October 1 of any 
calendar year and ending September 30 of the following calendar year.
    FNS means the Food and Nutrition Service of the Department.
    FNSRO means the appropriate Food and Nutrition Service Regional 
Office.
    National School Lunch Program means the Program authorized by 
sections 4 and 11 of the Act.
    Nonprofit means exempt from income tax under section 501(c)(3) of 
the Internal Revenue Code of 1954, as amended; or in the Commonwealth of 
Puerto Rico, certified as nonprofit by its Governor.
    Nonresidential child care institution means any child care center, 
day care home, or sponsoring organization (as those terms are defined in 
part 226 of this chapter) which participates in the Child Care Food 
Program.
    Program school means a school which participates in the National 
School Lunch Program.
    School means (1) an educational unit of high school grade or under 
except for a private school with an average yearly tuition exceeding 
$1,500 per child, operating under public or nonprofit private ownership 
in a single building or complex of buildings. The term ``high school 
grade or under'' includes classes of preprimary grade when they are 
conducted in a school having classes of primary or higher grade, or when 
they are recognized as a part of the educational system in the State, 
regardless of whether such preprimary grade classes are conducted in a 
school having classes of primary or higher grade; (2) with the exception 
of residential summer camps which participate in the Summer Food Service 
Program for Children, Job Corps centers funded by the

[[Page 274]]

Department of Labor and private foster homes, any public or nonprofit 
private child care institution, or distinct part of such institution, 
which (i) maintains children in residence, (ii) operates principally for 
the care of children, and (iii) if private, is licensed to provide 
residential child care services under the appropriate licensing code by 
the State or a subordinate level of government. The term ``child care 
institutions'' includes, but is not limited to: homes for the mentally 
retarded, the emotionally disturbed, the physically handicapped, and 
unmarried mothers and their infants; group homes; halfway houses; 
orphanages; temporary shelters for abused children and for runaway 
children; long-term care facilities for chronically ill children; and 
juvenile detention centers; and (3) with respect to the Commonwealth of 
Puerto Rico, nonprofit child care centers certified as such by the 
Governor of Puerto Rico.
    School food authority means the governing body which is responsible 
for the administration of one or more schools and which has the legal 
authority to operate a nonprofit lunch program therein.
    School year means the period of 12 months beginning July 1 of any 
calendar year and ending June 30 of the following calendar year.
    Secretary means the Secretary of Agriculture.
    Service institutions means camps or sponsors (as those terms are 
defined in part 225 of this chapter) which participate in the Summer 
Food Service Program for Children.
    Special needs children means children who are emotionally, mentally 
or physically handicapped.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American-Samoa, 
the Trust Territory of the Pacific Islands, or the Commonwealth of the 
Northern Mariana Islands.
    State agency means the State educational agency or such other agency 
of the State as has been designated by the Governor or other appropriate 
executive or legislative authority of the State and approved by the 
Department to administer, in the State, the National School Lunch 
Program, the Child Care Food Program, the Summer Food Service Program 
for Children, or nonprofit lunch programs in commodity schools.
    State educational agency means, as the State legislature may 
determine, (1) the chief State school officer (such as the State 
Superintendent of Public Instruction, Commissioner of Education, or 
similar officer), or (2) a board of education controlling the State 
Department of Education.
    Summer Food Service Program for Children means the Program 
authorized by section 13 of the Act.
    Tuition means any educational expense required by the school as part 
of the students' educational program; not including transportation fees 
for commuting to and from school, and the cost of room and board. The 
following monies shall not be included when calculating a school's 
average yearly tuition per child:
    (1) Academic scholarship aid from public or private organizations or 
entities given to students, or to schools for students, and (2) state, 
county or local funds provided to schools operating principally for the 
purpose of educating handicapped or other special needs children for 
whose education the State, county or local government is primarily or 
solely responsible. In a school which varies tuition, the average yearly 
tuition shall be calculated by dividing the total tuition receipts for 
the current school year by the total number of students enrolled for 
purposes of determining if the average yearly tuition exceeds $1,500 per 
child.



Sec.  240.3  Cash in lieu of donated foods for program schools.

    (a) Not later than June 1 of each school year, FNS shall make an 
estimate of the value of agricultural commodities and other foods that 
will be delivered to States during the school year under the food 
distribution regulations (7 CFR part 250) for use in program schools. If 
the estimated value is less than the total value of assistance 
authorized under section 6(e) of the Act for the National School Lunch 
Program, FNS shall determine the difference between the value of the 
foods then programmed for each State for

[[Page 275]]

the school year and the required value and shall pay the difference to 
each State agency not later than July 1 of that school year.
    (b) Notwithstanding any other provision of this section, in any 
State in which FNS administers the National School Lunch Program in any 
of the schools of the State, FNS shall withhold from the funds payable 
to that State under this section an amount equal to the ratio of the 
number of lunches served in schools in which the program is administered 
by FNS to the total number of lunches served in all program schools in 
the State.

[47 FR 15982, Apr. 13, 1982, as amended at 52 FR 7267, Mar. 10, 1987; 58 
FR 39120, July 22, 1993]



Sec.  240.4  Cash in lieu of donated foods for nonresidential child and 
adult care institutions.

    (a) For each school year any State agency may, upon application to 
FNS prior to the beginning of the school year, elect to receive cash in 
lieu of donated foods for use in nonresidential child care or adult care 
institutions participating in the Child and Adult Care Food Program. FNS 
shall pay each State agency making such election, at a minimum, an 
amount calculated by multiplying the number of lunches and suppers 
served in the State's nonresidential child and adult care institutions 
which meet the meal pattern requirements prescribed in the regulations 
for the Child and Adult Care Food Program under part 226 of this chapter 
by the national average value of donated food prescribed in section 
6(e)(1) of the Act. However, if a State agency has elected to receive a 
combination of donated foods and cash, the required amount shall be 
reduced based upon the number of such lunches and suppers served for 
which the State receives donated foods.
    (b) Notwithstanding any other provision of this section in any State 
in which FNS administers the Child Care Food Program in any 
nonresidential child care institution, FNS shall withhold from the funds 
payable to such State under this section an amount equal to the ratio of 
the number of lunches and suppers served in such institutions in which 
the program is administered by the FNS and for which cash payments are 
provided to the total number of lunches and suppers served in that 
program and for which cash in lieu of payments are received, in all 
nonresidential child care institutions in the State.

[47 FR 15982, Apr. 13, 1982, as amended at 58 FR 39120, July 22, 1993]



Sec.  240.5  Cash in lieu of donated foods for commodity schools.

    (a) The school food authority of a commodity school may elect (1) to 
receive cash payments in lieu of up to five cents per lunch of the value 
specified in Sec.  250.4(b)(2)(ii) of this chapter to be used for 
donated-food processing and handling expenses, or (2) to have such 
payments retained for use on its behalf by the State agency. The school 
food authority shall consult with commodity schools before making the 
election.
    (b) When a school food authority makes an election regarding receipt 
of cash payments and the amount of any payments to be received under 
this paragraph, such election shall be binding on the school food 
authority for the school year to which the election applies.
    (c) The State agency shall (1) no later than May 14, 1982 for the 
school year ending June 30, 1982, and no later than August 15 of each 
subsequent school year, contact all school food authorities of commodity 
schools to learn their election regarding cash payments under this 
section and the amount of any such payments, and (2) forward this 
information to the distributing agency and FNSRO, in accordance with 
Sec.  210.14(d)(2) of this chapter.



Sec.  240.6  Funds for States which have phased out facilities.

    Notwithstanding any other provision of this part, any State which 
phased out its food distribution facilities prior to June 30, 1974, may, 
for purposes of the National School Lunch Program, the Summer Food 
Service Program for Children, and the Child Care Food Program, elect to 
receive cash payments in lieu of donated foods. Where such an election 
is made, FNS shall make cash payments to such State in an amount 
equivalent in value to the donated

[[Page 276]]

foods (or cash in lieu thereof) to which the State would otherwise have 
been entitled under section 6(e) of the Act, if it had retained its food 
distribution facilities, except that the amount may be based on the 
number of meals served in the current school year, rather than on the 
number of meals served in the preceding school year with a subsequent 
reconciliation.

[47 FR 15982, Apr. 13, 1982, as amended at 58 FR 39120, July 22, 1993]



Sec.  240.7  Payments to States.

    (a) Funds to be paid to any State agency under Sec.  240.3 of this 
part for disbursement to program schools shall be made available by 
means of United States Treasury Department checks. The State agency 
shall use the funds received without delay for the purpose for which 
issued.
    (b) Funds to be paid to any State agency under Sec.  240.4(a) for 
disbursement to nonresidential child care institutions and funds to be 
paid to any State agency under Sec.  240.6 for disbursement to program 
schools, service institutions, or nonresidential child care institutions 
shall be made available by means of Letters of Credit issued by FNS in 
favor of the State agency. The State agency shall:
    (1) Obtain funds needed to pay school food authorities, 
nonresidential child care institutions, and service institutions, as 
applicable through presentation by designated State Officials of a 
Payment Voucher on Letter of Credit (Treasury Form GFO 7578) in 
accordance with procedures prescribed by FNS and approved by the United 
States Treasury Department;
    (2) Submit requests for funds on a monthly basis in such amounts as 
necessary to make payments with respect to meals served the previous 
month;
    (3) Use the funds received without delay for the purpose for which 
drawn.
    (c) FNS shall make any cash payments elected under Sec.  240.5 of 
this part by increasing the amount of the Letter of Credit or, where 
applicable, of the Federal Treasury check, in accordance with the 
information provided under Sec.  240.5(c) of this part.
    (d) Funds received by State agencies pursuant to this part for 
disbursement to program schools and to commodity schools shall not be 
subject to the matching provisions of Sec.  210.6 of part 210 of this 
chapter.



Sec.  240.8  Payments to program schools, service institutions, 
nonresidential child care institutions and commodity schools.

    (a) Each State agency shall promptly and equitably disburse any cash 
received in lieu of donated foods under this part to eligible program 
schools, service institutions and nonresidential child care 
institutions, as applicable. Funds withheld from States under Sec.  
240.3 and Sec.  240.4 shall be disbursed to eligible program schools, 
service institutions, and nonresidential child care institutions by 
FNSRO's in the same manner.
    (b) Unless the school food authority of a commodity school elects to 
have cash payments for donated-food processing and handling expenses 
retained for use on its behalf by the State agency, the State agency 
shall make such payments to the school food authority of such a school 
on a monthly basis in an amount equal to the number of lunches served 
(as reported in accordance with Sec.  210.13(a) of this chapter) times 
the value per lunch elected by the school food authority in accordance 
with Sec.  240.5 of this part. For the period November 11, 1981, through 
the close of the month in which this part is published in the Federal 
Register, a retroactive payment shall be made, where applicable, to the 
school food authority of a commodity school based on the number of 
lunches served during that period which meet the nutritional 
requirements specified in Sec.  210.10 of this chapter.



Sec.  240.9  Use of funds.

    (a) Funds made available to school food authorities (for program 
schools), service institutions and nonresidential child care 
institutions under this part shall be used only to purchase United 
States agricultural commodities and other foods for use in their food 
service under the National School Lunch Program, Child Care Food 
Program, or Summer Food Service Program for Children, as applicable. 
Such foods shall be limited to those necessary to meet the requirements 
set forth in

[[Page 277]]

Sec.  210.10 of part 210 of this chapter, Sec.  225.10 of part 225 of 
this chapter and Sec.  226.10 of part 226 of this chapter, respectively. 
On or before disbursing funds to school food authorities (for program 
schools), service institutions and nonresidential child care 
institutions, State agencies and FNSRO's shall notify them of the reason 
for special disbursement, the purpose for which these funds may be used, 
and, if possible, the amount of funds they will receive.
    (b) Cash payments received under Sec.  240.5 of this part shall be 
used only to pay donated-food processing and handling expenses of 
commodity schools.
    (c) Funds provided under this part shall be subject to the 
Department's Uniform Federal Assistance Regulations (7 CFR part 3015).



Sec.  240.10  Unobligated funds.

    State agencies shall release to FNS any funds paid to them under 
this part which are unobligated at the end of each fiscal year. Release 
of funds by any State agency shall be made as soon as practicable, but 
in any event, not later than 30 days following demand by FNS. Release of 
funds shall be reflected by a related adjustment in the State agency's 
Letter of Credit where appropriate or payment by State check where the 
funds have been paid by United States Treasury Department check.



Sec.  240.11  Records and reports.

    (a) State agencies and distributing agencies shall maintain records 
and reports on the receipt and disbursement of funds made available 
under this part, and shall retain such records and reports for a period 
of three years after the end of the fiscal year to which they pertain, 
except that, if audit findings have not been resolved, the records shall 
be retained beyond the three-year period as long as required for the 
resolution of the issues raised by the audit.
    (b) State agencies shall establish controls and procedures which 
will assure that the funds made available under this part are not 
included in determining the State's matching requirements under Sec.  
210.6 of part 210 of this chapter.



PART 245_DETERMINING ELIGIBILITY FOR FREE AND REDUCED PRICE MEALS AND 
FREE MILK IN SCHOOLS--Table of Contents




Sec.
245.1 General purpose and scope.
245.2 Definitions.
245.3 Eligibility standards and criteria.
245.4 Exceptions for Puerto Rico and the Virgin Islands.
245.5 Public announcement of the eligibility criteria.
245.6 Certification of children for free and reduced price meals and 
          free milk.
245.6a Verification requirements.
245.7 Hearing procedure for families and School Food Authorities.
245.8 Nondiscrimination practices for children eligible to receive free 
          and reduced price meals and free milk.
245.9 Special assistance certification and reimbursement alternatives.
245.10 Action by School Food Authorities.
245.11 Action by State agencies and FNSROs.
245.12 Fraud penalties.
245.13 Information collection/recordkeeping--OMB assigned control 
          numbers.

    Authority: 42 U.S.C. 1752, 1758, 1759a, 1772, 1773, and 1779.



Sec.  245.1  General purpose and scope.

    (a) This part established the responsibilities of State agencies, 
Food and Nutrition Service Regional Offices (where applicable), and 
School Food Authorities in providing free and reduced price meals and 
free milk in the National School Lunch Program (7 CFR part 210), the 
School Breakfast Program (7 CFR part 220), the Special Milk Program for 
Children (7 CFR part 215), and commodity schools. Section 9 of the 
National School Lunch Act, as amended, and sections 3 and 4 of the Child 
Nutrition Act of 1966, as amended, require schools participating in any 
of the programs and commodity schools to make available, as applicable, 
free and reduced price lunches, breakfasts, and at the option of the 
School Food Authority for schools participating only in the Special Milk 
Program free milk to eligible children.
    (b) This part sets forth the responsibilities under these Acts of 
State agencies, the Food and Nutrition Service Regional Offices, and 
School Food

[[Page 278]]

Authorities with respect to the establishment of income guidelines, 
determination of eligibility of children for free and reduced price 
meals, and for free milk and assurance that there is no physical 
segregation of, or other discrimination against, or overt identification 
of children unable to pay the full price for meals or milk.

(Sec. 803, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1758))

[Amdt. 6, 39 FR 30337, Aug. 22, 1974, as amended by Amdt. 10, 41 FR 
28783, July 13, 1976; 47 FR 31852, July 23, 1982]



Sec.  245.2  Definitions.

    (a) Adult means any individual 21 years of age or older.
    (a-1) Commodity school means a school which does not participate in 
the National School Lunch Program under part 210 of this chapter, but 
which enters into an agreement as provided in Sec.  210.15a(b) to 
receive commodities donated under part 250 of this chapter for a 
nonprofit lunch program.
    (a-2) Current income means income, as defined in Sec.  245.6(a), 
received during the month prior to application. If such income does not 
accurately reflect the household's annual rate of income, income shall 
be based on the projected annual household income. If the prior year's 
income provides an accurate reflection of the household's current annual 
income, the prior year may be used as a base for the projected annual 
rate of income.
    (a-3) Disclosure means individual children's program eligibility 
information obtained through the free and reduced price meal or free 
milk eligibility process that is revealed or used for a purpose other 
than for the purpose for which the information was obtained. The term 
refers to access, release, or transfer of personal data about children 
by means of print, tape, microfilm, microfiche, electronic communication 
or any other means.
    (a-4) Documentation means:
    (1) The completion of a free and reduced price school meal or free 
milk application which includes:
    (i) For households applying on the basis of income and household 
size, names of all household members; income received by each household 
member, identified by source of the income (such as earnings, wages, 
welfare, pensions, support payments, unemployment compensation, and 
social security and other cash income); the signature of an adult 
household member; and the social security number of the adult household 
member who signs the application or an indication that he/she does not 
possess a social security number; or
    (ii) For a child who is a member of a food stamp, FDPIR or TANF 
household: the child's name and appropriate food stamp or TANF case 
number or FDPIR case number or other identifier; and the name and 
signature of an adult household member; and
    (2) In lieu of completion of the free and reduced price application, 
information obtained from the State or local agency responsible for the 
Food Stamp Program, FDPIR or TANF which includes the name of the child; 
a statement certifying that the child is a member of a currently 
certified food stamp, FDPIR or TANF household; information in sufficient 
detail to match the child attending school in the school food authority 
with the name of the child certified as a member of a food stamp, FDPIR 
or TANF household; the signature or a copy of the signature of the 
individual authorized to provide the certification on behalf of the Food 
Stamp, FDPIR or TANF office, as appropriate; and the date. When the 
signature is impracticable to obtain, such as in a computer match, other 
arrangements may be made to ensure that a responsible official can 
attest to the data.
    (b) Family means a group of related or nonrelated individuals, who 
are not residents of an institution or boarding house, but who are 
living as one economic unit.
    (b-1) FDPIR means the food distribution program for households on 
Indian reservations operated under part 253 of this title.
    (b-2) FNS means the Food and Nutrition Service, United States 
Department of Agriculture.
    (b-3) FNSRO where applicable means the appropriate Food and 
Nutrition Service Regional Office when that agency administers the 
National School Lunch Program, School Breakfast Program or Special Milk 
Program

[[Page 279]]

with respect to nonprofit private schools.
    (c) Food Stamp Household means any individual or group of 
individuals which is currently certified to receive assistance as a 
household under the Food Stamp Program.
    (d) Free meal means a meal for which neither the child nor any 
member of his family pays or is required to work in the school or in the 
school's food service.
    (d-1) Free milk means milk served under the regulations governing 
the Special Milk Program and for which neither the child nor any member 
of his family pays or is required to work in the school or in the 
school's food service.
    (d-2) Household means ``family'' as defined in Sec.  245.2(b).
    (e) Income eligibility guidelines means the family-size income 
levels prescribed annually by the Secretary for use by States in 
establishing eligibility for free and reduced price meals and for free 
milk.
    (f) Meal means a lunch or meal supplement or a breakfast which meets 
the applicable requirements prescribed in Sec. Sec.  210.10, 210.15a, 
and 220.8 of this chapter.
    (f-1) Medicaid means the State medical assistance program under 
title XIX of the Social Security Act (42 U.S.C. 1396 et seq.).
    (f-2) Milk means pasteurized fluid types of unflavored or flavored 
whole milk, lowfat milk, skim milk, or cultured buttermilk which meet 
State and local standards for such milk except that, in the meal pattern 
for infants (0 to 1 year of age) milk means unflavored types of whole 
fluid milk or an equivalent quantity of reconstituted evaporated milk 
which meet such standards. In Alaska, Hawaii, American Samoa, Guam, 
Puerto Rico, the Trust Territory of the Pacific Islands, and the Virgin 
Islands, if a sufficient supply of such types of fluid milk cannot be 
obtained, ``milk'' shall include reconstituted or recombined milk. All 
milk should contain vitamins A and D at levels specified by the Food and 
Drug Administration and consistent with State and local standards for 
such milk.
    (f-3) Operating day means a day that reimbursable meals are offered 
to eligible students under the National School Lunch Program or School 
Breakfast Program.
    (g) Reduced price meal means a meal which meets all of the following 
criteria: (1) The price shall be less than the full price of the meal; 
(2) the price shall not exceed 40 cents for a lunch and 30 cents for a 
breakfast; and (3) neither the child nor any member of his family shall 
be required to supply an equivalent value in work for the school or the 
school's food service.
    (h) Service institution shall have the meaning ascribed to it in 
part 225 of this chapter.
    (i) School, school food authority, and other terms and abbreviations 
used in this part shall have the meanings ascribed to them in part 210 
of this chapter.
    (j) Special Assistance Certification and Reimbursement Alternatives 
means the three optional alternatives for free and reduced price meal 
application and claiming procedures in the National School Lunch Program 
and School Breakfast Program which are available to those School Food 
Authorities with schools in which at least 80 percent of the enrolled 
children are eligible for free or reduced price meals, or schools which 
are currently, or who will be serving all children free meals.
    (k) State Children's Health Insurance Program (SCHIP) means the 
State medical assistance program under title XXI of the Social Security 
Act (42 U.S.C. 1397aa et seq.).
    (l) TANF means the State funded program under part A of title IV of 
the Social Security Act that the Secretary determines complies with 
standards established by the Secretary that ensure that the standards 
under the State program are comparable to or more restrictive than those 
in effect on June 1, 1995. This program is commonly referred to as 
Temporary Assistance for Needy Families, although States may refer to 
the program by another name.
    (m) Verification means confirmation of eligibility for free or 
reduced price benefits under the National School Lunch Program or School 
Breakfast Program. Verification shall include confirmation of income 
eligibility and,

[[Page 280]]

at State or local discretion, may also include confirmation of any other 
information required in the application which is defined as 
documentation in Sec.  245.2(a-4). Such verification may be accomplished 
by examining information provided by the household such as wage stubs, 
or by other means as specified in Sec.  245.6a(b). However, if a food 
stamp or TANF case number or a FDPIR case number or other identifier is 
provided for a child, verification for such child shall only include 
confirmation that the child is included in a currently certified food 
stamp, TANF or FDPIR household.

(Secs. 801, 803, 812; Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1753, 
1759(a), 1773, 1758))

    Editorial Note: For Federal Register citations affecting Sec.  
245.2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  245.3  Eligibility standards and criteria.

    (a) Each State agency, or FNSRO where applicable, shall by July 1 of 
each year announce family-size income standards to be used by School 
Food Authorities of schools under the jurisdiction of such State agency, 
or FNSRO where applicable, in making eligibility determinations for free 
or reduced price meals and for free milk. Such family size income 
standards for free and reduced price meals and for free milk shall be in 
accordance with Income Eligibility Guidelines published by the 
Department by notice in the Federal Register.
    (b) Each School Food Authority shall establish eligibility criteria 
for free and reduced price meals and for free milk in conformity with 
the family-size income standards prescribed by the State agency, or 
FNSRO where applicable, under paragraph (a) of this section. Such 
criteria shall:
    (1) For all schools under the jurisdiction of the School Food 
Authority, specify the uniform family-size income criteria to be used 
for determining eligibility for free and reduced price meals in schools 
participating in the National School Lunch or School Breakfast Programs 
and in commodity-only schools, and for determining eligibility for free 
milk when the School Food Authority has chosen to serve free milk in its 
schools participating in the Special Milk Program; and
    (2) Provide that all children from a family meeting family-size 
income criteria and attending any school under the jurisdiction of the 
School Food Authority which participates under the National School Lunch 
Program, School Breakfast Program, Special Milk Program, or is a 
commodity only school shall be provided the same benefits. The School 
Food Authority's eligibility criteria shall be a part of the policy 
statement required under Sec.  245.10 and shall be publicly announced in 
accordance with the provisions of Sec.  245.5.
    (c) Each School Food Authority shall serve free and reduced price 
meals or free milk in the respective programs to children eligible under 
its eligibility criteria. When a child is not a member of a family as 
defined in Sec.  245.2(b), the child shall be considered a family of 
one. In any school which participates in more than one of the child 
nutrition programs, eligibility shall be applied uniformly so that 
eligible children receive the same benefits in each program. If a child 
transfers from one school to another school under the jurisdiction of 
the same School Food Authority, his eligibility for free or reduced 
price meals or for free milk, if previously established, shall be 
transferred to, and honored by, the receiving school if it participates 
in the National School Lunch Program, School Breakfast Program, Special 
Milk Program and the School Food Authority has elected to provide free 
milk, or is a commodity-only school.

(Sec. 8, Pub. L. 95-627, 92 Stat. 3623 (42 U.S.C. 1758); sec. 5, Pub. L. 
95-627, 92 Stat. 3619 (42 U.S.C. 1772); 42 U.S.C. 1785, 1766, 1772, 
1773(e), sec. 203, Pub. L. 96-499, 94 Stat. 2599; secs. 807 and 808, 
Pub. L. 97-35, 95 Stat. 521-535, 42 U.S.C. 1772, 1784, 1760; sec. 803, 
Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1758))

[Amdt. 8, 40 FR 57207, Dec. 8, 1975; 40 FR 58281, Dec. 16, 1975, as 
amended by Amdt. 10, 41 FR 28783, July 13, 1976; Amdt. 13, 44 FR 33049, 
June 8, 1979; 47 FR 31852, July 23, 1982]



Sec.  245.4  Exceptions for Puerto Rico and the Virgin Islands.

    Because the State agencies of Puerto Rico and the Virgin Islands 
provide free meals or milk to all children in

[[Page 281]]

schools under their jurisdiction, regardless of the economic need of the 
child's family, they are not required to make individual eligibility 
determinations or publicly announce eligibility criteria. Instead, such 
State agencies may use a statistical survey to determine the number of 
children eligible for free or reduced price meals and milk on which a 
percentage factor for the withdrawal of special cash assistance funds 
will be developed subject to the following conditions:
    (a) State agencies shall conduct a statistical survey once every 
three years in accordance with the standards provided by FNS;
    (b) State agencies shall submit the survey design to FNS for 
approval before proceeding with the survey;
    (c) State agencies shall conduct the survey and develop the factor 
for withdrawal between July 1 and December 31 of the first school year 
of the three-year period;
    (d) State agencies shall submit the results of the survey and the 
factor for fund withdrawal to FNS for approval before any reimbursement 
may be received under that factor;
    (e) State agencies shall keep all material relating to the conduct 
of the survey and determination of the factor for fund withdrawal in 
accordance with the record retention requirements in Sec.  210.8(e)(14) 
of this chapter;
    (f) Until the results of the triennial statistical survey are 
available, the factor for fund withdrawal will be based on the most 
recently established percentages. The Department shall make retroactive 
adjustments to the States' Letter of Credit, if appropriate, for the 
year of the survey;
    (g) If any school in these States wishes to charge a student for 
meals, the State agency, School Food Authority and school shall comply 
with all the applicable provisions of this part and parts 210, 215 and 
220 of this chapter.

(Sec. 9, Pub. L. 95-166, 91 Stat 1336 (42 U.S.C. 1759a); secs. 807 and 
808, Pub. L. 97-35, 95 Stat. 521-535, 42 U.S.C. 1772, 1784, 1760; 44 
U.S.C. 3506)

[Amdt. 18, 45 FR 52771, Aug. 8, 1980, as amended at 46 FR 51366, Oct. 
20, 1981; 47 FR 746, Jan. 7, 1982]



Sec.  245.5  Public announcement of the eligibility criteria.

    (a) After the State agency, or FNSRO where applicable, notifies the 
school food authority that its criteria for determining the eligibility 
of children for free and reduced price meals and for free milk have been 
approved, the school food authority shall publicly announce such 
criteria: Provided however, that no such public announcement shall be 
required for boarding schools, residential child care institutions (see 
Sec.  210.2 of this chapter, definition of Schools), or a school which 
includes food service fees in its tuition, where all attending children 
are provided the same meals or milk. Such announcements shall be made at 
the beginning of each school year or, if notice of approval is given 
thereafter, within 10 days after the notice is received. The public 
announcement of such criteria, as a minimum, shall include the 
following:
    (1) Except as provided in Sec.  245.6(b), a letter or notice and 
application distributed on or about the beginning of each school year, 
to the parents of all children in attendance at school. The letter or 
notice shall contain the following information:
    (i) In schools participating in a meal service program, the 
eligibility criteria for reduced price benefits with an explanation that 
households with incomes less than or equal to the reduced price criteria 
would be eligible for either free or reduced price meals, or in schools 
participating in the free milk option, the eligibility criteria for free 
milk benefits;
    (ii) How a household may make application for free or reduced price 
meals or for free milk for its children;
    (iii) An explanation that an application for free or reduced price 
benefits cannot be approved unless it contains complete 
``documentation'' as defined in Sec.  245.2(a-4)(1)(i);
    (iv) An explanation that households with children who are members of 
currently certified food stamp, FDPIR or TANF households may submit 
applications for these children with the abbreviated information 
described in Sec.  245.2(a-4)(1)(ii);

[[Page 282]]

    (v) An explanation that the information on the application may be 
verified at any time during the school year;
    (vi) An explanation that households receiving free or reduced price 
benefits must notify school officials during the school year of any 
decreases in household size and any increases in income of over $50 per 
month or $600 per year (or a lesser amount if established by the State) 
or, in the case of households that provided a food stamp or TANF case 
number or a FDPIR case number or other FDPIR identifier to establish 
eligibility for free meals or free milk for a child, of any termination 
of benefits for such children under the Food Stamp, FDPIR or TANF 
Programs.
    (vii) How a household may apply for benefits at any time during the 
school year as circumstances change;
    (viii) A statement to the effect that children having parents or 
guardians who become unemployed are eligible for free or reduced price 
meals or for free milk during the period of unemployment, Provided, that 
the loss of income causes the household income during the period of 
unemployment to be within the eligibility criteria;
    (ix) A statement to the effect that in certain cases foster children 
are eligible for free or reduced price meals or free milk regardless of 
the income of the household with whom they reside and that households 
wishing to apply for such benefits for foster children should contact 
the School Food Authority;
    (x) The statement: ``In the operation of child feeding programs, no 
child will be discriminated against because of race, sex, color, 
national origin, age or disability;'' and
    (xi) How a household may appeal the decision of the School Food 
Authority with respect to the application under the hearing procedure 
set forth in Sec.  245.7. The letter or notice shall be accompanied by a 
copy of the application form required under Sec.  245.6.
    (2) On or about the beginning of each school year, a public release, 
containing the same information supplied to parents, and including both 
free and reduced price eligibility criteria shall be provided to the 
informational media, the local unemployment office, and to any major 
employers contemplating large layoffs in the area from which the school 
draws its attendance.
    (b) Copies of the public release shall be made available upon 
request to any interested persons. Any subsequent changes in a school's 
eligibility criteria during the school year shall be publicly announced 
in the same manner as the original criteria were announced.

(Sec. 803, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1758); Pub. L. 79-
396, 60 Stat. 231 (42 U.S.C. 1751); Pub. L. 89-642, 80 Stat. 885-880 (42 
U.S.C. 1773); Pub. L. 91-248, 84 Stat. 207 (42 U.S.C. 1759))

[Amdt. 8, 40 FR 57207, Dec. 8, 1975, as amended by Amdt. 10, 41 FR 
28783, July 13, 1976; 47 FR 31852, 31853, July 23, 1982; Amdt. 24, 48 FR 
19355, Apr. 29, 1983; 49 FR 26034, June 26, 1984; 52 FR 19275, May 22, 
1987; 64 FR 50744, Sept. 20, 1999; 64 FR 72472, Dec. 28, 1999; 66 FR 
48328, Sept. 20, 2001; 68 FR 53489, Sept. 11, 2003]



Sec.  245.6  Certification of children for free and reduced price meals 
and free milk.

    (a) Each School Food Authority of a school participating in the 
National School Lunch Program, School Breakfast Program or Special Milk 
Program or of a commodity only school shall provide supplies of a form 
for use by families in making application for free or reduced price 
meals or free milk for their children. The application shall be clear 
and simple in design and the information requested thereon shall be 
limited to that required to demonstrate that the family does, or does 
not, meet the eligibility criteria for free or reduced price meals, 
respectively, or for free milk, issued by the School Food Authority. The 
information requested on the application with respect to the current 
income of the household shall be limited to the income received by each 
member identified by the household member who received the income, and 
the source of the income (such as earnings, wages, welfare, pensions, 
support payments, unemployment compensation, social security and other 
cash income). Other cash income includes cash amounts received or 
withdrawn from any source, including savings, investments, trust 
accounts, and other resources which are available for payment of the 
price

[[Page 283]]

of a child's meals or milk. Additionally, the application shall require 
applicants to provide the names of all household members and the social 
security number of the adult household member who signs the application. 
In lieu of a social security number, the household may indicate the 
adult household member who signs the application does not possess a 
social security number. However, if application is being made for a 
child who is a member of a food stamp, FDPIR or TANF household, the 
application shall enable the household to provide the appropriate food 
stamp or TANF case number or FDPIR case number or other FDPIR identifier 
in lieu of names of all household members, household income information 
and social security number. The application shall also contain 
substantially the following statements:
    (1) ``Unless you include your child's case number for the Food Stamp 
Program, the Food Distribution Program on Indian Reservations (or other 
identifier for the Food Distribution Program on Indian Reservations) or 
the Temporary Assistance for Needy Families Program, you must include 
the social security number of the adult household member signing the 
application or indicate that the household member does not have a social 
security number. This is required by section 9 of the National School 
Lunch Act. The social security number is not mandatory, but the 
application cannot be approved if a social security number is not given 
or an indication is not made that the signer does not have a social 
security number. The social security number will be used in the 
administration and enforcement of the program.'' State agencies and 
school food authorities must ensure that the notice complies with 
section 7(b) of the Privacy Act of 1974 (5 U.S.C. 552a note); and
    (2) ``In certain cases foster children are eligible for free or 
reduced price meals or free milk regardless of your household income. If 
you have such children living with you and wish to apply for such meals 
or milk for them, please contact us.'' The application shall also 
include a statement, immediately above the space for signature, that the 
person signing the application certifies that all information furnished 
in the application is true and correct, that the application is being 
made in connection with the receipt of Federal funds, that school 
officials may verify the information on the application, and that 
deliberate misrepresentation of the information may subject the 
applicant to prosecution under applicable State and Federal criminal 
statutes. The application shall be signed by an adult member of the 
family. The application shall contain clear instructions with respect to 
the submission of the completed application to the official or officials 
designated by the School Food Authority to make eligibility 
determinations on its behalf. A family shall be permitted to file an 
application at any time during the school year.
    (b) Direct certification. In lieu of determining eligibility based 
on information provided by the household on the free and reduced price 
meal or milk application specified in paragraph (a) of this section, 
school food authorities may determine children eligible for free meals 
or milk based on documentation obtained from the appropriate State or 
local agency responsible for the administration of the Food Stamp 
Program, FDPIR and/or the TANF Program, hereafter referred to as direct 
certification. The documentation for direct certification shall include 
the information specified in Sec.  245.2(a-4)(2). The food stamp, FDPIR 
or TANF office may provide school officials with a list which includes 
all required documentation, or documentation may be obtained through a 
computerized match in which computerized lists of names of children from 
food stamp, FDPIR or TANF households and other identifying information 
are matched against a list of names and other identifying information of 
schoolchildren. When computer matches are used or the signature of the 
food stamp, FDPIR or TANF official is otherwise impracticable to obtain, 
the signature of the food stamp, FDPIR or TANF official is not required. 
However, other arrangements must be made to ensure that a responsible 
official can attest to the data. Additionally, the food stamp, FDPIR 
and/or TANF office may provide food stamp, FDPIR and/or TANF households 
with individual notices

[[Page 284]]

which contain all required documentation. The household may then 
transmit the notice to the school.
    (1) Information about the child or the household obtained directly 
from the food stamp, FDPIR or TANF office must be kept confidential and 
shall be used solely for the purpose of determining the child's 
eligibility for school meal or milk benefits, or as otherwise permitted 
by section 9 of the National School Lunch Act.
    (2) School food authorities are not required to provide the letter 
specified in Sec.  245.5(a) to the parents of children who are eligible 
for free meals under paragraph (b) of this section when the school food 
authorities distribute the letters or notices with application forms and 
the notice to households concerning eligibility for benefits under 
direct certification, specified in paragraph (c)(1) of this section, 
through the mail, individualized student packets, or other method which 
prevents the overt identification of children eligible for direct 
certification.
    (c) Determination of eligibility. Prior to the processing of 
applications or the completion of direct certification procedures for 
the current school year, children from households with approved 
applications or documentation of direct certification on file from the 
preceding year may be served reimbursable free and reduced price meals 
or free milk. However, applications and documentation of direct 
certification from the preceding year may be used to determine 
eligibility only during the 30 operating days following the first 
operating day at the beginning of the school year, or during a timeframe 
established by the State agency, provided that any State agency 
timeframe does not exceed the 30 operating day limit. The school food 
authority must take the income information provided by the household on 
the application and calculate the household's total current income. When 
a household submits an application containing complete documentation, as 
specified in Sec.  245.2(a-4)(1)(i), and the household's total current 
income is at or below the eligibility limits specified in the Income 
Eligibility Guidelines, the children in that household must be approved 
for free or reduced price benefits, as applicable. When a household 
submits an application containing the required food stamp, FDPIR or TANF 
documentation, as specified in Sec.  245.2(a-4)(1)(ii), the children in 
that household must be approved for free benefits. Additionally, when 
the school food authority obtains documentation from the State or local 
agency responsible for the administration of the Food Stamp Program, 
FDPIR and/or TANF Program that children are members of currently 
certified food stamp, FDPIR or TANF households, as specified in Sec.  
245.2(a-4)(2), the school food authority must approve such children for 
free benefits without applications from the households.
    (1) Notice of approval. The school food authority must promptly 
notify the household of their children's eligibility and provide them 
the benefits to which they are entitled. Households approved for 
benefits based on documentation provided by the appropriate State or 
local agency responsible for the administration of the Food Stamp 
Program, FDPIR or TANF Program must be notified, in writing, that their 
children are eligible for free meals or free milk, that households must 
contact the school when their children are no longer eligible for food 
stamp, FDPIR or TANF benefits, and that no application for free and 
reduced price school meals is required at this time. The notice of 
eligibility must also inform households that they must notify the school 
if they do not want their children to receive free benefits. When the 
household transmits the notice of eligibility containing the above 
information and the documentation provided by the food stamp, FDPIR or 
TANF office to the school, the school food authority is not required to 
provide a separate notice of eligibility. Children from households that 
notify the school that they do not want free benefits must have their 
benefits discontinued as soon as possible. Any notification from the 
household declining benefits must be documented and maintained on file, 
in accordance with paragraph (e) of this section. Additionally, a school 
food authority that is notified by the household that they are no longer 
eligible to receive food stamp,

[[Page 285]]

FDPIR or TANF benefits must follow the procedures specified in Sec.  
245.6a(e), and inform the household that it must submit an application 
with income information to establish continued eligibility.
    (2) Notice of denial. When the application furnished by the family 
is not fully documented or does not meet the eligibility criteria for 
free or reduced price benefits, school officials shall promptly provide 
written notice to each family denied benefits. As a minimum, this notice 
shall include:
    (i) The reason for the denial of benefits, e.g. income in excess of 
allowable limits or incomplete application; (ii) notification of the 
right to appeal; (iii) instructions on how to appeal; and (iv) a 
statement reminding parents that they may reapply for free and reduced 
price benefits at any time during the school year. The reasons for 
ineligibility shall be properly documented and retained on file at the 
School Food Authority.
    (3) Appeals of denied benefits. A family who wishes to appeal a 
denied application by the School Food Authority may do so as specified 
in Sec.  245.7. However, prior to initiating the hearing procedure, the 
parent may request a conference to provide the opportunity for the 
parent and school officials to discuss the situation, present 
information, and obtain an explanation of the data submitted in the 
application or the decision rendered. The request for a conference shall 
not in any way prejudice or diminish the right to a fair hearing. The 
School Food Authority shall promptly schedule a fair hearing, if 
requested.
    (d) After the letter to parents and the applications have been 
disseminated, the School Food Authority may determine, based on 
information available to it, that a child for whom an application has 
not been submitted meets the School Food Authority's eligibility 
criteria for free and reduced price meals or for free milk. In such a 
situation, the School Food Authority shall complete and file an 
application for such child setting forth the basis of determining the 
child's eligibility. When a School Food Authority has obtained a 
determination of individual family income and family-size data from 
other sources, it need not require the submission of an application for 
any child from a family whose income would qualify for free or reduced 
price meals or for free milk under the School Food Authority's 
established criteria. In such event, the School Food Authority shall 
notify the family that its children are eligible for free or reduced 
price meals or for free milk. Nothing in this paragraph shall be deemed 
to provide authority for the School Food Authority to make eligibility 
determinations or certifications by categories or groups of children.
    (e) The school food authority must maintain documentation 
substantiating eligibility determinations on file for 3 years after the 
date of the fiscal year to which they pertain, except that if audit 
findings have not been resolved, the documentation must be maintained as 
long as required for resolution of the issues raised by the audit.
    (f) Disclosure of program eligibility information to State Medicaid 
(Medicaid) and the State Children's Health Insurance Program (SCHIP) 
Program eligibility information about children eligible for free and 
reduced price meals may be disclosed to Medicaid and SCHIP as described 
in this section.
    (1) Who decides whether to disclose program eligibility information 
to Medicaid and/or SCHIP? The State agency may elect to allow school 
food authorities to disclose children's free and reduced price meal 
eligibility information to Medicaid and SCHIP. School food authorities 
may then elect to do so. Children's program eligibility information may 
only be disclosed to Medicaid or SCHIP when both the State agency and 
the school food authority so elect, the parent/guardian does not decline 
to have their eligibility information disclosed as described in 
paragraph (f)(5), and the requirements in this paragraph (f) are met.
    (2) What information may we disclose for use by Medicaid and SCHIP? 
The State agency or school food authority, as appropriate, may disclose 
children's names, eligibility status (whether they are eligible for free 
or reduced price meals or free milk), and any other eligibility 
information obtained through the free and reduced price meal/milk

[[Page 286]]

application or obtained through direct certification to persons directly 
connected with the administration of Medicaid or SCHIP.
    (3) Who are persons ``directly connected'' with the administration 
of Medicaid and SCHIP? State employees and persons authorized under 
Federal and State Medicaid and SCHIP requirements to carry out initial 
processing of Medicaid or SCHIP applications or to make eligibility 
determinations are persons directly connected with the administration of 
Medicaid and SCHIP for purposes of disclosure of children's free and 
reduced price meal and free milk eligibility information.
    (4) What are the restrictions on how Medicaid and SCHIP use 
children's free and reduced price meal and free milk eligibility 
information? Medicaid and SCHIP agencies and health insurance program 
operators receiving children's free and reduced price meal and free milk 
eligibility information may only use the information to seek to enroll 
children in Medicaid or SCHIP. The Medicaid and SCHIP enrollment process 
may include targeting and identifying children from low-income 
households who are potentially eligible for Medicaid or SCHIP for the 
purpose of seeking to enroll them in Medicaid or SCHIP.
    (5) Must we notify households of potential disclosure to Medicaid or 
SCHIP? The State agency or school food authority, as appropriate, must 
notify parents/guardians that their children's free or reduced price 
meal or free milk eligibility information will be disclosed to Medicaid 
and/or SCHIP unless the parent/guardian elects not to have their 
information disclosed. Additionally, the State agency or school food 
authority, as appropriate, must give parents/guardians an opportunity to 
elect not to have their information disclosed to Medicaid or SCHIP. Only 
the parent or guardian who is a member of the household or family for 
purposes of the free and reduced price meal or free milk application may 
decline the disclosure of eligibility information. The notification must 
inform parents/guardians that they are not required to consent to the 
disclosure, that the information, if disclosed, will be used to identify 
children eligible for and seek to enroll children in a health insurance 
program, and that their decision will not affect their children's 
eligibility for free or reduced price meals or free milk. The 
notification may be included in the letter/notice to parents/guardians 
that accompanies the free and reduced price meal or free milk 
application, on the application itself or in a separate notice provided 
to parents/guardians. The notice must give parents/guardians adequate 
time to respond. For children determined eligible through direct 
certification, the notice of potential disclosure may be included in the 
document informing parents/guardians of their children's eligibility for 
free meals or free milk through direct certification.
    (6) May social security numbers be disclosed? The State agency or 
school food authority, as appropriate, may disclose social security 
numbers to any programs or persons authorized to receive all program 
eligibility information under this paragraph (f), provided parents/
guardians have not declined to have their information disclosed. 
However, State agencies and school food authorities that plan to 
disclose social security numbers must give notice of the planned use of 
the social security numbers. This notice must be in accordance with 
section 7(b) of the Privacy Act of 1974 (5 U.S.C. 552a note). The 
application must include substantially the following language for 
disclosures of social security numbers to Medicaid or SCHIP: ``The 
social security number may also be disclosed to Medicaid and the State 
Children's Health Insurance Program for the purpose of identifying and 
seeking to enroll eligible children in one of these health insurance 
programs.'' This language is in addition to the notice required in 
paragraph (a)(1) of this section. State agencies and school food 
authorities are responsible for drafting the appropriate notice for 
disclosures of social security numbers.
    (7) Are agreements required before disclosing program eligibility 
information? The State agency or school food authority, as appropriate, 
must have a written agreement with the State or local agency or agencies 
administering Medicaid or SCHIP prior to disclosing

[[Page 287]]

children's free and reduced price eligibility information. At a minimum, 
the agreement must:
    (i) Identify the health insurance program or health agency receiving 
children's eligibility information;
    (ii) Describe the information that will be disclosed;
    (iii) Require that the Medicaid or SCHIP agency use the information 
obtained and specify that the information must only be used to seek to 
enroll children in Medicaid or SCHIP;
    (iv) Describe how the information will be protected from 
unauthorized uses and disclosures;
    (v) Describe the penalties for unauthorized disclosure; and
    (vi) Be signed by both the Medicaid or SCHIP program or agency and 
the State agency or school food authority, as appropriate.
    (8) What are the penalties for unauthorized disclosure or misuse of 
information? In accordance with section 9(b)(2)(C)(v) of the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1758(b)(2)(C)(v)), any 
individual who publishes, divulges, discloses or makes known in any 
manner, or to any extent not authorized by statute or this section, any 
information obtained under this paragraph (f) will be fined not more 
than $1,000 or imprisoned for up to 1 year, or both.
    (9) What are the State agency's responsibilities regarding 
disclosures? State agencies that elect to allow disclosure of children's 
free and reduced price meal eligibility information to Medicaid or 
SCHIP, as provided in this paragraph (f), must ensure that any school 
food authority acting in accordance with that option:
    (i) Has a written agreement with the State or local agency or 
agencies administering health insurance programs for children under 
titles XIX and XXI of the Social Security Act (42 U.S.C. 1396 et seq. 
and 1397aa et seq.) that requires the health agencies to use children's 
free and reduced price meal eligibility information to seek to enroll 
children in those health insurance programs; and
    (ii) Notifies each household of the information that will be 
disclosed, that the information disclosed will be used only to seek to 
enroll children in Medicaid or SCHIP and provides each parent/guardian 
with an opportunity to elect not to have the information disclosed.

(Sec. 803, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1758))

[35 FR 14065, Sept. 4, 1970, as amended at 38 FR 14957, June 7, 1973; 
Amdt. 6, 39 FR 30338, Aug. 22, 1974; Amdt. 9, 41 FR 26192, June 25, 
1976; Amdt. 19, 45 FR 67287, Oct. 10, 1980; 47 FR 31853, July 23, 1982; 
49 FR 26034, June 26, 1984; 52 FR 19275, May 22, 1987; 55 FR 19240, May 
9, 1990; 56 FR 32950, July 17, 1991; 56 FR 33860, July 24, 1991; 64 FR 
72472, Dec. 28, 1999; 66 FR 2205, Jan. 11, 2001; 66 FR 48328, Sept. 20, 
2001; 68 FR 53489, Sept. 11, 2003]



Sec.  245.6a  Verification requirements.

    (a) Verification requirement. School officials may seek verification 
of the information on the application. State agencies shall ensure that 
by December 15 of each School Year, School Food Authorities have 
selected and verified a sample of their approved free and reduced price 
applications in accordance with the conditions and procedures described 
in this section. Verification activity may begin at the start of the 
school year but the final required sample size shall be based on the 
number of approved applications on file as of October 31. Any extensions 
to these deadlines must be approved in writing by FNS. School Food 
Authorities are required to satisfy the verification requirement by 
using either random sampling or focused sampling as described below. 
Random sampling consists of verifying a minimum of the lesser of 3 
percent or 3,000 applications which are selected by the School Food 
Authority. Focused sampling consists of selecting and verifying a 
minimum of: the lesser of 1 percent or 1,000 of total applications 
selected from non-food stamp households claiming monthly income within 
$100 or yearly income within $1200 of the income eligibility limit for 
free or reduced price meals; plus the lesser of one half of 1 percent 
(.5%) or 500 applications of food stamp, FDPIR or TANF households that 
provided a food stamp or TANF case number or FDPIR case number or other 
FDPIR identifier in lieu of income information. A State may require all 
School Food Authorities to perform either random or focused sampling. 
School

[[Page 288]]

Food Authorities may choose to verify up to 100 percent of all 
applications to improve program integrity. Any State may, with the 
written approval of FNS, assume responsibility for complying with the 
verification requirements of this part within any of its School Food 
Authorities. When assuming such responsibility, States may utilize 
alternate approaches to verification provided that such verification 
meets the requirements of this part.
    (1) Confirmation of income information. Verification efforts shall 
not delay the approval of applications. An application must be approved 
if it contains the essential information specified in Sec.  245.2(a-4) 
and, if applicable, the household meets the income eligibility criteria 
for free or reduced price benefits. When written evidence or collateral 
contacts are the primary sources of information, the School Food 
Authority shall require the submission of income information for the 
most recent full month that is available. However, when using a system 
of records, the School Food Authority may choose a recent month to 
verify and the entire sample may be verified for the same month. 
Households which dispute the validity of income information acquired 
through systems of records shall be given the opportunity to produce 
more recent income information.
    (2) Notification of selection. Households selected to provide 
verification shall be provided written notice that their applications 
have been selected for verification and that they are required, by such 
date as determined by the school food authority, to submit the requested 
verification information to confirm eligibility for free or reduced 
price meals. These households shall be advised of the type or types of 
information and/or documents acceptable to the school. This information 
must include a social security number for each adult household member or 
an indication that such member does not have one. School food 
authorities shall inform selected households that:
    (i) Section 9 of the National School Lunch Act requires that unless 
the child's food stamp case number/ FDPIR case number or other FDPIR 
identifier or TANF case number is provided, households selected for 
verification must provide the social security number of each adult 
household member;
    (ii) In lieu of providing a social security number, an adult 
household member may indicate that he/she does not possess one;
    (iii) Provision of a social security number is not mandatory but if 
a social security number is not provided for each adult household member 
or an indication is not made that he/she does not possess one, benefits 
will be terminated;
    (iv) The social security numbers may be used to identify household 
members in carrying out efforts to verify the correctness of information 
stated on the application and continued eligibility for the program. 
These verification efforts may be carried out through program reviews, 
audits, and investigations and may include contacting a food stamp, 
FDPIR or TANF office to determine current certification for receipt of 
these benefits, contacting the State employment security office to 
determine the amount of benefits received and checking documentation 
produced by household members to prove the amount of income received. 
These verification efforts may be carried out through program reviews, 
audits, and investigations and may include contacting employers to 
determine income, contacting a food stamp or welfare office to determine 
current certification for receipt of food stamps or AFDC benefits, 
contacting the State employment security office to determine the amount 
of benefits received and checking the documentation produced by 
household members to prove the amount of income received.
    (v) This information must be provided to the attention of each adult 
household member disclosing his/her social security number. State 
agencies and school food authorities shall ensure that the notice 
complies with section 7 of Pub. L. 93-579 (Privacy Act of 1974). These 
households shall be provided with the name and phone number of a school 
official who can assist in the verification effort. Selected households 
must also be informed that, in lieu of any information that would 
otherwise be required, they can submit proof of current food stamp, 
FDPIR or

[[Page 289]]

TANF certification as described in paragraph (a)(3) of this section to 
verify the free meal eligibility of a child who is a member of a food 
stamp, FDPIR or TANF household. All households selected for verification 
shall be advised that failure to cooperate with verification efforts 
will result in the termination of benefits.
    (3) Food stamp, FDPIR or TANF recipients. On applications where 
households have furnished food stamp or TANF case numbers or FDPIR case 
numbers or other FDPIR identifiers, verification shall be accomplished 
either by confirming with the local food stamp, FDPIR, or TANF office 
that each child, for whom application was made and a case number or 
other identifier was provided, is a member of a currently certified food 
stamp, FDPIR or TANF household; or by obtaining from the household a 
copy of a current ``Notice of Eligibility'' for the Food Stamp Program, 
FDPIR or TANF Program or equivalent official documentation issued by the 
food stamp, FDPIR or TANF office which confirms that the child is a 
member of a currently certified food stamp, FDPIR or TANF household. An 
identification card for either program is not acceptable as verification 
unless it contains an expiration date. If it is not established that the 
child is a member of a currently certified food stamp, TANF or FDPIR 
household, the procedures for adverse action specified in paragraph (e) 
of this section must be followed. The notification of forthcoming 
termination of benefits provided to such households shall include a 
request for household income information and for written evidence which 
confirms household income to assist those households in establishing 
continued eligibility for free meal benefits.
    (4) Household cooperation. If a household refuses to cooperate with 
efforts to verify, eligibility for free or reduced price benefits shall 
be terminated in accordance with Sec.  245.6a(e). Households which 
refuse to complete the verification process and which are consequently 
determined ineligible for such benefits shall be counted toward meeting 
the School Food Authority's required sample of verified households.
    (5) Exceptions from verification. Verification efforts are not 
required in residential child care institutions; schools in which FNS 
has approved special cash assistance claims based on economic statistics 
regarding per capita income; or schools in which all children are served 
with no separate charge for food service and no special cash assistance 
is claimed. School Food Authorities in which all schools participate in 
the Special Assistance Certification and Reimbursement Alternatives 
specified in Sec.  245.9 shall meet the verification requirement only in 
those years in which applications are taken for all children in 
attendance. Verification of eligibility is not required of households 
when the determination of eligibility was based on documentation 
provided by the State or local agency responsible for the administration 
of the Food Stamp Program, FDPIR or TANF Program, as described in Sec.  
245.6(b).
    (b) Sources of information. Sources of information for verification 
may include written evidence, collateral contacts, and systems of 
records.
    (1) Written evidence. Written evidence shall be used as the primary 
source of information for verification. Written evidence includes 
written confirmation of a household's circumstances, such as wage stubs, 
award letters, and letters from employers. Whenever written evidence is 
insufficient to confirm income information on the application or current 
eligibility, the school may require collateral contacts.
    (2) Collateral contact. Collateral contact is a verbal confirmation 
of a household's circumstances by a person outside of the household. The 
collateral contact may be made by person or by phone. The verifying 
official may select a collateral contact if the household fails to 
designate one or designates one which is unacceptable to the verifying 
official. If the verifying official designates a collateral contact, the 
contact shall not be made without providing written or oral notice to 
the household. At the time of this notice, the household shall be 
informed that it may consent to the contact or provide acceptable 
verification in another form. If the household refuses to

[[Page 290]]

choose one of these options, its eligibility shall be terminated in 
accordance with the normal procedures for failure to cooperate with 
verification efforts. Collateral contacts could include employers, 
social service agencies, and migrant agencies.
    (3) Agency records. Agency records to which the State agency or 
School Food Authority may have access are not considered collateral 
contacts. Information concerning income, household size, or food stamp, 
FDPIR, or TANF eligibility maintained by other government agencies to 
which the State agency, school food authority or school can legally gain 
access may be used to confirm a household's income, size, or receipt of 
benefits. One possible source could be wage and benefit information 
maintained by the State employment agency, if that information is 
available. The use of any information derived from other agencies must 
be used with the applicable safeguards concerning disclosure.
    (c) Verification reporting and recordkeeping requirements. No later 
than March 1, 2005 and by March 1st each year thereafter, each school 
food authority must report information related to its annual 
verification activity to the State agency in accordance with guidelines 
provided by FNS. These required data elements will be specified by FNS. 
Contingent upon new funding to support this purpose, FNS will also 
require each school food authority to collect and report the number of 
students who were terminated as a result of verification but who were 
reinstated as of February 15th. The first report containing this data 
element would be required in the school year beginning July 1, 2005 and 
each school year thereafter. State agencies may develop paper or 
electronic reporting forms to collect this data from school food 
authorities, as long as all required data elements are collected from 
each school food authority. School food authorities shall retain copies 
of the information reported under this section and all supporting 
documents for a minimum of 3 years. All verified applications must be 
readily retrievable on an individual school basis and include all 
documents submitted by the household for the purpose of confirming 
eligibility, reproductions of those documents, or annotations made by 
the determining official which indicate which documents were submitted 
by the household and the date of submission. All relevant correspondence 
between the households selected for verification and the school or 
school food authority must be retained. School food authorities are 
encouraged to collect and report any or all verification data elements 
before the required dates.
    (d) Nondiscrimination. The verification efforts shall be applied 
without regard to race, sex, color, national origin, age, or disability.
    (e) Adverse action. If verification activities fail to confirm 
eligibility for free or reduced price benefits or should the household 
fail to cooperate with verification efforts, the school or School Food 
Authority shall reduce or terminate benefits, as applicable, as follows: 
Ten days advance notification shall be provided to households that are 
to receive a reduction or termination of benefits, prior to the actual 
reduction or termination. The first day of the 10 day advance notice 
period shall be the day the notice is sent. The notice shall advise the 
household of:
    (1) The change; (2) the reasons for the change; (3) notification of 
the right to appeal and when the appeal must be filed to ensure 
continued benefits while awaiting a hearing and decision; (4) 
instructions on how to appeal; and (5) the right to reapply at any time 
during the school year. The reasons for ineligibility shall be properly 
documented and retained on file at the School Food Authority.

(Sec. 803, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1758))

[48 FR 12510, Mar. 25, 1983, as amended at 49 FR 26034, June 26, 1984; 
52 FR 19275, May 22, 1987; 55 FR 19240, May 9, 1990; 56 FR 32950, July 
17, 1991; 56 FR 33861, July 24, 1991; 64 FR 50744, Sept. 20, 1999; 64 FR 
72474, Dec. 28, 1999; 66 FR 48328, Sept. 20, 2001; 68 FR 53489, Sept. 
11, 2003]



Sec.  245.7  Hearing procedure for families and School Food Authorities.

    (a) Each School Food Authority of a school participating in the 
National School Lunch Program, School Breakfast Program or the Special 
Milk Program or of a commodity only school

[[Page 291]]

shall establish a hearing procedure under which:
    (1) A family can appeal from a decision made by the School Food 
Authority with respect to an application the family has made for free or 
reduced price meals or for free milk, and (2) the School Food Authority 
can challenge the continued eligibility of any child for a free or 
reduced price meal or for free milk. The hearing procedure shall provide 
for both the family and the School Food Authority:
    (i) A simple, publicly announced method to make an oral or written 
request for a hearing;
    (ii) An opportunity to be assisted or represented by an attorney or 
other person;
    (iii) An opportunity to examine, prior to and during the hearing, 
any documents and records presented to support the decision under 
appeal;
    (iv) That the hearing shall be held with reasonable promptness and 
convenience, and that adequate notice shall be given as to the time and 
place of the hearing;
    (v) An opportunity to present oral or documentary evidence and 
arguments supporting a position without undue interference;
    (vi) An opportunity to question or refute any testimony or other 
evidence and to confront and cross-examine any adverse witnesses;
    (vii) That the hearing shall be conducted and the decision made by a 
hearing official who did not participate in making the decision under 
appeal or in any previously held conference;
    (viii) That the decision of the hearing official shall be based on 
the oral and documentary evidence presented at the hearing and made a 
part of the hearing record;
    (ix) That the parties concerned and any designated representative 
shall be notified in writing of the decision of the hearing official;
    (x) That a written record shall be prepared with respect to each 
hearing, which shall include the challenge or the decision under appeal, 
any documentary evidence and a summary of any oral testimony presented 
at the hearing, the decision of the hearing official, including the 
reasons therefor, and a copy of the notification to the parties 
concerned of the decision of the hearing official; and
    (xi) That the written record of each hearing shall be preserved for 
a period of 3 years and shall be available for examination by the 
parties concerned or their representatives at any reasonable time and 
place during that period.
    (b) Continuation of benefits. When a household disagrees with an 
adverse action which affects its benefits and requests a fair hearing, 
benefits shall be continued as follows while the household awaits the 
hearing and decision:
    (1) Households that have been approved for benefits and that are 
subject to a reduction or termination of benefits later in the same 
school year shall receive continued benefits if they appeal the adverse 
action within the 10 day advance notice period; and
    (2) Households that are denied benefits upon application shall not 
receive benefits.

(44 U.S.C. 3506; sec. 803, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 
1758))

[Amdt. 6, 39 FR 30339, Aug. 22, 1974, as amended at 47 FR 746, Jan. 7, 
1982; 48 FR 12511, Mar. 25, 1983]



Sec.  245.8   Nondiscrimination practices for children eligible to 
receive free and reduced price meals and free milk.

    School Food Authorities of schools participating in the National 
School Lunch Program, School Breakfast Program or Special Milk Program 
or of commodity only schools shall take all actions that are necessary 
to insure compliance with the following nondiscrimination practices for 
children eligible to receive free and reduced price meals or free milk:
    (a) The names of the children shall not be published, posted or 
announced in any manner;
    (b) There shall be no overt identification of any of the children by 
the use of special tokens or tickets or by any other means;
    (c) The children shall not be required to work for their meals or 
milk;
    (d) The children shall not be required to use a separate dining 
area, go through a separate serving line, enter the dining area through 
a separate entrance or consume their meals or milk at a different time;

[[Page 292]]

    (e) When more than one lunch or breakfast or type of milk is offered 
which meets the requirements prescribed in Sec.  210.10, Sec.  210.15a, 
Sec.  220.8 or Sec.  215.2(1) of this chapter, the children shall have 
the same choice of meals or milk that is available to those children who 
pay the full price for their meal or milk.

[Amdt. 6, 39 FR 30339, Aug. 22, 1974]



Sec.  245.9  Special assistance certification and reimbursement alternatives.

    (a) Provision 1. A School Food Authority of a school having at least 
80 percent of its enrolled children determined eligible for free or 
reduced price meals may, at its option, authorize the school to reduce 
annual certification and public notification for those children eligible 
for free meals to once every two consecutive school years. This 
alternative shall be known as provision 1 and the following requirements 
shall apply:
    (1) A School Food Authority of a school operating under provision 1 
requirements shall publicly notify in accordance with Sec.  245.5, 
parents of enrolled children who are receiving free meals once every two 
consecutive school years, and shall publicly notify in accordance with 
Sec.  245.5, parents of all other enrolled children on an annual basis.
    (2) The 80 percent enrollment eligibility for this alternative shall 
be based on the school's March enrollment data of the previous school 
year, or on other comparable data.
    (3) A School Food Authority of a school operating under provision 1, 
shall count the number of free, reduced price and paid meals served to 
children in that school as the basis for monthly reimbursement claims.
    (b) Provision 2. A school food authority may certify children for 
free and reduced price meals for up to 4 consecutive school years in the 
schools which serve meals at no charge to all enrolled children; 
provided that public notification and eligibility determinations are in 
accordance with Sec.  245.5 and Sec.  245.3, respectively, during the 
base year as defined in paragraph (b)(6) of this section. The Provision 
2 base year is the first year, and is included in the 4-year cycle. The 
following requirements apply:
    (1) Meals at no charge. Participating schools must serve 
reimbursable meals, as determined by a point of service observation, or 
as otherwise approved under part 210 of this chapter, to all 
participating children at no charge.
    (2) Cost differential. The school food authority of a school 
participating in Provision 2 must pay, with funds from non-Federal 
sources, the difference between the cost of serving lunches and/or 
breakfasts at no charge to all participating children and Federal 
reimbursement.
    (3) Meal counts. During the base year, even though meals are served 
to participating students at no charge, schools must take daily meal 
counts of reimbursable student meals by type (free, reduced price, and 
paid) at the point of service, or as otherwise approved under part 210 
of this chapter. During the non-base years, participating Provision 2 
schools must take total daily meal counts (not by type) of reimbursable 
student meals at the point of service, or as otherwise approved under 
part 210 of this chapter. For the purpose of calculating reimbursement 
claims in the non-base years, school food authorities must establish 
school specific monthly or annual claiming percentages, as follows:
    (i) Monthly percentages. In any given Provision 2 school, the 
monthly meal counts of the actual number of meals served by type (free, 
reduced price, and paid) during the base year must be converted to 
monthly percentages for each meal type. For example, the free lunch 
percentage is derived by dividing the monthly total number of 
reimbursable free lunches served by the total number of reimbursable 
lunches served in the same month (free, reduced price and paid). The 
percentages for the reduced price and paid lunches are calculated using 
the same method as the above example for free lunches. These three 
percentages, calculated at the end of each month of the first school 
year, are multiplied by the corresponding monthly lunch count total of 
all reimbursable lunches served in

[[Page 293]]

the second, third and fourth consecutive school years, and applicable 
extensions, in order to calculate reimbursement claims for free, reduced 
price and paid lunches each month. The free, reduced price and paid 
percentages for breakfasts and, as applicable, snacks, are calculated 
using the same method; or
    (ii) Annual percentages. In any given Provision 2 school, the actual 
number of all reimbursable meals served by type (free, reduced price, 
and paid) during the base year must be converted to an annual percentage 
for each meal type. For example, the free lunch percentage is derived by 
dividing the annual total number of reimbursable free lunches served by 
the annual total number of reimbursable lunches served for all meal 
types (free, reduced price and paid). The percentages for the reduced 
price and paid lunches are calculated using the same method as the above 
example for free lunches. These three percentages, calculated at the end 
of the base year, are multiplied by the total monthly lunch count of all 
reimbursable lunches served in each month of the second, third and 
fourth consecutive school years, and applicable extensions, in order to 
calculate reimbursement claims for free, reduced price and paid lunches 
each month. The free, reduced price and paid percentages for breakfasts 
and, as applicable, snacks, are calculated using the same method for 
each type of meal service.
    (4) School food authority claims review process. During the 
Provision 2 base year (not including a streamlined base year under 
paragraph (c)(2)(iii) of this section), school food authorities are 
required to review the lunch count data for each school under its 
jurisdiction to ensure the accuracy of the monthly Claim for 
Reimbursement in accordance with Sec.  210.8(a)(2) of this chapter. 
During non-base years and streamlined base years, school food 
authorities must compare each Provision 2 school's total daily meal 
counts to the school's total enrollment, adjusted by an attendance 
factor. The school food authority must promptly follow-up as specified 
in Sec.  210.8(a)(4) of this chapter when the claims review suggests the 
likelihood of lunch count problems. When a school elects to operate 
Provision 2 only in the School Breakfast Program, school food 
authorities must continue to comply with the claims review requirements 
of Sec.  210.8(a)(2) of this chapter for the National School Lunch 
Program.
    (5) Verification. Except as otherwise specified in Sec.  
245.6a(a)(5), school food authorities are required to conduct 
verification in accordance with Sec.  245.6a. When a school elects to 
participate under Provision 2 or for all of the meal programs in which 
it participates (breakfast 7 CFR part 220 and/or lunch 7 CFR part 210), 
the applications from that school are excluded from the school food 
authority's required verification sample size and are exempt from 
verification during non-base years.
    (6) Base year. For purposes of this paragraph (b), the term base 
year means the last school year for which eligibility determinations 
were made and meal counts by type were taken or the school year in which 
a school conducted a streamlined base year as authorized under paragraph 
(c)(2)(iii) of this section. Schools shall offer reimbursable meals to 
all students at no charge during the Provision 2 base year except as 
otherwise specified in paragraph (b)(6)(ii) of this section.
    (i) Duration of the base year. The base year must begin at the start 
of the school year or as otherwise specified in paragraph (b)(6)(ii) of 
this section.
    (ii) Delayed implementation. At State agency discretion, schools may 
delay implementation of Provision 2 for a period of time not to exceed 
the first claiming period of the school year in which the base year is 
established. Schools implementing this option may conduct standard meal 
counting and claiming procedures, including charging students eligible 
for reduced price and paid meals, during the first claiming period of 
the school year. Such schools must submit claims reflecting the actual 
number of meals served by type. In subsequent years, such schools shall 
convert the actual number of reimbursable meals served by type (free, 
reduced price and paid) during the remaining claiming periods of the 
base year, in which meals were served at no charge to all participating 
students, to an annual percentage for each type of

[[Page 294]]

meal. The annual claiming percentages must be applied to the total 
number of reimbursable meals served during the first claiming period in 
all non-base years of operation for that cycle and any extensions.
    (c) Extension of Provision 2. At the end of the initial cycle, and 
each subsequent 4-year cycle, the State agency may allow a school to 
continue under Provision 2 for another 4 years using the claiming 
percentages calculated during the most recent base year if the school 
food authority can establish, through available and approved 
socioeconomic data, that the income level of the school's population, as 
adjusted for inflation, has remained stable, declined or has had only 
negligible improvement since the base year.
    (1) Extension criteria. School food authorities must submit to the 
State agency available and approved socioeconomic data to establish 
whether the income level of a school's population, as adjusted for 
inflation, remained constant with the income level of the most recent 
base year.
    (i) Available and approved sources of socioeconomic data. Pre-
approved sources of socioeconomic data which may be used by school food 
authorities to establish the income level of the school's population 
are: local data collected by the city or county zoning and economic 
planning office; unemployment data; local Food Stamp Program 
certification data including direct certification; Food Distribution 
Program on Indian Reservations data; statistical sampling of the 
school's population using the application or equivalent income 
measurement process; and, Temporary Assistance for Needy Families data 
(provided that the eligibility standards were the same or more 
restrictive in the base year as the current year with allowance for 
inflation). To grant an extension using pre-approved socioeconomic data 
sources, State agencies must review and evaluate the socioeconomic data 
submitted by the school food authority to ensure that it is reflective 
of the school's population, provides equivalent data for both the base 
year and the last year of the current cycle, and demonstrates that the 
income level of the school's population, as adjusted for inflation, has 
remained stable, declined or had only negligible improvement. If the 
school food authority wants to establish the income level of the 
school's population using alternate sources of socioeconomic data, the 
use of such data must be approved by the Food and Nutrition Service. 
Data from alternate sources must be reflective of the school's 
population, be equivalent data for both the base year and the last year 
of the current cycle, and effectively measure whether the income level 
of the school's population, as adjusted for inflation, has remained 
stable, declined or had only negligible improvement.
    (ii) Negligible improvement. The change in the income level of the 
school's population shall be considered negligible if there is a 5 
percent or less improvement, after adjusting for inflation, over the 
base year in the level of the socioeconomic indicator which is used to 
establish the income level of the school's population.
    (2) Extension not approved. The State agency shall not approve an 
extension of Provision 2 procedures in those schools for which the 
available and approved socioeconomic data does not reflect the school's 
population, is not equivalent data for the base year and the last year 
of the current cycle, or shows over 5 percent improvement, after 
adjusting for inflation, in the income level of the school's population. 
Such schools shall:
    (i) Return to standard meal counting and claiming. Return to 
standard meal counting and claiming procedures;
    (ii) Establish a new base year. Establish a new Provision 2 base 
year by taking new free and reduced price applications, making new free 
and reduced price eligibility determinations, and taking point of 
service counts of free, reduced price and paid meals for the first year 
of the new cycle. For these schools, the new Provision 2 cycle will be 4 
years. Schools electing to establish a Provision 2 base year shall 
follow procedures contained in paragraph (b) of this section;
    (iii) Establish a streamlined base year. With prior approval by the 
State agency, establish a streamlined base year by providing 
reimbursable meals to all participating students at no charge and 
developing either enrollment based or

[[Page 295]]

participation based claiming percentages.
    (A) Enrollment based percentages. In accordance with guidance 
established by the Food and Nutrition Service, establish a new Provision 
2 base year by determining program eligibility on the basis of household 
size and income, and direct certification if applicable, for a 
statistically valid proportion of the school's enrollment as of October 
31, or other date approved by the State agency. The statistically valid 
measurement of the school's enrollment must be obtained during the first 
year of the new cycle and meet the requirements of paragraph (k) of this 
section. Using the data obtained, enrollment based claiming percentages 
representing a proportion of the school's population eligible for free, 
reduced price and paid benefits shall be developed and applied to total 
daily meal counts of reimbursable meals at the point of service, or as 
otherwise approved under part 210 of this chapter. For schools electing 
to participate in Provision 2, these percentages shall be used for 
claiming reimbursement for each year of the new cycle and any 
extensions; or
    (B) Participation based percentages. In accordance with guidance 
established by the Food and Nutrition Service, establish a new Provision 
2 base year by determining program eligibility on the basis of household 
size and income, and direct certification if applicable, for a 
statistically valid proportion of participating students established 
over multiple operating days. The statistically valid measurement of the 
school's student participation must be obtained during the first year of 
the new cycle and meet the requirements of paragraph (k) of this 
section. Using the data obtained, participation based claiming 
percentages representing a proportion of the school's participating 
students which are eligible for free, reduced price and paid benefits 
shall be developed and applied to total daily meal counts of 
reimbursable meals at the point of service or as otherwise approved 
under part 210 of this chapter. These percentages shall be used for 
claiming reimbursement for each year of the new cycle and any 
extensions; or
    (iv) Establish a Provision 3 base year. Schools may convert to 
Provision 3 using the procedures contained in paragraphs (e)(2)(ii) or 
(e)(2)(iii) of this section.
    (d) Provision 3. A school food authority of a school which serves 
all enrolled children in that school reimbursable meals at no charge 
during any period for up to 4 consecutive school years may elect to 
receive Federal cash reimbursement and commodity assistance at the same 
level as the total Federal cash and commodity assistance received by the 
school during the last year that eligibility determinations for free and 
reduced price meals were made and meals were counted by type (free, 
reduced price and paid) at the point of service, or as otherwise 
authorized under part 210 of this chapter. Such cash reimbursement and 
commodity assistance will be adjusted for each of the 4 consecutive 
school years pursuant to paragraph (d)(4) of this section. For purposes 
of this paragraph (d), the term base year means the last complete school 
year for which eligibility determinations were made and meal counts by 
type were taken or the school year in which a school conducted a 
streamlined base year as authorized under paragraph (e)(2)(iii) of this 
section. The base year must begin at the start of a school year. 
Reimbursable meals may be offered to all students at no charge or 
students eligible for reduced price and paid meal benefits may be 
charged for meals during a Provision 3 base, except that schools 
conducting a Provision 3 streamlined base year must provide reimbursable 
meals to all participating students at no charge in accordance with 
paragraph (e)(2)(iii) of this section. The Provision 3 base year 
immediately precedes, and is not included in, the 4-year cycle. This 
alternative shall be known as Provision 3, and the following 
requirements shall apply:
    (1) Meals at no charge. Participating schools must serve 
reimbursable meals, as determined by a point of service observation, or 
as otherwise authorized under part 210 of this chapter, to all 
participating children at no charge during non-base years of operation 
or as specified in paragraph (e)(2)(iii) of this section, if applicable.
    (2) Cost differential. The school food authority of a school 
participating in

[[Page 296]]

Provision 3 must pay, with funds from non-Federal sources, the 
difference between the cost of serving lunches and/or breakfasts at no 
charge to all participating children and Federal reimbursement.
    (3) Meal counts. Participating schools must take total daily meal 
counts of reimbursable meals served to participating children at the 
point of service, or as otherwise authorized under part 210 of this 
chapter, during the non-base years. Such meal counts must be retained at 
the local level in accordance with paragraph (g) of this section. State 
agencies may require the submission of the meal counts on the school 
food authority's monthly Claim for Reimbursement or through other means. 
In addition, school food authorities must establish a system of 
oversight using the daily meal counts to ensure that participation has 
not declined significantly from the base year. If participation declines 
significantly, the school food authority must provide the school with 
technical assistance, adjust the level of financial assistance received 
through the State agency or return the school to standard eligibility 
determination and meal counting procedures, as appropriate. In 
residential child care institutions, the State agency may approve 
implementation of Provision 3 without the requirement to obtain daily 
meal counts of reimbursable meals at the point of service if:
    (i) The State agency determines that enrollment, participation and 
meal counts do not vary; and
    (ii) There is an approved mechanism in place to ensure that students 
will receive reimbursable meals.
    (4) Annual adjustments. The State agency or school food authority 
shall make annual adjustments for enrollment and inflation to the total 
Federal cash and commodity assistance received by a Provision 3 school 
in the base year. The adjustments shall be made for increases and 
decreases in enrollment of children with access to the program(s). The 
annual adjustment for enrollment shall be based on the school's base 
year enrollment as of October 31 compared to the school's current year 
enrollment as of October 31. Another date within the base year may be 
used if it is approved by the State agency, and provides a more accurate 
reflection of the school's enrollment or accommodates the reporting 
system in effect in that State. If another date is used for the base 
year, the current year date must correspond to the base year date of 
comparison. State agencies may, at their discretion, make additional 
adjustments to a participating school's enrollment more frequently than 
once per school year. If more frequent enrollment is calculated, it must 
be applied for both upward and downward adjustments. The annual 
adjustment for inflation shall be effected through the application of 
the current year rates of reimbursement. To the extent that the number 
of operating days in the current school year differs from the number of 
operating days in the base year, and the difference affects the number 
of meals, a prorata adjustment shall also be made to the base year level 
of assistance, as adjusted by enrollment and inflation. Upward and 
downward adjustments to the number of operating days shall be made. Such 
adjustment shall be effected by either:
    (i) Multiplying the average daily meal count by type (free, reduced 
price and paid) by the difference in the number of operating days 
between the base year and the current year and adding/subtracting that 
number of meals from the Claim for Reimbursement, as appropriate. In 
developing the average daily meal count by type for the current school 
year, schools shall use the base year data adjusted by enrollment; or
    (ii) Multiplying the dollar amount otherwise payable (i.e., the base 
year level of assistance, as adjusted by enrollment and inflation) by 
the ratio of the number of operating days in the current year to the 
number of operating days in the base year.
    (5) Reporting requirements. The State agency shall submit to the 
Department on the monthly FNS-10, Report of School Programs Operations, 
the number of meals, by type (i.e., monthly meal counts by type for the 
base year, as adjusted); or the number of meals, by type, constructed to 
reflect the adjusted levels of cash assistance. State agencies may 
employ either method to

[[Page 297]]

effect payment of reimbursement for Provision 3 schools.
    (6) School food authority claims review process. During the 
Provision 3 base year (not including a streamlined base year under 
paragraph (e)(2)(iii) of this section), school food authorities are 
required to review the lunch count data for each school under its 
jurisdiction to ensure the accuracy of the monthly Claim for 
Reimbursement in accordance with Sec.  210.8(a)(2) of this chapter. 
During non-base years and streamlined base years, school food 
authorities must conduct their own system of oversight or compare each 
Provision 3 school's total daily meal counts to the school's total 
enrollment, adjusted by an attendance factor. The school food authority 
must promptly follow-up as specified in Sec.  210.8(a)(4) of this 
chapter when the claims review suggests the likelihood of lunch count 
problems. When a school elects to operate Provision 3 only in the School 
Breakfast Program, school food authorities must continue to comply with 
the claims review requirements of Sec.  210.8(a)(2) of this chapter for 
the National School Lunch Program.
    (7) Verification. Except as otherwise specified in Sec.  
245.6a(a)(5), school food authorities are required to conduct 
verification in accordance with Sec.  245.6a. When a school elects to 
participate under Provision 3 for all of the meal programs in which it 
participates (breakfast 7 CFR part 220 and/or lunch 7 CFR part 210), the 
applications from that school are excluded from the school food 
authority's required verification sample size and are exempt from 
verification during non-base years.
    (e) Extension of Provision 3. At the end of the initial cycle, and 
each subsequent 4-year cycle, the State agency may allow a school to 
continue under Provision 3 for another 4 years without taking new free 
and reduced price applications and meal counts by type. State agencies 
may grant an extension of Provision 3 if the school food authority can 
establish, through available and approved socioeconomic data, that the 
income level of the school's population, as adjusted for inflation, has 
remained stable, declined, or has had only negligible improvement since 
the most recent base year.
    (1) Extension criteria. School food authorities must submit to the 
State agency available and approved socioeconomic data to establish 
whether the income level of the school's population, as adjusted for 
inflation, remained constant with the income level of the most recent 
base year.
    (i) Available and approved sources of socioeconomic data. Pre-
approved sources of socioeconomic data which may be used by school food 
authorities to establish the income level of the school's population 
are: local data collected by the city or county zoning and economic 
planning office; unemployment data; local Food Stamp Program 
certification data including direct certification; Food Distribution 
Program on Indian Reservations data; statistical sampling of the 
school's population using the application process; and Temporary 
Assistance for Needy Families data (provided that the eligibility 
standards were the same or more restrictive in the base year as the 
current year with allowance for inflation). To grant an extension using 
pre-approved socioeconomic data sources, State agencies must review and 
evaluate the socioeconomic data submitted by the school food authority 
to ensure that it is reflective of the school's population, provides 
equivalent data for both the base year and the last year of the current 
cycle, and demonstrates that the income level of the school's 
population, as adjusted for inflation, has remained stable, declined or 
had only negligible improvement. If the school food authority wants to 
establish the income level of the school's population using alternate 
sources of data, the use of such data must be approved by the Food and 
Nutrition Service. Data from alternate sources must be reflective of the 
school's population, be equivalent data for both the base year and the 
last year of the current cycle, and effectively measure whether the 
income level of the school's population, as adjusted for inflation, has 
remained stable, declined or had only negligible improvement.
    (ii) Negligible improvement. The change in the income level of the 
school population shall be considered negligible if

[[Page 298]]

there is a 5 percent or less improvement, after adjusting for inflation, 
over the base year in the level of the socioeconomic indicator which is 
used to establish the income level of the school's population.
    (2) Extension not approved. Schools for which the available and 
approved socioeconomic data does not reflect the school's population, is 
not equivalent data for the base year and the last year of the current 
cycle, or shows over 5 percent improvement after adjusting for 
inflation, shall not be approved for an extension. Such schools must 
elect one of the following options:
    (i) Return to standard meal counting and claiming. Return to 
standard meal counting and claiming procedures;
    (ii) Establish a new base year. Establish a new Provision 3 base 
year by taking new free and reduced price applications, making new free 
and reduced price eligibility determinations, and taking point of 
service counts of free, reduced price and paid meals for the first year 
of the new cycle. Schools electing to establish a Provision 3 base year 
shall follow procedures contained in paragraph (d) of this section;
    (iii) Establish a streamlined base year. With prior approval by the 
State agency, establish a streamlined base year by providing 
reimbursable meals to all participating students at no charge and 
developing either enrollment based or participation based claiming 
percentages.
    (A) Enrollment based percentages. In accordance with guidance 
established by the Food and Nutrition Service, establish a new Provision 
3 base year by determining program eligibility on the basis of household 
size and income, and direct certification if applicable, for a 
statistically valid proportion of the school's enrollment as of October 
31, or other date approved by the State agency. The statistically valid 
measurement of the school's enrollment must be obtained during the first 
year of the new cycle and meet the requirements of paragraph (k) of this 
section. Using the data obtained, enrollment based claiming percentages 
representing a proportion of the school's population eligible for free, 
reduced price and paid benefits shall be developed and applied to total 
daily meal counts of reimbursable meals at the point of service, or as 
otherwise approved under part 210 of this chapter. For schools electing 
to participate in Provision 3, the streamlined base year level of 
assistance will be adjusted for enrollment, inflation and, if 
applicable, operating days, for each subsequent year of the new cycle 
and any extensions; or
    (B) Participation based percentages. In accordance with guidance 
established by the Food and Nutrition Service, establish a new Provision 
3 base year by determining program eligibility on the basis of household 
size and income, and direct certification if applicable, for a 
statistically valid proportion of participating students established 
over multiple operating days. The statistically valid measurement of the 
school's student participation must be obtained during the first year of 
the new cycle and meet the requirements of paragraph (k) of this 
section. Using the data obtained, participation based claiming 
percentages representing a proportion of the school's participating 
students which are eligible for free, reduced price and paid benefits 
shall be developed and applied to total daily meal counts of 
reimbursable meals at the point of service or as otherwise approved 
under part 210 of this chapter. For schools electing to participate in 
Provision 3, the streamlined base year level of assistance as described 
in this paragraph (e)(2)(iii)(B) will be adjusted for enrollment, 
inflation and, if applicable, operating days, for each subsequent year 
of the new cycle and any extensions; or
    (iv) Establish a Provision 2 base year. Schools may convert to 
Provision 2 using the procedures contained in paragraphs (c)(2)(ii) or 
(c)(2)(iii) of this section.
    (f) Policy statement requirement. A school food authority of a 
Provision 1, 2, or 3 school shall:
    (1) Amend its Free and Reduced Price Policy Statement, specified in 
Sec.  245.10, to include a list of all schools participating in 
Provision 1, 2, or 3, and for each school:
    (i) The initial year of implementing the provision;
    (ii) The years the cycle is expected to remain in effect;

[[Page 299]]

    (iii) The year the provision must be reconsidered; and
    (iv) The available and approved socioeconomic data that will be used 
in the reconsideration, if applicable.
    (2) Certify that the school(s) meet the criteria for participating 
in the special assistance provisions, as specified in paragraphs (a), 
(b), (c), (d) or (e) of this section, as appropriate.
    (g) Recordkeeping. School food authorities of schools implementing 
Provision 1, 2 or 3 shall retain records related to the implementation 
of the provision. Failure to maintain sufficient records shall result in 
the State agency requiring the school to return to standard meal 
counting and claiming procedures and/or fiscal action. Recordkeeping 
requirements specific to Provision 2 and Provision 3 include:
    (1) Base year records. A school food authority shall ensure that 
records as specified in Sec.  210.15(b) and Sec.  220.7(e) of this 
chapter which support subsequent year earnings are retained for the base 
year for schools under Provision 2 and Provision 3. In addition, records 
of enrollment data for the base year must be retained for schools under 
Provision 3. Such base year records must be retained during the period 
the provision is in effect, including all extensions, plus 3 fiscal 
years after the submission of the last Claim for Reimbursement which 
employed the base year data. School food authorities that conduct a 
streamlined base year must retain all records related to the statistical 
methodology and the determination of claiming percentages. Such records 
shall be retained during the period the provision is in effect, 
including all extensions, plus 3 fiscal years after the submission of 
the last Claim for Reimbursement which employed the streamlined base 
year data. In either case, if audit findings have not been resolved, 
base year records must be retained beyond the 3-year period as long as 
required for the resolution of the issues raised by the audit.
    (2) Non-base year records. School food authorities that are granted 
an extension of a provision must retain records of the available and 
approved socioeconomic data which is used to determine the income level 
of the school's population for the base year and year(s) in which 
extension(s) are made. In addition, State agencies must also retain 
records of the available and approved socioeconomic data which is used 
to determine the income level of the school's population for the base 
year and year(s) in which extensions are made. Such records must be 
retained at both the school food authority level and at the State agency 
during the period the provision is in effect, including all extensions, 
plus 3 fiscal years after the submission of the last monthly Claim for 
Reimbursement which employed base year data. If audit findings have not 
been resolved, records must be retained beyond the 3-year period as long 
as required for the resolution of the issues raised by the audit. In 
addition, for schools operating under Provision 2, a school food 
authority must retain non-base year records pertaining to total daily 
meal count information, edit checks and on-site review documentation. 
For schools operating under Provision 3, a school food authority must 
retain non-base year records pertaining to total daily meal count 
information, the system of oversight or edit checks, on-site review 
documentation, annual enrollment data and the number of operating days, 
which are used to adjust the level of assistance. Such records shall be 
retained for three years after submission of the final monthly Claim for 
Reimbursement for the fiscal year.
    (h) Availability of documentation. Upon request, the school food 
authority shall make documentation including enrollment data, 
participation data, available and approved socioeconomic data that was 
used to grant the extension, if applicable, or other data available at 
any reasonable time for monitoring and audit purposes. In addition, upon 
request from the Food and Nutrition Service, school food authorities 
under Provision 2 or Provision 3, or State agencies shall submit to the 
Food and Nutrition Service all data and documentation used in granting 
extensions including documentation as specified in paragraphs (g) and 
(h) of this section.
    (i) Return to standard meal counting and claiming. A school food 
authority

[[Page 300]]

may return a school to standard notification, certification and counting 
procedures at any time if standard procedures better suit the school's 
program needs. The school food authority will then notify the State 
agency.
    (j) Puerto Rico and Virgin Islands. Puerto Rico and the Virgin 
Islands, where a statistical survey procedure is permitted in lieu of 
eligibility determinations for each child, may either maintain their 
standard procedures in accordance with Sec.  245.4 or may opt for 
Provision 2 or Provision 3 provided the eligibility requirements as set 
forth in paragraphs (a), (b), (c), (d) and (e) of this section are met, 
as applicable.
    (k) Statistical income measurements. Statistical income measurements 
that are used under this section to establish enrollment or 
participation base claiming percentages must comply with the standards 
outlined as follows:
    (1) For enrollment based claiming percentages, statistical income 
measurements must meet the following standards:
    (i) The sample frame shall be limited to enrolled students who have 
access to the school meals program;
    (ii) A sample of enrolled students shall be randomly selected from 
the sample frame;
    (iii) The response rate to the survey shall be at least 80 percent;
    (iv) The number of households that complete the survey shall be 
sufficiently large so that it can be asserted with 95 percent confidence 
that the true percentage of students who are enrolled in the school, 
have access to the school meals program, and are eligible for free meals 
is within plus or minus 2.5 percentage points of the point estimate 
determined from the sample; and
    (v) To minimize statistical bias, data from all households that 
complete the survey must be used when calculating the enrollment based 
claiming percentages for paragraphs (c)(2)(iii)(A) and (e)(2)(iii)(A) of 
this section.
    (2) For participation based claiming percentages, statistical income 
measurements must meet the following standards:
    (i) The sample frame must be limited to students participating in 
the meal program for which the participation based claiming percentages 
are being developed;
    (ii) The sample frame must represent multiple operating days, as 
established through guidance, in the meal program for which the 
participation based claiming percentages are being developed;
    (iii) A sample of participating students shall be randomly selected 
from the sample frame;
    (iv) The response rate to the survey shall be at least 80 percent;
    (v) The number of households that complete the survey shall be 
sufficiently large so that it can be asserted with 95 percent confidence 
that the true percentage of participating students who are eligible for 
free meals is within plus or minus 2.5 percentage points of the point 
estimate determined from the sample; and,
    (vi) To minimize statistical bias, data from all households that 
complete the survey must be used when calculating the participation 
based claiming percentages for paragraphs (c)(2)(iii)(B) and 
(e)(2)(iii)(B) of this section.

(Sec. 9, Pub. L. 95-166, 91 Stat. 1336 (42 U.S.C. 1759a); secs. 805, and 
819, Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1773))

[Amdt. 19, 45 FR 67287, Oct. 10, 1980, as amended by Amdt. 23, 47 FR 
14135, Apr. 2, 1982; 66 FR 48328, Sept. 20, 2001]



Sec.  245.10  Action by School Food Authorities.

    (a) Each School Food Authority of a school desiring to participate 
in the National School Lunch Program, School Breakfast Program, or to 
provide free milk under the Special Milk Program, or to become a 
commodity-only school shall submit for approval to the State agency a 
free and reduced price policy statement. Once approved, the policy 
statement shall be a permanent document which may be amended as 
necessary, except as specified in paragraph (c) of this section. Such 
policy statement, as a minimum, shall contain the following:
    (1) The official or officials designated by the school food 
authority to make eligibility determinations on its behalf for free and 
reduced price meals or for free milk;
    (2) An assurance that for children who are not categorically 
eligible for

[[Page 301]]

free and reduced price benefits the school food authority will determine 
eligibility for free and reduced price meals or free milk in accordance 
with the current Income Eligibility Guidelines.
    (3) The specific procedures the school food authority will use in 
accepting applications from families for free and reduced price meals or 
for free milk. Additionally, if the school food authority has opted to 
determine eligibility for children from food stamp, FDPIR or TANF 
households based on documentation obtained from the State or local 
agency responsible for the Food Stamp, FDPIR or TANF Program, in lieu of 
an application, the school food authority shall include the specific 
procedures it will use to obtain the required documentation. 
Additionally, school food authorities that have implemented direct 
certification and that must provide households a notice of eligibility, 
as specified in Sec.  245.6(b), must also include in their policy 
statement a copy of the notice to households regarding their children's 
eligibility under the direct certification provision.
    (4) A description of the method or methods to be used to collect 
payments from those children paying the full price of the meal or milk, 
or a reduced price of a meal, which will prevent the overt 
identification of the children receiving a free meal or free milk or a 
reduced price meal, and
    (5) An assurance that the school will abide by the hearing procedure 
set forth in Sec.  245.7 and the nondiscrimination practices set forth 
in Sec.  245.8.
    (b) The policy statement submitted by each school food authority 
shall be accompanied by a copy of the application form to be used by the 
school and of the proposed letter or notice to parents.
    (c) Each school food authority shall amend its permanent free and 
reduced price policy statement to reflect substantive changes. Any 
amendment to a policy shall be approved by the State agency prior to 
implementation, or as provided in paragraph (e) of this section. Each 
year, if a School Food Authority does not have its policy statement 
approved by the State agency, or FNSRO where applicable, by October 15, 
reimbursement shall be suspended for any meals or milk served until such 
time as the School Food Authority's free and reduced price policy 
statement has been approved by the State agency, or FNSRO where 
applicable. Furthermore, no commodities donated by the Department shall 
be used in any school after October 15, until such time as the School 
Food Authority's free and reduced price policy statement has been 
approved by the State agency, or FNSRO where applicable. Once the School 
Food Authority's free and reduced price policy statement has been 
approved, reimbursement may be allowed, at the discretion of the State 
agency, or FNSRO where applicable, for eligible meals and milk served 
during the period of suspension.
    (d) If any free and reduced price policy statement submitted for 
approval by any School Food Authority to the State agency, or FNSRO 
where applicable, is determined to be not in compliance with the 
provisions of this part, the School Food Authority shall submit a policy 
statement that does meet the provisions within 30 days after 
notification by the State agency, or FNSO where applicable.
    (e) When revision of a School Food Authority's approved free and 
reduced price policy statement is necessitated because of a change in 
the family-size income standards of the State agency, or FNSRO where 
applicable, or because of other program changes, the School Food 
Authority shall have 60 days from the date the State agency announces 
the change in which to have its revised policy statement approved by the 
State agency, or FNSRO where applicable. In the event that a School Food 
Authority's proposed revised free and reduced price policy statement has 
not been submitted to, and approved by, the State agency, or FNSRO where 
applicable, within 60 days following the public announcement by the 
State agency, reimbursement shall be suspended for any meals or milk 
served after the end of the 60-day period. No commodities donated by the 
Department shall be used in any school after the end of the 60-day 
period, until such time as the School Food Authority's free and reduced 
price policy statement has been approved by the State agency,

[[Page 302]]

or FNSRO where applicable. Reimbursement may be allowed at the 
discretion of the State agency, or FNSRO where applicable, for eligible 
meals and milk served during the period of suspension once the School 
Food Authority's free and reduced price policy statement has been 
approved by the State agency, or FNSRO where applicable. Pending 
approval of a revision of a policy statement, the existing statement 
shall remain in effect.

(Sec. 8, Pub. L. 95-627, 92 Stat. 3623 (42 U.S.C. 1758); sec. 5, Pub. L. 
95-627, 92 Stat. 3619 (42 U.S.C. 1772); 44 U.S.C. 3506; sec. 803, Pub. 
L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1758))

[35 FR 14065, Sept. 4, 1970, as amended at 38 FR 14958, June 7, 1973; 
Amdt. 6, 39 FR 30339, Aug. 22, 1974; Amdt. 8, 40 FR 57208, Dec. 8, 1975; 
Admt. 13, 44 FR 33049, June 8, 1979; 47 FR 746, Jan. 7, 1982; 48 FR 
12511, Mar. 25, 1983; 64 FR 50744, Sept. 20, 1999;64 FR 72474, Dec. 28, 
1999]



Sec.  245.11  Action by State agencies and FNSROs.

    (a) Each State agency, or FNSRO where applicable, shall, for schools 
under its jurisdiction:
    (1) As necessary, each State agency or FNSRO, as applicable, shall 
issue a prototype free and reduced price policy statement and any other 
instructions to ensure that each school food authority is fully informed 
of the provisions of this part. If the State elects to establish for all 
schools a maximum price for reduced price lunches that is less than 40 
cents, the State shall establish such price in its prototype policy. 
Such State shall then receive the adjusted national average factor 
provided for in Sec.  210.4(b); (2) prescribe and publicly announce by 
July 1 of each fiscal year, in accordance with Sec.  245.3(a), family-
size income standards. Any standards prescribed by FNSRO with respect to 
nonprofit private schools shall be developed by FNSRO after consultation 
with the State agency.
    (a-1) When a revision of the family-size income standards of the 
State agency, or FNSRO where applicable, is necessitated because of a 
change in the Secretary's income poverty guidelines or because of other 
program changes, the State agency shall publicly announce its revised 
family-size income standards no later than 30 days after the Secretary 
has announced such change.
    (b) State agencies, and FNSRO where applicable, shall review the 
policy statements submitted by school-food authorities for compliance 
with the provisions of this part and inform the school-food authorities 
of any necessary changes or amendments required in any policy statement 
to bring such statement into compliance. They shall notify school-food 
authorities in writing of approval of their policy statements and shall 
direct them to distribute promptly the public announcements required 
under the provisions of Sec.  245.5.
    (c) Each State agency, or FNSRO where applicable, shall instruct 
School Food Authorities under their jurisdiction that they may not alter 
or amend the eligibility criteria set forth in an approved policy 
statement without advance approval of the State agency, or FNSRO where 
applicable.
    (d) Not later than 10 days after the State agency, or FNSRO where 
applicable, announces its family-size income standards, it shall notify 
School Food Authorities in writing of any amendment to their free and 
reduced price policy statements necessary to bring the family-sized 
income criteria into conformance with the State agency's or FNSRO's 
family-size income standards.
    (e) Except as provided in Sec.  245.10, the State agency, or FNSRO 
where applicable, shall neither disburse any funds, nor authorize the 
distribution of commodities donated by the Department to any school 
unless the school food authority has an approved free and reduced price 
policy statement on file with the State Agency, or FNSRO where 
applicable.
    (f) Each State agency, or FNSRO where applicable, shall, in the 
course of its supervisory assistance, review and evaluate the 
performance of School Food Authorities and of schools in fulfilling the 
requirements of this part, and shall advise School Food Authorities of 
any deficiencies found and any corrective action required to be taken.
    (g) The State agency must notify FNS whether the TANF Program in 
their State is comparable to or more restrictive than the State's Aid to

[[Page 303]]

Families with Dependent Children Program that was in effect on June 1, 
1995. Automatic eligibility and direct certification for TANF households 
is allowed only in States in which FNS has been assured that the TANF 
standards are comparable to or more restrictive than the program it 
replaced. State agencies must inform FNS when there is a change in the 
State's TANF Program that would no longer make households participating 
in TANF automatically eligible for free school meals.
    (h) The State agency shall take action to ensure the proper 
implementation of Provisions 1, 2, and 3. Such action shall include:
    (1) Notification. Notifying school food authorities of schools 
implementing Provision 2 and/or 3 that each Provision 2 or Provision 3 
school must return to standard eligibility determination and meal 
counting procedures or apply for an extension under Provision 2 or 3. 
Such notification must be in writing, and be sent no later than February 
15, or other date established by the State agency, of the fourth year of 
a school's current cycle;
    (2) Return to standard procedures. Returning the school to standard 
eligibility determination and meal counting procedures and fiscal action 
as required under Sec.  210.19(c) of this chapter if the State agency 
determines that records were not maintained; and
    (3) Technical assistance. Providing technical assistance, 
adjustments to the level of financial assistance for the current school 
year, and returning the school to standard eligibility determination and 
meal counting procedures, as appropriate, if a State agency determines 
at any time that:
    (i) The school or school food authority has not correctly 
implemented Provision 1, Provision 2 or Provision 3;
    (ii) Meal quality has declined because of the implementation of the 
provision;
    (iii) Participation in the program has declined over time;
    (iv) Eligibility determinations or the verification procedures were 
incorrectly conducted; or
    (v) Meal counts were incorrectly taken or incorrectly applied.
    (4) State agency recordkeeping. State agencies shall retain the 
following information annually for the month of October and, upon 
request, submit to FNS:
    (i) The number of schools using Provision 1, Provision 2 and 
Provision 3 for NSLP;
    (ii) The number of schools using Provision 2 and Provision 3 for SBP 
only;
    (iii) The number of extensions granted to schools using Provision 2 
and Provision 3 during the previous school year;
    (iv) The number of extensions granted during the previous year on 
the basis of Food Stamp/FDPIR data;
    (v) The number of extensions granted during the previous year on the 
basis of Temporary Assistance for Needy Families (TANF) data;
    (vi) The number of extensions granted during the previous year on 
the basis of local data collected by a city or county zoning and/or 
economic planning office;
    (vii) The number of extensions granted during the previous year on 
the basis of applications collected from enrolled students;
    (viii) The number of extensions granted during the previous year on 
the basis of statistically valid surveys of enrolled students; and
    (ix) The number of extensions granted during the previous year on 
the basis of alternate data as approved by the State agency's respective 
FNS Regional Office.
    (5) State agency approval. Prior to approval for participation under 
Provision 2 or Provision 3, State agencies shall ensure school and/or 
school food authority program compliance as required under Sec. Sec.  
210.19(a)(4) and 220.13(k) of this chapter.
    (i) No later than March 1, 2005 and by March 1st each year 
thereafter, each State agency must collect annual verification data from 
each school food authority as described in Sec.  245.6a(c) and in 
accordance with guidelines provided by FNS. Each State agency must 
analyze these data, determine if there are potential problems, and 
formulate corrective actions and technical assistance activities that 
will support the objective of certifying only those children eligible 
for free or reduced price meals. No later than April 15, 2005 and by 
April 15 each year thereafter, each

[[Page 304]]

State agency must report to FNS the verification information in a 
consolidated electronic file that has been reported to it as required 
under Sec.  245.6a(c), by school food authority, and any ameliorative 
actions the State agency has taken or intends to take in school food 
authorities with high levels of applications changed due to 
verification. Contingent upon new funding to support this purpose, FNS 
will also require each State agency to report the aggregate number of 
students who were terminated as a result of verification but who were 
reinstated as of February 15th. The first report containing this data 
element would be required in the school year beginning July 1, 2005 and 
each school year thereafter. State agencies are encouraged to collect 
and report any or all verification data elements before the required 
dates.

(Secs. 801, 803, 812; Pub. L. 97-35, 95 Stat. 521-535 (42 U.S.C. 1753, 
1758, 1759(a), 1773, 1778))

[35 FR 14065, Sept. 4, 1970, as amended at 38 FR 14958, June 7, 1973; 
Amdt. 8, 40 FR 57208, Dec. 8, 1975; 44 FR 1364, Jan. 5, 1979; 46 FR 
51368, Oct. 20, 1981; 48 FR 12511, Mar. 25, 1983; 52 FR 19276, May 22, 
1987; 64 FR 50744, Sept. 20, 1999; 64 FR 72474, Dec. 28, 1999; 66 FR 
48333, Sept. 20, 2001; 68 FR 53490, Sept. 11, 2003]

    Effective Date Note: At 68 FR 53490, Sep. 11, 2003, Sec.  245.11(i) 
was added. This paragraph contains information collection and 
recordkeeping requirements and will not become effective until approval 
has been given by the Office of Management and Budget.



Sec.  245.12  Fraud penalties.

    (a) Whoever embezzles, willfully misapplies, steals, or obtains by 
fraud any funds, assets, or property provided under this part, whether 
received directly or indirectly from the Department, shall--
    (1) If such funds, assets, or property are of a value of $100 or 
more, be fined not more than $25,000 or imprisoned not more than five 
years of both; or
    (2) If such funds, assets, or property are of a value of less than 
$100, be fined not more than $1,000 or imprisoned not more than one year 
or both.
    (b) Whoever receives, conceals, or retains to his use or gain funds, 
assets, or property provided under this part, whether received directly 
or indirectly from the Department, knowing such funds, assets, or 
property have been embezzled, willfully misapplied, stolen, or obtained 
by fraud, shall be subject to the same penalties provided in paragraph 
(a) of this section.

(Sec. 10(a), Pub. L. 95-627, 92 Stat. 3623 (42 U.S.C. 1760); sec. 14, 
Pub. L. 95-627, 92 Stat. 3625-3626)

[Amdt. 14, 44 FR 37901, June 29, 1979, as amended at 64 FR 50744, Sept. 
20, 1999]



Sec.  245.13  Information collection/recordkeeping--OMB assigned control numbers.

------------------------------------------------------------------------
                                                             Current OMB
       7 CFR section where requirements are described          control
                                                                number
------------------------------------------------------------------------
245.3 (a), (b).............................................    0584-0026
245.4......................................................    0584-0026
245.5 (a), (b).............................................    0584-0026
245.6 (a), (b), (c), (e)...................................    0584-0026
245.7(a)...................................................    0584-0026
245.9 (a), (b), (c)........................................    0584-0026
245.10 (a), (d), (e).......................................    0584-0026
245.11 (a), (a-1), (b), (c), (d), (f)......................    0584-0026
245.13(a)-(c)..............................................    0584-0026
------------------------------------------------------------------------


[50 FR 53258, Dec. 31, 1985. Redesignated at 64 FR 50744, Sept. 20, 
1999]



PART 246_SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS AND 
CHILDREN--Table of Contents




                            Subpart A_General

Sec.
246.1 General purpose and scope.
246.2 Definitions.
246.3 Administration.

              Subpart B_State and Local Agency Eligibility

246.4 State plan.
246.5 Selection of local agencies.
246.6 Agreements with local agencies.

                    Subpart C_Participant Eligibility

246.7 Certification of participants.
246.8 Nondiscrimination.
246.9 Fair hearing procedures for participants.

                     Subpart D_Participant Benefits

246.10 Supplemental foods.
246.11 Nutrition education.

                    Subpart E_State Agency Provisions

246.12 Food delivery systems.

[[Page 305]]

246.13 Financial management system.
246.14 Program costs.
246.15 Program income other than grants.
246.16 Distribution of funds.
246.16a Infant formula cost containment.
246.17 Closeout procedures.
246.18 Administrative appeal of State agency actions.

                     Subpart F_Monitoring and Review

246.19 Management evaluation and monitoring reviews.
246.20 Audits.
246.21 Investigations.

                   Subpart G_Miscellaneous Provisions

246.22 Administrative appeal of FNS decisions.
246.23 Claims and penalties.
246.24 Procurement and property management.
246.25 Records and reports.
246.26 Other provisions.
246.27 Program information.
246.28 OMB control numbers.

    Authority: 42 U.S.C. 1786.

    Source: 50 FR 6121, Feb. 13, 1985, unless otherwise noted.

    Editorial Note: For nomenclature changes to part 246 see 59 FR 
11498, Mar. 11, 1994.



                            Subpart A_General



Sec.  246.1  General purpose and scope.

    This part announces regulations under which the Secretary of 
Agriculture shall carry out the Special Supplemental Nutrition Program 
for Women, Infants and Children (WIC Program). Section 17 of the Child 
Nutrition Act of 1966, as amended, states in part that the Congress 
finds that substantial numbers of pregnant, postpartum and breastfeeding 
women, infants and young children from families with inadequate income 
are at special risk with respect to their physical and mental health by 
reason of inadequate nutrition or health care, or both. The purpose of 
the Program is to provide supplemental foods and nutrition education 
through payment of cash grants to State agencies which administer the 
Program through local agencies at no cost to eligible persons. The 
Program shall serve as an adjunct to good health care during critical 
times of growth and development, in order to prevent the occurrence of 
health problems, including drug and other harmful substance abuse, and 
to improve the health status of these persons. The program shall be 
supplementary to the Food Stamp Program; any program under which foods 
are distributed to needy families in lieu of food stamps; and receipt of 
food or meals from soup kitchens, or shelters, or other forms of 
emergency food assistance.

[50 FR 6121, Feb. 13, 1985, as amended at 54 FR 51294, Dec. 14, 1989; 58 
FR 11506, Feb. 26, 1993]



Sec.  246.2  Definitions.

    For the purpose of this part and all contracts, guidelines, 
instructions, forms and other documents related hereto, the term:
    Affirmative Action Plan means that portion of the State Plan which 
describes how the Program will be initiated and expanded within the 
State's jurisdiction in accordance with Sec.  246.4(a).
    A-130 means Office of Management and Budget Circular A-130, which 
provides guidance for the coordinated development and operation of 
information systems.
    Applicants means pregnant women, breastfeeding women, postpartum 
women, infants, and children who are applying to receive WIC benefits, 
and the breastfed infants of applicant breastfeeding women. Applicants 
include individuals who are currently participating in the program but 
are re-applying because their certification period is about to expire.
    Authorized supplemental foods means those supplemental foods 
authorized by the State or local agency for issuance to a particular 
participant.
    Breastfeeding means the practice of feeding a mother's breastmilk to 
her infant(s) on the average of at least once a day.
    Breastfeeding women means women up to one year postpartum who are 
breastfeeding their infants.
    Categorical eligibility means persons who meet the definitions of 
pregnant women, breastfeeding women, postpartum women, or infants or 
children.

[[Page 306]]

    Certification means the implementation of criteria and procedures to 
assess and document each applicant's eligibility for the Program.
    Children means persons who have had their first birthday but have 
not yet attained their fifth birthday.
    Clinic means a facility where applicants are certified.
    Competent professional authority means an individual on the staff of 
the local agency authorized to determine nutritional risk and prescribe 
supplemental foods. The following persons are the only persons the State 
agency may authorize to serve as a competent professional authority: 
Physicians, nutritionists (bachelor's or master's degree in Nutritional 
Sciences, Community Nutrition, Clinical Nutrition, Dietetics, Public 
Health Nutrition or Home Economics with emphasis in Nutrition), 
dieticians, registered nurses, physician's assistants (certified by the 
National Committee on Certification of Physician's Assistants or 
certified by the State medical certifying authority), or State or local 
medically trained health officials. This definition also applies to an 
individual who is not on the staff of the local agency but who is 
qualified to provide data upon which nutritional risk determinations are 
made by a competent professional authority on the staff of the local 
agency.
    Competitive bidding means a procurement process under which FNS or 
the State agency selects a single source (such as a single infant 
formula manufacturer offering the lowest price), as determined by the 
submission of sealed bids, for a product for which bids are sought for 
use in the Program.
    Compliance buy means a covert, on-site investigation in which a 
representative of the Program poses as a participant, parent or 
caretaker of an infant or child participant, or proxy, transacts one or 
more food instruments, and does not reveal during the visit that he or 
she is a program representative.
    Contract brand infant formula means all infant formulas (except 
exempt infant formulas) produced by the manufacturer awarded the infant 
formula cost containment contract. If under a single solicitation the 
manufacturer subcontracts for soy-based infant formula, then all soy-
based infant formulas covered by the subcontract are also considered 
contract brand infant formulas (see Sec.  246.16a(c)(1)(i)). If a State 
agency elects to solicit separate bids for milk-based and soy-based 
infant formulas, all infant formulas issued under each contract are 
considered the contract brand infant formula (see Sec.  
246.16a(c)(1)(ii)). For example, all of the milk-based infant formulas 
issued by a State agency that are produced by the manufacturer that was 
awarded the milk-based contract are considered contract brand infant 
formulas. Similarly, all of the soy-based infant formulas issued by a 
State agency that are produced by the manufacturer that was awarded the 
soy-based contract are also considered to be contract brand infant 
formulas. Contract brand infant formulas also include all infant 
formulas (except exempt infant formulas) introduced after the contract 
is awarded.
    Cost containment measure means a competitive bidding, rebate, direct 
distribution, or home delivery system implemented by a State agency as 
described in its approved State Plan of operation and administration.
    CSFP means the Commodity Supplemental Food Program administered by 
the Department, authorized by section 5 of the Agriculture and Consumer 
Protection Act of 1973, as amended, and governed by part 247 of this 
title.
    Days means calendar days.
    Department means the U.S. Department of Agriculture.
    Discount means, with respect to a State agency that provides Program 
foods to participants without the use of retail grocery stores (such as 
a State agency that provides for the home delivery or direct 
distribution of supplemental food), the amount of the price reduction or 
other price concession provided to any State agency by the manufacturer 
or supplier of the particular food product as the result of the purchase 
of Program food by each such State agency, or its representative, from 
the manufacturer or supplier.
    Disqualification means the act of ending the Program participation 
of a participant, authorized food vendor, or authorized State or local 
agency, whether as a punitive sanction or for administrative reasons.

[[Page 307]]

    Documentation means the presentation of written documents which 
substantiate statements made by an applicant or participant or a person 
applying on behalf of an applicant.
    Drug means:
    (a) A beverage containing alcohol;
    (b) A controlled substance (having the meaning given it in section 
102(6) of the Controlled Substance Act (21 U.S.C. 802(6)); or
    (c) A controlled substance analogue (having the meaning given it in 
section 102(32) of the Controlled Substance Act (21 U.S.C. 802(32)).
    Dual participation means simultaneous participation in the Program 
in one or more than one WIC clinic, or participation in the Program and 
in the CSFP during the same period of time.
    Exempt infant formula means an infant formula that meets the 
requirements for an exempt infant formula under section 412(h) of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 350a(h)) and the 
regulations at 21 CFR parts 106 and 107.
    Family means a group of related or nonrelated individuals who are 
living together as one economic unit, except that residents of a 
homeless facility or an institution shall not all be considered as 
members of a single family.
    Fiscal year means the period of 12 calendar months beginning October 
1 of any calendar year and ending September 30 of the following calendar 
year.
    FNS means the Food and Nutrition Service of the U.S. Department of 
Agriculture.
    Food costs means the costs of supplemental foods, determined in 
accordance with Sec.  246.14(b).
    Food delivery system means the method used by State and local 
agencies to provide supplemental foods to participants.
    Food instrument means a voucher, check, electronic benefits transfer 
card (EBT), coupon or other document which is used by a participant to 
obtain supplemental foods.
    Health services means ongoing, routine pediatric and obstetric care 
(such as infant and child care and prenatal and postpartum examinations) 
or referral for treatment.
    High-risk vendor means a vendor identified as having a high 
probability of committing a vendor violation through application of the 
criteria established in Sec.  246.12(j)(3) and any additional criteria 
established by the State agency.
    Home food delivery contractor means a sole proprietorship, 
partnership, cooperative association, corporation, or other business 
entity that contracts with a State agency to deliver authorized 
supplemental foods to the residences of participants under a home food 
delivery system.
    Homeless facility means the following types of facilities which 
provide meal service. A supervised publicly or privately operated 
shelter (including a welfare hotel or congregate shelter) designed to 
provide temporary living accommodations; a facility that provides a 
temporary residence for individuals intended to be institutionalized; or 
a public or private place not designed for, or normally used as, a 
regular sleeping accommodation for human beings.
    Homeless individual means a woman, infant or child:
    (a) Who lacks a fixed and regular nighttime residence; or
    (b) Whose primary nighttime residence is:
    (1) A supervised publicly or privately operated shelter (including a 
welfare hotel, a congregate shelter, or a shelter for victims of 
domestic violence) designated to provide temporary living accommodation;
    (2) An institution that provides a temporary residence for 
individuals intended to be institutionalized;
    (3) A temporary accommodation of not more than 365 days in the 
residence of another individual; or
    (4) A public or private place not designed for, or ordinarily used 
as, a regular sleeping accommodation for human beings.
    IHS means the Indian Health Service of the U.S. Department of Health 
and Human Services.
    Individual with disabilities means a handicapped person as defined 
in 7 CFR 15b.3.
    Infant formula means a food that meets the definition of an infant 
formula in section 201(z) of the Federal Food, Drug, and Cosmetic Act 
(21

[[Page 308]]

U.S.C. 321(z)) and that meets the requirements for an infant formula 
under section 412 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
350a) and the regulations at 21 CFR parts 106 and 107.
    Institution means any residential accommodation which provides meal 
service, except private residences and homeless facilities.
    Infants means persons under one year of age.
    Inventory audit means the examination of food invoices or other 
proofs of purchase to determine whether a vendor has purchased 
sufficient quantities of supplemental foods to provide participants the 
quantities specified on food instruments redeemed by the vendor during a 
given period of time.
    Local agency means: (a) A public or private, nonprofit health or 
human service agency which provides health services, either directly or 
through contract, in accordance with Sec.  246.5; (b) an IHS service 
unit; (c) an Indian tribe, band or group recognized by the Department of 
the Interior which operates a health clinic or is provided health 
services by an IHS service unit; or (d) an intertribal council or group 
that is an authorized representative of Indian tribes, bands or groups 
recognized by the Department of the Interior, which operates a health 
clinic or is provided health services by an IHS service unit.
    Members of populations means persons with a common special need who 
do not necessarily reside in a specific geographic area, such as off-
reservation Indians or migrant farmworkers and their families.
    Migrant farmworker means an individual whose principal employment is 
in agriculture on a seasonal basis, who has been so employed within the 
last 24 months, and who establishes, for the purposes of such 
employment, a temporary abode.
    Net price means the difference between an infant formula 
manufacturer's lowest national wholesale price per unit for a full 
truckload of infant formula and the rebate level or the discount offered 
or provided by the manufacturer under an infant formula cost containment 
contract.
    Non-contract brand infant formula means all infant formula, 
including exempt infant formula, that is not covered by an infant 
formula cost containment contract awarded by that State agency.
    Nonprofit agency means a private agency which is exempt from income 
tax under the Internal Revenue Code of 1954, as amended.
    Nutrition education means individual or group education sessions and 
the provision of information and educational materials designed to 
improve health status, achieve positive change in dietary habits, and 
emphasize relationships between nutrition and health, all in keeping 
with the individual's personal, cultural, and socioeconomic preferences.
    Nutrition Services and Administration (NSA) Costs means those direct 
and indirect costs, exclusive of food costs, as defined in Sec.  
246.14(c), which State and local agencies determine to be necessary to 
support Program operations. Costs include, but are not limited to, the 
costs of Program administration, start-up, monitoring, auditing, the 
development of and accountability for food delivery systems, nutrition 
education and breastfeeding promotion and support, outreach, 
certification, and developing and printing food instruments.
    Nutritional risk means: (a) Detrimental or abnormal nutritional 
conditions detectable by biochemical or anthropometric measurements; (b) 
Other documented nutritionally related medical conditions; (c) Dietary 
deficiencies that impair or endanger health; (d) Conditions that 
directly affect the nutritional health of a person, including alcoholism 
or drug abuse; or (e) Conditions that predispose persons to inadequate 
nutritional patterns or nutritionally related medical conditions, 
including, but not limited to, homelessness and migrancy.
    OIG means the Department's Office of the Inspector General.
    Other harmful substances means other substances such as tobacco, 
prescription drugs and over-the-counter medications that can be harmful 
to the health of the WIC population, especially the pregnant woman and 
her fetus.

[[Page 309]]

    Participants means pregnant women, breastfeeding women, postpartum 
women, infants and children who are receiving supplemental foods or food 
instruments under the Program, and the breastfed infants of participant 
breastfeeding women.
    Participant violation means any intentional action of a participant, 
parent or caretaker of an infant or child participant, or proxy that 
violates Federal or State statutes, regulations, policies, or procedures 
governing the Program. Participant violations include intentionally 
making false or misleading statements or intentionally misrepresenting, 
concealing, or withholding facts to obtain benefits; exchanging food 
instruments or supplemental foods for cash, credit, non-food items, or 
unauthorized food items, including supplemental foods in excess of those 
listed on the participant's food instrument; threatening to harm or 
physically harming clinic or vendor staff; and dual participation.
    Participation means the sum of the number of persons who have 
received supplemental foods or food instruments during the reporting 
period and the number of infants breastfed by participant breastfeeding 
women (and receiving no supplemental foods or food instruments) during 
the reporting period.
    Postpartum women means women up to six months after termination of 
pregnancy.
    Poverty income guidelines means the poverty income guidelines 
prescribed by the Department of Health and Human Services. These 
guidelines are adjusted annually by the Department of Health and Human 
Services, with each annual adjustment effective July 1 of each year. The 
poverty income guidelines prescribed by the Department of Health and 
Human Services shall be used for all States, as defined in this section, 
except for Alaska and Hawaii. Separate poverty income guidelines are 
prescribed for Alaska and Hawaii.
    Pregnant women means women determined to have one or more embryos or 
fetuses in utero.
    Price adjustment means an adjustment made by the State agency, in 
accordance with the vendor agreement, to the purchase price on a food 
instrument after it has been submitted by a vendor for redemption to 
ensure that the payment to the vendor for the food instrument complies 
with the State agency's price limitations.
    Program means the Special Supplemental Nutrition Program for Women, 
Infants and Children (WIC) authorized by section 17 of the Child 
Nutrition Act of 1966, as amended.
    Proxy means any person designated by a woman participant, or by a 
parent or caretaker of an infant or child participant, to obtain and 
transact food instruments or to obtain supplemental foods on behalf of a 
participant. The proxy must be designated consistent with the State 
agency's procedures established pursuant to Sec.  246.12(r)(1). Parents 
or caretakers applying on behalf of child and infant participants are 
not proxies.
    Rebate means the amount of money refunded under cost containment 
procedures to any State agency from the manufacturer of the particular 
food product as the result of the purchase of the supplemental food with 
a voucher or other purchase instrument by a participant in each State 
agency's program. Such rebates shall be payments made subsequent to the 
exchange of a food instrument for food.
    Remote Indian or Native village means an Indian or Native village 
that is located in a rural area, has a population of less than 5,000 
inhabitants, and is not accessible year-round by means of a public road 
(as defined in 23 U.S.C. 101).
    Routine monitoring means overt, on-site monitoring during which 
program representatives identify themselves to vendor personnel.
    Secretary means the Secretary of Agriculture.
    SFPD means the Supplemental Food Programs Division of the Food and 
Nutrition Service of the U.S. Department of Agriculture.
    7 CFR part 3016 means the Department's Uniform Federal Assistance 
Regulations. Part 3016 implements the policies established by the Office 
of Management and Budget (OMB) in Circulars A-21, A-87, A-102, A-110, 
and A-122, as well as OMB Guidance on Implementation of the Federal 
Grant and Cooperative Agreement Act of 1977.

[[Page 310]]

    7 CFR part 3017 means the Department's Common Rule regarding 
Governmentwide Debarment and Suspension (Non-procurement) and 
Governmentwide Requirements for Drug-Free Workplace. Part 3017 
implements the requirements established by Executive Order 12549 
(February 18, 1986) and sections 5151-5160 of the Drug-Free Workplace 
Act of 1988 (Pub. L. 100-690).
    7 CFR part 3018 means the Department's Common Rule regarding 
Governmentwide New Restrictions on Lobbying. Part 3018 implements the 
requirements established by section 319 of the 1990 Appropriations Act 
for the Department of Interior and Related Agencies (Pub. L. 101-121).
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
the Northern Marianas Islands, and the Trust Territory of the Pacific 
Islands.
    State agency means the health department or comparable agency of 
each State; an Indian tribe, band or group recognized by the Department 
of the Interior; an intertribal council or group which is an authorized 
representative of Indian tribes, bands or groups recognized by the 
Department of the Interior and which has an ongoing relationship with 
such tribes, bands or groups for other purposes and has contracted with 
them to administer the Program; or the appropriate area office of the 
IHS.
    State Plan means a plan of Program operation and administration that 
describes the manner in which the State agency intends to implement and 
operate all aspects of Program administration within its jurisdiction in 
accordance with Sec.  246.4.
    Supplemental foods means those foods containing nutrients determined 
to be beneficial for pregnant, breastfeeding, and postpartum women, 
infants and children, as prescribed by the Secretary in Sec.  246.10.
    Vendor means a sole proprietorship, partnership, cooperative 
association, corporation, or other business entity operating one or more 
stores authorized by the State agency to provide authorized supplemental 
foods to participants under a retail food delivery system. Each store 
operated by a business entity constitutes a separate vendor and must be 
authorized separately from other stores operated by the business entity. 
Each store must have a single, fixed location, except when the 
authorization of mobile stores is necessary to meet the special needs 
described in the State agency's State Plan in accordance with Sec.  
246.4(a)(14)(xiv).
    Vendor authorization means the process by which the State agency 
assesses, selects, and enters into agreements with stores that apply or 
subsequently reapply to be authorized as vendors.
    Vendor limiting criteria means criteria established by the State 
agency to determine the maximum number and distribution of vendors it 
authorizes pursuant to Sec.  246.12(g)(2).
    Vendor overcharge means intentionally or unintentionally charging 
the State agency more for authorized supplemental foods than is 
permitted under the vendor agreement. It is not a vendor overcharge when 
a vendor submits a food instrument for redemption and the State agency 
makes a price adjustment to the food instrument.
    Vendor selection criteria means the criteria established by the 
State agency to select individual vendors for authorization consistent 
with the requirements in Sec.  246.12(g)(3).
    Vendor violation means any intentional or unintentional action of a 
vendor's current owners, officers, managers, agents, or employees (with 
or without the knowledge of management) that violates the vendor 
agreement or Federal or State statutes, regulations, policies, or 
procedures governing the Program.
    WIC means the Special Supplemental Nutrition Program for Women, 
Infants and Children authorized by section 17 of the Child Nutrition Act 
of 1966, 42 U.S.C. 1786.
    WIC-eligible medical foods means certain enteral products that are 
specifically formulated to provide nutritional support for individuals 
with a diagnosed medical condition, when the use of conventional foods 
is precluded, restricted, or inadequate. Such WIC-eligible medical foods 
may be nutritionally complete or incomplete, but they must serve the 
purpose of a food, provide a source of calories and one or

[[Page 311]]

more nutrients, and be designed for enteral digestion via an oral or 
tube feeding. WIC-eligible medical foods include many, but not all, 
products that meet the definition of medical food in Section 5(b)(3) of 
the Orphan Drug Act (21 U.S.C. 360ee(b)(3)).

[50 FR 6121, Feb. 13, 1985; 50 FR 8098, Feb. 28, 1985, as amended at 52 
FR 25189, July 2, 1987; 54 FR 51294, Dec. 14, 1989; 55 FR 9717, Mar. 15, 
1990; 58 FR 11506, Feb. 26, 1993; 58 FR 47022, Sept. 7, 1993; 59 FR 
11498, Mar. 11, 1994; 63 FR 63973, Nov. 18, 1998; 64 FR 13322, Mar. 18, 
1999; 64 FR 56674, Oct. 21, 1999; 65 FR 3378, Jan. 21, 2000; 65 FR 
53527, Sept. 5, 2000; 65 FR 51222, Aug. 23, 2000; 65 FR 77249, Dec. 11, 
2000; 65 FR 83277, Dec. 29, 2000]



Sec.  246.3  Administration.

    (a) Delegation to FNS. Within the Department, FNS shall act on 
behalf of the Department in the administration of the Program. Within 
FNS, SFPD and the Regional Offices are responsible for Program 
administration. FNS shall provide assistance to State and local agencies 
and evaluate all levels of Program operations to ensure that the goals 
of the Program are achieved in the most effective and efficient manner 
possible.
    (b) Delegation to State agency. The State agency is responsible for 
the effective and efficient administration of the Program in accordance 
with the requirements of this part; the Department's regulations 
governing nondiscrimination (7 CFR parts 15, 15a and 15b); governing 
administration of grants (7 CFR part 3016); governing nonprocurement 
debarment/suspension and drug-free workplace (7 CFR part 3017); and 
governing restrictions on lobbying (7 CFR part 3018); FNS guidelines; 
and, instructions issued under the FNS Directives Management System. The 
State agency shall provide guidance to local agencies on all aspects of 
Program operations.
    (c) Agreement and State Plan. (1) Each State agency desiring to 
administer the Program shall annually submit a State Plan and enter into 
a written agreement with the Department for administration of the 
Program in the jurisdiction of the State agency in accordance with the 
provisions of this part.
    (2) The written agreement shall include a certification/assurance 
regarding drug-free workplace as required by 7 CFR part 3017, and, if 
applicable, a certification regarding lobbying and a disclosure of 
lobbying activities as required by 7 CFR part 3018.
    (d) State agency eligibility. A State agency shall be ineligible to 
participate in the WIC Program if State or local sales tax is collected 
on WIC food purchases in the area in which it administers the program, 
except that, if sales tax is collected on WIC food purchases by 
sovereign Indian entities which are not State agencies, the State agency 
shall remain eligible if any vendors collecting such tax are 
disqualified.
    (e) State staffing standards. Each State agency shall ensure that 
sufficient staff is available to administer an efficient and effective 
Program including, but not limited to, the functions of nutrition 
education, certification, food delivery, fiscal reporting, monitoring, 
and training. Based on the June participation of the previous fiscal 
year, each State agency, as a minimum, shall employ the following staff:
    (1) A full-time or equivalent administrator when the monthly 
participation level exceeds 1,500, or a half-time or equivalent 
administrator when the monthly participation exceeds 500.
    (2) At least one full-time or equivalent Program specialist for each 
10,000 participants above 1,500, but the State agency need not employ 
more than eight Program specialists unless the State agency considers it 
necessary. Program specialists should be utilized for providing fiscal 
management and technical assistance, monitoring vendors, reviewing local 
agencies, training, and nutritional services, or other Program duties as 
assigned by the State agency.
    (3) For nutrition-related services, one full-time or equivalent 
nutritionist when the monthly participation is above 1,500, or a half-
time or equivalent nutritionist when the monthly participation exceeds 
500. The nutritionist shall be named State WIC Nutrition Coordinator and 
shall meet State personnel standards and qualifications in paragraphs 
(e)(3) (i), (ii), (iii), (iv), or (v) of this section and have the 
qualifications in paragraph (e)(3)(vi) of this section. Upon request,

[[Page 312]]

an exception to these qualifications may be granted by FNS. The State 
WIC Nutrition Coordinator shall--
    (i) Hold a Master's degree with emphasis in food and nutrition, 
community nutrition, public health nutrition, nutrition education, human 
nutrition, nutrition science or equivalent and have at least two years 
responsible experience as a nutritionist in education, social service, 
maternal and child health, public health, nutrition, or dietetics; or
    (ii) Be registered or eligible for registration with the American 
Dietetic Association and have at least two years experience; or
    (iii) Have at least a Bachelor of Science or Bachelor of Arts 
degree, from an accredited four-year institution, with emphasis in food 
and nutrition, community nutrition, public health nutrition, nutrition 
education, human nutrition, nutrition science or equivalent and have at 
least three years of responsible experience as a nutritionist in 
education, social service, maternal and child health, public health 
nutrition, or dietetics; or
    (iv) Be qualified as a Senior Public Health Nutritionist under the 
Department of Health and Human Services guidelines; or
    (v) Meet the IHS standards for a Public Health Nutritionist; and
    (vi) Have at least one of the following: Program development skills, 
education background and experience in the development of educational 
and training resource materials, community action experience, counseling 
skills or experience in participant advocacy.
    (4) A designated breastfeeding promotion coordinator, to coordinate 
breastfeeding promotion efforts identified in the State plan in 
accordance with the requirement of Sec.  246.4(a)(9) of this part. The 
person to whom the State agency assigns this responsibility may perform 
other duties as well.
    (5) A staff person designated for food delivery system management. 
The person to whom the State agency assigns this responsibility may 
perform other duties as well.
    (6) The State agency shall enforce hiring practices which comply 
with the nondiscrimination criteria set forth in Sec.  246.8. The hiring 
of minority staff is encouraged.
    (f) Delegation to local agency. The local agency shall provide 
Program benefits to participants in the most effective and efficient 
manner, and shall comply with this part, the Department's regulations 
governing nondiscrimination (7 CFR parts 15, 15a, 15b), the Department's 
regulations governing the administration of grants (7 CFR part 3016), 
Office of Management and Budget Circular A-130, and State agency and FNS 
guidelines and instructions.

[50 FR 6121, Feb. 13, 1985; 50 FR 8098, Feb. 28, 1985, as amended at 52 
FR 21236, June 4, 1987; 59 FR 11499, Mar. 11, 1994; 65 FR 83277, Dec. 
29, 2000]



              Subpart B_State and Local Agency Eligibility



Sec.  246.4  State plan.

    (a) Requirements. By August 15 of each year, each State agency shall 
submit to FNS for approval a State Plan for the following fiscal year as 
a prerequisite to receiving funds under this section. The State agency 
may submit the State Plan in the format provided by FNS guidance. 
Alternatively, the State agency may submit the Plan in combination with 
other federally required planning documents or develop its own format, 
provided that the information required below is included. FNS requests 
advance notification that a State agency intends to use an alternative 
format. The State Plan shall be signed by the State designated official 
responsible for ensuring that the Program is operated in accordance with 
the State Plan. FNS will provide written approval or denial of a 
completed State Plan or amendment within 30 days of receipt. Within 15 
days after FNS receives an incomplete Plan, FNS will notify the State 
agency that additional information is needed to complete the Plan. Any 
disapproval will be accompanied by a statement of the reasons for the 
disapproval. After receiving approval of the State Plan, each State 
agency shall only submit to FNS for approval substantive changes in the 
State Plan. A complete and approved Plan shall include:

[[Page 313]]

    (1) An outline of the State agency's goals and objectives for 
improving Program operations.
    (2) A budget for nutrition services and administration funds, and an 
estimate of food expenditures.
    (3) An estimate of Statewide participation for the coming fiscal 
year by category of women, infants and children.
    (4) The State agency staffing pattern.
    (5) An Affirmative Action Plan which includes--
    (i) A list of all areas and special populations, in priority order 
based on relative need, within the jurisdiction of the State agency, the 
State agency's plans to initiate or expand operations under the Program 
in areas most in need of supplemental foods, including plans to inform 
nonparticipating local agencies of the availability and benefits of the 
Program and the availability of technical assistance in implementing the 
Program, and a description of how the State agency will take all 
reasonable actions to identify potential local agencies and encourage 
agencies to implement or expand operations under the Program within the 
following year in the neediest one-third of all areas unserved or 
partially served;
    (ii) An estimate of the number of potentially eligible persons in 
each area and a list of the areas in the Affirmative Action Plan which 
are currently operating the Program and their current participation, 
which participant priority levels as specified in Sec.  246.7 are being 
reached in each of these areas, and which areas in the Affirmative 
Action Plan are currently operating CSFP and their current 
participation; and
    (iii) A list of the names and addresses of all local agencies.
    (6) Plans to provide program benefits to eligible migrant 
farmworkers and their families, to Indians, and to homeless individuals.
    (7) The State agency's plans, to be conducted in cooperation with 
local agencies, for informing eligible persons of the availability of 
Program benefits, including the eligibility criteria for participation, 
the location of local agencies operating the Program, and the 
institutional conditions of Sec.  246.7(n)(1)(i) of this part, with 
emphasis on reaching and enrolling eligible women in the early months of 
pregnancy and migrants. Such information shall be publicly announced by 
the State agency and by local agencies at least annually. Such 
information shall also be distributed to offices and organizations that 
deal with significant numbers of potentially eligible persons, including 
health and medical organizations, hospitals and clinics, welfare and 
unemployment offices, social service agencies, farmworker organizations, 
Indian tribal organizations, organizations and agencies serving homeless 
individuals, and religious and community organizations in low-income 
areas.
    (8) A description of how the State agency plans to coordinate 
program operations with other services or programs that may benefit 
participants in, or applicants for, the program.
    (9) The State agency's nutrition education goals and action plans, 
including a description of the methods that will be used to provide drug 
and other harmful substance abuse information, promote breastfeeding, 
and to meet the special nutrition education needs of migrant farmworkers 
and their families, Indians, and homeless persons.
    (10) For Indian State or local agencies that wish to apply for the 
alternate income determination procedure in accordance with Sec.  
246.7(d)(2)(vii), documentation that the majority of Indian household 
members have incomes below eligibility criteria.
    (11) A copy of the procedure manual developed by the State agency 
for guidance to local agencies in operating the Program. The manual 
shall include--
    (i) Certification procedures, including a list of the specific 
nutritional risk criteria by priority level which cites conditions and 
indices to be used to determine a person's nutritional risk, 
hematological data requirements including timeframes for the collection 
of such data, the State agency's income guidelines for Program 
eligibility, and any adjustments to the participant priority system made 
pursuant to Sec.  246.7(e)(4) to accommodate high-risk postpartum women 
or the addition of Priority VII;

[[Page 314]]

    (ii) Methods for providing nutrition education, including drug and 
other harmful substance abuse information, to participants, including 
homeless individuals;
    (iii) Instructions concerning all food delivery operations performed 
at the local level;
    (iv) Instructions for providing all records and reports which the 
State agency requires local agencies to maintain and submit; and
    (v) Instructions on coordinating operations under the program with 
drug and other harmful substance abuse counseling and treatment 
services.
    (12) A description of the State agency's financial management 
system.
    (13) A description of how the State agency will distribute nutrition 
services and administration funds, including start-up funds, to local 
agencies operating under the Program.
    (14) A description of the food delivery system as it operates at the 
State agency level, including--
    (i) Type of system. All food delivery systems in use within the 
State agency's jurisdiction;
    (ii) Vendor limiting and selection criteria. Vendor limiting 
criteria, if used by the State agency, and the vendor selection criteria 
established by the State agency consistent with the requirements in 
Sec.  246.12(g)(3);
    (iii) Vendor agreement. A sample vendor agreement, including the 
sanction schedule, which may be incorporated as an attachment or, if the 
sanction schedule is in the State agency's regulations, through citation 
to the regulations. State agencies that intend to delegate signing of 
vendor agreements to local agencies must describe the State agency 
supervision and instruction that will be provided to ensure the 
uniformity and quality of local agency activities;
    (iv) Vendor monitoring. The system for monitoring vendors to ensure 
compliance and prevent fraud, waste, and program noncompliance, and the 
State agency's plans for improvement in the coming year in accordance 
with Sec.  246.12(j). The State agency must also include the criteria it 
will use to determine which vendors will receive routine monitoring 
visits. State agencies that intend to delegate any aspect of vendor 
monitoring responsibilities to a local agency or contractor must 
describe the State agency supervision and instruction that will be 
provided to ensure the uniformity and quality of vendor monitoring;
    (v) Options regarding trafficking convictions. The option exercised 
by the State agency to sanction vendors pursuant toSec.  
246.12(k)(1)(i).
    (vi) Food instruments. A facsimile of the food instrument, if used, 
and a description of the system the State agency will use to account for 
the disposition of food instruments in accordance with Sec.  246.12(q);
    (vii) Names of contractors. The names of companies, excluding 
authorized vendors, with whom the State agency has contracted to 
participate in the operation of the food delivery system;
    (viii) Nutrition services and administration funds conversion For 
State agencies applying for authority to convert food funds to nutrition 
services and administration funds under Sec.  246.16(g), a full 
description of their proposed cost-cutting system or system 
modification;
    (ix) Homeless participants. If the State agency plans to adapt its 
food delivery system to accommodate the needs of homeless individuals, a 
description of such adaptations;
    (x) Cost containment systems. A description of any cost containment 
system. A State agency must submit a State Plan or Plan amendment if it 
is attempting to structure and justify a system that is not a single-
supplier competitive bidding system for infant formula in accordance 
with Sec.  246.16a(d); is requesting a waiver for an infant formula cost 
containment system under Sec.  246.16a(e); or, is planning to change or 
modify its current system or implement a system for the first time. The 
amendment must be submitted at least 90 days before the proposed 
effective date of the system change. The plan amendment must include 
documentation for requests for waivers based on interference with 
efficient or effective program operations; a cost comparison analysis 
conducted under Sec.  246.16a(d)(2); and a description of the proposed 
cost containment system. If FNS disputes supporting plan amendment 
documentation, it will deem the Plan amendment incomplete under this

[[Page 315]]

paragraph (a), and will provide the State agency with a statement 
outlining disputed issues within 15 days of receipt of the Plan 
amendment. The State agency may not enter into any infant formula cost 
containment contract until the disputed issues are resolved and FNS has 
given its consent. If necessary, FNS may grant a postponement of 
implementation of an infant formula cost containment system under Sec.  
246.16a(f). If at the end of the postponement period issues remain 
unresolved the State agency must proceed with a cost containment system 
judged by FNS to comply with the provisions of this part. If the State 
agency does not comply, it will be subject to the penalties set forth in 
Sec.  246.16a(i);
    (xi) Vendor training. The procedures the State agency will use to 
train vendors in accordance with Sec.  246.12(i). State agencies that 
intend to delegate any aspect of training to a local agency, contractor, 
or vendor representative must describe the State agency supervision and 
instruction that will be provided to ensure the uniformity and quality 
of vendor training;
    (xii) Food instrument security. A description of the State agency's 
system for ensuring food instrument security in accordance with Sec.  
246.12(p);
    (xiii) Participant access determination criteria. A description of 
the State agency's participant access determination criteria consistent 
with Sec.  246.12(l); and
    (xiv) Mobile stores. The special needs necessitating the 
authorization of mobile stores, if the State agency chooses to authorize 
such stores.
    (15) The State agency's plans to prevent and identify dual 
participation in accordance with Sec.  246.7(l)(1)(i) and (l)(1)(ii). In 
States where the Program and the CSFP operate in the same area, or where 
an Indian State agency operates a Program in the same area as a 
geographic State agency, a copy of the written agreement between the 
State agencies for the detection and prevention of dual participation 
shall be submitted.
    (16) A description of the procedures the State will use to comply 
with the civil rights requirements described in Sec.  246.8, including 
the processing of discrimination complaints.
    (17) A copy of the State agency's fair hearing procedures for 
participants and the administrative appeal procedures for local agencies 
and food vendors.
    (18) The State agency's plan to reach and enroll migrants, and 
eligible women in the early months of pregnancy.
    (19) The State agency's plan to establish, to the extent 
practicable, that homeless facilities, and institutions if it chooses to 
make the Program available to them, meet the conditions established in 
Sec.  246.7(n)(1)(i) of this part, if residents of such accommodations 
are to be eligible to receive WIC Program benefits.
    (20) A plan to provide program benefits to unserved infants and 
children under the care of foster parents, protective services, or child 
welfare authorities, including infants exposed to drugs perinatally.
    (21) A plan to improve access to the Program for participants and 
prospective applicants who are employed or who reside in rural areas, by 
addressing their special needs through the adoption or revision of 
procedures and practices to minimize the time participants and 
applicants must spend away from work and the distances participants and 
applicants must travel. The State agency shall also describe any plans 
for issuance of food instruments to employed or rural participants, or 
to any other segment of the participant population, through means other 
than direct participant pick-up, pursuant to Sec.  246.12(r)(4). Such 
description shall also include measures to ensure the integrity of 
Program services and fiscal accountability.
    (22) Assurance that each local agency and any subgrantees of the 
State agency and/or local agencies are in compliance with the 
requirements of 7 CFR part 3017 regarding nonprocurement debarment/
suspension.
    (23) A description of the State agency's plans to provide and 
maintain a drug-free workplace.
    (b) Public comment. The State agency shall establish a procedure 
under which members of the general public are provided an opportunity to 
comment on the development of the State agency plan.

[[Page 316]]

    (c) Amendments. At any time after approval, the State agency may 
amend the State Plan to reflect changes. The State agency shall submit 
the amendments to FNS for approval. The amendments shall be signed by 
the State designated official responsible for ensuring that the Program 
is operated in accordance with the State Plan.
    (d) Retention of copy. A copy of the approved State Plan or the WIC 
portion of the State's composite plan of operations shall be kept on 
file at the State agency for public inspection.

[50 FR 6121, Feb. 13, 1985, as amended at 52 FR 21236, June 4, 1987; 53 
FR 25314, July 6, 1988; 54 FR 51294, Dec. 14, 1989; 55 FR 9717, Mar. 15, 
1990; 57 FR 34506, Aug. 5, 1992; 58 FR 11506, Feb. 26, 1993; 59 FR 
11499, Mar. 11, 1994; 63 FR 63973, Nov. 18, 1998; 64 FR 13322, Mar. 18, 
1999; 64 FR 70177, Dec. 16, 1999; 65 FR 51223, Aug. 23, 2000; 65 FR 
53527, Sept. 5, 2000; 65 FR 83278, Dec. 29, 2000]



Sec.  246.5  Selection of local agencies.

    (a) General. This section sets forth the procedures the State agency 
shall perform in the selection of local agencies and the expansion, 
reduction, and disqualification of local agencies already in operation. 
In making decisions to intitiate, continue, and discontinue the 
participation of local agencies, the State agency shall give 
consideration to the need for Program benefits as delineated in the 
Affirmative Action Plan.
    (b) Application of local agencies. The State agency shall require 
each agency, including subdivisions of the State agency, which desires 
approval as a local agency, to submit a written local agency 
application. After the receipt of an incomplete application, the State 
agency shall provide written notification to the applicant agency of the 
additional information needed. After the receipt of a complete 
application, the State agency shall notify the applicant agency in 
writing of the approval or disapproval of its application. When an 
application is disapproved, the State agency shall advise the applicant 
agency of the reasons for disapproval and of the right to appeal as set 
forth in Sec.  246.18. When an agency submits an application and there 
are no funds to serve the area, the applicant agency shall be notified 
that there are currently no funds available for Program initiation or 
expansion. The applicant agency shall be notified by the State agency 
when funds become available.
    (c) Program initiation and expansion. The State agency shall meet 
the following requirements concerning Program initiation and expansion:
    (1) The State agency shall fund local agencies serving those areas 
or special populations most in need first, in accordance with their 
order of priority as listed in the Affirmative Action Plan described in 
Sec.  246.4(a)(5). The selection criteria cited in paragraph (d)(1) of 
this section shall be applied to each area or special population before 
eliminating that area from consideration and serving the next area of 
special population. The State agency shall consider the number of 
participants in each priority level being served by existing local 
agencies in determining when it is appropriate to move into additional 
areas in the Affirmative Action Plan or to expand existing operations in 
an area. Additionally, the State agency shall consider the total number 
of people potentially eligible in each area compared to the number being 
served. Expansion of existing operations shall be in accordance with the 
Affirmative Action Plan and may be based on the percentage of need being 
met in each participant priority level.
    (2) The State agency shall provide a written justification to FNS 
for not funding an agency to serve the highest priority area or special 
population. Such justification may include its inability to administer 
the Program, lack of interest expressed for operating the Program, or 
for those areas or special populations which are under consideration for 
expansion of an existing operation, a determination by the State agency 
that there is a greater need for funding an agency serving an area or 
special population not operating the Program. The State agency shall use 
the participant priority system in Sec.  246.7 as a measurement of 
greater need in such determination.
    (3) The State agency may fund more than one local agency to serve 
the same area or special population as long as more than one local 
agency is necessary to serve the full extent of need in that area or 
special population.

[[Page 317]]

    (d) Local agency priority system. The State agency shall establish 
standards for the selection of new local agencies. Such standards shall 
include the following considerations:
    (1) The State agency shall consider the following priority system, 
which is based on the relative availability of health and administrative 
services, in the selection of local agencies:
    (i) First consideration shall be given to a public or a private 
nonprofit health agency that will provide ongoing, routine pediatric and 
obstetric care and administrative services.
    (ii) Second consideration shall be given to a public or a private 
nonprofit health or human service agency that will enter into a written 
agreement with another agency for either ongoing, routine pediatric and 
obstetric care or administrative services.
    (iii) Third consideration shall be given to a public or private 
nonprofit health agency that will enter into a written agreement with 
private physicians, licensed by the State, in order to provide ongoing, 
routine pediatric and obstetric care to a specific category of 
participants (women, infants or children).
    (iv) Fourth consideration shall be given to a public or private 
nonprofit human service agency that will enter into a written agreement 
with private physicians, licensed by the State, to provide ongoing, 
routine pediatric and obstetric care.
    (v) Fifth consideration shall be given to a public or private 
nonprofit health or human service agency that will provide ongoing, 
routine pediatric and obstetric care through referral to a health 
provider.
    (2) When seeking new local agencies, the State agency shall publish 
a notice in the media of the area next in line according to the 
Affirmative Action Plan, unless the State agency has received an 
application from a public or nonprofit private health agency in that 
area which can provide adequate health and administrative services. The 
notice shall include a brief explanation of the Program, a description 
of the local agency priority system cited in this paragraph and a 
request that potential local agencies notify the State agency of their 
interest. In addition, the State agency shall contact all potential 
local agencies in the area to ensure that they are aware of the 
opportunity to apply for participation under the Program. If no agency 
submits an application within 30 days, the State agency may then proceed 
with the selection of a local agency in the area next in line according 
to the Affirmative Action Plan. If sufficient funds are available, a 
State agency shall give notice and consider applications in more than 
one area at the same time but shall fund new local agencies in 
conformance with the sequential ranking of the Affirmative Action Plan.
    (e) Disqualification of local agencies. (1) The State agency may 
disqualify a local agency--
    (i) When the State agency determines noncompliance with Program 
regulations;
    (ii) When the State's Program funds are insufficient to support the 
continued operation of all its existing local agencies at their current 
participation level; or
    (iii) When the State agency determines, following a review of local 
agency credentials in accordance with paragraph (f) of this section, 
that another local agency can operate the Program more effectively and 
efficiently.
    (2) The State agency may establish its own criteria for 
disqualification of local agencies. The State agency shall notify the 
local agency of any State-established criteria. In addition to any State 
established criteria, the State agency shall consider, at a minimum--
    (i) The availability of other community resources to participants 
and the cost efficiency and cost effectiveness of the local agency in 
terms of both food and nutrition services and administration costs;
    (ii) The percentages of participants in each priority level being 
served by the local agency and the percentage of need being met in each 
participant category;
    (iii) The relative position of the area or special population served 
by the local agency in the Affirmative Action Plan;
    (iv) The local agency's place in the priority system in paragraph 
(d)(1) of this section; and

[[Page 318]]

    (v) The capability of another local agency or agencies to accept the 
local agency's participants.
    (3) When disqualifying a local agency under the Program, the State 
agency shall--
    (i) Make every effort to transfer affected participants to another 
local agency without disruption of benefits;
    (ii) Provide the affected local agency with written notice not less 
than 60 days in advance of the pending action which includes an 
explanation of the reasons for disqualification, the date of 
disqualification, and, except in cases of the expiration of a local 
agency's agreement, the local agency's right to appeal as set forth in 
Sec.  246.18; and
    (iii) Ensure that the action is not in conflict with any existing 
written agreements between the State and the local agency.
    (f) Periodic review of local agency qualifications. The State agency 
may conduct periodic reviews of the qualifications of authorized local 
agencies under its jurisdiction. Based upon the results of such reviews 
the State agency may make appropriate adjustments among the 
participating local agencies, including the disqualification of a local 
agency when the State agency determines that another local agency can 
operate the Program more effectively and efficiently. In conducting such 
reviews, the State agency shall consider the factors listed in paragraph 
(e)(2) of this section in addition to whatever criteria it may develop. 
The State agency shall implement the procedures established in paragraph 
(e)(3) of this section when disqualifying a local agency.

[50 FR 6121, Feb. 13, 1985; 50 FR 8098, Feb. 28, 1985; 65 FR 53527, 
Sept. 5, 2000]



Sec.  246.6  Agreements with local agencies.

    (a) Signed written agreements. The State agency shall enter into a 
signed written agreement with each local agency, including subdivisions 
of the State agency, which sets forth the local agency's 
responsibilities for Program operations as prescribed in this part. 
Copies of the agreement shall be kept on file at both the State and 
local agencies for purposes of review and audit in accordance with 
Sec. Sec.  246.19 and 246.20. Neither the State agency nor the local 
agency has an obligation to renew the agreement. The expiration of an 
agreement is not subject to appeal. The State agency shall provide local 
agencies with advance written notice of the expiration of an agreement 
as required under Sec. Sec.  246.5(e)(3)(ii) and 246.18(b)(1).
    (b) Provisions of agreement. The agreement between the State agency 
and each local agency shall ensure that the local agency--
    (1) Complies with all the fiscal and operational requirements 
prescribed by the State agency pursuant to this part, 7 CFR part 3016, 
the debarment and suspension requirements of 7 CFR part 3017, if 
applicable, the lobbying restrictions of 7 CFR part 3018, and FNS 
guidelines and instructions, and provides on a timely basis to the State 
agency all required information regarding fiscal and Program 
information;
    (2) Has a competent professional authority on the staff of the local 
agency and the capabilities necessary to perform the certification 
procedures;
    (3) Makes available appropriate health services to participants and 
informs applicants of the health services which are available;
    (4) Prohibits smoking in the space used to carry out the WIC Program 
during the time any aspect of WIC services are performed;
    (5) Has a plan for continued efforts to make health services 
available to participants at the clinic or through written agreements 
with health care providers when health services are provided through 
referral;
    (6) Provides nutrition education services to participants, in 
compliance with Sec.  246.11 and FNS guidelines and instructions;
    (7) Implements a food delivery system prescribed by the State agency 
pursuant to Sec.  246.12 and approved by FNS;
    (8) Maintains complete, accurate, documented and current accounting 
of all Program funds received and expended;
    (9) Maintains on file and has available for review, audit, and 
evaluation all criteria used for certification, including information on 
the area served, income standards used, and specific

[[Page 319]]

criteria used to determine nutritional risk; and
    (10) Does not discriminate against persons on the grounds of race, 
color, national origin, age, sex or handicap; and compiles data, 
maintains records and submits reports as required to permit effective 
enforcement of the nondiscrimination laws.
    (c) Indian agencies. Each Indian State agency shall ensure that all 
local agencies under its jurisdiction serve primarily Indian 
populations.
    (d) Health and human service agencies. When a health agency and a 
human service agency comprise the local agency, both agencies shall 
together meet all the requirements of this part and shall enter into a 
written agreement which outlines all Program responsibilities of each 
agency. The agreement shall be approved by the State agency during the 
application process and shall be on file at both the State and local 
agency. No Program funds shall be used to reimburse the health agency 
for the health services provided. However, costs of certification borne 
by the health agency may be reimbursed.
    (e) Health or human service agencies and private physicians. When a 
health or human service agency and private physician(s) comprise the 
local agency, all parties shall together meet all of the requirements of 
this part and shall enter into a written agreement which outlines the 
inter-related Program responsibilities between the physician(s) and the 
local agency. The agreement shall be approved by the State agency during 
the application process and shall be on file at both agencies. The local 
agency shall advise the State agency on its application of the name(s) 
and address(es) of the private physician(s) participating and obtain 
State agency approval of the written agreement. A competent professional 
authority on the staff of the health or human service agency shall be 
responsible for the certification of participants. No Program funds 
shall be used to reimburse the private physician(s) for the health 
services provided. However, costs of certification data provided by the 
physician(s) may be reimbursed.
    (f) Outreach/Certification In Hospitals. The State agency shall 
ensure that each local agency operating the program within a hospital 
and/or that has a cooperative arrangement with a hospital:
    (1) Advises potentially eligible individuals that receive inpatient 
or outpatient prenatal, maternity, or postpartum services, or that 
accompany a child under the age of 5 who receives well-child services, 
of the availability of program services; and
    (2) To the extent feasible, provides an opportunity for individuals 
who may be eligible to be certified within the hospital for 
participation in the WIC Program.

[50 FR 6121, Feb. 13, 1985, as amended at 59 FR 11500, Mar. 11, 1994; 63 
FR 63974, Nov. 18, 1998]



                    Subpart C_Participant Eligibility



Sec.  246.7  Certification of participants.

    (a) Integration with health services. To lend administrative 
efficiency and participant convenience to the certification process, 
whenever possible, Program intake procedures shall be combined with 
intake procedures for other health programs or services administered by 
the State and local agencies. Such merging may include verification 
procedures, certification interviews, and income computations. Local 
agencies shall maintain and make available for distribution to all 
pregnant, postpartum, and breastfeeding women and to parents or 
caretakers of infants and children applying for and participating in the 
Program a list of local resources for drug and other harmful substance 
abuse counseling and treatment.
    (b) Program referral and access. State and local agencies shall 
provide WIC Program applicants and participants or their designated 
proxies with information on other health-related and public assistance 
programs, and when appropriate, shall refer applicants and participants 
to such programs.
    (1) The State agency shall provide each local WIC agency with 
materials showing the maximum income limits, according to family size, 
applicable to pregnant women, infants, and children up to age 5 under 
the medical assistance program established under Title XIX of the Social 
Security Act (in this section, referred to as the ``Medicaid

[[Page 320]]

Program''). The local agency shall, in turn, provide to adult 
individuals applying or reapplying for the WIC Program for themselves or 
on behalf of others, written information about the Medicaid Program. If 
such individuals are not currently participating in Medicaid but appear 
to have family income below the applicable maximum income limits for the 
program, the local agency shall also refer these individuals to 
Medicaid, including the referral of infants and children to the 
appropriate entity in the area authorized to determine eligibility for 
early and periodic screening, diagnostic, and treatment (EPSDT) 
services, and, the referral of pregnant women to the appropriate entity 
in the area authorized to determine presumptive eligibility for the 
Medicaid Program, if such determinations are being offered by the State.
    (2) State agencies shall provide WIC services at community and 
migrant health centers, Indian Health Services facilities, and other 
federally health care supported facilities established in medically 
underserved areas to the extent feasible.
    (3) Local agencies may provide information about other potential 
sources of food assistance in the local area to adult individuals 
applying or reapplying in person for the WIC Program for themselves or 
on behalf of others, when such applicants cannot be served because the 
Program is operating at capacity in the local area.
    (4) Each local agency that does not routinely schedule appointments 
shall schedule appointments for employed adult individuals seeking to 
apply or reapply for participation in the WIC Program for themselves or 
on behalf of others so as to minimize the time such individuals are 
absent from the workplace due to such application.
    (5) Each local agency shall attempt to contact each pregnant woman 
who misses her first appointment to apply for participation in the 
Program in order to reschedule the appointment. At the time of initial 
contact, the local agency shall request an address and telephone number 
where the pregnant woman can be reached.
    (c) Eligibility criteria. (1) To be certified as eligible for the 
Program, infants, children, and pregnant, postpartum, and breastfeeding 
women shall:
    (i) In all State agencies except for Indian State agencies, meet the 
requirement that the applicant reside within the jurisdiction of the 
State. Indian State agencies may establish the requirement that 
applicants reside within their jurisdiction. All State agencies may 
determine a service area for any local agency, and may require that an 
applicant reside within the service area. However, the State agency may 
not use length of residency as an eligibility requirement.
    (ii) Meet the income criteria specified in paragraph (d) of this 
section.
    (iii) Meet the nutritional risk criteria specified in paragraph (e) 
of this section.
    (2) A State, a State agency, and an Indian Tribal Organization 
(including, an Indian tribe, band, or group recognized by the Department 
of the Interior; or an intertribal council or group which is an 
authorized representative of Indian tribes, bands or groups recognized 
by the Department of the Interior and which has an ongoing relationship 
with such tribes, bands or groups for other purposes and has contracted 
with them to administer the Program) serving as a State agency, may 
limit WIC participation to United States citizens, nationals, and 
qualified aliens as these terms are defined in the Immigration and 
Nationality Laws (8 U.S.C. 1101 et seq.). State agencies that implement 
this option shall inform FNS of their intentions and provide copies of 
the procedures they will establish regarding the limitation of WIC 
services to United States citizens, nationals, and qualified aliens.
    (d) Income criteria and income eligibility determinations. The State 
agency shall establish, and provide local agencies with, income 
guidelines, definitions, and procedures to be used in determining an 
applicant's income eligibility for the Program.
    (1) Income eligibility guidelines. The State agency may prescribe 
income guidelines either equaling the income guidelines established 
under section 9 of the National School Lunch Act for reduced-price 
school meals or identical to State or local guidelines for free or 
reduced-price health care. However, in

[[Page 321]]

conforming Program income guidelines to health care guidelines, the 
State agency shall not establish Program guidelines which exceed the 
guidelines for reduced-price school meals or are less than 100 percent 
of the revised poverty income guidelines issued annually by the 
Department of Health and Human Services. Program applicants who meet the 
requirements established by paragraph (d)(2)(vi)(A) of this section 
shall not be subject to the income limits established by State agencies 
under this paragraph.
    (i) Local agency income eligibility guidelines. Different guidelines 
may be prescribed for different local agencies within the State provided 
that the guidelines are the ones used by the local agencies for 
determining eligibility for free or reduced-price health care.
    (ii) Annual adjustments in the income guidelines. On or before June 
1 each year, FNS will announce adjustments in the income guidelines for 
reduced-price meals under section 9 of the National School Lunch Act, 
based on annual adjustments in the revised poverty income guidelines 
issued by the Department of Health and Human Services.
    (iii) Implementation of the income guidelines. On or before July 1 
each year, each State agency shall announce and transmit to each local 
agency the State agency's family size income guidelines, unless changes 
in the poverty income guidelines issued by the Department of Health and 
Human Services do not necessitate changes in the State or local agency's 
income guidelines. The State agency may implement revised guidelines 
concurrently with the implementation of income guidelines under the 
Medicaid program established under Title XIX of the Social Security Act 
(42 U.S.C. 1396 of et seq.). The State agency shall ensure that 
conforming adjustments are made, if necessary, in local agency income 
guidelines. The local agency shall implement (revised) guidelines not 
later than July 1 of each year for which such guidelines are issued by 
the State.
    (2) Income eligibility determinations. The State agency shall ensure 
that local agencies determine income through the use of a clear and 
simple application form provided or approved by the State agency.
    (i) Timeframes for determining income. In determining the income 
eligibility of an applicant, the State agency may instruct local 
agencies to consider the income of the family during the past 12 months 
and the family's current rate of income to determine which indicator 
more accurately reflects the family's status. However, persons from 
families with adult members who are unemployed shall be eligible based 
on income during the period of unemployment if the loss of income causes 
the current rate of income to be less than the State or local agency's 
income guidelines for Program eligibility.
    (ii) Definition of ``Income''. If the State agency uses the National 
School Lunch reduced-priced meal income guidelines, as specified in 
paragraph (d)(1) of this section, it shall use the following definition 
of income: Income for the purposes of this part means gross cash income 
before deductions for income taxes, employees' social security taxes, 
insurance premiums, bonds, etc. Income includes the following--
    (A) Monetary compensation for services, including wages, salary, 
commissions, or fees;
    (B) Net income from farm and non-farm self-employment;
    (C) Social Security benefits;
    (D) Dividends or interest on savings or bonds, income from estates 
or trusts, or net rental income;
    (E) Public assistance or welfare payments;
    (F) Unemployment compensation;
    (G) Government civilian employee or military retirement or pensions 
or veterans' payments;
    (H) Private pensions or annuities;
    (I) Alimony or child support payments;
    (J) Regular contributions from persons not living in the household;
    (K) Net royalties; and
    (L) Other cash income. Other cash income includes, but is not 
limited to, cash amounts received or withdrawn from any source including 
savings, investments, trust accounts and other resources which are 
readily available to the family.
    (iii) Use of a State or local health care definition of ``Income''. 
If the State

[[Page 322]]

agency uses State or local free or reduced-price health care income 
guidelines, as it is authorized to do in paragraph (d)(1) of this 
section, it may use the State or local definition or definitions of 
income used for the health care eligibility determinations. The State 
agency shall ensure, however, that the State or local agency's 
definition of income does not count the value of in-kind housing and 
other in-kind benefits and payments or benefits listed in paragraph 
(d)(2)(iv) of this section as income for Program purposes, and that 
families with gross income, as defined in paragraph (d)(2)(ii) of this 
section, in excess of 185 percent of the Federal guidelines specified 
under paragraph (d)(1) of this section are not rendered eligible for 
Program benefits, except that persons who meet the requirements of 
paragraph (d)(2)(vi) of this section shall not be subject to limitations 
established under this paragraph.
    (iv) Income exclusions. (A) In determining income eligibility, the 
State agency may exclude from consideration as income any:
    (1) Basic allowance for housing received by military services 
personnel residing off military installations or in privatized housing, 
whether on- or off-base; and
    (2) Cost-of-living allowance provided under 37 U.S.C. 405, to a 
member of a uniformed service who is on duty outside the contiguous 
states of the United States.
    (B) The value of inkind housing and other inkind benefits, shall be 
excluded from consideration as income in determining an applicant's 
eligibility for the program.
    (C) Payments or benefits provided under certain Federal programs or 
acts are excluded from consideration as income by legislative 
prohibition. The payments or benefits which must be excluded from 
consideration as income include, but are not limited to:
    (1) Reimbursements from the Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970 (Pub. L. 91-646, sec. 216, 42 
U.S.C. 4636);
    (2) Any payment to volunteers under Title I (VISTA and others) and 
Title II (RSVP, foster grandparents, and others) of the Domestic 
Volunteer Service Act of 1973 (Pub. L. 93-113, sec. 404(g), 42 U.S.C. 
5044(g)) to the extent excluded by that Act;
    (3) Payment to volunteers under section 8(b)(1)(B) of the Small 
Business Act (SCORE and ACE) (Pub. L. 95-510, sec. 101, 15 U.S.C. 
637(b)(1)(D));
    (4) Income derived from certain submarginal land of the United 
States which is held in trust for certain Indian tribes (Pub. L. 94-114, 
sec. 6, 25 U.S.C. 459e);
    (5) Payments received under the Job Training Partnership Act (Pub. 
L. 97-300, sec. 142(b), 29 U.S.C. 1552(b));
    (6) Income derived from the disposition of funds to the Grand River 
Band of Ottawa Indians (Pub. L. 94-540, sec. 6);
    (7) Payments received under the Alaska Native Claims Settlement Act 
(Pub. L. 100-241, sec. 15, 43 U.S.C. sec. 1626(c));
    (8) The value of assistance to children or their families under the 
National School Lunch Act, as amended (Pub. L. 94-105, sec. 9(d), 42 
U.S.C. sec. 1760(e)), the Child Nutrition Act of 1966 (Pub. L. 89-642, 
sec. 11(b), 42 U.S.C. sec. 1780(b)), and the Food Stamp Act of 1977 
(Pub. L. 95-113, sec. 1301, 7 U.S.C. sec. 2017(b));
    (9) Payments by the Indian Claims Commission to the Confederated 
Tribes and Bands of the Yakima Indian Nation or the Apache Tribe of the 
Mescalero Reservation (Pub. L. 95-433, sec. 2, 25 U.S.C. 609c-1);
    (10) Payments to the Passamaquoddy Tribe and the Penobscot Nation or 
any of their members received pursuant to the Maine Indian Claims 
Settlement Act of 1980 (Pub. L. 96-420, sec. 6, 9(c), 25 U.S.C. 1725(i), 
1728(c));
    (11) Payments under the Low-income Home Energy Assistance Act, as 
amended (Pub. L. 99-125, sec. 504(c), 42 U.S.C. sec. 8624(f));
    (12) Student financial assistance received from any program funded 
in whole or part under Title IV of the Higher Education Act of 1965, 
including the Pell Grant, Supplemental Educational Opportunity Grant, 
State Student Incentive Grants, National Direct Student Loan, PLUS, 
College Work Study, and Byrd Honor Scholarship

[[Page 323]]

programs, which is used for costs described in section 472 (1) and (2) 
of that Act (Pub. L. 99-498, section 479B, 20 U.S.C. 1087uu). The 
specified costs set forth in section 472 (1) and (2) of the Higher 
Education Act are tuition and fees normally assessed a student carrying 
the same academic workload as determined by the institution, and 
including the costs for rental or purchase of any equipment, materials, 
or supplies required of all students in the same course of study; and an 
allowance for books, supplies, transportation, and miscellaneous 
personal expenses for a student attending the institution on at least a 
half-time basis, as determined by the institution. The specified costs 
set forth in section 472 (1) and (2) of the Act are those costs which 
are related to the costs of attendance at the educational institution 
and do not include room and board and dependent care expenses;
    (13) Payments under the Disaster Relief Act of 1974, as amended by 
the Disaster Relief and Emergency Assistance Amendments of 1989 (Pub. L. 
100-707, sec. 105(i), 42 U.S.C. sec. 5155(d));
    (14) Effective July 1, 1991, payments received under the Carl D. 
Perkins Vocational Education Act, as amended by the Carl D. Perkins 
Vocational and Applied Technology Education Act Amendments of 1990 (Pub. 
L. 101-392, sec. 501, 20 U.S.C. sec. 2466d);
    (15) Payments pursuant to the Agent Orange Compensation Exclusion 
Act (Pub. L. 101-201, sec. 1);
    (16) Payments received for Wartime Relocation of Civilians under the 
Civil Liberties Act of 1988 (Pub. L. 100-383, sec. 105(f)(2), 50 App. 
U.S.C. sec. 1989b-4(f)(2));
    (17) Value of any child care payments made under section 
402(g)(1)(E) of the Social Security Act, as amended by the Family 
Support Act (Pub. L. 100-485, sec. 301, 42 U.S.C. sec. 602 (g)(1)(E));
    (18) Value of any ``at-risk'' block grant child care payments made 
under section 5081 of Pub. L. 101-508, which amended section 402(i) of 
the Social Security Act;
    (19) Value of any child care provided or paid for under the Child 
Care and Development Block Grant Act, as amended (Pub. L. 102-586, Sec. 
8(b)), 42 U.S.C. 9858q);
    (20) Mandatory salary reduction amount for military service 
personnel which is used to fund the Veteran's Educational Assistance Act 
of 1984 (GI Bill), as amended (Pub. L. 99-576, sec. 303(a)(1), 38 U.S.C. 
sec. 1411 (b));
    (21) Payments received under the Old Age Assistance Claims 
Settlement Act, except for per capita shares in excess of $2,000 (Pub. 
L. 98-500, sec. 8, 25 U.S.C. sec. 2307);
    (22) Payments received under the Cranston-Gonzales National 
Affordable Housing Act, unless the income of the family equals or 
exceeds 80 percent of the median income of the area (Pub. L. 101-625, 
sec. 522(i)(4), 42 U.S.C. sec. 1437f nt);
    (23) Payments received under the Housing and Community Development 
Act of 1987, unless the income of the family increases at any time to 
not less than 50 percent of the median income of the area (Pub. L. 100-
242, sec. 126(c)(5)(A), 25 U.S.C. sec. 2307);
    (24) Payments received under the Sac and Fox Indian claims agreement 
(Pub. L. 94-189, sec. 6);
    (25) Payments received under the Judgment Award Authorization Act, 
as amended (Pub. L. 97-458, sec. 4, 25 U.S.C. sec. 1407 and Pub. L. 98-
64, sec. 2(b), 25 U.S.C. sec. 117b(b));
    (26) Payments for the relocation assistance of members of Navajo and 
Hopi Tribes (Pub. L. 93-531, sec. 22, 22 U.S.C. sec. 640d-21);
    (27) Payments to the Turtle Mountain Band of Chippewas, Arizona 
(Pub. L. 97-403, sec. 9);
    (28) Payments to the Blackfeet, Grosventre, and Assiniboine tribes 
(Montana) and the Papago (Arizona) (Pub. L. 97-408, sec. 8(d));
    (29) Payments to the Assiniboine Tribe of the Fort Belknap Indian 
community and the Assiniboine Tribe of the Fort Peck Indian Reservation 
(Montana) (Pub. L. 98-124, sec. 5);
    (30) Payments to the Red Lake Band of Chippewas (Pub. L. 98-123, 
sec. 3);
    (31) Payments received under the Saginaw Chippewa Indian Tribe of 
Michigan Distribution of Judgment Funds Act (Pub. L. 99-346, sec. 
6(b)(2)); and
    (32) Payments to the Chippewas of Mississippi (Pub. L. 99-377, sec. 
4(b)).

[[Page 324]]

    (v) Are applicants required to document income eligibility? (A) 
Adjuctively/automatically income eligible applicants. The State or local 
agency must require applicants determined to be adjunctively or 
automatically income eligible to document their eligibility for the 
program that makes them income eligible as set forth in paragraph 
(d)(2)(vi) of this section.
    (B) Other applicants. The State or local agency must require all 
other applicants to provide documentation of family income at 
certification.
    (C) Exceptions. The income documentation requirement does not apply 
to an individual for whom the necessary documentation is not available 
or an individual such as a homeless woman or child for whom the agency 
determines the income documentation requirement would present an 
unreasonable barrier to participation. Examples of individuals for whom 
the necessary documentation is not available include those with no 
income or no proof of income (such as an applicant or applicant's parent 
who is a migrant farmworker or other individual who works for cash). 
These are the only exceptions that may be used. When using these 
exceptions, the State or local agency must require the applicant to sign 
a statement specifying why he/she cannot provide documentation of 
income. Such a statement is not required when there is no income.
    (D) Verification. The State or local agency may require verification 
of information it determines necessary to confirm income eligibility for 
Program benefits.
    (vi) Adjunct or automatic income eligibility. (A) The State agency 
shall accept as income-eligible for the Program any applicant who 
documents that he/she is:
    (1) Certified as fully eligible to receive food stamps under the 
Food Stamp Act of 1977, or certified as fully eligible, or presumptively 
eligible pending completion of the eligibility determination process, to 
receive Temporary Assistance for Needy Families (TANF) under Part A of 
Title IV of the Social Security Act or Medical Assistance (i.e., 
Medicaid) under Title XIX of the Social Security Act; or
    (2) A member of a family that is certified eligible to receive 
assistance under TANF, or a member of a family in which a pregnant woman 
or an infant is certified eligible to receive assistance under Medicaid.
    (B) The State agency may accept, as evidence of income within 
Program guidelines, documentation of the applicant's participation in 
State-administered programs not specified in this paragraph that 
routinely require documentation of income, provided that those programs 
have income eligibility guidelines at or below the State agency's 
Program income guidelines.
    (C) Persons who are adjunctively income eligible, as set forth in 
paragraphs (d)(2)(vi)(A) of this section, shall not be subject to the 
income limits established under paragraph (d)(1) of this section.
    (vii) Income eligibility of pregnant women. A pregnant woman who is 
ineligible for participation in the program because she does not meet 
income guidelines shall be considered to have satisfied the income 
guidelines if the guidelines would be met by increasing the number of 
individuals in her family by the number of embryos or fetuses in utero. 
The same increased family size may also be used for any of the pregnant 
woman's categorically eligible family members. The State agency shall 
allow applicants to waive this increase in family size.
    (viii) Income eligibility of Indian applicants. If an Indian State 
agency (or a non-Indian State agency which acts on behalf of a local 
agency operated by an Indian organization or the Indian Health Service) 
submits census data or other reliable documentation demonstrating to FNS 
that the majority of the Indian households in a local agency's service 
area have incomes at or below the State agency's income eligibility 
guidelines, FNS may authorize the State agency to approve the use of an 
income certification system under which the local Indian agency shall 
inform each Indian applicant household of the maximum family income 
allowed for that applicant's family size. The local agency shall ensure 
that the applicant, or the applicant's parent or caretaker, signs a 
statement that the

[[Page 325]]

applicant's family income does not exceed the maximum. The local agency 
may verify the income eligibility of any Indian applicant.
    (ix) Are instream migrant farmworkers and their family members 
required to document income eligibility? Certain instream migrant 
farmworkers and their family members with expired Verification of 
Certification cards shall be declared to satisfy the State agency's 
income standard and income documentation requirements. Such cases 
include when income of that instream migrant farmworker is determined at 
least once every 12 months. Such families shall satisfy the income 
criteria in any State for any subsequent certification while the migrant 
is instream during the 12-month period following the determination. The 
determination can occur either in the migrant's home base area before 
the migrant has entered the stream for a particular agricultural season, 
or in an instream area during the agricultural season.
    (e) Nutritional risk. To be certified as eligible for the Program, 
applicants who meet the Program's eligibility standards specified in 
paragraph (c) of this section must be determined to be at nutritional 
risk. A competent professional authority on the staff of the local 
agency shall determine if a person is at nutritional risk through a 
medical and/or nutritional assessment. This determination may be based 
on referral data submitted by a competent professional authority not on 
the staff of the local agency. Nutritional risk data shall be documented 
in the participant's file and shall be used to assess an applicant's 
nutritional status and risk, tailor the food package to address 
nutritional needs, design appropriate nutrition education, and make 
referrals to health and social services for follow-up, as necessary and 
appropriate.
    Except as stated in paragraph (e)(1)(v) of this section, at least 
one determination of nutritional risk must be documented at the time of 
certification in order for an income eligible applicant to receive WIC 
benefits.
    (1) Determination of nutritional risk. (i) Required nutritional risk 
data. (A) At a minimum, height or length and weight measurements shall 
be performed and/or documented in the applicant's file at the time of 
certification. In addition, a hematological test for anemia such as a 
hemoglobin, hematocrit, or free erythrocyte protoporphyrin test shall be 
performed and/or documented at certification for applicants with no 
other nutritional risk factor present. For applicants with a qualifying 
nutritional risk factor present at certification, such test shall be 
performed and/or documented within 90 days of the date of certification. 
However, for breastfeeding women 6-12 months postpartum, such 
hematological tests are not required if a test was performed after the 
termination of their pregnancy. In addition, such hematological tests 
are not required, but are permitted, for infants under nine months of 
age. All infants nine months of age and older (who have not already had 
a hematological test performed or obtained, between the ages of six and 
nine months), shall have a hematological test performed between nine and 
twelve months of age or obtained from referral sources. This 
hematological test does not have to occur within 90 days of the date of 
certification. Only one test is required for children between 12 and 24 
months of age, and this test should be done 6 months after the infant 
test, if possible. At the State or local agency's discretion, the 
hematological test is not required for children ages two and older who 
were determined to be within the normal range at their last 
certification. However, the hematological test shall be performed on 
such children at least once every 12 months. Hematological test data 
submitted by a competent professional authority not on the staff of the 
local agency may be used to establish nutritional risk. However, such 
referral hematological data must:
    (1) Be reflective of a woman applicant's category, meaning the test 
must have been taken for pregnant women during pregnancy and for 
postpartum or breastfeeding women following termination of pregnancy;
    (2) Conform to the anemia screening schedule for infants and 
children as outlined in paragraph (e)(1)(ii)(B) of this section; and

[[Page 326]]

    (3) Conform to recordkeeping requirements as outlined in paragraph 
(i)(4) of this section.
    (B) Height or length and weight measurements and, with the 
exceptions specified in paragraph (e)(1)(v) of this section, 
hematological tests, shall be obtained for all participants, including 
those who are determined at nutritional risk based solely on the 
established nutritional risk status of another person, as provided in 
paragraphs (e)(1)(iv) and (e)(1)(v) of this section.
    (ii) Timing of nutritional risk data. (A) Weight and height or 
length. Weight and height or length shall be measured not more than 60 
days prior to certification for program participation.
    (B) Hematological test for anemia. (1) For pregnant, breastfeeding, 
and postpartum women, and child applicants, the hematological test for 
anemia shall be performed or obtained from referral sources at the time 
of certification or within 90 days of the date of certification. The 
hematological test for anemia may be deferred for up to 90 days from the 
time of certification for applicants who have at least one qualifying 
nutritional risk factor present at the time of certification. If no 
qualifying risk factor is identified, a hematological test for anemia 
must be performed or obtained from referral sources (with the exception 
of presumptively eligible pregnant women).
    (2) Infants nine months of age and older (who have not already had a 
hematological test performed, between six and nine months of age, by a 
competent professional authority or obtained from referral sources), 
shall between nine and twelve months of age have a hematological test 
performed or obtained from referral sources. Such a test may be 
performed more than 90 days after the date of certification.
    (3) For pregnant women, the hematological test for anemia shall be 
performed during their pregnancy. For persons certified as postpartum or 
breastfeeding women, the hematological test for anemia shall be 
performed after the termination of their pregnancy. For breastfeeding 
women who are 6-12 months postpartum, no additional blood test is 
necessary if a test was performed after the termination of their 
pregnancy. The participant or parent/guardian shall be informed of the 
test results when there is a finding of anemia, and notations reflecting 
the outcome of the tests shall be made in the participant's file. 
Nutrition education, food package tailoring, and referral services shall 
be provided to the participant or parent/guardian, as necessary and 
appropriate.
    (iii) Breastfeeding dyads. A breastfeeding woman may be determined 
to be a nutritional risk if her breastfed infant has been determined to 
be a nutritional risk. A breastfed infant can be certified based on the 
mother's medical and/or nutritional assessment. A breastfeeding mother 
and her infant shall be placed in the highest priority level for which 
either is qualified.
    (iv) Infants born to WIC mothers or women who were eligible to 
participate in WIC. An infant under six months of age may be determined 
to be at nutritional risk if the infant's mother was a Program 
participant during pregnancy or of medical records document that the 
woman was at nutritional risk during pregnancy because of detrimental or 
abnormal nutritional conditions detectable by biochemical or 
anthropometric measurements or other documented nutritionally related 
medical conditions.
    (v) Presumptive eligibility for pregnant women. A pregnant woman who 
meets the income eligibility standards may be considered presumptively 
eligible to participate in the program, and may be certified immediately 
without an evaluation of nutritional risk for a period up to 60 days. A 
nutritional risk evaluation of such woman shall be completed not later 
than 60 days after the woman is certified for participation. A 
hematological test for anemia is not required to be performed within the 
60-day period, but rather within 90 days, unless the nutritional risk 
evaluation performed does not identify a qualifying risk factor. If no 
qualifying risk factor is identified, a hematological test for anemia 
must be performed or obtained from referral sources before the 60-day 
period elapses. Under the subsequent determination process, if

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the woman does not meet any qualifying nutritional risk criteria, 
including anemia criteria, the woman shall be determined ineligible and 
may not participate in the program for the reference pregnancy after the 
date of the determination. Said applicant may subsequently reapply for 
program benefits and if found to be both income eligible and at 
qualifying nutritional risk may participate in the program. Persons 
found ineligible to participate in the program under this paragraph 
shall be advised in writing of the ineligibility, of the reasons for the 
ineligibility, and of the right to a fair hearing. The reasons for the 
ineligibility shall be properly documented and shall be retained on file 
at the local agency. In addition, if the nutritional risk evaluation is 
not completed within the 60-day timeframe, the woman shall be determined 
ineligible.
    (vi) Regression. A participant who has previously been certified 
eligible for the Program may be considered to be at nutritional risk in 
the next certification period if the competent professional authority 
determines there is a possibility of regression in nutritional status 
without the supplemental foods. The State agency may limit the number of 
times and circumstances under which a participant may be certified due 
to the possibility of regression.
    (2) Nutritional risk criteria. The following are examples of 
nutritional risk conditions which may be used as a basis for 
certification. These examples include--
    (i) Detrimental or abnormal nutritional conditions detectable by 
biochemical or anthropometric measurements, such as anemia, underweight, 
overweight, abnormal patterns of weight gain in a pregnant woman, low 
birth weight in an infant, or stunting in an infant or child;
    (ii) Other documented nutritionally related medical conditions, such 
as clinical signs of nutritional deficiencies, metabolic disorders, pre-
eclampsia in pregnant women, failure to thrive in an infant, chronic 
infections in any person, alcohol or drug abuse or mental retardation in 
women, lead poisoning, history of high risk pregnancies or factors 
associated with high risk pregnancies (such as smoking; conception 
before 16 months postpartum; history of low birth weight, premature 
births, or neonatal loss; adolescent pregnancy; or current multiple 
pregnancy) in pregnant women, or congenital malformations in infants or 
children, or infants born of women with alcohol or drug abuse histories 
or mental retardation.
    (iii) Dietary deficiencies that impair or endanger health, such as 
inadequate dietary patterns assessed by a 24-hour dietary recall, 
dietary history, or food frequency checklist; and
    (iv) Conditions that predispose persons to inadequate nutritional 
patterns or nutritionally related medical conditions, such as 
homelessness or migrancy.
    (3) Nutritional risk priorities. In determining nutritional risk, 
the State agency shall develop and include in its State Plan, specific 
risk conditions by priority level with indices for identifying these 
conditions. The criteria shall be used statewide and in accordance with 
the priority system as set forth in paragraph (e)(4) of this section.
    (4) Nutritional risk priority system. The competent professional 
authority shall fill vacancies which occur after a local agency has 
reached its maximum participation level by applying the following 
participant priority system to persons on the local agency's waiting 
list. Priorities I through VI shall be utilized in all States. The State 
agency may, at its discretion, expand the priority system to include 
Priority VII. The State agency may set income or other sub-priority 
levels within any of these seven priority levels. The State agency may 
expand Priority III, IV, or V to include high-risk postpartum women. The 
State agency may place pregnant or breastfeeding women and infants who 
are at nutritional risk solely because of homelessness or migrancy in 
Priority IV; children who are at nutritional risk solely because of 
homelessness or migrancy in Priority V; and postpartum women who are at 
nutritional risk solely because of homelessness or migrancy in Priority 
VI, OR, the State agency may place pregnant, breastfeeding or postpartum 
women, infants, and children who are at nutritional risk solely because 
of

[[Page 328]]

homelessness or migrancy in Priority VII.
    (i) Priority I. Pregnant women, breastfeeding women and infants at 
nutritional risk as demonstrated by hematological or anthropometric 
measurements, or other documented nutritionally related medical 
conditions which demonstrate the need for supplemental foods.
    (ii) Priority II. Except those infants who qualify for Priority I, 
infant up to six months of age of Program participants who participated 
during pregnancy, and infants up to six months of age born of women who 
were not Program participants during pregnancy but whose medical records 
document that they were at nutritional risk during pregnancy due to 
nutritional conditions detectable by biochemical or anthropometric 
measurements or other documented nutritionally related medical 
conditions which demonstrated the person's need for supplemental foods.
    (iii) Priority III. Children at nutritional risk as demonstrated by 
hematological or anthropometric measurements or other documented medical 
conditions which demonstrate the child's need for supplemental foods.
    (iv) Priority IV. Pregnant women, breastfeeding women, and infants 
at nutritional risk because of an inadequate dietary pattern.
    (v) Priority V. Children at nutritional risk because of an 
inadequate dietary pattern.
    (vi) Priority VI. Postpartum women at nutritional risk.
    (vii) Priority VII. Individuals certified for WIC solely due to 
homelessness or migrancy and, at State agency option, and in accordance 
with the provisions of paragraph (e)(1)(iii) of this section, previously 
certified participants who might regress in nutritional status without 
continued provision of supplemental foods.
    (f) Processing standards. The local agencies shall process 
applicants within the following timeframes:
    (1) Waiting lists. When the local agency is serving its maximum 
caseload, the local agency shall maintain a waiting list of individuals 
who visit the local agency to express interest in receiving Program 
benefits and who are likely to be served. However, in no case shall an 
applicant who requests placement on the waiting list be denied 
inclusion. State agencies may establish a policy which permits or 
requires local agencies to accept telephone requests for placement on 
the waiting list. The waiting list shall include the person's name, 
address or phone number, status (e.g., pregnant, breastfeeding, age of 
applicant), and the date he or she was placed on the waiting list. 
Individuals shall be notified of their placement on a waiting list 
within 20 days after they visit the local agency during clinic office 
hours to request Program benefits. For those State agencies establishing 
procedures to accept telephone requests for placement on a waiting list, 
individuals shall be notified of their placement on a waiting list 
within 20 days after contacting the local agency by phone. The competent 
professional authority shall apply the participant priority system as 
specified in paragraph (e)(4) of this section to the waiting list to 
ensure that the highest priority persons become Program participants 
first when caseload slots become available.
    (2) Timeframes for processing applicants. (i) When the local agency 
is not serving its maximum caseload, the local agency shall accept 
applications, make eligibility determinations, notify the applicants of 
the decisions made and, if the applicants are to be enrolled, issue food 
or food instruments. All of these actions shall be accomplished within 
the timeframes set forth below.
    (ii) The processing timeframes shall begin when the individual 
visits the local agency during clinic office hours to make an oral or 
written request for Program benefits. To ensure that accurate records 
are kept of the date of such requests, the local agency shall, at the 
time of each request, record the applicant's name, address and the date. 
The remainder of the information necessary to determine eligibility 
shall be obtained by the time of certification. Medical data taken prior 
to certification may be used as provided in paragraph (g)(4) of this 
section.
    (iii) The local agency shall act on applications within the 
following timeframes:

[[Page 329]]

    (A) Special nutritional risk applicants shall be notified of their 
eligibility or ineligibility within 10 days of the date of the first 
request for Program benefits; except that State agencies may provide an 
extension of the notification period to a maximum of 15 days for those 
local agencies which make written request, including a justification of 
the need for an extension. The State agency shall establish criteria for 
identifying categories of persons at special nutritional risk who 
require expedited services. At a minimum, however, these categories 
shall include pregnant women eligible as Priority I participants, and 
migrant farmworkers and their family members who soon plan to leave the 
jurisdiction of the local agency.
    (B) All other applicants shall be notified of their eligibility or 
ineligibility within 20 days of the date of the first request for 
Program benefits.
    (iv) Each local agency using a retail purchase system shall issue a 
food instrument(s) to the participant at the same time as notification 
of certification. Such food instrument(s) shall provide benefits for the 
current month or the remaining portion thereof and shall be redeemable 
immediately upon receipt by the participant. Local agencies may mail the 
initial food instrument(s) with the notification of certification to 
those participants who meet the criteria for the receipt of food 
instruments through the mail, as provided in Sec.  246.12(r)(4).
    (v) Each local agency with a direct distribution or home delivery 
system shall issue the supplemental foods to the participant within 10 
days of issuing the notification of certification.
    (g) Certification periods. (1) Program benefits shall be based upon 
certifications established in accordance with the following timeframes:
    (i) Pregnant women shall be certified for the duration of their 
pregnancy and for up to six weeks postpartum.
    (ii) Postpartum women shall be certified for up to six months 
postpartum.
    (iii) Breastfeeding women shall be certified at intervals of 
approximately six months and ending with the breastfed infant's first 
birthday.
    (iv) Infants shall be certified at intervals of approximately six 
months, except that the State agency may permit local agencies under its 
jurisdiction to certify infants under six months of age for a period 
extending up to the first birthday provided the quality and 
accessibility of health care services are not diminished.
    (v) Children shall be certified at intervals of approximately six 
months and ending with the end of the month in which a child reaches the 
fifth birthday.
    (2) The State agency may authorize local agencies under its 
jurisdiction to establish shorter certification periods than outlined in 
paragraph (g)(1) of this section on a case-by-case basis. If the State 
agency exercises this option, it shall issue guidance for use by local 
agencies in establishing the shorter periods.
    (3) In cases where there is difficulty in appointment scheduling for 
persons referenced in paragraphs (g)(1) (iii), (iv) and (v) of this 
section, the certification period may be shortened or extended by a 
period not to exceed 30 days.
    (h) Actions affecting participation in mid-certification. (1) The 
State agency shall ensure that local agencies disqualify an individual 
during a certification period if, on the basis of a reassessment of 
Program eligibility status, the individual is determined ineligible; 
provided, however, that an individual determined adjunctively income 
eligible under paragraph (d)(2)(vi)(A) (1) or (2) of this section or 
income eligible under paragraph (d)(2)(vi)(B) of this section is not 
disqualified solely on the basis of a determination they no longer 
participate in TANF, Medicaid, Food Stamps, or another qualified State-
administered program or are no longer a member of a family which 
contains an TANF recipient or a pregnant woman or an infant receiving 
Medicaid. The State agency shall ensure that local agencies disqualify 
such an individual during a certification period, if on the basis of a 
reassessment of Program eligibility, the individual is no longer deemed 
income eligible under paragraph (d)(2)(vi) (A) or (B) of this section 
and does not meet the income eligibility requirements of paragraph 
(d)(1) of this section. The State agency

[[Page 330]]

may authorize local agencies to disqualify an individual during the 
certification period for the following reasons:
    (i) Participant abuse, including, but not limited to the infractions 
listed in the definition of Participant violation in Sec.  246.2; or
    (ii) Failure to obtain food instruments or supplemental foods for a 
number of consecutive months, as specified by the State agency, 
evidenced by indicators such as failure to pick up supplemental foods or 
food instruments, nonreceipt of food instruments as evidenced by return 
of mailed instruments, or failure to have an electronic benefit transfer 
card revalidated to authorize the purchase of supplemental foods.
    (2) If a State agency experiences funding shortages, it may be 
necessary to discontinue Program benefits to a number of certified 
participants. Such action may be taken only after the State agency has 
explored alternative actions. If taken, the action should affect the 
least possible number of participants and should affect participants 
whose nutritional and health status would be least impaired by 
withdrawal of Program benefits. The State may discontinue benefits by--
    (i) Disqualifying a group of participants; and/or
    (ii) Withholding benefits of a group with the expectation of 
providing benefits again when funds are available.
    (3) When a State agency elects to discontinue benefits to a number 
of certified participants due to insufficient funds for a period of 
time, it shall not enroll new participants during that period.
    (i) Certification forms. All certification data for each person 
certified shall be recorded on a form (or forms) which are provided by 
the State agency. The information on the forms shall include--
    (1) Name and address;
    (2) Date of initial visit to apply for participation;
    (3) An indication of whether the applicant was physically present at 
certification and, if not, the reason why an exception was granted or a 
copy of the document(s) in the file which explains the reason for the 
exception;
    (4) A description of the document(s) used to determine residency and 
identity or a copy of the document(s) used or the applicant's written 
statement when no documentation exists;
    (5) Information regarding income eligibility for the Program as 
specified in paragraph (d) of this section as follows:
    (i) A description of the document(s) used to determine income 
eligibility or a copy of the document(s) in the file;
    (ii) An indication that no documentation is available and the 
reason(s) why or a copy of the applicant's written statement explaining 
such circumstances; or
    (iii) An indication that the applicant has no income.
    (6) The date of certification and the date nutritional risk data 
were taken if different from the date of certification;
    (7) Height or length, weight, and hematological test results;
    (8) The specific nutritional risk conditions which established 
eligibility for the supplemental foods. Documentation should include 
health history when appropriate to the nutritional risk condition, with 
the applicant's or applicant's parent's or caretaker's consent;
    (9) The signature and title of the competent professional authority 
making the nutritional risk determination, and, if different, the 
signature and title of the administrative person responsible for 
determining income eligibility under the Program; and
    (10) The following statement with a space for the signature of the 
applicant, parent, or caretake to sign after reading or being read the 
following statement:

    I have been advised of my rights and obligations under the Program. 
I certify that the information I have provided for my eligibility 
determination is correct, to the best of my knowledge. This 
certification form is being submitted in connection with the receipt of 
Federal assistance. Program officials may verify information on this 
form. I understand that intentionally making a false or misleading 
statement or intentionally misrepresenting, concealing, or withholding 
facts may result in paying the State agency, in cash, the value of the 
food benefits improperly issued to me and may subject me to civil or 
criminal prosecution under State and Federal law.


[[Page 331]]


    (11) In States exercising the authority to disclose information 
pursuant to Sec.  246.26(d)(2), a statement, to be added to the 
statement required under paragraph (i)(8) of this section, acknowledging 
that the chief State health officer (or in the case of Indian State 
agencies, the governing authority) may authorize disclosure of 
information provided by the applicant or participant to representatives 
of public organizations, designated by such chief State officer or 
governing authority, which administer health or welfare programs that 
serve persons categorically eligible for the WIC Program. This statement 
shall also indicate that such information can be used by the recipient 
organizations only to determine the eligibility of WIC applicants and 
participants for programs administered by such organizations, and to 
conduct outreach for such programs.
    (j) Notification of participant rights and responsibilities. In 
order to inform applicants and participants or their parents or 
caretakers of Program rights and responsibilities, the following 
information shall be provided. Where a significant number or proportion 
of the population eligible to be served needs the information in a 
language other than English, reasonable steps shall be taken to provide 
the information in appropriate languages to such persons, considering 
the scope of the Program and the size and concentration of such 
population.
    (1) During the certification procedure, every Program applicant, 
parent or caretaker shall be informed of the illegality of dual 
participation.
    (2) At the time of certification, each Program participant, parent 
or caretaker shall read, or have read to him or her, the statement 
provided in paragraph (i)(8) of this section and the following 
sentences:
    (i) ``Standards for eligibility and participation in the WIC Program 
are the same for everyone, regardless of race, color, national origin, 
age, handicap, or sex.''
    (ii) ``You may appeal any decision made by the local agency 
regarding your eligibility for the Program.''
    (iii) ``The local agency will make health services and nutrition 
education available to you, and you are encouraged to participate in 
these services.''
    (3) If the State agency implements the policy of disqualifying a 
participant for not picking up supplemental foods or food instruments in 
accordance with paragraph (h)(1)(ii) of this section, it shall provide 
notice of this policy and of the importance of regularly picking up food 
instruments or supplemental foods to each participant, parent or 
caretaker at the time of each certification.
    (4) At least during the initial certification visit, each 
participant, parent or caretaker shall receive an explanation of how the 
local food delivery system operates and shall be advised of the types of 
health services available, where they are located, how they may be 
obtained and why they may be useful.
    (5) Persons found ineligible for the Program during a certification 
visit shall be advised in writing of the ineligibility, of the reasons 
for the ineligibility, and of the right to a fair hearing. The reasons 
for ineligibility shall be properly documented and shall be retained on 
file at the local agency.
    (6) A person who is about to be suspended or disqualified from 
program participation at any time during the certification period shall 
be advised in writing not less than 15 days before the suspension or 
disqualification. Such notification shall include the reasons for this 
action, and the participant's right to a fair hearing. Further, such 
notification need not be provided to persons who will be disqualified 
for not picking up supplemental foods or food instruments in accordance 
with paragraph (h)(1)(ii) of this section.
    (7) When a State or local agency pursues collection of a claim 
pursuant to Sec.  246.23(c) against an individual who has been 
improperly issued benefits, the person shall be advised in writing of 
the reason(s) for the claim, the value of the improperly issued benefits 
which must be repaid, and of the right to a fair hearing.
    (8) Each participant, parent or caretaker shall be notified not less 
than 15 days before the expiration of each certification period that 
certification for the Program is about to expire.

[[Page 332]]

    (9) If a State agency must suspend or terminate benefits to any 
participant during the participant's certification period due to a 
shortage of funds for the Program, it shall issue a notice to such 
participant in advance, as stipulated in paragraph (j)(6) of this 
section.
    (k) Transfer of certification. (1) Each State agency shall ensure 
issuance of a Verification of Certification card to every participant 
who is a member of a family in which there is a migrant farmworker or 
any other participant who is likely to be relocating during the 
certification period. Certifying local agencies shall ensure that 
Verification of Certification cards are fully completed.
    (2) The State agency shall require the receiving local agency to 
accept Verification of Certification cards from participants, including 
participants who are migrant farmworkers or members of their families, 
who have been participating in the Program in another local agency 
within or outside of the jurisdiction of the State agency. A person with 
a valid Verification of Certification card shall not be denied 
participation in the receiving State because the person does not meet 
that State's particular eligibility criteria.
    (3) The Verification of Certification card is valid until the 
certification period expires, and shall be accepted as proof of 
eligibility for Program benefits. If the receiving local agency has 
waiting lists for participation, the transferring participant shall be 
placed on the list ahead of all waiting applicants.
    (4) The Verification of Certification card shall include the name of 
the participant, the date the certification was performed, the date 
income eligibility was last determined, the nutritional risk condition 
of the participant, the date the certification period expires, the 
signature and printed or typed name of the certifying local agency 
official, the name and address of the certifying local agency and an 
identification number or some other means of accountability. The 
Verification of Certification card shall be uniform throughout the 
jurisdiction of the State agency.
    (l) Dual participation. (1) The State agency is responsible for the 
following:
    (i) In conjunction with WIC local agencies, the prevention and 
identification of dual participation within each local agency and 
between local agencies under the State agency's jurisdiction, including 
actions to identify suspected instances of dual participation at least 
semiannually. The State or local agency must take follow-up action 
within 120 days of detecting instances of suspected dual participation;
    (ii) In areas where a local agency serves the same population as an 
Indian State agency or a CSFP agency, and in areas where geographical or 
other factors make it likely that participants travel regularly between 
contiguous local service areas located across State agency borders, 
entering into an agreement with the other agency for the detection and 
prevention of dual participation. The agreement must be made in writing 
and included in the State Plan;
    (iii) Immediate termination from participation in one of the 
programs or clinics for participants found in violation due to dual 
participation; and
    (iv) In cases of dual participation resulting from intentional 
misrepresentation, the collection of improperly issued benefits in 
accordance with Sec.  246.23(c)(1) and disqualification from both 
programs in accordance with Sec.  246.12(u)(2).
    (2) At certification, the State or local agency must require each 
applicant to present proof of residency (i.e., location or address where 
the applicant routinely lives or spends the night) and proof of 
identity. The State or local agency must also check the identity of 
participants, or in the case of infants or children, the identity of the 
parent or guardian, or proxies when issuing food or food instruments. 
The State agency may authorize the certification of applicants when no 
proof of residency or identity exists (such as when an applicant or an 
applicant's parent is a victim of theft, loss, or disaster, a homeless 
individual, or a migrant farmworker). In these cases, the State or local 
agency must require the applicant to confirm in writing his/her 
residency or identity. Further, an individual residing in a remote 
Indian or Native village or an individual served by an Indian tribal 
organization and

[[Page 333]]

residing on a reservation or pueblo may establish proof of residency by 
providing the State agency their mailing address and the name of the 
remote Indian or Native village.
    (m) Certification without charge. The certification procedure shall 
be performed at no cost to the applicant.
    (n) Certification of persons in homeless facilities and 
institutions. (1) Pregnant, breastfeeding, and postpartum women, infants 
or children who meet the requirements of paragraph (c) of this section, 
and who reside in a homeless facility, shall be considered eligible for 
the Program and shall be treated equally with all other eligible 
applicants at the local agency where they apply for WIC benefits, 
Provided that: the State or local agency has taken reasonable steps to:
    (i) Establish, to the extent practicable, that the homeless facility 
meets the following conditions with respect to resident WIC 
participants:
    (A) The homeless facility does not accrue financial or in-kind 
benefit from a person's participation in the Program, e.g., by reducing 
its expenditures for food service because its residents are receiving 
WIC foods;
    (B) Foods provided by the WIC Program are not subsumed into a 
communal food service, but are available exclusively to the WIC 
participant for whom they were issued;
    (C) The homeless facility places no constraints on the ability of 
the participant to partake of the supplemental foods and nutrition 
education available under the Program;
    (ii) Contact the homeless facility periodically to ensure continued 
compliance with these conditions; and
    (iii) Request the homeless facility to notify the State or local 
agency if it ceases to meet any of these conditions.
    (2) The State agency may authorize or require local agencies to make 
the Program available to applicants who meet the requirements of 
paragraph (c) of this section, but who reside in institutions which meet 
the conditions of paragraphs (n)(1)(i)(A)-(C) of this section with 
respect to resident WIC participants.
    (3) The State or local agency shall attempt to establish to the best 
of its ability,whether a homeless facility or institution complies with 
the conditions of paragraphs (n)(1)(i) (A)-(C) of this section with 
respect to WIC participants. If caseload slots are available, full 
certification periods shall be provided to the following:
    (i) Participants who are residents of a homeless facility or 
institution which has been found to be in compliance with the conditions 
of paragraph (n)(1)(i)(A)-(C) of this section;
    (ii) Participants who are residents of a homeless facility or 
institution whose compliance with the conditions of paragraphs 
(n)(1)(i)(A)-(C) of this section has not yet been established; and
    (iii) Participants for whom no other shelter alternative is 
available in the local agency's service delivery area.
    (4) If a homeless facility or institution has been determined to be 
noncompliant during the course of a participant's initial certification 
period, participants applying for continued benefits may be certified 
again, but the State agency shall discontinue issuance of WIC foods, 
except infant formula, to the participant in such accommodation until 
the accommodation's compliance is achieved or alternative shelter 
arrangements are made. If certified, such participants shall continue to 
be eligible to receive all other WIC benefits, such as nutrition 
education and health care referral services.
    (5) The State agency shall continue to the end of their 
certification periods the participation of residents of a homeless 
facility or institution which ceases to comply with the conditions of 
paragraphs (n)(1)(i)(A)-(C) of this section.
    (6) As soon as the State or local agency determines that a homeless 
facility/institution does not meet the conditions of paragraphs 
(n)(1)(i) (A)-(C) of this section, it shall refer all participants using 
such accommodation to any other accommodations in the area which meet 
these conditions.
    (o) Drug and other harmful substance abuse screening. When a State 
agency determines that screening is necessary to fulfill the referral 
requirements in this part, the State agency must require screening for 
the use of drugs and

[[Page 334]]

other harmful substances. When such screening is required, it shall:
    (1) Be limited to the extent the State agency deems necessary to 
fulfill the referral requirement of Sec.  246.4(a)(8) of this part and 
the drug and other harmful substance abuse information requirement of 
Sec.  246.11(a)(3) of this part; and
    (2) Be integrated into certification process as part of the medical 
or nutritional assessment.
    (p) Are applicants required to be physically present at 
certification? (1) In general. The State or local agency must require 
all applicants to be physically present at each WIC certification.
    (2) Exceptions.--(i) Disabilities. The State or local agency must 
grant an exception to applicants who are qualified individuals with 
disabilities and are unable to be physically present at the WIC clinic 
because of their disabilities or applicants whose parents or caretakers 
are individuals with disabilities that meet this standard. Examples of 
such situations include:
    (A) A medical condition that necessitates the use of medical 
equipment that is not easily transportable;
    (B) A medical condition that requires confinement to bed rest; and
    (C) A serious illness that may be exacerbated by coming in to the 
WIC clinic.
    (ii) Receiving ongoing health care. The State agency may exempt from 
the physical presence requirement, if being physically present would 
pose an unreasonable barrier, an infant or child who was present at his/
her initial WIC certification and has documented ongoing health care 
from a health care provider other than the WIC local agency.
    (iii) Working parents or caretakers. The State agency may exempt 
from the physical presence requirement an infant or child who was 
present at his/her initial WIC certification and was present at a WIC 
certification or recertification determination within the 1-year period 
ending on the date of the most recent certification or recertification 
determination and is under the care of one or more working parents or 
one or more primary working caretakers whose working status presents a 
barrier to bringing the infant or child in to the WIC clinic.
    (q) Certification of qualified aliens. In those cases where a person 
sponsors a qualified alien, (as the term is defined in the Immigration 
and Nationality Laws (8 U.S.C.1101 et seq.)), i.e., signs an affidavit 
of support, the sponsor's income, including the income of the sponsor's 
spouse, shall not be counted in determining the income eligibility of 
the qualified alien except when the alien is a member of the sponsor's 
family or economic unit. Sponsors of qualified aliens are not required 
to reimburse the State or local agency or the Federal government for WIC 
Program benefits provided to sponsored aliens. Further, qualified aliens 
are eligible for the WIC Program without regard to the length of time in 
the qualifying status.

[50 FR 6121, Feb. 13, 1985, as amended at 52 FR 21236, June 4, 1987; 53 
FR 35301, Sep. 13, 1988; 54 FR 51295, Dec. 14, 1989; 55 FR 3387, Feb. 1, 
1990; 57 FR 34506, Aug. 5, 1992; 58 FR 11506, Feb. 26, 1993; 59 FR 
11500, Mar. 11, 1994; 60 FR 19490, Apr. 19, 1995; 63 FR 63974, Nov. 18, 
1998; 64 FR 70177, Dec. 16, 1999; 65 FR 3378, Jan. 21, 2000; 65 FR 
53527, Sept. 5, 2000; 65 FR 77249, Dec. 11, 2000; 65 FR 83278, Dec. 29, 
2000; 67 FR 66304, Oct. 31, 2002]



Sec.  246.8  Nondiscrimination.

    (a) Civil rights requirements. The State agency shall comply with 
the requirements of title VI of the Civil Rights Act of 1964, title IX 
of the Education Amendments of 1972, section 504 of the Rehabilitation 
Act of 1973, the Age Discrimination Act of 1975, Department of 
Agriculture regulations on nondiscrimination (7 CFR parts 15, 15a and 
15b), and FNS instructions to ensure that no person shall, on the 
grounds of race, color, national origin, age, sex or handicap, be 
excluded from participation in, be denied benefits of, or be otherwise 
subjected to discrimination under the Program. Compliance with title VI 
of the Civil Rights Act of 1964, title IX of the Education Amendments of 
1972, Section 504 of the Rehabilitation Act of 1973, the Age 
Discrimination Act of 1975, and regulations and instructions issued 
thereunder shall include, but not be limited to:
    (1) Notification to the public of the nondiscrimination policy and 
complaint rights of participants and potentially eligible persons;

[[Page 335]]

    (2) Review and monitoring activity to ensure Program compliance with 
the nondiscrimination laws and regulations;
    (3) Collection and reporting of racial and ethnic participation data 
as required by title VI of the Civil Rights Act of 1964, which prohibits 
discrimination in federally assisted programs on the basis of race, 
color, or national origin; and
    (4) Establishment of grievance procedures for handling complaints 
based on sex and handicap.
    (b) Complaints. Persons seeking to file discrimination complaints 
may file them either with the Secretary of Agriculture, or the Director, 
Office of Equal Opportunity, USDA, Washington, DC 20250 or with the 
Office established by the State agency to handle discrimination 
grievances or complaints. All complaints received by State or local 
agencies which allege discrimination based on race, color, national 
origin, or age shall be referred to the Secretary of Agriculture or 
Director, Office of Equal Opportunity. A State or local agency may 
process complaints which allege discrimination based on sex or handicap 
if grievance procedures are in place.
    (c) Non-English materials. Where a significant number or proportion 
of the population eligible to be served needs service or information in 
a language other than English in order effectively to be informed of or 
to participate in the Program, the State agency shall take reasonable 
steps considering the size and concentration of such population, to 
provide information in appropriate languages to such persons. This 
requirement applies with regard to required Program information except 
certification forms which are used only by local agency staff. The State 
agency shall also ensure that all rights and responsibilities listed on 
the certification form are read to these applicants in the appropriate 
language.



Sec.  246.9  Fair hearing procedures for participants.

    (a) Availability of hearings. The State agency shall provide a 
hearing procedure through which any individual may appeal a State or 
local agency action which results in a claim against the individual for 
repayment of the cash value of improperly issued benefits or results in 
the individual's denial of participation or disqualification from the 
Program.
    (b) Hearing system. The State agency shall provide for either a 
hearing at the State level or a hearing at the local level which permits 
the individual to appeal a local agency decision to the State agency. 
The State agency may adopt local level hearings in some areas, such as 
those with large caseloads, and maintain only State level hearings in 
other areas.
    (c) Notification of appeal rights. At the time of a claim against an 
individual for improperly issued benefits or at the time of 
participation denial or of disqualification from the Program, the State 
or local agency shall inform each individual in writing of the right to 
a fair hearing, of the method by which a hearing may be requested, and 
that any positions or arguments on behalf of the individual may be 
presented personally or by a representative such as a relative, friend, 
legal counsel or other spokesperson. Such notification is not required 
at the expiration of a certification period.
    (d) Request for hearing. A request for a hearing is defined as any 
clear expression by the individual, the individual's parent, caretaker, 
or other representative, that he or she desires an opportunity to 
present his or her case to a higher authority. The State or local agency 
shall not limit or interfere with the individual's freedom to request a 
hearing.
    (e) Time limit for request. The State or local agency shall provide 
individuals a reasonable period of time to request fair hearings; 
provided that, such time limit is not less than 60 days from the date 
the agency mails or gives the applicant or participant the notice of 
adverse action.
    (f) Denial or dismissal of request. The State and local agencies 
shall not deny or dismiss a request for a hearing unless--
    (1) The request is not received within the time limit set by the 
State agency in accordance with paragraph (e) of this section;

[[Page 336]]

    (2) The request is withdrawn in writing by the appellant or a 
representative of the appellant;
    (3) The appellant or representative fails, without good cause, to 
appear at the scheduled hearing; or
    (4) The appellant has been denied participation by a previous 
hearing and cannot provide evidence that circumstances relevant to 
Program eligibility have changed in such a way as to justify a hearing.
    (g) Continuation of benefits. Except for participants whose 
certification period has expired, participants who appeal the 
termination of benefits within the 15 days advance adverse notice period 
provided by Sec.  246.7(j)(6) shall continue to receive Program benefits 
until the hearing official reaches a decision or the certification 
period expires, whichever occurs first. Applicants who are denied 
benefits at initial certification or because of the expiration of their 
certification may appeal the denial, but shall not receive benefits 
while awaiting the hearing.
    (h) Rules of procedure. State and local agencies shall process each 
request for a hearing under uniform rules of procedure and shall makes 
these rules of procedure available for public inspection and copying. At 
a minimum, such rules shall include: The time limits for requesting and 
conducting a hearing; all advance notice requirements; the rules of 
conduct at the hearing; and the rights and responsibilities of the 
appellant. The procedures shall not be unduly complex or legalistic.
    (i) Hearing official. Hearings shall be conducted by an impartial 
official who does not have any personal stake or involvement in the 
decision and who was not directly involved in the initial determination 
of the action being contested. The hearing official shall--
    (1) Administer oaths or affirmations if required by the State;
    (2) Ensure that all relevant issues are considered;
    (3) Request, receive and make part of the hearing record all 
evidence determined necessary to decide the issues being raised;
    (4) Regulate the conduct and course of the hearing consistent with 
due process to ensure an orderly hearing;
    (5) Order, where relevant and necessary, an independent medical 
assessment or professional evaluation from a source mutually 
satisfactory to the appellant and the State agency; and
    (6) Render a hearing decision which will resolve the dispute.
    (j) Conduct of the hearing. The State or lcoal agency shall ensure 
that the hearing is accessible to the appellant and is held within three 
weeks from the date the State or local agency received the request for a 
hearing. The State or local agency shall provide the appellant with a 
minimum of 10 days advance written notice of the time and place of the 
hearing and shall enclose an explanation of the hearing procedure with 
the notice. The State or local agency shall also provide the appellant 
or representative an opportunity to--
    (1) Examine, prior to and during the hearing, the documents and 
records presented to support the decision under appeal;
    (2) Be assisted or represented by an attorney or other persons;
    (3) Bring witnesses;
    (4) Advance arguments without undue interference;
    (5) Question or refute any testimony or evidence, including an 
opportunity to confront and cross-examine adverse witnesses; and
    (6) Submit evidence to establish all pertinent facts and 
circumstances in the case.
    (k) Fair hearing decisions. (1) Decisions of the hearing official 
shall be based upon the application of appropriate Federal law, 
regulations and policy as related to the facts of the case as 
established in the hearing record. The verbatim transcript or recording 
of testimony and exhibits, or an official report containing the 
substance of what transpired at the hearing, together with all papers 
and requests filed in the proceeding, constitute the exclusive record 
for a final decision by hearing official. The State or local agency 
shall retain the hearing record in accordance with Sec.  246.25 and make 
these records available, for copying and inspection, to the appellant or 
representative at any reasonable time.
    (2) The decision by the hearing official shall summarize the facts 
of the

[[Page 337]]

case, specify the reasons for the decision, and identify the supporting 
evidence and the pertinent regulations or policy. The decision shall 
become a part of the record.
    (3) Within 45 days of the receipt of the request for the hearing, 
the State or local agency shall notify the appellant or representative 
in writing of the decision and the reasons for the decision in 
accordance with paragraph (k)(2) of this section. If the decision is in 
favor of the appellant and benefits were denied or discontinued, 
benefits shall begin immediately. If the decision concerns 
disqualification and is in favor of the agency, as soon as 
administratively feasible, the local agency shall terminate any 
continued benefits, as decided by the hearing official. If the decision 
regarding repayment of benefits by the appellant is in favor of the 
agency, the State or local agency shall resume its efforts to collect 
the claim, even during pendency of an appeal of a local-level fair 
hearing decision to the State agency. The appellant may appeal a local 
hearing decision to the State agency, provided that the request for 
appeal is made within 15 days of the mailing date of the hearing 
decision notice. If the decision being appealed concerns 
disqualification from the Program, the appellant shall not continue to 
receive benefits while an appeal to the State agency of a decision 
rendered on appeal at the local level is pending. The decision of a 
hearing official at the local level is binding on the local agency and 
the State agency unless it is appealed to the State level and overturned 
by the State hearing official.
    (4) The State and local agency shall make all hearing records and 
decisions available for public inspection and copying; however, the 
names and addresses of participants and other members of the public 
shall be kept confidential.
    (l) Judicial review. If a State level decision upholds the agency 
action and the appellant expresses an interest in pursuing a higher 
review of the decision, the State agency shall explain any further State 
level review of the decision and any State level rehearing process. If 
these are either unavailable or have been exhausted, the State agency 
shall explain the right to pursue judicial review of the decision.

[50 FR 6121, Feb. 13, 1985, as amended at 52 FR 21236, June 4, 1987; 59 
FR 11503, Mar. 11, 1994]



                     Subpart D_Participant Benefits



Sec.  246.10  Supplemental foods.

    (a) General. This section prescribes the requirements for providing 
supplemental foods to participants.
    (b) State agency responsibilities. State agencies shall--
    (1) Identify foods which are acceptable for use under the Program in 
accordance with the requirements of this section and provide to local 
agencies a list of acceptable foods and their maximum monthly quantities 
as specified in paragraph (c) of this section; and
    (2) Ensure that local agencies--
    (i) Make available at least one food from each group in each food 
package listed in paragraph (c) of this section. However, this does not 
mean that the local agency must provide each participant with a food 
from each food group;
    (ii) Make available to participants the supplemental foods, as 
authorized in paragraph (c) of this section; and
    (iii) Designate a competent professional authority to prescribe 
types of supplemental foods in quantities appropriate for each 
participant, taking into consideration the participant's age and dietary 
needs. The amounts of supplemental foods shall not exceed the maximum 
quantities specified in this section.
    (c) Food packages. There are seven food packages available under the 
Program which may be provided to participants. The authorized 
supplemental foods shall be prescribed from food packages according to 
the category and nutritional need of the participant. The food packages 
are as follows:
    Note: The metric units given are mathematical conversions. If 
packaging practices change, the authorized food quantities will be 
revised accordingly.
    (1) Food Package I--Infants 0 Through 3 Months. (i) Iron-fortified 
infant formula--requirements and routine issuance. Except as specified 
in paragraphs (c)(1)(iii) through (c)(1)(v) of this section, local 
agencies must issue a contract brand infant formula that meets

[[Page 338]]

the requirements of paragraph (c)(1)(i) of this section. The 
supplemental food for this food package is an iron-fortified infant 
formula that is not an exempt infant formula. The iron-fortified infant 
formula must be nutritionally complete, not requiring the addition of 
any ingredients other than water prior to being served in a liquid 
state. It also must contain at least 10 milligrams of iron per liter at 
standard dilution and supply 67 kilocalories per 100 milliliters (i.e., 
approximately 20 kilocalories per fluid ounce of infant formula) at 
standard dilution. Medical documentation is not required for any 
contract brand infant formula authorized for issuance by the State 
agency, including the soy-based contract brand of infant formula. 
However, the State agency may require medical documentation for any 
contract brand infant formula even though it meets these requirements 
and may decide that some contract brand infant formulas may not be 
issued under any circumstances.
    (ii) Physical forms. Local agencies must issue all WIC formulas (WIC 
formula means all infant formulas, including exempt infant formulas, and 
WIC-eligible medical foods) in concentrated liquid or powdered physical 
forms. Ready-to-feed WIC formulas may be authorized when the competent 
professional authority determines and documents that the participant's 
household has an unsanitary or restricted water supply or poor 
refrigeration, the participant or person caring for the participant may 
have difficulty in correctly diluting concentrated forms or 
reconstituting powdered forms, or the WIC formula is only available in 
ready-to-feed form.
    (iii) WIC formulas requiring medical documentation. Local agencies 
may issue the following WIC formulas, but only with medical 
documentation:
    (A) Any contract brand infant formula that does not meet the 
requirements of paragraph (c)(1)(i) of this section (e.g., low-iron, 
low-calorie, or high-calorie infant formulas);
    (B) Any non-contract brand infant formula (even if it meets the 
requirements for an iron-fortified infant formula in paragraph (c)(1)(i) 
of this section);
    (C) Any exempt infant formula; and
    (D) Any WIC-eligible medical food.
    (iv) Religious eating patterns exception. Local agencies may issue a 
non-contract brand infant formula that meets the requirements of 
paragraph (c)(1)(i) of this section without medical documentation in 
order to meet religious eating patterns. However, if the non-contract 
brand infant formula does not meet the requirements of paragraph 
(c)(1)(i) of this section, medical documentation must be provided. 
Documentation of the basis of the substitution must be kept on file at 
the local clinic.
    (v) Medical documentation. (A) Determination. For purposes of this 
food package, medical documentation means a determination by a licensed 
health care professional authorized to write medical prescriptions under 
State law. A licensed health care professional must make a medical 
determination that an infant has a medical condition that dictates the 
use of the following: a contract brand infant formula that does not meet 
the requirements of paragraph (c)(1)(i) of this section; a non-contract 
brand infant formula; an exempt infant formula; or a WIC-eligible 
medical food. These conditions include, but are not limited to: those 
that contraindicate the use of iron-fortified infant formula, metabolic 
disorders, inborn errors of amino acid metabolism, gastrointestinal 
disorders, malabsorption syndromes, and food allergies. Low-calorie WIC 
formulas may not be issued solely for the purpose of managing body 
weight.
    (B) Technical requirements. Medical documentation must include the 
brand name of the WIC formula prescribed; medical diagnosis warranting 
the issuance of WIC formula; length of time the prescribed WIC formula 
is medically required by the participant; and signature or name (if the 
initial medical documentation was received by telephone) of the 
requesting health care professional. Medical documentation may be 
provided as an original written document, electronically, or by 
facsimile. Medical documentation also may be provided by telephone to a 
competent professional authority who must promptly document the 
information which must be kept on file at the

[[Page 339]]

local clinic. However, this method may only be used until written 
confirmation is received and only when absolutely necessary on an 
individual participant basis to prevent undue hardship to a participant 
or to prevent a delay in the provision of infant formula that would 
place the participant at increased nutritional risk. The local clinic 
must obtain written confirmation of the medical documentation within a 
reasonable amount of time (i.e., one or two weeks' time) after accepting 
the initial medical documentation by telephone. The written 
documentation must be kept on file with the initial telephone 
documentation.
    (vi) Quantities and types of supplemental foods. The quantities and 
types of supplemental foods prescribed shall be appropriate for the 
participant taking into consideration the participant's age and dietary 
needs. The maximum quantity of supplemental foods authorized per month 
is as follows:

------------------------------------------------------------------------
                 Food                               Quantity
------------------------------------------------------------------------
Formula:
  Concentrated liquid formula.........  403 fluid oz. (11.9 L).
        or
  Powdered formula....................  May be substituted at the rate
                                         of 8 lbs. (3.6 kg) per 403
                                         fluid oz. (11.9 L) of
                                         concentrated liquid formula.
        or
  Ready-to-feed formula...............  May be substituted at the rate
                                         of 26 fluid oz. (.8 L) per 13
                                         fluid oz. (.4 L) of
                                         concentrated liquid formula.
------------------------------------------------------------------------

    (2) Food Package II--Infants 4 through 12 Months. (i) Infant formula 
as specified in paragraphs (c)(1)(i) through (c)(1)(v) of this section.
    (ii) Infant cereal which contains a minimum of 45 milligrams of iron 
per 100 grams of dry cereal.
    (iii) Single strength fruit juice which contains a minimum of 30 
milligrams of vitamin C per 100 milliliters; or frozen concentrated 
fruit juice which contains a minimum of 30 milligrams of vitamin C per 
100 milliliters of reconstituted juice; or infant juice which contains a 
minimum of 30 milligrams of vitamin C per 100 milliliters. Issuance 
prior to the time when the infant can drink from a cup is discouraged. 
The competent professional authority shall instruct the participant's 
parent or guardian to feed the juice to the participant from a cup to 
prevent ``bottle caries.''
    (iv) The quantities and types of supplemental foods prescribed shall 
be appropriate for the participant taking into consideration the 
participant's age and dietary needs. The maximum quantity of 
supplemental foods authorized per month is as follows:

------------------------------------------------------------------------
                 Food                               Quantity
------------------------------------------------------------------------
Formula:
  Concentrated liquid formula.........  403 fluid oz. (11.9 L).
        or
  Powdered formula....................  May be substituted at the rate
                                         of 8 lb. (3.6 kg) per 403 fluid
                                         oz. (11.9 L) of concentrated
                                         liquid formula.
        or
  Ready-to-feed formula...............  May be substituted at the rate
                                         of 26 fluid oz. (.8 L) per 13
                                         fluid oz. (.4 L) of
                                         concentrated liquid formula.
Infant cereal.........................  24 oz. dry (.7 kg).
Juice: \1\
  Single strength adult juice.........  92 fluid oz. (2.7 L).
        or
  Frozen concentrated juice...........  96 fluid oz. reconstituted (2.8
                                         L).
        or
  Infant juice........................  May be substituted at the rate
                                         of 63 fluid oz. (1.9 L) of
                                         infant juice per 92 fluid oz.
                                         (2.7 L) of single strength
                                         adult juice.
------------------------------------------------------------------------
\1\ Combinations of single strength or frozen concentrated juice may be
  issued as long as the total volume of juice does not exceed the amount
  specified for single strength juice.

    (3) Food Package III--Children/Women with Special Dietary Needs. 
Local agencies may issue this food package to women and children only 
with medical documentation. The supplemental foods in Food Package III 
are set forth in paragraphs (c)(3)(i) through (c)(3)(iv) of this 
section. For purposes of this food package, medical documentation means 
a determination by a licensed health care professional authorized to 
write medical prescriptions under State law that the child or woman has 
a medical condition that dictates the use of a WIC formula (WIC formula 
means all infant formulas, including exempt infant formulas, and WIC-
eligible medical foods) because the use of conventional foods is 
precluded or restricted. These medical conditions include, but are not 
limited to, metabolic disorders, inborn errors of amino acid metabolism, 
gastrointestinal disorders, malabsorption syndromes and food allergies. 
This food package may not be issued solely for the purpose of enhancing 
nutrient intake or managing body

[[Page 340]]

weight. Medical documentation for WIC formulas must meet the technical 
requirements described in paragraph (c)(1)(v)(B) of this section.
    (i) WIC formulas (i.e., an infant formula, exempt infant formula, or 
WIC-eligible medical food).
    (ii) Cereal (hot or cold) which contains a minimum of 28 milligrams 
of iron per 100 grams of dry cereal and not more than 21.2 grams of 
sucrose and other sugars per 100 grams of dry cereal (6 grams per 
ounce).
    (iii) Single strength fruit juice or vegetable juice, or both, which 
contains a minimum of 30 milligrams of vitamin C per 100 milliliters; or 
frozen concentrated fruit or vegetable juice, or both, which contains a 
minimum of 30 milligrams of vitiamin C per 100 milliliters of 
reconstituted juice.
    (iv) The quantities and types of supplemental foods prescribed shall 
be appropriate for the participant taking into consideration the 
participant's age and special dietary needs. The maximum quantity of 
supplemental foods authorized per month is as follows:

------------------------------------------------------------------------
                 Food                               Quantity
------------------------------------------------------------------------
Formula:
  Concentrated liquid formula.........  403 fluid oz. (11.9 L).
  Addition \1\........................  52 fluid oz. (1.5 L).
        or
  Powdered formula....................  May be substituted at a rate of
                                         8 lb. (3.6 kg) per 403 fluid
                                         oz. (11.9 L) of concentrated
                                         liquid formula.
  Addition \1\........................  1 lb. (.4 kg).
        or
  Ready-to-feed formula...............  May be substituted at the rate
                                         of 26 fluid oz. (.8 L) per 13
                                         fluid oz. (.4 L) of
                                         concentrated liquid formula.
  Addition \1\........................  104 fluid oz. (3.1 L).
Cereal (hot or cold)..................  36 oz. dry (1 kg).
Juice: \2\
  Single strength juice...............  138 fluid oz. (4.1 L).
        or
  Frozen concentrated juice...........  144 fluid oz. reconstituted (4.3
                                         L).
------------------------------------------------------------------------
\1\ Additional formula may be issued on an individual basis provided the
  need is demonstrated and documented in the individual's certification
  file by the competent professional authority.
\2\ Combinations of single strength and frozen concentrated juice may be
  issued as long as the total volume does not exceed the amount
  specified for single strength juice.

    (4) Food Package IV--Children 1 to 5 Years. (i) Pasteurized fluid 
whole milk which is flavored or unflavored and which contains 400 
International Units of vitamin D per quart (.9 liter); or pasteurized 
fluid skim or lowfat milk which is flavored or unflavored and which 
contains 400 International Units of vitamin D and 2000 International 
Units of vitamin A per fluid quart (.9 liter); or pasteurized cultured 
buttermilk which contains 400 International units of vitamin D and 2000 
International Units of vitamin A per fluid quart (.9 liter); or 
evaporated whole milk which contains 400 International Units of vitamin 
D per reconstituted quart (.9 liter); or evaporated skimmed milk which 
contains 400 International Units of vitamin D and 2000 International 
Units of vitamin A per reconstituted quart (.9 liter); or dry whole milk 
which contains 400 International Units of vitamin D per reconstituted 
quart (.9 liter); or nonfat or lowfat dry milk which contains 400 
International Units of vitamin D and 2000 International Units of vitamin 
A per reconstituted quart (.9 liter); or domestic cheese (pasteurized 
process American, Monterey Jack, Colby, natural Cheddar, Swiss, Brick, 
Muenster, Provolone, Mozzarella Part-Skim or Whole).
    (ii) Adult cereal (hot or cold) which contains a minimum of 28 
milligrams of iron per 100 grams of dry cereal and not more than 21.2 
grams of sucrose and other sugars per 100 grams of dry cereal (6 grams 
per ounce).
    (iii) Single strength fruit juice or vegetable juice, or both, which 
contains a minimum of 30 milligrams of vitamin C per 100 milliliters; or 
frozen concentrated fruit or vegetable juice, or both, which contains a 
minimum of 30 milligrams of vitamin C per 100 milliliters of 
reconstituted juice.
    (iv) Eggs or dried egg mix.
    (v) Peanut butter or mature dry beans or peas, including but not 
limited to, lentils, black, navy, kidney, garbanzo, soy, pinto, and mung 
beans, crowder, cow, split and black-eyed peas.
    (vi) The quantities and types of supplemental foods prescribed shall 
be appropriate for the participant taking into consideration the 
participant's age and dietary needs. The maximum quantity of 
supplemental foods authorized per month is as follows:

------------------------------------------------------------------------
                 Food                               Quantity
------------------------------------------------------------------------
Milk:
  Fluid whole milk....................  24 qt. (22.7 L).

[[Page 341]]

 
        or
  Fluid skim or low fat milk..........  May be substituted for fluid
                                         whole milk on a quart-for-quart
                                         (.9 L) basis.
        or
  Cultured buttermilk.................  May be substituted for fluid
                                         whole milk on a quart-for-quart
                                         (.9 L) basis.
        or
  Evaporated whole milk...............  May be substituted for fluid
                                         whole milk at the rate of 13
                                         fluid oz. (.4 L) per qt. (.9 L)
                                         of fluid whole milk.
        or
  Evaporated skimmed milk.............  May be substituted for fluid
                                         whole milk at the rate of 13
                                         fluid oz. (.4 L) per qt. (.9 L)
                                         of fluid whole milk.
        or
  Dry whole milk......................  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 3 qt. (2.8 L) of
                                         fluid whole milk.
        or
  Nonfat or lowfat dry milk...........  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 5 qt. (4.7 L) of
                                         fluid whole milk.
        or
  Cheese..............................  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 3 qt. (2.8 L) of
                                         fluid whole milk. 4 lbs. (1.8
                                         kg) is the maximum amount which
                                         may be substituted. 1
Eggs:
  Eggs................................  2 doz. or 2\1/2\ doz.
        or
  Dried egg mix.......................  May be substituted at the rate
                                         of 1.5 lb. (.7 kg) egg mix per
                                         2 doz. fresh eggs or 2 lb. (.9
                                         kg) egg mix per 2\1/2\ doz.
                                         fresh eggs.
Cereals (hot or cold).................  36 oz. dry (1 kg).
Juice:2
  Single strength juice...............  276 fluid oz. (8.2 L).
        or
  Frozen concentrated juice...........  288 fluid oz. reconstituted (8.5
                                         L).
Legumes:
  Dry beans or peas...................  1 lb. (.4 kg).
        or
  Peanut butter.......................  18 oz. (.5 kg).
------------------------------------------------------------------------
\1\ Additional cheese may be issued on an individual basis in cases of
  lactose intolerance, provided the need is documented in the
  participant's file by the competent professional authority.
\2\ Combinations of single strength and frozen concentrated juice may be
  issued as long as the total volume does not exceed the amount
  specified for single strength juice.

    (5) Food Package V--Pregnant and Breastfeeding Women (Basic). (i) 
Pasteurized fluid whole milk which is flavored or unflavored and which 
contains 400 International Units of Vitamin D per quart (.9 liter) or 
pasteurized fluid skim or lowfat milk which is flavored or unflavored 
and which contains 400 International Units of vitamin D and 2000 
International Units of vitamin A per fluid quart (.9 liter); or 
pasteurized cultured buttermilk which contains 400 International Units 
of vitamin D and 2000 International Units of vitamin A per fluid quart 
(.9 liter); or evaporated whole milk which contains 400 International 
Units of vitamin D per reconstituted quart (.9 liter); or evaporated 
skimmed milk which contains 400 International Units of vitamin D and 
2000 International Units of vitamin A per reconstituted quart (.9 
liter); or dry whole milk which contains 400 International Units of 
vitamin D per reconstituted quart (.9 liter); or nonfat or lowfat dry 
milk which contains 400 International Units of vitamin D and 2000 
International Units of vitamin A per reconstituted quart (.9 liter); or 
domestic cheese (pasteurized process American, Monterey Jack, Colby, 
natural Cheddar, Swiss, Brick, Muenster, Provolone, Mozzarella Part-Skim 
or Whole).
    (ii) Adult cereal (hot or cold) which contains a minimum of 28 
milligrams of iron per 100 grams of dry cereal and not more than 21.2 
grams of sucrose and other sugars per 100 grams of dry cereal (6 grams 
per ounce).
    (iii) Single strength fruit juice or vegetable juice, or both, which 
contains a minimum of 30 milligrams of vitamin C per 100 milliliters; or 
frozen concentrated fruit or vegetable juice, or both, which contains a 
minimum of 30 milligrams of vitamin C per 100 milliliters of 
reconstituted juice.
    (iv) Eggs or dried egg mix.
    (v) Peanut butter or mature dry beans or peas, including but not 
limited to lentils, black, navy, kidney, garbanzo, soy, pinto and mung 
beans, crowder, cow, split and black-eyed peas.
    (vi) The quantities and types of supplemental foods prescribed shall 
be appropriate for the participant taking into consideration the 
participant's age and dietary needs. The maximum quantity of 
supplemental foods authorized per month is as follows:

------------------------------------------------------------------------
                 Food                               Quantity
------------------------------------------------------------------------
Milk:
  Fluid whole milk....................  28 qt. (26.5 L).
        or
  Fluid skim or lowfat milk...........  May be substituted for fluid
                                         whole milk on a quart-for-quart
                                         (.9 L) basis.
        or
  Cultured buttermilk.................  May be substituted for fluid
                                         whole milk on a quart-for-quart
                                         (.9 L) basis.

[[Page 342]]

 
        or
  Evaporated whole milk...............  May be substituted for fluid
                                         whole milk at the rate of 13
                                         fluid oz. (.4 L) per qt. (.9 L)
                                         of fluid whole milk.
        or
  Evaporated skimmed milk.............  May be substituted for fluid
                                         whole milk at the rate of 13
                                         fluid oz. (.4 L) per qt. (.9 L)
                                         of fluid whole milk.
        or
  Dry whole milk......................  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 3 qt. (2.8 L) of
                                         fluid whole milk.
        or
  Nonfat or lowfat dry milk...........  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 5 qt. (4.7 L) of
                                         fluid whole milk.
        or
  Cheese..............................  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 3 qt. (2.8 L) of
                                         fluid whole milk. 4 lbs. (1.8
                                         kg) is the maximum amount which
                                         may be substituted.1
Eggs:
  Eggs................................  2 doz. or 2\1/2\ doz.
        or
  Dried egg mix.......................  May be substituted at the rate
                                         of 1.5 lb. (.7 kg) egg mix per
                                         2 doz. fresh eggs, or 2 lb. (.9
                                         kg) egg mix per 2\1/2\ doz.
                                         fresh eggs.
Cereals (hot or cold).................  36 oz. dry (1 kg).
Juice:2
  Single strength juice...............  276 fluid oz. (8.2 L).
        or
  Frozen, concentrated juice..........  288 fluid oz. reconstituted (8.5
                                         L).
Legumes:
  Dry beans or peas...................  1 lb. (.4 kg).
        or
  Peanut butter.......................  18 oz. (.5 kg).
------------------------------------------------------------------------
1 Additional cheese may be issued on an individual basis in cases of
  lactose intolerance, provided the need is documented in the
  participant's file by the competent professional authority.
2 Combinations of single strength or frozen concentrated juice may be
  issued as long as the total volume does not exceed the amount
  specified for single strength juice.

    (6) Food Package VI--Non-breastfeeding Postpartum Women. (i) 
Pasteurized fluid whole milk which is flavored or unflavored and which 
contains 400 International Units of vitamin D per quart (.9 liter); or 
pasteurized fluid skim or lowfat milk which is flavored or unflavored 
and which contains 400 International Units of vitamin D and 2000 
International Units of vitamin A per fluid quart (.9 liter); or 
pasteurized cultured buttermilk which contains 400 International Units 
of vitamin D and 2000 International Units of vitamin A per fluid quart 
(.9 liter); or evaporated whole milk which contains 400 International 
Units of vitamin D per reconstituted quart (.9 liter); or evaporated 
skimmed milk which contains 400 International Units of vitamin D and 
2000 International Units of vitamin A per reconstituted quart (.9 
liter); or dry whole milk which contains 400 International Units of 
vitamin D per reconstituted quart (.9 liter); or nonfat or lowfat dry 
milk which contains 400 International Units of Vitamin D and 2000 
International Units of vitamin A per reconstituted quart (.9 liter); or 
domestic cheese (pasteurized process American, Monterey Jack, Colby, 
natural Cheddar, Swiss, Brick, Muenster, Provolone, Mozzarella Part-Skim 
or Whole).
    (ii) Cereal (hot or cold) which contains a minimum of 28 milligrams 
of iron per 100 grams of dry cereal and not more than 21.1 grams of 
sucrose and other sugars per 100 grams of dry cereal (6 grams per 1 
ounce).
    (iii) Single strength fruit juice or vegetable juice, or both, which 
contains a minimum of 30 milligrams of vitamin C per 100 milliliters; or 
concentrated fruit or vegetable juice, or both, which contains a minimum 
of 30 milligrams of vitamin C per 100 milliliters of reconstituted 
juice.
    (iv) Eggs or dried egg mix.
    (v) The quantities and types of supplemental foods prescribed shall 
be appropriate for the participant taking into consideration the 
participant's age and dietary needs. The maximum quantity of 
supplemental foods authorized per month is as follows:

------------------------------------------------------------------------
                 Food                               Quantity
------------------------------------------------------------------------
Milk:
  Fluid whole milk....................  24 qt. (22.7 L).
        or
  Fluid skim or lowfat milk...........  May be substituted for fluid
                                         whole milk on a quart-for-quart
                                         (.9 L ) basis.
        or
  Cultured buttermilk.................  May be substituted for fluid
                                         whole milk on a quart-for-quart
                                         (.9 L) basis.
        or
  Evaporated whole milk...............  May be substituted for fluid
                                         whole milk at the rate of 13
                                         fluid oz. (.4 L) per qt. (.9 L)
                                         of fluid whole milk.
        or
  Evaporated skimmed milk.............  May be substituted for fluid
                                         whole milk at the rate of 13
                                         fluid oz. (.4 L) per qt. (.9 L)
                                         of fluid whole milk.
        or
  Dry whole milk......................  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 3 qt. (2.8 L) of
                                         fluid whole milk.
        or
  Nonfat or lowfat dry milk...........  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 5 qt. (4.7 L) of
                                         fluid whole milk.

[[Page 343]]

 
        or
  Cheese..............................  May be substituted for fluid
                                         whole milk at the rate of 1 lb.
                                         (.4 kg) per 3 qt. (2.8 L) of
                                         fluid whole milk. 4 lbs. (1.8
                                         kg) is the maximum amount which
                                         may be substituted.1
Eggs:
  Eggs................................  2 doz. or 2\1/2\ doz.
        or
  Dried egg mix.......................  May be substituted at the rate
                                         of 1.5 lb. (.7 kg) egg mix per
                                         2 doz. fresh eggs of 2 lb. (.9
                                         kg) egg mix per 2\1/2\ doz.
                                         fresh eggs.
Cereal (hot or cold)..................  36 oz. dry (1 kg).
Juice.2
  Single strength juice...............  184 fluid oz. (5.4 L).
        or
  Frozen concentrated juice...........  192 fluid oz. reconstituted (5.7
                                         L).
------------------------------------------------------------------------
\1\ Additional cheese may be issued on an individual basis in cases of
  lactose intolerance, provided the need is documented in the
  participant's file by the competent professional authority.
\2\ Combinations of single strength or frozen concentrated juice may be
  issued as long as the total volume does not exceed the amount
  specified for single strength juice.

    (7) Food Package VII--Breastfeeding Women (Enhanced). (i) 
Pasteurized fluid whole milk which is flavored or unflavored and which 
contains 400 International Units of Vitamin D per quart (.9 liter) or 
pasteurized fluid skim or lowfat milk which is flavored or unflavored 
and which contains 400 International Units of vitamin D and 2000 
International Units of vitamin A per fluid quart (.9 liter); or 
pasteurized cultured buttermilk which contains 400 International Units 
of vitamin D and 2000 International Units of vitamin A per fluid quart 
(.9 liter); or evaporated whole milk which contains 400 International 
Units of vitamin D per reconstituted quart (.9 liter); or evaporated 
skim milk which contains 400 International Units of vitamin D and 2000 
International Units of vitamin A per reconstituted quart (.9 liter); or 
dry whole milk which contains 400 International Units of vitamin D per 
reconstituted quart (.9 liter); or nonfat or lowfat dry milk which 
contains 400 International Units of vitamin D and 2000 International 
Units of vitamin A per reconstituted quart (.9 liter); or domestic 
cheese (pasteurized process American, Monterey Jack, Colby, natural 
Cheddar, Swiss, Brick, Muenster, Provolone, Mozzarella Part-Skim or 
Whole).
    (ii) Domestic cheese (pasteurized process American, Monterey Jack, 
Colby, natural Cheddar, Swiss, Brick, Muenster, Provolone, Mozzarella 
Part-Skim or Whole).
    (iii) Adult cereal (hot or cold) which contains a minimum of 28 
milligrams of iron per 100 grams of dry cereal and not more than 21.2 
grams of sucrose and other sugars per 100 grams of dry cereal (6 grams 
per ounce).
    (iv) Single strength fruit juice or vegetable juice, or both, which 
contains a minimum of 30 milligrams of vitamin C per 100 milliliters; or 
frozen concentrated fruit or vegetable juice, or both, which contains a 
minimum of 30 milligrams of vitamin C per 100 milliliters of 
reconstituted juice.
    (v) Eggs or dried egg mix.
    (vi) Peanut butter.
    (vii) Mature dry beans or peas, including but not limited to 
lentils, black, navy, kidney, garbanzo, soy, pinto and mung beans, 
crowder, cow, split and black-eyed peas.
    (viii) Tuna: Canned white, light, dark or blended tuna packed in 
water or oil, including solid and solid pack; chunk, chunks and chunk 
style; flake and flakes; and grated.
    (ix) Carrots: Raw, canned or frozen. Mature raw; canned and frozen 
carrots containing only the mature root of the carrot plant packed in 
water.
    (x) The quantities and types of supplemental foods prescribed shall 
be appropriate for the participant taking into consideration the 
participant's age and dietary needs. The maximum quantity of 
supplemental foods authorized per month is as follows:

------------------------------------------------------------------------
             Food                               Quantity
------------------------------------------------------------------------
Milk:
    Fluid whole milk or......  28 qt. (26.5 L).
    Cheese or................  May be substituted for fluid whole milk
                                at the rate of 1 lb. (.4 kg) per 3 qt.
                                (2.8 L) of fluid whole milk. 4 lbs. (1.8
                                kg) is the maximum amount which may be
                                substituted.
                               Additional cheese may be issued on an
                                individual basis in cases of lactose
                                intolerance, provided the need is
                                documented in the participant's file by
                                the competent professional authority.
    Fluid skim or lowfat milk  May be substituted for fluid whole milk
     or.                        on a quart-for-quart (.9 L) basis.

[[Page 344]]

 
    Cultured buttermilk or...  May be substituted for fluid whole milk
                                on a quart-for-quart (.9 L) basis.
    Evaporated whole milk or.  May be substituted for fluid whole milk
                                at the rate of 13 fluid oz. (.4 L) per
                                qt. (.9 L) of fluid whole milk.
    Evaporated skimmed milk    May be substituted for fluid whole milk
     or.                        at the rate of 13 fluid oz. (.4 L) per
                                qt. (.9 L) of fluid whole milk.
    Dry whole milk or........  May be substituted for fluid whole milk
                                at the rate of 1 lb. (.4 kg) per 3 qt.
                                (2.8 L) of fluid whole milk.
    Nonfat or lowfat dry milk  May be substituted for fluid whole milk
                                at the rate of 1 lb. (.4 kg) per 5 qt.
                                (4.7 L) of fluid whole milk.
Cheese:
    Cheese...................  1 lb. (.4 kg).
Eggs:
    Eggs or..................  2 doz. or 2\1/2\ doz.
    Dried egg mix............  May be substituted at the rate of 1.5 lb.
                                (.7 kg) egg mix per 2 doz. fresh eggs,
                                or 2 lb. (.9 kg) egg mix per 2\1/2\ doz.
                                fresh eggs.
Cereals:
    Cereals (hot or cold)....  36 oz. dry (1 kg).
Juice:
    Single strength juice or.  322 fluid oz. (9.6 L).
    Frozen concentrated juice  336 fluid oz. reconstituted (10.0 L).
                               Combinations of single strength or frozen
                                concentrated juice may be issued as long
                                as the total volume does not exceed the
                                amount specified for single strength
                                juice.
Legumes:
    Dry beans or peas and....  1 lb. (.4 kg). May be substituted for
                                peanut butter at the rate of 1 lb. of
                                dry beans or peas per 18 oz. of peanut
                                butter.
    Peanut butter............  18 oz. (.5 kg). Peanut butter may not be
                                substituted for mature dry beans or peas
                                at any rate.
Fish:
    Tuna.....................  26 oz. (.8 kg).
Vegetable:
    Raw carrots or...........  2 lb. (.9 kg).
    Frozen carrots or........  May be substituted for fresh at the rate
                                of 1 lb. frozen per 1 lb. fresh.
    Canned carrots...........  May be substituted for fresh at the rate
                                of 1 16-20 ounce can of carrots per 1
                                lb. fresh.
------------------------------------------------------------------------

    (d) Use of commodity foods. (1) At the request of a State agency, 
the Department will purchase commodity foods for the State agency using 
funds allocated to the State agency. The commodity foods purchased and 
made available to the State agency shall be equivalent to the foods 
specified in paragraph (c) of this section.
    (2) The State agency shall--
    (i) Distribute the commodity foods to the local agency or 
participant;
    (ii) Ensure satisfactory storage conditions for the commodity foods, 
including documentation of proper insurance; and
    (iii) Ensure that there are proper storage facilities for commodity 
foods.
    (e) Plans for substitutions or eliminations. (1) The State agency 
may submit to FNS a plan for substitution of food(s) acceptable for use 
in the Program to allow for different cultural eating patterns and 
substitution or elimination of a category of foods to accommodate the 
special needs of homeless persons, and/or residents of institutions if 
the State agency chooses to serve such persons under Sec.  246.7(m)(2) 
of this part. The plan shall provide the State agency's justification, 
including a specific explanation of the cultural eating pattern or the 
homeless situation which requires the proposed alteration and other 
information necessary for FNS to evaluate the plan as specified in 
paragraph (e)(2) of this section for cultural substitutions and in 
paragraph (e)(3) of this section for homeless substitutions or 
eliminations.
    (2) FNS will evaluate a State agency's plan for substitution of 
foods for different cultural eating patterns based on the following 
criteria:
    (i) Any proposed substitute food must be nutritionally equivalent or 
superior to the food it is intended to replace.
    (ii) The proposed substitute must be widely available to 
participants in the areas where the substitute is intended to be used.
    (iii) The cost of the substitute must be equivalent to or less than 
the cost of the food it is intended to replace.

[[Page 345]]

    (3) FNS will evaluate a State agency's plan for substitution or 
elimination of a food category to accommodate the special needs of a 
specific group of homeless persons based on the justification presented 
by the State agency documenting the need. Documentation shall illustrate 
that all alternatives from within existing food packages have been 
explored and shall include a specific description of the circumstances 
of the homeless persons to be served that necessitate the proposed food 
package alteration.
    (4) FNS will make a determination on the proposed plan based on the 
evaluation criteria specified in paragraph (e)(2) or (e)(3) of this 
section, as appropriate. The State agency shall substitute or eliminate 
foods only after receiving the written approval of FNS.
    (f) Infant formula manufacturer registration. Infant formula 
manufacturers supplying formula to the WIC Program shall register with 
the Secretary of Health and Human Services under the Federal Food, Drug, 
and Cosmetic Act (21 U.S.C. 321 et seq.). Such manufacturers wishing to 
bid for a State contract to supply infant formula to the program shall 
first certify with the State health department that their formulas 
comply with the Federal Food, Drug, and Cosmetic Act and regulations 
issued pursuant to the Act.

[50 FR 6121, Feb. 13, 1985; 50 FR 8098, Feb. 28, 1985, as amended at 51 
FR 13208, Apr. 18, 1986; 51 FR 16155, May 1, 1986; 53 FR 25314, July 6, 
1988; 54 FR 51295, Dec. 14, 1989; 57 FR 34506, Aug. 5, 1992; 57 FR 
56240, Nov. 27, 1992; 65 FR 51223, Aug. 23, 2000]



Sec.  246.11  Nutrition education.

    (a) General. (1) Nutrition education shall be considered a benefit 
of the Program, and shall be made available at no cost to the 
participant. Nutrition education shall be designed to be easily 
understood by participants, and it shall bear a practical relationship 
to participant nutritional needs, household situations, and cultural 
preferences including information on how to select food for themselves 
and their families. Nutrition education shall be thoroughly integrated 
into participant health care plans, the delivery of supplemental foods, 
and other Program operations.
    (2) The State agency shall ensure that nutrition education is made 
available to all participants. Nutrition education may be provided 
through the local agencies directly, or through arrangements made with 
other agencies. At the time of certification, the local agency shall 
stress the positive, long-term benefits of nutrition education and 
encourage the participant to attend and participate in nutrition 
education activities. However, individual participants shall not be 
denied supplemental foods for failure to attend or participate in 
nutrition education activities.
    (3) As an integral part of nutrition education, the State agency 
shall ensure that local agencies provide drug and other harmful 
substance abuse information to all pregnant, postpartum, and 
breastfeeding women and to parents or caretakers of infants and children 
participating in the program. Drug and other harmful substance abuse 
information may also be provided to pregnant, postpartum, and 
breastfeeding women and to parents or caretakers of infants and children 
participating in local agency services other than the Program.
    (b) Goals. Nutrition education shall be designed to achieve the 
following two broad goals:
    (1) Stress the relationship between proper nutrition and good health 
with special emphasis on the nutritional needs of pregnant, postpartum, 
and breastfeeding women, infants and children under five years of age, 
and raise awareness about the dangers of using drugs and other harmful 
substances during pregnancy and while breastfeeding.
    (2) Assist the individual who is at nutritional risk in achieving a 
positive change in food habits, resulting in improved nutritional status 
and in the prevention of nutrition-related problems through optimal use 
of the supplemental foods and other nutritious foods. This is to be 
taught in the context of the ethnic, cultural and geographic preferences 
of the participants and with consideration for educational and 
environmental limitations experienced by the participants.

[[Page 346]]

    (c) State agency responsibilities. The State agency shall perform 
the following activities in carrying out nutrition education 
responsibilities:
    (1) Develop and coordinate the nutrition education component of 
Program operations with consideration of local agency plans, needs and 
available nutrition education resources.
    (2) Provide in-service training and technical assistance for 
professional and para-professional personnel involved in providing 
nutrition education to participants at local agencies. The State agency 
shall also provide training on the promotion and management of 
breastfeeding to staff at local agencies who will provide information 
and assistance on this subject to participants.
    (3) Identify or develop resources and educational materials for use 
in local agencies, including breastfeeding promotion and instruction 
materials, taking reasonable steps to include materials in languages 
other than English in areas where a significant number or proportion of 
the population needs the information in a language other than English, 
considering the size and concentration of such population and, where 
possible, the reading level of participants.
    (4) Develop and implement procedures to ensure that nutrition 
education is offered to all adult participants and to parents and 
guardians of infant or child participants, as well as child 
participants, whenever possible.
    (5) Monitor local agency activities to ensure compliance with 
provisions set forth in paragraphs (c)(8), (d), and (e) of this section.
    (6) Establish standards for participant contacts that ensure 
adequate nutrition education in accordance with paragraph (e) of this 
section.
    (7) Establish standards for breastfeeding promotion and support 
which include, at a minimum, the following:
    (i) A policy that creates a positive clinic environment which 
endorses breastfeeding as the preferred method of infant feeding;
    (ii) A requirement that each local agency designate a staff person 
to coordinate breastfeeding promotion and support activities;
    (iii) A requirement that each local agency incorporate task-
appropriate breastfeeding promotion and support training into 
orientation programs for new staff involved in direct contact with WIC 
clients; and
    (iv) A plan to ensure that women have access to breastfeeding 
promotion and support activities during the prenatal and postpartum 
periods.
    (d) Local agency responsibilities. Local agencies shall perform the 
following activities in carrying out their nutrition education 
responsibilities:
    (1) Make nutrition education available or enter into an agreement 
with another agency to make nutrition education available to all adult 
participants, and to parents or caretakers of infant and child 
participants, and whenever possible, to child participants. Nutrition 
education may be provided through the use of individual or group 
sessions. Educational materials designed for Program participants may be 
utilized to provide education to pregnant, postpartum, and breastfeeding 
women and to parents or caretakers of infants and children participating 
in local agency services other than the program.
    (2) Develop an annual local agency nutrition education plan 
consistent with the State's nutrition education component of Program 
operations and in accordance with this part and FNS guidelines. The 
local agency shall submit its nutrition education plan to the State 
agency by a date specified by the State agency.
    (e) Participant contacts. (1) The nutrition education contacts shall 
be made available through individual or group sessions which are 
appropriate to the individual participant's nutritional needs. All 
pregnant participants shall be encouraged to breastfeed unless 
contraindicated for health reasons.
    (2) During each six-month certification period, at least two 
nutrition contacts shall be made available to all adult participants and 
the parents or caretakers of infant and child participants, and wherever 
possible, the child participants themselves.
    (3) Nutrition education contacts shall be made available at a 
quarterly rate, but not necessarily taking place within each quarter, to 
parents or caretakers

[[Page 347]]

of infant participants certified for a period in excess of six months.
    (4) The local agency shall document in each participant's 
certification file that nutrition education has been given to the 
participant in accordance with State agency standards, except that the 
second or any subsequent nutrition education contact during a 
certification period that is provided to a participant in a group 
setting may be documented in a masterfile. Should a participant miss a 
nutrition education appointment, the local agency shall, for purposes of 
monitoring and further education efforts, document this fact in the 
participant's file, or, at the local agency's discretion, in the case of 
a second or subsequent missed contact where the nutrition education was 
offered in a group setting, document this fact in a master file.
    (5) An individual care plan shall be provided for a participant 
based on the need for such plan as determined by the competent 
professional authority, except that any participant, parent, or 
caretaker shall receive such plan upon request.
    (6) Contacts shall be designed to meet different cultural and 
language needs of Program participants.

[50 FR 6121, Feb. 13, 1985; 50 FR 8098, Feb. 28, 1985, as amended at 58 
FR 11507, Feb. 26, 1993; 59 FR 11503, Mar. 11, 1994; 65 FR 53528, Sept. 
5, 2000]



                    Subpart E_State Agency Provisions



Sec.  246.12  Food delivery systems.

    (a) General. This section sets forth design and operational 
requirements for food delivery systems. In recognition of emergent 
electronic benefits transfer (EBT) technology, FNS may, on a case-by-
case basis, modify regulatory provisions to the extent FNS determines 
the particular EBT system provides adequate safeguards that serve the 
purpose of the provisions being modified.
    (1) Management. The State agency is responsible for the fiscal 
management of, and accountability for, food delivery systems under its 
jurisdiction. The State agency may permit only authorized vendors, home 
food delivery contractors, and direct distribution sites to accept food 
instruments.
    (2) Design. The State agency must design all food delivery systems 
to be used by its local agencies.
    (3) FNS oversight. FNS may, for a stated cause and by written 
notice, require revision of a proposed or operating food delivery system 
and will allow a reasonable time for the State agency to effect such a 
revision.
    (4) Part 3016. All contracts or agreements entered into by the State 
or local agency for the management or operation of food delivery systems 
must conform to the requirements of Part 3016 of this title.
    (b) Uniform food delivery systems. The State agency may operate up 
to three types of food delivery systems under its jurisdiction--retail, 
home delivery, or direct distribution. Each system must be procedurally 
uniform throughout the jurisdiction of the State agency and must ensure 
adequate participant access to supplemental foods. When used, food 
instruments must be uniform within each type of system.
    (c) No charge for authorized supplemental foods. The State agency 
must ensure that participants receive their authorized supplemental 
foods free of charge.
    (d) Compatibility of food delivery system. The State agency must 
ensure that the food delivery system(s) selected is compatible with the 
delivery of health and nutrition education services to participants.
    (e) Retail food delivery systems: General. Retail food delivery 
systems are systems in which participants, parents or caretakers of 
infant and child participants, and proxies obtain authorized 
supplemental foods by submitting a food instrument to an authorized 
vendor.
    (f) Retail food delivery systems: Food instrument requirements. (1) 
General. State agencies using retail food delivery systems must use food 
instruments that comply with the requirements of paragraph (f)(2) of 
this section.
    (2) Printed food instruments. Each printed food instrument must 
clearly bear on its face the following information:

[[Page 348]]

    (i) Authorized supplemental foods. The supplemental foods authorized 
to be obtained with the food instrument;
    (ii) First date of use. The first date on which the food instrument 
may be used to obtain supplemental foods;
    (iii) Last date of use. The last date on which the food instrument 
may be used to obtain authorized supplemental foods. This date must be a 
minimum of 30 days from the first date on which it may be used, except 
for the participant's first month of issuance, when it may be the end of 
the month or cycle for which the food instrument is valid. Rather than 
entering a specific last date of use on each instrument, all instruments 
may be printed with a notice that the participant must transact them 
within a specified number of days after the first date on which the food 
instrument may be used;
    (iv) Redemption period. The date by which the vendor must submit the 
food instrument for redemption. This date must be no more than 90 days 
from the first date on which the food instrument may be used. If the 
date is fewer than 90 days, then the State agency must ensure that the 
allotted time provides the vendor sufficient time to submit the food 
instrument for redemption without undue burden;
    (v) Serial number. A unique and sequential serial number;
    (vi) Purchase price. A space for the purchase price to be entered. 
At the discretion of the State agency, a maximum price may be printed on 
the food instrument that is higher than the expected purchase price of 
the authorized supplemental foods for which it will be used, but that is 
low enough to protect against potential loss of funds. When a maximum 
price is printed on the food instrument, the space for the purchase 
price must be clearly distinguishable from the maximum price. For 
example, the words ``purchase price'' or ``actual amount of sale'' could 
be printed larger and in a different area of the food instrument than 
the maximum price; and
    (vii) Signature space. A space where participants, parents or 
caretakers of infant or child participants, or proxies must sign.
    (3) Vendor identification. The State agency must implement 
procedures to ensure each food instrument submitted for redemption can 
be identified by the vendor that submitted the food instrument. Each 
vendor operated by a single business entity must be identified 
separately. The State agency may identify vendors by requiring that all 
authorized vendors stamp their names and/or enter a vendor 
identification number on all food instruments prior to submitting them 
for redemption.
    (g) Retail food delivery systems: Vendor authorization. (1) General. 
The State agency must authorize an appropriate number and distribution 
of vendors in order to ensure adequate participant access to 
supplemental foods and to ensure effective State agency management, 
oversight, and review of its authorized vendors.
    (2) Vendor limiting criteria. The State agency may establish 
criteria to limit the number of stores it authorizes. The State agency 
must apply its limiting criteria consistently throughout its 
jurisdiction. Any vendor limiting criteria used by the State agency must 
be included in the State Plan in accordance with Sec.  246.4(a)(14)(ii).
    (3) Vendor selection criteria. The State agency must develop and 
implement criteria to select stores for authorization. The State agency 
must apply its selection criteria consistently throughout its 
jurisdiction. The State agency may reassess any authorized vendor at any 
time during the vendor's agreement period using the vendor selection 
criteria in effect at the time of the reassessment and must terminate 
the agreements with those vendors that fail to meet them. The vendor 
selection criteria must include the following categories and 
requirements and must be included in the State Plan in accordance with 
Sec.  246.4(a)(14)(ii).
    (i) Competitive price and price limitations. The State agency must 
consider the prices a vendor applicant charges for supplemental foods as 
compared to the prices charged by other vendor applicants and authorized 
vendors. The State agency may evaluate a vendor applicant based on its 
shelf prices or on the prices it bids for supplemental foods, which may 
not exceed its shelf prices. The State agency must also establish price 
limitations on the amount that it will pay vendors. The price 
limitations must be designed to

[[Page 349]]

ensure that the State agency does not pay a vendor at a level that would 
otherwise make the vendor ineligible for authorization. The State agency 
may establish different competitive price requirements and price 
limitations for different vendor peer groups, may include a factor to 
reflect fluctuations in wholesale prices in its price limitations, and 
may except pharmacy vendors that supply only exempt infant formula and/
or WIC-eligible medical foods from both the competitive price selection 
criterion and the price limitations.
    (ii) Minimum variety and quantity of supplemental foods. The State 
agency must establish minimum requirements for the variety and quantity 
of supplemental foods that a vendor applicant must stock to be 
authorized. The State agency may not authorize a vendor applicant unless 
it determines that the vendor applicant meets these minimums. The State 
agency may establish different minimums for different vendor peer 
groups.
    (iii) Business integrity. The State agency must consider the 
business integrity of a vendor applicant. In determining the business 
integrity of a vendor applicant, the State agency may rely solely on 
facts already known to it and representations made by the vendor 
applicant on its vendor application. The State agency is not required to 
establish a formal system of background checks for vendor applicants. 
Unless denying authorization of a vendor applicant would result in 
inadequate participant access, the State agency may not authorize a 
vendor applicant if during the last six years the vendor applicant or 
any of the vendor applicant's current owners, officers, or managers have 
been convicted of or had a civil judgment entered against them for any 
activity indicating a lack of business integrity. Activities indicating 
a lack of business integrity include fraud, antitrust violations, 
embezzlement, theft, forgery, bribery, falsification or destruction of 
records, making false statements, receiving stolen property, making 
false claims, and obstruction of justice. The State agency may add other 
types of convictions or civil judgments to this list.
    (iv) Current Food Stamp Program disqualification or civil money 
penalty for hardship. Unless denying authorization of a vendor applicant 
would result in inadequate participant access, the State agency may not 
authorize a vendor applicant that is currently disqualified from the 
Food Stamp Program or that has been assessed a Food Stamp Program civil 
money penalty for hardship and the disqualification period that would 
otherwise have been imposed has not expired.
    (4) On-site preauthorization visit. The State agency must conduct an 
on-site visit prior to or at the time of a vendor's initial 
authorization.
    (5) Sale of store to circumvent WIC sanction. The State agency may 
not authorize a vendor applicant if the State agency determines the 
store has been sold by its previous owner in an attempt to circumvent a 
WIC sanction. The State agency may consider such factors as whether the 
store was sold to a relative by blood or marriage of the previous 
owner(s) or sold to any individual or organization for less than its 
fair market value.
    (6) Impact on small businesses. The State agency is encouraged to 
consider the impact of authorization decisions on small businesses.
    (7) Application periods. The State agency may limit the periods 
during which applications for vendor authorization will be accepted and 
processed, except that applications must be accepted and processed at 
least once every three years. The State agency must develop procedures 
for processing vendor applications outside of its timeframes when it 
determines there will be inadequate participant access unless additional 
vendors are authorized.
    (8) Data collection at authorization. At the time of application, 
the State agency must collect the vendor applicant's Food Stamp Program 
authorization number if the vendor applicant is authorized in that 
program. In addition, the State agency must collect the vendor 
applicant's current shelf prices for supplemental foods.
    (h) Retail food delivery systems: Vendor agreements. (1) General. 
(i) Entering into agreements. The State agency must enter into written 
agreements with all authorized vendors. The agreements

[[Page 350]]

must be for a period not to exceed three years. The agreement must be 
signed by a representative who has legal authority to obligate the 
vendor and a representative of the State agency. When the vendor 
representative is obligating more than one vendor, the agreement must 
specify all vendors covered by the agreement. When more than one vendor 
is specified in the agreement, the State agency may add or delete an 
individual vendor without affecting the remaining vendors. The State 
agency must require vendors to reapply at the expiration of their 
agreements and must provide vendors with not less than 15 days advance 
written notice of the expiration of their agreements.
    (ii) Delegation to local agencies. The State agency may delegate to 
its local agencies the authority to sign vendor agreements if the State 
agency indicates its intention to do so in its State Plan in accordance 
with Sec.  246.4(a)(14)(iii). In such cases, the State agency must 
provide supervision and instruction to ensure the uniformity and quality 
of local agency activities.
    (2) Standard vendor agreement. The State agency must use a standard 
vendor agreement throughout its jurisdiction, although the State agency 
may make exceptions to meet unique circumstances provided that it 
documents the reasons for such exceptions.
    (3) Vendor agreement provisions. The vendor agreement must contain 
the following specifications, although the State agency may determine 
the exact wording to be used:
    (i) Acceptance of food instruments. The vendor may accept food 
instruments only from participants, parents or caretakers of infant and 
child participants, or proxies.
    (ii) No substitutions, cash, credit, refunds, or exchanges. The 
vendor may provide only the authorized supplemental foods listed on the 
food instrument. The vendor may not provide unauthorized food items, 
non-food items, cash, or credit (including rainchecks) in exchange for 
food instruments. The vendor may not provide refunds or permit exchanges 
for authorized supplemental foods obtained with food instruments, except 
for exchanges of an identical authorized supplemental food item when the 
original authorized supplemental food item is defective, spoiled, or has 
exceeded its ``sell by,'' ``best if used by,'' or other date limiting 
the sale or use of the food item. An identical authorized supplemental 
food item means the exact brand and size as the original authorized 
supplemental food item obtained and returned by the participant.
    (iii) Treatment of participants, parents/caretakers, and proxies. 
The vendor must offer program participants, parents or caretakers of 
infant of child participants, and proxies the same courtesies offered to 
other customers.
    (iv) Time periods for transacting food instruments. The vendor may 
accept a food instrument only within the specified time period.
    (v) Purchase price on food instruments. The vendor must ensure that 
the purchase price is entered on food instruments in accordance with the 
procedures described in the vendor agreement. The State agency has the 
discretion to determine whether the vendor or the participant enters the 
purchase price. The purchase price must include only the authorized 
supplemental food items actually provided and must be entered on the 
food instrument before it is signed.
    (vi) Signature on food instruments. For printed food instruments, 
the vendor must ensure the participant, parent or caretaker of an infant 
or child participant, or proxy signs the food instrument in the presence 
of the cashier. In EBT systems, a Personal Identification Number (PIN) 
may be used in lieu of a signature.
    (vii) Sales tax prohibition. The vendor may not collect sales tax on 
authorized supplemental foods obtained with food instruments.
    (viii) Food instrument redemption. The vendor must submit food 
instruments for redemption in accordance with the redemption procedures 
described in the vendor agreement. The vendor may redeem a food 
instrument only within the specified time period. As part of the 
redemption procedures, the State agency may make price adjustments to 
the purchase price on food instruments submitted by the vendor for 
redemption to ensure compliance with the

[[Page 351]]

price limitations applicable to the vendor.
    (ix) Vendor claims. When the State agency determines the vendor has 
committed a vendor violation that affects the payment to the vendor, the 
State agency will delay payment or establish a claim. The State agency 
may delay payment or establish a claim in the amount of the full 
purchase price of each food instrument that contained the vendor 
overcharge or other error. The State agency will provide the vendor with 
an opportunity to justify or correct a vendor overcharge or other error. 
The vendor must pay any claim assessed by the State agency. In 
collecting a claim, the State agency may offset the claim against 
current and subsequent amounts to be paid to the vendor. In addition to 
denying payment or assessing a claim, the State agency may sanction the 
vendor for vendor overcharges or other errors in accordance with the 
State agency's sanction schedule.
    (x) No charge for authorized supplemental foods or restitution from 
participants. The vendor may not charge participants, parents or 
caretakers of infant and child participants, or proxies for authorized 
supplemental foods obtained with food instruments. In addition, the 
vendor may not seek restitution from these individuals for food 
instruments not paid or partially paid by the State agency.
    (xi) Training. At least one representative of the vendor must 
participate in training annually. Annual vendor training may be provided 
by the State agency in a variety of formats, including newsletters, 
videos, and interactive training. The State agency will have sole 
discretion to designate the date, time, and location of all interactive 
training, except that the State agency will provide the vendor with at 
least one alternative date on which to attend such training.
    (xii) Vendor training of staff. The vendor must inform and train 
cashiers and other staff on program requirements.
    (xiii) Accountability for owners, officers, managers, and employees. 
The vendor is accountable for its owners, officers, managers, agents, 
and employees who commit vendor violations.
    (xiv) Monitoring. The vendor may be monitored for compliance with 
program requirements.
    (xv) Recordkeeping. The vendor must maintain inventory records used 
for Federal tax reporting purposes and other records the State agency 
may require for the period of time specified by the State agency in the 
vendor agreement. Upon request, the vendor must make available to 
representatives of the State agency, the Department, and the Comptroller 
General of the United States, at any reasonable time and place for 
inspection and audit, all food instruments in the vendor's possession 
and all program-related records.
    (xvi) Termination. The State agency will immediately terminate the 
agreement if it determines that the vendor has provided false 
information in connection with its application for authorization. Either 
the State agency or the vendor may terminate the agreement for cause 
after providing advance written notice of a period of not less than 15 
days to be specified by the State agency.
    (xvii) Change in ownership or location or cessation of operations. 
The vendor must provide the State agency advance written notification of 
any change in vendor ownership, store location, or cessation of 
operations. In such instances, the State agency will terminate the 
vendor agreement, except that the State agency may permit vendors to 
move short distances without terminating the agreement. The State agency 
has the discretion to determine the length of advance notice required 
for vendors reporting changes under this provision, whether a change in 
location qualifies as a short distance, and whether a change in business 
structure constitutes a change in ownership.
    (xviii) Sanctions. In addition to claims collection, the vendor may 
be sanctioned for vendor violations in accordance with the State 
agency's sanction schedule. Sanctions may include administrative fines, 
disqualification, and civil money penalties in lieu of disqualification. 
The State agency does not have to provide the vendor with prior warning 
that violations were occurring before imposing such sanctions.

[[Page 352]]

    (xix) Conflict of interest. The State agency will terminate the 
agreement if the State agency identifies a conflict of interest, as 
defined by applicable State laws, regulations, and policies, between the 
vendor and the State agency or its local agencies.
    (xx) Criminal penalties. A vendor who commits fraud or abuse in the 
Program is liable to prosecution under applicable Federal, State or 
local laws. Those who have willfully misapplied, stolen or fraudulently 
obtained program funds will be subject to a fine of not more than 
$10,000 or imprisonment for not more than five years or both, if the 
value of the funds is $100 or more. If the value is less than $100, the 
penalties are a fine of not more than $1,000 or imprisonment for not 
more than one year or both.
    (xxi) Not a license/property interest. The vendor agreement does not 
constitute a license or a property interest. If the vendor wishes to 
continue to be authorized beyond the period of its current agreement, 
the vendor must reapply for authorization. If a vendor is disqualified, 
the State agency will terminate the vendor's agreement, and the vendor 
will have to reapply in order to be authorized after the 
disqualification period is over. In all cases, the vendor's new 
application will be subject to the State agency's vendor selection 
criteria and any vendor limiting criteria in effect at the time of the 
reapplication.
    (xxii) Compliance with vendor agreement, statutes, regulations, 
policies, and procedures. The vendor must comply with the vendor 
agreement and Federal and State statutes, regulations, policies, and 
procedures governing the Program, including any changes made during the 
agreement period.
    (xxiii) Nondiscrimination regulations. The vendor must comply with 
the nondiscrimination provisions of Departmental regulations (Parts 15, 
15a and 15b of this title).
    (xxiv) Compliance with vendor selection criteria. The vendor must 
comply with the vendor selection criteria throughout the agreement 
period, including any changes to the criteria. Using the current vendor 
selection criteria, the State agency may reassess the vendor at any time 
during the agreement period. The State agency will terminate the vendor 
agreement if the vendor fails to meet the current vendor selection 
criteria.
    (xxv) Reciprocal Food Stamp Program disqualification for WIC Program 
disqualifications. Disqualification from the WIC Program may result in 
disqualification as a retailer in the Food Stamp Program. Such 
disqualification may not be subject to administrative or judicial review 
under the Food Stamp Program.
    (4) Purchase price and redemption procedures. The State agency must 
describe in the vendor agreement its purchase price and redemption 
procedures. The redemption procedures must ensure that the State agency 
does not pay a vendor more than the price limitations applicable to the 
vendor.
    (5) Sanction schedule. The State agency must include its sanction 
schedule in the vendor agreement or as an attachment to it. The sanction 
schedule must include all mandatory and State agency vendor sanctions 
and must be consistent with paragraph (l) of this section. If the 
sanction schedule is in State law or regulations or in a document 
provided to the vendor at the time of authorization, the State agency 
instead may include an appropriate cross-reference in the vendor 
agreement.
    (6) Actions subject to administrative review and review procedures. 
The State agency must include the adverse actions a vendor may appeal 
and those adverse actions that are not subject to administrative review. 
The State agency also must include a copy of the State agency's 
administrative review procedures in the vendor agreement or as an 
attachment to it or must include a statement that the review procedures 
are available upon request and the applicable review procedures will be 
provided along with an adverse action subject to administrative review. 
These items must be consistent with Sec.  246.18. If these items are in 
State law or regulations or in a document provided to the vendor at the 
time of authorization, the State agency instead may include an 
appropriate cross-reference in the vendor agreement.
    (7) Notification of program changes. The State agency must notify 
vendors

[[Page 353]]

of changes to Federal or State statutes, regulations, policies, or 
procedures governing the Program before the changes are implemented. The 
State agency should give as much advance notice as possible.
    (i) Retail food delivery systems: Vendor training. (1) General 
requirements. The State agency must provide training annually to at 
least one representative of each vendor. Prior to or at the time of a 
vendor's initial authorization, and at least once every three years 
thereafter, the training must be in an interactive format that includes 
a contemporaneous opportunity for questions and answers. The State 
agency must designate the date, time, and location of the interactive 
training and the audience (e.g., managers, cashiers, etc.) to which the 
training is directed. The State agency must provide vendors with at 
least one alternative date on which to attend interactive training. 
Examples of acceptable vendor training include on-site cashier training, 
off-site classroom-style train-the-trainer or manager training, a 
training video, and a training newsletter. All vendor training must be 
designed to prevent program errors and noncompliance and improve program 
service.
    (2) Content. The annual training must include instruction on the 
purpose of the Program, the supplemental foods authorized by the State 
agency, the minimum varieties and quantities of authorized supplemental 
foods that must be stocked by vendors, the procedures for transacting 
and redeeming food instruments, the vendor sanction system, the vendor 
complaint process, the claims procedures, and any changes to program 
requirements since the last training.
    (3) Delegation. The State agency may delegate vendor training to a 
local agency, a contractor, or a vendor representative if the State 
agency indicates its intention to do so in its State Plan in accordance 
with Sec.  246.4(a)(14)(xi). In such cases, the State agency must 
provide supervision and instruction to ensure the uniformity and quality 
of vendor training.
    (4) Documentation. The State agency must document the content of and 
vendor participation in vendor training.
    (j) Retail food delivery systems: Monitoring vendors and identifying 
high-risk vendors. (1) General requirements. The State agency must 
design and implement a system for monitoring its vendors for compliance 
with program requirements. The State agency may delegate vendor 
monitoring to a local agency or contractor if the State agency indicates 
its intention to do so in its State Plan in accordance with Sec.  
246.4(a)(14)(iv). In such cases, the State agency must provide 
supervision and instruction to ensure the uniformity and quality of 
vendor monitoring.
    (2) Routine monitoring. The State agency must conduct routine 
monitoring visits on a minimum of five percent of the number of vendors 
authorized by the State agency as of October 1 of each fiscal year in 
order to survey the types and levels of abuse and errors among 
authorized vendors and to take corrective actions, as appropriate. The 
State agency must develop criteria to determine which vendors will 
receive routine monitoring visits and must include such criteria in its 
State Plan in accordance with Sec.  246.4(a)(14)(iv).
    (3) Identifying high-risk vendors. The State agency must identify 
high-risk vendors at least once a year using criteria developed by FNS 
and/or other statistically-based criteria developed by the State agency. 
FNS will not change its criteria more frequently than once every two 
years and will provide adequate advance notification of changes prior to 
implementation. The State agency may develop and implement additional 
criteria. All State agency-developed criteria must be approved by FNS.
    (4) Compliance investigations. (i) High-risk vendors. The State 
agency must conduct compliance investigations of a minimum of five 
percent of the number of vendors authorized by the State agency as of 
October 1 of each fiscal year. The State agency must conduct compliance 
investigations on all high-risk vendors up to the five percent minimum. 
The State agency may count toward this requirement a compliance 
investigation of a high-risk vendor conducted by a Federal, State, or 
local law enforcement agency. The State agency also may count toward

[[Page 354]]

this requirement a compliance investigation conducted by another WIC 
State agency provided that the State agency implements the option to 
establish State agency sanctions based on mandatory sanctions imposed by 
the other WIC State agency, as specified in paragraph (l)(2)(iii) of 
this section. A compliance investigation of a high-risk vendor may be 
considered complete when the State agency determines that a sufficient 
number of compliance buys have been conducted to provide evidence of 
program noncompliance, when two compliance buys have been conducted in 
which no program violations are found, or when an inventory audit has 
been completed.
    (ii) Randomly selected vendors. If fewer than five percent of the 
State agency's authorized vendors are identified as high-risk, the State 
agency must randomly select additional vendors on which to conduct 
compliance investigations sufficient to meet the five-percent 
requirement. A compliance investigation of a randomly selected vendor 
may be considered complete when the State agency determines that a 
sufficient number of compliance buys have been conducted to provide 
evidence of program noncompliance, when two compliance buys are 
conducted in which no program violations are found, or when an inventory 
audit has been completed.
    (iii) Prioritization. If more than five percent of the State 
agency's vendors are identified as high-risk, the State agency must 
prioritize such vendors so as to perform compliance investigations of 
those determined to have the greatest potential for program 
noncompliance and/or loss of funds.
    (5) Monitoring report. For each fiscal year, the State agency must 
send FNS a summary of the results of its vendor monitoring containing 
information stipulated by FNS. The report must be sent by February 1 of 
the following fiscal year. Plans for improvement in the coming year must 
be included in the State Plan in accordance with Sec.  246.4(a)(14)(iv).
    (6) Documentation.
    (i) Monitoring visits. The State agency must document the following 
information for all monitoring visits, including routine monitoring 
visits, inventory audits, and compliance buys:
    (A) the date of the monitoring visit, inventory audit, or compliance 
buy;
    (B) the name(s) and signature(s) of the reviewer(s); and
    (C) the nature of any problem(s) detected.
    (ii) Compliance buys. For compliance buys, the State agency must 
also document:
    (A) the date of the buy;
    (B) a description of the cashier involved in each transaction;
    (C) the types and quantities of items purchased, current shelf 
prices or prices charged other customers, and price charged for each 
item purchased, if available. Price information may be obtained prior 
to, during, or subsequent to the compliance buy; and
    (D) the final disposition of all items as destroyed, donated, 
provided to other authorities, or kept as evidence.
    (k) Retail food delivery systems: Vendor claims. (1) System to 
review food instruments. The State agency must design and implement a 
system to review food instruments submitted by vendors for redemption to 
ensure compliance with the applicable price limitations and to detect 
questionable food instruments, suspected vendor overcharges, and other 
errors. This review must examine either all or a representative sample 
of the food instruments and may be done either before or after the State 
agency makes payments on the food instruments. The review must include a 
price comparison or other edit designed to ensure compliance with the 
applicable price limitations and to assist in detecting vendor 
overcharges. For printed food instruments, the system also must detect 
the following errors: purchase price missing; participant, parent/
caretaker, or proxy signature missing; vendor identification missing; 
food instruments transacted or redeemed after the specified time 
periods; and, as appropriate, altered purchase price. The State agency 
must take follow-up action within 120 days of detecting any questionable 
food instruments, suspected vendor overcharges, and other errors and 
must implement procedures to reduce the number of errors when possible.

[[Page 355]]

    (2) Delaying payment and establishing a claim. When the State agency 
determines the vendor has committed a vendor violation that affects the 
payment to the vendor, the State agency must delay payment or establish 
a claim. Such vendor violations may be detected through compliance 
investigations, food instrument reviews, or other reviews or 
investigations of a vendor's operations. The State agency may delay 
payment or establish a claim in the amount of the full purchase price of 
each food instrument that contained the vendor overcharge or other 
error.
    (3) Opportunity to justify or correct. When payment for a food 
instrument is delayed or a claim is established, the State agency must 
provide the vendor with an opportunity to justify or correct the vendor 
overcharge or other error. If satisfied with the justification or 
correction, the State agency must provide payment or adjust the proposed 
claim accordingly.
    (4) Timeframe and offset. The State agency must deny payment or 
initiate claims collection action within 90 days of either the date of 
detection of the vendor violation or the completion of the review or 
investigation giving rise to the claim, whichever is later. Claims 
collection action may include offset against current and subsequent 
amounts owed to the vendor.
    (5) Food instruments redeemed after the specified period. With 
justification and documentation, the State agency may pay vendors for 
food instruments submitted for redemption after the specified period for 
redemption. If the total value of such food instruments submitted at one 
time exceeds $500.00, the State agency must obtain the approval of the 
FNS Regional Office before payment.
    (l) Retail food delivery systems: Vendor sanctions--(1) Mandatory 
vendor sanctions--(i) Permanent disqualification. The State agency must 
permanently disqualify a vendor convicted of trafficking in food 
instruments or selling firearms, ammunition, explosives, or controlled 
substances (as defined in section 102 of the Controlled Substances Act 
(21 U.S.C. 802)) in exchange for food instruments. A vendor is not 
entitled to receive any compensation for revenues lost as a result of 
such violation. If reflected in its State Plan, the State agency may 
impose a civil money penalty in lieu of a disqualification for this 
violation when it determines, in its sole discretion, and documents 
that:
    (A) Disqualification of the vendor would result in inadequate 
participant access; or
    (B) The vendor had, at the time of the violation, an effective 
policy and program in effect to prevent trafficking; and the ownership 
of the vendor was not aware of, did not approve of, and was not involved 
in the conduct of the violation.
    (ii) Six-year disqualification. The State agency must disqualify a 
vendor for six years for:
    (A) One incidence of buying or selling food instruments for cash 
(trafficking); or
    (B) One incidence of selling firearms, ammunition, explosives, or 
controlled substances as defined in 21 U.S.C. 802, in exchange for food 
instruments.
    (iii) Three-year disqualification. The State agency must disqualify 
a vendor for three years for:
    (A) One incidence of the sale of alcohol or alcoholic beverages or 
tobacco products in exchange for food instruments;
    (B) A pattern of claiming reimbursement for the sale of an amount of 
a specific supplemental food item which exceeds the store's documented 
inventory of that supplemental food item for a specific period of time;
    (C) A pattern of vendor overcharges;
    (D) A pattern of receiving, transacting and/or redeeming food 
instruments outside of authorized channels, including the use of an 
unauthorized vendor and/or an unauthorized person;
    (E) A pattern of charging for supplemental food not received by the 
participant; or
    (F) A pattern of providing credit or non-food items, other than 
alcohol, alcoholic beverages, tobacco products, cash, firearms, 
ammunition, explosives, or controlled substances as defined in 21 U.S.C. 
802, in exchange for food instruments.
    (iv) One-year disqualification. The State agency must disqualify a 
vendor

[[Page 356]]

for one year for a pattern of providing unauthorized food items in 
exchange for food instruments, including charging for supplemental foods 
provided in excess of those listed on the food instrument.
    (v) Second mandatory sanction. When a vendor, who previously has 
been assessed a sanction for any of the violations in paragraphs 
(l)(1)(ii) through (l)(1)(iv) of this section, receives another sanction 
for any of these violations, the State agency must double the second 
sanction. Civil money penalties may only be doubled up to the limits 
allowed under paragraph (l)(1)(x)(C) of this section.
    (vi) Third or subsequent mandatory sanction. When a vendor, who 
previously has been assessed two or more sanctions for any of the 
violations listed in paragraphs (l)(1)(ii) through (l)(1)(iv) of this 
section, receives another sanction for any of these violations, the 
State agency must double the third sanction and all subsequent 
sanctions. The State agency may not impose civil money penalties in lieu 
of disqualification for third or subsequent sanctions for violations 
listed in paragraphs (l)(1)(ii) through (l)(1)(iv) of this section.
    (vii) Disqualification based on a Food Stamp Program 
disqualification. The State agency must disqualify a vendor who has been 
disqualified from the Food Stamp Program. The disqualification must be 
for the same length of time as the Food Stamp Program disqualification, 
may begin at a later date than the Food Stamp Program disqualification, 
and is not subject to administrative or judicial review under the WIC 
Program.
    (viii) Voluntary withdrawal or nonrenewal of agreement. The State 
agency may not accept voluntary withdrawal of the vendor from the 
Program as an alternative to disqualification for the violations listed 
in paragraphs (l)(1)(i) through (l)(1)(iv) of this section, but must 
enter the disqualification on the record. In addition, the State agency 
may not use nonrenewal of the vendor agreement as an alternative to 
disqualification.
    (ix) Participant access determinations. Prior to disqualifying a 
vendor for a Food Stamp Program disqualification pursuant to paragraph 
(l)(1)(vii) of this section or for any of the violations listed in 
paragraphs (l)(1)(ii) through (l)(1)(iv) of this section, the State 
agency must determine if disqualification of the vendor would result in 
inadequate participant access. The State agency must make the 
participant access determination in accordance with paragraph (l)(8) of 
this section. If the State agency determines that disqualification of 
the vendor would result in inadequate participant access, the State 
agency must impose a civil money penalty in lieu of disqualification. 
However, as provided in paragraph (l)(1)(vi) of this section, the State 
agency may not impose a civil money penalty in lieu of disqualification 
for third or subsequent sanctions for violations in paragraphs 
(l)(1)(ii) through (l)(1)(iv) of this section. The State agency must 
include documentation of its participant access determination and any 
supporting documentation in the file of each vendor who is disqualified 
or receives a civil money penalty in lieu of disqualification.
    (x) Civil money penalty formula. For each violation subject to a 
mandatory sanction, the State agency must use the following formula to 
calculate a civil money penalty imposed in lieu of disqualification:
    (A) Determine the vendor's average monthly redemptions for at least 
the 6-month period ending with the month immediately preceding the month 
during which the notice of adverse action is dated;
    (B) Multiply the average monthly redemptions figure by 10 percent 
(.10);
    (C) Multiply the product from paragraph (l)(1)(x)(B) of this section 
by the number of months for which the store would have been 
disqualified. This is the amount of the civil money penalty, provided 
that the civil money penalty shall not exceed $10,000 for each 
violation. For a violation that warrants permanent disqualification, the 
amount of the civil money penalty shall be $10,000. When during the 
course of a single investigation the State agency determines a vendor 
has committed multiple violations, the State agency must impose a CMP 
for each violation.

[[Page 357]]

The total amount of civil money penalties imposed for violations 
investigated as part of a single investigation may not exceed $40,000.
    (xi) Notification to FNS. The State agency must provide the 
appropriate FNS office with a copy of the notice of adverse action and 
information on vendors it has either disqualified or imposed a civil 
money penalty in lieu of disqualification for any of the violations 
listed in paragraphs (l)(1)(i) through (l)(1)(iv) of this section. This 
information must include the name of the vendor, address, identification 
number, the type of violation(s), and the length of disqualification or 
the length of the disqualification corresponding to the violation for 
which the civil money penalty was assessed, and must be provided within 
15 days after the vendor's opportunity to file for a WIC administrative 
review has expired or all of the vendor's WIC administrative reviews 
have been completed.
    (xii) Multiple violations during a single investigation. When during 
the course of a single investigation the State agency determines a 
vendor has committed multiple violations (which may include violations 
subject to State agency sanctions), the State agency must disqualify the 
vendor for the period corresponding to the most serious mandatory 
violation. However, the State agency must include all violations in the 
notice of administration action. If a mandatory sanction is not upheld 
on appeal, then the State agency may impose a State agency-established 
sanction.
    (2) State agency vendor sanctions. (i) General requirements. The 
State agency may impose sanctions for vendor violations that are not 
specified in paragraphs (l)(1)(i) through (l)(1)(iv) of this section as 
long as such vendor violations and sanctions are included in the State 
agency's sanction schedule. State agency sanctions may include 
disqualifications, civil money penalties assessed in lieu of 
disqualification, and administrative fines. The total period of 
disqualification imposed for State agency violations investigated as 
part of a single investigation may not exceed one year. A civil money 
penalty or fine may not exceed $10,000 for each violation. The total 
amount of civil money penalties and administrative fines imposed for 
violations investigated as part of a single investigation may not exceed 
$40,000.
    (ii) Food Stamp Program civil money penalty for hardship. The State 
agency may disqualify a vendor that has been assessed a civil money 
penalty for hardship in the Food Stamp Program, as provided under Sec.  
278.6 of this chapter. The length of such disqualification must 
correspond to the period for which the vendor would otherwise have been 
disqualified in the Food Stamp Program. If a State agency decides to 
exercise this option, the State agency must:
    (A) Include notification that it will take such disqualification 
action in its sanction schedule; and
    (B) Determine if disqualification of the vendor would result in 
inadequate participant access in accordance with paragraph (l)(8) of 
this section. If the State agency determines that disqualification of 
the vendor would result in inadequate participant access, the State 
agency may not disqualify the vendor or impose a civil money penalty in 
lieu of disqualification. The State agency must include documentation of 
its participant access determination and any supporting documentation in 
each vendor's file.
    (iii) A mandatory sanction by another WIC State agency. The State 
agency may disqualify a vendor that has been disqualified or assessed a 
civil money penalty in lieu of disqualification by another WIC State 
agency for a mandatory vendor sanction. The length of the 
disqualification must be for the same length of time as the 
disqualification by the other WIC State agency or, in the case of a 
civil money penalty in lieu of disqualification assessed by the other 
WIC State agency, for the same length of time for which the vendor would 
otherwise have been disqualified. The disqualification may begin at a 
later date than the sanction imposed by the other WIC State agency. If a 
State agency decides to exercise this option, the State agency must:
    (A) Include notification that it will take such action in its 
sanction schedule; and
    (B) Determine if disqualification of the vendor would result in 
inadequate

[[Page 358]]

participant access in accordance with paragraph (l)(8) of this section. 
If the State agency determines that disqualification of the vendor would 
result in inadequate participant access, the State agency must impose a 
civil money penalty in lieu of disqualification, except that the State 
agency may not impose a civil money penalty in situations in which the 
vendor has been assessed a civil money penalty in lieu of 
disqualification by the other WIC State agency. Any civil money penalty 
in lieu of disqualification must be calculated in accordance with 
paragraph (l)(2)(x) of this section. The State agency must include 
documentation of its participant access determination and any supporting 
documentation in each vendor's file.
    (3) Prior warning. The State agency does not have to provide the 
vendor with prior warning that violations were occurring before imposing 
any of the sanctions in paragraph (l) of this section.
    (4) Administrative reviews. The State agency must provide 
administrative reviews of sanctions to the extent required by Sec.  
246.18.
    (5) Installment plans. The State agency may use installment plans 
for the collection of civil money penalties and administrative fines.
    (6) Failure to pay a civil money penalty. If a vendor does not pay, 
only partially pays, or fails to timely pay a civil money penalty 
assessed in lieu of disqualification, the State agency must disqualify 
the vendor for the length of the disqualification corresponding to the 
violation for which the civil money penalty was assessed (for a period 
corresponding to the most serious violation in cases where a mandatory 
sanction included the imposition of multiple civil money penalties as a 
result of a single investigation).
    (7) Actions in addition to sanctions. Vendors may be subject to 
actions in addition to the sanctions in this section, such as claims 
pursuant to paragraph (k) of this section and the penalties set forth in 
Sec.  246.23(c) in the case of deliberate fraud.
    (8) Participant access determination criteria. The State agency must 
develop participant access criteria. When making participant access 
determinations, the State agency must consider the availability of other 
authorized vendors in the same area as the violative vendor and any 
geographic barriers to using such vendors.
    (9) Termination of agreement. When the State agency disqualifies a 
vendor, the State agency must also terminate the vendor agreement.
    (m) Home food delivery systems. Home food delivery systems are 
systems in which authorized supplemental foods are delivered to the 
participant's home. Home food delivery systems must provide for:
    (1) Procurement. Procurement of supplemental foods in accordance 
with Sec.  246.24, which may entail measures such as the purchase of 
food in bulk lots by the State agency and the use of discounts that are 
available to States.
    (2) Accountability. The accountable delivery of authorized 
supplemental foods to participants. The State agency must ensure that:
    (i) Home food delivery contractors are paid only after the delivery 
of authorized supplemental foods to participants;
    (ii) A routine procedure exists to verify the correct delivery of 
authorized supplemental foods to participants, and, at a minimum, such 
verification occurs at least once a month after delivery; and
    (iii) Records of delivery of supplemental foods and bills sent or 
payments received for such supplemental foods are retained for at least 
three years. Federal, State, and local authorities must have access to 
such records.
    (n) Direct distribution food delivery systems. Direct distribution 
food delivery systems are systems in which participants, parents or 
caretakers of infant or child participants, or proxies pick up 
authorized supplemental foods from storage facilities operated by the 
State agency or its local agencies. Direct distribution food delivery 
systems must provide for:
    (1) Storage and insurance. Adequate storage and insurance coverage 
that minimizes the danger of loss due to theft, infestation, fire, 
spoilage, or other causes;

[[Page 359]]

    (2) Inventory. Adequate inventory control of supplemental foods 
received, in stock, and issued;
    (3) Procurement. Procurement of supplemental foods in accordance 
with Sec.  246.24, which may entail measures such as purchase of food in 
bulk lots by the State agency and the use of discounts that are 
available to States;
    (4) Availability. The availability of program benefits to 
participants and potential participants who live at great distance from 
storage facilities; and
    (5) Accountability. The accountable delivery of authorized 
supplemental foods to participants.
    (o) Participant, parent/caretaker, proxy, vendor, and home food 
delivery contractor complaints. The State agency must have procedures to 
document the handling of complaints by participants, parents or 
caretakers of infant or child participants, proxies, vendors, home food 
delivery contractors, and direct distribution contractors. Complaints of 
civil rights discrimination must be handled in accordance with Sec.  
246.8(b).
    (p) Food instrument security. The State agency must develop 
standards for ensuring the security of food instruments from the time 
the food instruments are created to the time they are issued to 
participants, parents/caretakers, or proxies. For pre-printed food 
instruments, these standards must include maintenance of perpetual 
inventory records of food instruments throughout the State agency's 
jurisdiction; monthly physical inventory of food instruments on hand 
throughout the State agency's jurisdiction; reconciliation of perpetual 
and physical inventories of food instruments; and maintenance of all 
food instruments under lock and key, except for supplies needed for 
immediate use. For EBT and print-on-demand food instruments, the 
standards must provide for the accountability and security of the means 
to manufacture and issue such food instruments.
    (q) Food instrument disposition. The State agency must account for 
the disposition of all food instruments as either issued or voided, and 
as either redeemed or unredeemed. Redeemed food instruments must be 
identified as validly issued, lost, stolen, expired, duplicate, or not 
matching valid enrollment and issuance records. In an EBT system, 
evidence of matching redeemed food instruments to valid enrollment and 
issuance records may be satisfied through the linking of the Primary 
Account Number (PAN) associated with the electronic transaction to valid 
enrollment and issuance records. This process must be performed within 
150 days of the first valid date for participant use of the food 
instruments and must be conducted in accordance with the financial 
management requirements of Sec.  246.13. The State agency will be 
subject to claims as outlined in Sec.  246.23(a)(4) for redeemed food 
instruments that do not meet the conditions established in paragraph (q) 
of this section.
    (r) Issuance of food instruments and authorized supplemental foods. 
The State agency must:
    (1) Parents/caretakers and proxies. Establish uniform procedures 
that allow parents and caretakers of infant and child participants and 
proxies to obtain and transact food instruments or obtain authorized 
supplemental foods on behalf of a participant. In determining whether a 
particular participant or parent/caretaker should be allowed to 
designate a proxy or proxies, the State agency must require the local 
agency or clinic to consider whether adequate measures can be 
implemented to provide nutrition education and health care referrals to 
that participant or, in the case of an infant or child participant, to 
the participant's parent or caretaker;
    (2) Signature requirement. Ensure that the participant, parent or 
caretaker of an infant or child participant, or proxy signs for receipt 
of food instruments or authorized supplemental foods, except as provided 
in paragraph (r)(4) of this section;
    (3) Instructions. Ensure that participants, parents or caretakers of 
infant and child participants, and proxies receive instructions on the 
proper use of food instruments, or on the procedures for obtaining 
authorized supplemental foods when food instruments are not used. The 
State agency must also ensure that participants, parents or caretakers 
of infant and child participants, and proxies are notified that they 
have the right to complain about improper

[[Page 360]]

vendor and home food delivery contractor practices with regard to 
program responsibilities;
    (4) Food instrument pick up. Require participants, parents and 
caretakers of infant and child participants, and proxies to pick up food 
instruments in person when scheduled for nutrition education or for an 
appointment to determine whether participants are eligible for a second 
or subsequent certification period. However, in all other circumstances 
the State agency may provide for issuance through an alternative means 
such as EBT or mailing, unless FNS determines that such actions would 
jeopardize the integrity of program services or program accountability. 
If a State agency opts to mail food instruments, it must provide 
justification, as part of its alternative issuance system in its State 
Plan, as required in Sec.  246.4(a)(21), for mailing food instruments to 
areas where food stamps are not mailed. State agencies that opt to mail 
food instruments must establish and implement a system that ensures the 
return of food instruments to the State or local agency if a participant 
no longer resides or receives mail at the address to which the food 
instruments were mailed; and
    (5) Maximum issuance of food instruments. Ensure that no more than a 
three-month supply of food instruments or a one-month supply of 
authorized supplemental foods is issued at any one time to any 
participant, parent or caretaker of an infant or child participant, or 
proxy.
    (s) Payment to vendors and home food delivery contractors. The State 
agency must ensure that vendors and home food delivery contractors are 
paid promptly. Payment must be made within 60 days after valid food 
instruments are submitted for redemption. Actual payment to vendors and 
home food delivery contractors may be made by local agencies.
    (t) Conflict of interest. The State agency must ensure that no 
conflict of interest exists, as defined by applicable State laws, 
regulations, and policies, between the State agency and any vendor or 
home food delivery contractor, or between any local agency and any 
vendor or home food delivery contractor under its jurisdiction.
    (u) Participant violations and sanctions. (1) General requirements. 
The State agency must establish procedures designed to control 
participant violations. The State agency also must establish sanctions 
for participant violations. Participant sanctions may include 
disqualification from the Program for a period of up to one year.
    (2) Mandatory disqualification. (i) General. Except as provided in 
paragraphs (u)(2)(ii) and (u)(2)(iii) of this section, whenever the 
State agency assesses a claim of $100 or more, assesses a claim for dual 
participation, or assess a second or subsequent claim of any amount, the 
State agency must disqualify the participant for one year.
    (ii) Exceptions to mandatory disqualification. The State agency may 
decide not to impose a mandatory disqualification if, within 30 days of 
receipt of the letter demanding repayment, full restitution is made or a 
repayment schedule is agreed on, or, in the case of a participant who is 
an infant, child, or under age 18, the State or local agency approves 
the designation of a proxy.
    (iii) Terminating a mandatory disqualification. The State agency may 
permit a participant to reapply for the Program before the end of a 
mandatory disqualification period if full restitution is made or a 
repayment schedule is agreed upon or, in the case of a participant who 
is an infant, child, or under age 18, the State or local agency approves 
the designation of a proxy.
    (3) Warnings before sanctions. The State agency may provide warnings 
before imposing participant sanctions.
    (4) Fair hearings. At the time the State agency notifies a 
participant of a disqualification, the State agency must advise the 
participant of the procedures to follow to obtain a fair hearing 
pursuant to Sec.  246.9.
    (5) Referral to law enforcement authorities. When appropriate, the 
State agency must refer vendors, home food delivery contractors, and 
participants who violate program requirements to Federal, State, or 
local authorities for prosecution under applicable statutes.

[65 FR 83278, Dec. 29, 2000]

[[Page 361]]



Sec.  246.13  Financial management system.

    (a) Disclosure of expenditures. The State agency shall maintain a 
financial management system which provides accurate, current and 
complete disclosure of the financial status of the Program. This shall 
include an accounting for all property and other assets and all Program 
funds received and expended each fiscal year.
    (b) Internal control. The State agency shall maintain effective 
control over and accountability for all Program grants and funds. The 
State agency must have effective internal controls to ensure that 
expenditures financed with Program funds are authorized and properly 
chargeable to the Program.
    (c) Record of expenditures. The State agency shall maintain records 
which adequately identify the source and use of funds expended for 
Program activities. These records shall contain, but are not limited to, 
information pertaining to authorization, receipt of funds, obligations, 
unobligated balances, assets, liabilities, outlays, and income.
    (d) Payment of costs. The State shall implement procedures which 
ensure prompt and accurate payment of allowable costs, and ensure the 
allowability and allocability of costs in accordance with the cost 
principles and standard provisions of this part, 7 CFR part 3016, and 
FNS guidelines and instructions.
    (e) Identification of obligated funds. The State agency shall 
implement procedures which accurately identify obligated Program funds 
at the time the obligations are made.
    (f) Resolution of audit findings. The State agency shall implement 
procedures which ensure timely and appropriate resolution of claims and 
other matters resulting from audit findings and recommendations.
    (g) Use of minority- and women-owned banks. Consistent with the 
national goals of expanding opportunities for minority business 
enterprises, State and local agencies are encouraged to use minority- 
and women-owned banks.
    (h) Adjustment of expenditures. The State agency must adjust 
projected expenditures to account for redeemed food instruments and for 
other changes as appropriate.
    (i) Transfer of cash. The State agency shall have controls to 
minimize the time elapsing between receipt of Federal funds from the 
U.S. Department of Treasury and the disbursements of these funds for 
Program costs. In the Letter of Credit system, the State agency shall 
make drawdowns from the U.S. Department of Treasury's Regional 
Disbursing Office as close as possible to the actual date that 
disbursement of funds is made. Advances made by the State agency to 
local agencies shall also conform to these same standards.
    (j) Local agency financial management. The State agency shall ensure 
that all local agencies develop and implement a financial management 
system consistent with requirements prescribed by FNS and the State 
agency pursuant to the requirements of this section.

[50 FR 6121, Feb. 13, 1985; 50 FR 8098, Feb. 28, 1985, as amended at 65 
FR 83286, Dec. 29, 2000]



Sec.  246.14  Program costs.

    (a) General. (1) The two kinds of allowable costs under the Program 
are ``food costs'' and ``nutrition services and administration costs.'' 
In general, costs necessary to the fulfillment of Program objectives are 
to be considered allowable costs. The two types of nutrition services 
and administration costs are:
    (i) Direct costs. Those direct costs that are allowable under 7 CFR 
part 3016.
    (ii) Indirect costs. Those indirect costs that are allowable under 7 
CFR part 3016. When computing indirect costs, food costs may not be used 
in the base to which the indirect cost rate is applied. In accordance 
with the provisions of 7 CFR part 3016, a claim for indirect costs shall 
be supported by an approved allocation plan for the determination of 
allowable indirect costs.
    (2) Except as provided in paragraph (e) of this section and 
Sec. Sec.  246.16(g) and 246.16(h) of this part, funds allocated by FNS 
for food purchases may not be used to pay nutrition services and 
administration costs. However, nutrition services and administration 
funds may be used to pay for food costs.
    (b) What costs may I charge to the food grant?

[[Page 362]]

    (1) The State agency may use food funds for costs of:
    (i) Acquiring supplemental foods provided to State or local agencies 
or participants, whichever receives the supplemental food first;
    (ii) Warehousing supplemental foods; and
    (iii) Purchasing and renting breast pumps.
    (2) For costs to be allowable, the State agency must ensure that 
food costs do not exceed the customary sales price charged by the 
vendor, home food delivery contractor, or supplier in a direct 
distribution food delivery system. In addition, food costs may not 
exceed the price limitations applicable to the vendor.
    (c) Specified allowable nutrition services and administration costs. 
Allowable nutrition services and administration (NSA) costs include the 
following:
    (1) The cost of nutrition education and breastfeeding promotion and 
support which meets the requirements of Sec.  246.11. During each fiscal 
year, each State agency shall expend, for nutrition education activities 
and breastfeeding promotion and support activities, an aggregate amount 
that is not less than the sum of one-sixth of the amount expended by the 
State agency for costs of NSA and an amount equal to its proportionate 
share of the national minimum expenditure for breastfeeding promotion 
and support activities. The amount to be spent on nutrition education 
shall be computed by taking one-sixth of the total fiscal year NSA 
expenditures. The amount to be spent by a State agency on breastfeeding 
promotion and support activities shall be an amount that is equal to at 
least its proportionate share of the national minimum breastfeeding 
promotion expenditure as specified in paragraph (c)(1) of this section. 
The national minimum expenditure for breastfeeding promotion and support 
activities shall be equal to $21 multiplied by the number of pregnant 
and breastfeeding women in the Program, based on the average of the last 
three months for which the Department has final data. On October 1, 1996 
and each October 1 thereafter, the $21 will be adjusted annually using 
the same inflation percentage used to determine the national 
administrative grant per person. If the State agency's total reported 
nutrition education and breastfeeding promotion and support expenditures 
are less than the required amount of expenditures, FNS will issue a 
claim for the difference. The State agency may request prior written 
permission from FNS to spend less than the required portions of its NSA 
grant for either nutrition education or for breastfeeding promotion and 
support activities. FNS will grant such permission if the State agency 
has sufficiently documented that other resources, including in-kind 
resources, will be used to conduct these activities at a level 
commensurate with the requirements of this paragraph (c)(1). However, 
food costs used to purchase or rent breast pumps may not be used for 
this purpose. Nutrition education costs are limited to activities which 
are distinct and separate efforts to help participants understand the 
importance of nutrition to health. The cost of dietary assessments for 
the purpose of certification, the cost of prescribing and issuing 
supplemental foods, the cost of screening for drug and other harmful 
substance use and making referrals to drug and other harmful substance 
abuse services, and the cost of other health-related screening shall not 
be applied to the expenditure requirement for nutrition education and 
breastfeeding promotion and support activities. The Department shall 
advise State agencies regarding methods for minimizing documentation of 
the nutrition education and breastfeeding promotion and support 
expenditure requirement. Costs to be applied to the one-sixth minimum 
amount required to be spent on nutrition education and the target share 
of funds required to be spent on breastfeeding promotion and support 
include, but need not be limited to--
    (i) Salary and other costs for time spent on nutrition education and 
breastfeeding promotion and support consultations whether with an 
individual or group;
    (ii) The cost of procuring and producing nutrition education and 
breastfeeding promotion and support materials including handouts, flip 
charts, filmstrips, projectors, food

[[Page 363]]

models or other teaching aids, and the cost of mailing nutrition 
education or breastfeeding promotion and support materials to 
participants;
    (iii) The cost of training nutrition or breastfeeding promotion and 
support educators, including costs related to conducting training 
sessions and purchasing and producing training materials;
    (iv) The cost of conducting evaluations of nutrition education or 
breastfeeding promotion and support activities, including evaluations 
conducted by contractors;
    (v) Salary and other costs incurred in developing the nutrition 
education and breastfeeding promotion and support portion of the State 
Plan and local agency nutrition education and breastfeeding promotion 
and support plans; and
    (vi) The cost of monitoring nutrition education and breastfeeding 
promotion and support activities.
    (2) The cost of Program certification, nutrition assessment and 
procedures and equipment used to determine nutritional risk, including 
the following:
    (i) Laboratory fees incurred for up to two hematological tests for 
anemia per individual per certification period. The first test shall be 
to determine anemia status. The second test may be performed only in 
follow up to a finding of anemia when deemed necessary for health 
monitoring as determined by the WIC State agency;
    (ii) Expendable medical supplies;
    (iii) Medical equipment used for taking anthropometric measurements, 
such as scales, measuring boards, and skin fold calipers; and for blood 
analysis to detect anemia, such as spectrophotometers, 
hematofluorometers and centrifuges; and
    (iv) Salary and other costs for time spent on nutrition assessment 
and certification.
    (3) The cost of outreach services.
    (4) The cost of administering the food delivery system, including 
the cost of transporting food.
    (5) The cost of translators for materials and interpreters.
    (6) The cost of fair hearings, including the cost of an independent 
medical assessment of the appellant, if necessary.
    (7) The cost of transporting rural participants to clinics when 
prior approval for using Program funds to provide transportation has 
been granted by the State agency and documentation that such service is 
considered essential to assure Program access has been filed at the 
State agency. Direct reimbursement to participants for transportation 
cost is not an allowable cost.
    (8) The cost of monitoring and reviewing Program operations.
    (9) The cost, exclusive of laboratory tests, of screening for drug 
and other harmful substance use and making referrals for counseling and 
treatment services.
    (10) The cost of breastfeeding aids which directly support the 
initiation and continuation of breastfeeding.
    (d) Costs allowable with approval. The following costs are allowable 
only with the prior approval of FNS:
    (1) Automated information systems which are required by a State or 
local agency except for those used in general management and payroll, 
including acquisition of automatic data processing hardware or software 
whether by outright purchase, rental-purchase agreement or other method 
of acquisition. Approval shall be granted by FNS if the proposed system 
meets the requirements of this part, A-130, and 7 CFR part 3016. At the 
time the State agency decides to seek computerization, except for use in 
general management or payroll, it shall inform FNS and seek approval, if 
required.
    (2) Capital expenditures over $2,500.00, such as the cost of 
facilities, equipment, including medical equipment, other capital assets 
and any repairs that materially increase the value of useful life of 
capital assets.
    (3) Management studies performed by agencies or departments other 
than the State or local agency or those performed by outside consultants 
under contract with the State or local agency.
    (e) How and when may I use my funds recovered from vendors and 
participants?
    (1) The State agency may keep funds collected through the recovery 
of claims assessed against food vendors or participants. Recovered funds 
include

[[Page 364]]

those withheld from a vendor as a result of reviews of food instruments 
prior to payment. Recovered funds may be used for either food or NSA 
costs.
    (2) These recovered funds may be used in the fiscal year:
    (i) In which the initial obligation was made;
    (ii) In which the claim arose;
    (iii) In which the funds are collected; or
    (iv) after the funds are collected.
    (3) The State agency may not credit any recoveries until:
    (i) In the case of a vendor claim, the vendor has had the 
opportunity to correct or justify the error or apparent overcharge in 
accordance with Sec.  246.12(k)(3); or
    (ii) In the case of a participant, any administrative hearing 
requested in accordance with Sec.  246.9 has been completed.
    (4) The State agency must report vendor and participant recoveries 
to FNS through the normal reporting process;
    (5) The State agency must keep documentation supporting the amount 
and use of these vendor and participant recoveries.

[50 FR 6121, Feb. 13, 1987, as amended at 52 FR 21237, June 4, 1987; 53 
FR 25314, July 6, 1988; 54 FR 18091, Apr. 27, 1989; 58 FR 11507, Feb. 
26, 1993; 59 FR 11503, Mar. 11, 1994; 63 FR 63974, Nov. 18, 1998; 64 FR 
67999, Dec. 6, 1999; 64 FR 70178, Dec. 16, 1999; 65 FR 83286, Dec. 29, 
2000]



Sec.  246.15  Program income other than grants.

    (a) Interest earned on advances. Interest earned on advances of 
Program funds at the State and local levels shall be treated in 
accordance with the provisions of 31 CFR Part 205, which implement the 
requirements of the Cash Management Improvement Act of 1990. However, 
State agencies will not incur an interest liability to the Federal 
government on rebate funds for infant formula or other foods, provided 
that all interest earned on such funds is used for program purposes.
    (b) Other Program income. The State agency may use current Program 
income for costs incurred in the current fiscal year and, with the 
approval of FNS, for costs incurred in previous or subsequent fiscal 
years. With the approval of FNS, Program income may be used for costs 
which are in addition to the allowable costs of the Program but which 
nevertheless further the objectives of the law authorizing the Program. 
Provided that the costs supported by the income further the broad 
objectives of the Program, they need not be a kind that would be 
permissible as charges to Federal funds. Money received by the State 
agency as a result of civil money penalties or fines assessed against a 
vendor and any interest charged in the collection of these penalties and 
fines shall be considered as program income.

[50 FR 6121, Feb. 13, 1985, as amended at 63 FR 63974, Nov. 18, 1998; 64 
FR 13324, Mar. 18, 1999]



Sec.  246.16  Distribution of funds.

    (a) General. This paragraph describes the timeframes for 
distribution of appropriated funds by the Department to participating 
State agencies and the authority for the Secretary to use appropriated 
funds for evaluation studies and demonstration projects.
    (1) Authorized appropriations to carry out the provisions of this 
section may be made not more than 1 year in advance of the beginning of 
the fiscal year in which the funds shall become available for 
disbursement to the State agencies. The funds shall remain available for 
the purposes for which appropriated until expended.
    (2) In the case of appropriations legislation providing funds 
through the end of a fiscal year, the Secretary shall issue to State 
agencies an initial allocation of funds provided under such legislation 
not later than the expiration of the 15-day period beginning on the date 
of the enactment and subsequent allocation of funds shall be issued not 
later than the beginning of each of the second, third and fourth 
quarters of the fiscal year.
    (3) Allocations of funds pursuant to paragraph (a)(2) of this 
section shall be made as follows: The initial allocation of funds to 
State agencies shall include not less than \1/3\ of the appropriated 
amounts for the fiscal year. The allocation of funds to be made not 
later than the beginning of the second and third quarters shall each 
include not less

[[Page 365]]

than \1/4\ of the appropriated amounts for the fiscal year.
    (4) In the case of legislation providing funds for a period that 
ends prior to the end of a fiscal year, the Secretary shall issue to 
State agencies an initial allocation of funds not later than the 
expiration of the 10-day period beginning on the date of enactment. In 
the case of legislation providing appropriations for a period of not 
more than 4 months, all funds must be allocated to State agencies except 
those reserved by the Secretary to carry out paragraph (a)(6) of this 
section.
    (5) In any fiscal year unused amounts from a prior fiscal year that 
are identified by the end of the first quarter of the fiscal year shall 
be recovered and reallocated not later than the beginning of the second 
quarter of the fiscal year. Unused amounts from a prior fiscal year that 
are identified after the end of the first quarter of the fiscal year 
shall be recovered and reallocated on a timely basis.
    (6) Up to one-half of one percent of the sums appropriated for each 
fiscal year, not to exceed $5,000,000, shall be available to the 
Secretary for the purpose of evaluating Program performance, evaluating 
health benefits, providing technical assistance to improve State agency 
administrative systems, preparing reports on program participant 
characteristics, and administering pilot projects, including projects 
designed to meet the special needs of migrants, Indians, rural 
populations, and to carry out technical assistance and research 
evaluation projects for the WIC Farmers' Market Nutrition Program.
    (b) Distribution and application of grant funds to State agencies. 
Notwithstanding any other provision of law, funds made available to the 
State agencies for the Program in any fiscal year will be managed and 
distributed as follows:
    (1) The State agency shall ensure that all Program funds are used 
only for Program purposes. As a prerequisite to the receipt of funds, 
the State agency shall have executed an agreement with the Department 
and shall have received approval of its State Plan.
    (2) Notwithstanding any other provision of law, all funds not made 
available to the Secretary in accordance with paragraph (a)(6) of this 
section shall be distributed to State agencies on the basis of funding 
formulas which allocate funds to all State agencies for food costs and 
NSA costs incurred during the fiscal year for which the funds had been 
made available to the Department. Final State agency grant levels as 
determined by the funding formula and State agency breastfeeding 
promotion and support expenditure targets will be issued in a timely 
manner.
    (3) When may I transfer funds from one fiscal year to another?
    (i) Back spend authority. The State agency may back spend into the 
prior fiscal year up to an amount equal to one percent of its current 
year food grant and one percent of its current year NSA grant. Food 
funds spent back may be used only for food costs incurred during the 
prior fiscal year. NSA funds spent back may be used for either food or 
NSA costs incurred during the prior fiscal year. With prior FNS 
approval, the State agency may also back spend food funds up to an 
amount equal to three percent of its current year food grant in a fiscal 
year for food costs incurred in the prior fiscal year. FNS will approve 
such a request only if FNS determines there has been a significant 
reduction in infant formula cost containment savings that affected the 
State agency's ability to maintain its participation level.
    (ii) Spend forward authority. (A) The State agency may spend forward 
NSA funds up to an amount equal to one percent of their total grant (NSA 
plus food grants) in any fiscal year. These NSA funds spent forward may 
be used only for NSA costs incurred in the next fiscal year. Any food 
funds that the State agency converts to NSA funds pursuant to paragraph 
(f) of this section (based on projected or actual participation 
increases during a fiscal year) may not be spent forward into the next 
fiscal year. With prior FNS approval, the State agency may spend forward 
additional NSA funds up to an amount equal to one-half of one percent of 
its total grant. These funds are to be used in the next fiscal year for

[[Page 366]]

the development of a management information system, including an 
electronic benefit transfer system.
    (B) Funds spent forward will not affect the amount of funds 
allocated to the State agency for any fiscal year. Funds spent forward 
must be the first funds expended by the State agency for costs incurred 
in the next fiscal year.
    (iii) Reporting requirements. In addition to obtaining prior FNS 
approval for certain spend forward/back spending options, the State 
agency must report to FNS the amount of all funds it already has or 
intends to back spend and spend forward. The spending options must be 
reported at closeout.
    (c) Allocation formula. State agencies shall receive grant 
allocations according to the formulas described in this paragraph. To 
accomplish the distribution of funds under the allocation formulas, 
State agencies shall furnish the Department with any necessary financial 
and Program data.
    (1) Use of participation data in the formula. Wherever the formula 
set forth in paragraphs (c)(2) and (c)(3) of this section require the 
use of participation data, the Department shall use participation data 
reported by State agencies according to Sec.  246.25(b).
    (2) How is the amount of NSA funds determined? The funds available 
for allocation to State agencies for NSA for each fiscal year must be 
sufficient to guarantee a national average per participant NSA grant, 
adjusted for inflation. The amount of the national average per 
participant grant for NSA for any fiscal year will be an amount equal to 
the national average per participant grant for NSA issued for the 
preceding fiscal year, adjusted for inflation. The inflation adjustment 
will be equal to the percentage change between two values. The first is 
the value of the index for State and local government purchases, as 
published by the Bureau of Economic Analysis of the Department of 
Commerce, for the 12-month period ending June 30 of the second preceding 
fiscal year. The second is the best estimate that is available at the 
start of the fiscal year of the value of such index for the 12-month 
period ending June 30 of the previous fiscal year. Funds for NSA costs 
will be allocated according to the following procedure:
    (i) Fair share target funding level determination. For each State 
agency, FNS will establish, using all available NSA funds, an NSA fair 
share target funding level which is based on each State agency's average 
monthly participation level for the fiscal year for which grants are 
being calculated, as projected by FNS. Each State agency receives an 
adjustment to account for the higher per participant costs associated 
with small participation levels and differential salary levels relative 
to a national average salary level. The formula shall be adjusted to 
account for these cost factors in the following manner: 90 percent of 
available funds shall provide compensation based on rates which are 
proportionately higher for the first 15,000 or fewer participants, as 
projected by FNS, and 10 percent of available funds shall provide 
compensation based on differential salary levels, as determined by FNS.
    (ii) Base funding level. To the extent funds are available and 
subject to the provisions of paragraph (c)(2)(iv) of this section, each 
State agency shall receive an amount equal to 100 percent of the final 
formula-calculated NSA grant of the preceding fiscal year, prior to any 
operational adjustment funding allocations made under paragraph 
(c)(2)(iv) of this section. If funds are not available to provide all 
State agencies with their base funding level, all State agencies shall 
have their base funding level reduced by a pro-rata share as required by 
the shortfall of available funds.
    (iii) Fair share allocation. Any funds remaining available for 
allocation for NSA after the base funding level required by paragraph 
(c)(2)(ii) of this section has been completed and subject to the 
provisions of paragraph (c)(2)(iv) of this section shall be allocated to 
bring each State agency closer to its NSA fair share target funding 
level. FNS shall make fair share allocation funds available to each 
State agency based on the difference between the NSA fair share target 
funding level and the base funding level, which are determined in 
accordance with paragraphs (c)(2)(i) and (c)(2)(ii) of this section, 
respectively. Each State agency's difference shall be divided by the sum 
of the differences for all State agencies,

[[Page 367]]

to determine the percent share of the available fair share allocation 
funds each State agency shall receive.
    (iv) Operational adjustment funds. Each State agency's final NSA 
grant shall be reduced by up to 10 percent, and these funds shall be 
aggregated for all State agencies within each FNS region to form an 
operational adjustment fund. The Regions shall allocate these funds to 
State agencies according to national guidelines and shall consider the 
varying needs of State agencies within the region.
    (v) Operational level. The sum of each State agency's stability, 
residual and operational adjustment funds shall constitute the State 
agency's operational level. This operational level shall remain 
unchanged for such year even if the number of Federally-supported 
participants in the program at such State agency is lower than the 
Federally-projected participation level. However, if the provisions of 
paragraph (e)(2)(ii) of this section are applicable, a State agency will 
have its operational level for NSA reduced in the immediately succeeding 
fiscal year.
    (3) Allocation of food benefit funds. In any fiscal year, any 
amounts remaining from amounts appropriated for such fiscal year and 
amounts appropriated from the preceding fiscal year after making 
allocations under paragraph (a)(6) of this section and allocations for 
nutrition services and administration (NSA) as required by paragraph 
(c)(2) of this section shall be made available for food costs. 
Allocations to State agencies for food costs will be determined 
according to the following procedure:
    (i) Fair share target funding level determination. (A) For each 
State agency, FNS will establish a fair share target funding level which 
shall be an amount of funds proportionate to the State agency's share of 
the national aggregate population of persons who are income eligible to 
participate in the Program based on the 185 percent of poverty 
criterion. The Department will determine each State agency's population 
of persons categorically eligible for WIC which are at or below 185% of 
poverty, through the best available, nationally uniform, indicators as 
determined by the Department. If the Commodity Supplemental Food Program 
(CSFP) also operates in the area served by the WIC State agency, the 
number of participants in such area participating in the CSFP but 
otherwise eligible to participate in the WIC Program, as determined by 
FNS, shall be deducted from the WIC State agency's population of income 
eligible persons. If the State agency chooses to exercise the option in 
Sec.  246.7(c)(2) to limit program participation to U.S. citizens, 
nationals, and qualified aliens, FNS will reduce the State agency's 
population of income eligible persons to reflect the number of aliens 
the State agency declares no longer eligible.
    (B) The Department may adjust the respective amounts of food funds 
that would be allocated to a State agency which is outside the 48 
contiguous states and the District of Columbia when the State agency can 
document that economic conditions result in higher food costs for the 
State agency. Prior to any such adjustment, the State agency must 
demonstrate that it has successfully implemented voluntary cost 
containment measures, such as improved vendor management practices, 
participation in multi-state agency infant formula rebate contracts or 
other cost containment efforts. The Department may use the Thrifty Food 
Plan amounts used in the Food Stamp Program, or other available data, to 
formulate adjustment factors for such State agencies.
    (ii) Prior year grant level allocation. To the extent funds are 
available, each State agency shall receive a prior year grant allocation 
equal to its final authorized grant level as of September 30 of the 
prior fiscal year. If funds are not available to provide all State 
agencies with their full prior year grant level allocation, all State 
agencies shall have their full prior year grant level allocation reduced 
by a pro-rata share as required by the shortfall of available funds.
    (iii) Inflation/fair share allocation. (A) If funds remain available 
after the allocation of funds under paragraph (c)(3)(ii) of this 
section, the funds shall be allocated as provided in this paragraph 
(c)(3)(iii). First, FNS will calculate a target inflation allowance by 
applying the anticipated rate of food

[[Page 368]]

cost inflation, as determined by the Department, to the prior year grant 
funding level. Second, FNS will allocate 80 percent of the available 
funds to all State agencies in proportionate shares to meet the target 
inflation allowance. Third, FNS will allocate 20 percent of the 
available funds to each State agency which has a prior year grant level 
allocation, as determined in paragraph (c)(3)(ii) of this section and 
adjusted for inflation as determined in this paragraph (c)(3)(iii), 
which is still less than its fair share target funding level. The amount 
of funds allocated to each State agency shall be based on the difference 
between its prior year grant level allocation plus target inflation 
funds and the fair share funding target level. Each State agency's 
difference shall be divided by the sum of the differences for all such 
State agencies, to determine the percentage share of the 20 percent of 
available funds each State agency shall receive. In the event a State 
agency declines any of its allocation under either this paragraph 
(c)(3)(iii) or paragraph (c)(3)(ii) of this section, the declined funds 
shall be reallocated in the percentages and manner described in this 
paragraph (c)(3)(iii). Once all State agencies receive allocations equal 
to their full target inflation allowance, any remaining funds shall be 
allocated or reallocated, in the manner described in this paragraph 
(c)(3)(iii), to those State agencies still under their fair share target 
funding level.
    (B) In the event funds still remain after completing the 
distribution in paragraph (c)(3)(iii)(A) of this section, these funds 
shall be allocated to all State agencies including those with a 
stability allocation at, or greater than, their fair share allocation. 
Each State agency which can document the need for additional funds shall 
receive additional funds based on the difference between its prior year 
grant level and its fair share allocation. State agencies closest to 
their fair share allocation shall receive first consideration.
    (iv) Migrant services. At least \9/10\ of one percent of 
appropriated funds for each fiscal year shall be available first to 
assure service to eligible members of migrant populations. For those 
State agencies serving migrants, a portion of the grant shall be 
designated to each State agency for service to members of migrant 
populations based on that State agency's prior year reported migrant 
participation. The national aggregate amount made available first for 
this purpose shall equal \9/10\ of one percent of all funds appropriated 
each year for the Program.
    (v) Special provisions for Indian State agencies. The Department may 
choose to adjust the allocations and/or eligibles data among Indian 
State agencies, or among Indian State agencies and the geographic State 
agencies in which they are located when eligibles data for the State 
agencies' population is determined to not fairly represent the 
population to be served. Such allocations may be redistributed from one 
State agency to another, based on negotiated agreements among the 
affected State agencies approved by FNS.
    (4) Adjustment for new State agencies. Whenever a State agency that 
had not previously administered the program enters into an agreement 
with the Department to do so during a fiscal year, the Department shall 
make any adjustments to the requirements of this section that are deemed 
necessary to establish an appropriate initial funding level for such 
State agency.
    (d) Distribution of funds to local agencies. The State agency shall 
provide to local agencies all funds made available by the Department, 
except those funds necessary for allowable State agency NSA costs and 
food costs paid directly by the State agency. The State agency shall 
distribute the funds based on claims submitted at least quarterly by the 
local agency. Where the State agency advances funds to local agencies, 
the State agency shall ensure that each local agency has funds to cover 
immediate disbursement needs, and the State agency shall offset the 
advances made against incoming claims as they are submitted to ensure 
that funding levels reflect the actual expenditures reported by the 
local agency. Upon receipt of Program funds from the Department, the 
State agency shall take the following actions:
    (1) Distribute funds to cover expected food cost expenditures and/or 
distribute caseload targets to each local

[[Page 369]]

agency which are used to project food cost expenditures.
    (2) Allocate funds to cover expected local agency NSA costs in a 
manner which takes into consideration each local agency's needs. For the 
allocation of NSA funds, the State agency shall develop an NSA funding 
procedure, in cooperation with representative local agencies, which 
takes into account the varying needs of the local agencies. The State 
agency shall consider the views of local agencies, but the final 
decision as to the funding procedure remains with the State agency. The 
State agency shall take into account factors it deems appropriate to 
further proper, efficient and effective administration of the program, 
such as local agency staffing needs, density of population, number of 
persons served, and availability of administrative support from other 
sources.
    (3) The State agency may provide in advance to any local agency any 
amount of funds for NSA deemed necessary for the successful commencement 
or significant expansion of program operations during a reasonable 
period following approval of a new local agency, a new cost containment 
measure, or a significant change in an existing cost containment 
measure.
    (e) Recovery and reallocation of funds. (1) Funds may be recovered 
from a State agency at any time the Department determines, based on 
State agency reports of expenditures and operations, that the State 
agency is not expending funds at a rate commensurate with the amount of 
funds distributed or provided for expenditures under the Program. 
Recovery of funds may be either voluntary or involuntary in nature. Such 
funds shall be reallocated by the Department through application of 
appropriate formulas set forth in paragraph (c) of this section.
    (2) Performance standards. The following standards shall govern 
expenditure performance.
    (i) The amount allocated to any State agency for food benefits in 
the current fiscal year shall be reduced if such State agency's food 
expenditures for the preceding fiscal year do not equal or exceed 97 
percent of the amount allocated to the State agency for such costs. Such 
reduction shall equal the difference between the State agency's 
preceding year food expenditures and the performance expenditure 
standard amount. For purposes of determining the amount of such 
reduction, the amount allocated to the State agency for food benefits 
for the preceding fiscal year shall not include food funds expended for 
food costs incurred under the spendback provision in paragraph (b)(3)(i) 
of this section or conversion authority in paragraph (g) of this 
section. Temporary waivers of the performance standard may be granted at 
the discretion of the Department.
    (ii) Reduction of NSA grant. FNS will reduce the State agency's NSA 
grant for the next fiscal year if the State agency's current fiscal year 
per participant NSA expenditure is more than 10 percent higher than its 
per participant NSA grant. To avoid a reduction to its NSA grant level, 
the State agency may submit a ``good cause'' justification explaining 
why it exceeded the applicable limit on excess NSA expenditures. This 
justification must be submitted at the same time as the close-out report 
for the applicable fiscal year. Good cause may include dramatic and 
unforeseen increases in food costs, which would prevent a State agency 
from meeting its projected participation level.
    (iii) Spend forward funds. If any State agency notifies the 
Department of its intent to spend forward a specific amount of funds for 
expenditure in the subsequent fiscal year, in accordance with paragraph 
(b)(3)(ii) of this section, such funds shall not be subject to recovery 
by the Department.
    (f) How do I qualify to convert food funds to NSA funds based on 
increased participation? (1) Requirements. The State agency qualifies to 
convert food funds to NSA funds based on increased participation in any 
fiscal year in two ways:
    (i) Approved plan. A State agency may submit a plan to FNS to reduce 
average food costs per participant and to increase participation above 
the FNS-projected level for the State agency. If approved, the State 
agency may use funds allocated for food costs to pay NSA costs.
    (ii) Participation increases achieved. The State agency may also 
convert

[[Page 370]]

food funds to NSA funds in any fiscal year if it achieves, through 
acceptable measures, increases in participation in excess of the FNS-
projected level for the State agency. Acceptable measures include use of 
cost containment measures, curtailment of vendor abuse, and 
breastfeeding promotional activities. FNS will disallow the State 
agency's conversion of food funds to NSA funds in accordance with 
paragraph (h) of this section if:
    (A) The State agency increases its participation level through 
measures that are not in the nutritional interests of participants; or
    (B) It is not otherwise allowable under program regulations.
    (2) Limitation. The State agency may convert food funds only to the 
extent that the conversion is necessary--
    (i) To cover NSA expenditures in the current fiscal year that exceed 
the State agency's NSA grant for the current fiscal year and any NSA 
funds which the State agency has spent forward into the current fiscal 
year; and
    (ii) To ensure that the State agency maintains the level established 
for the per participant NSA grant for the current fiscal year.
    (3) Maximum amount. The maximum amount the State agency may convert 
equals the State agency's conversion rate times the projected or actual 
participation increase, as applicable. The conversion rate is the same 
as the per participant NSA grant and is determined by dividing the State 
agency's NSA grant by the FNS-projected participation level. The NSA 
grant used in the calculation equals the initial allocation of current 
year funds plus the operational adjustment funding allocated to the 
State agency for that fiscal year.
    (g) How do I qualify to convert food funds to NSA funds for service 
to remote Indian or Native villages? (1) Eligible State agencies. Only 
State agencies located in noncontiguous States containing a significant 
number of remote Indian or Native villages qualify to convert food funds 
to NSA funds under this paragraph (g) in any fiscal year.
    (2) Limitation. In the current fiscal year, food funds may be 
converted only to the extent necessary to cover expenditures incurred:
    (i) In providing services (including the full cost of air 
transportation and other transportation) to remote Indian or Native 
villages; and
    (ii) To provide breastfeeding support in those areas that exceed the 
State agency's NSA grant for the current fiscal year and any NSA funds 
which the State agency has spent forward into the current fiscal year.
    (h) What happens at the end of the fiscal year in which food funds 
are converted? At the end of the fiscal year, the Department will 
determine the amount of food funds which the State agency was entitled 
to convert to NSA funds under paragraphs (f) and (g) of this section. In 
the event that the State agency has converted more than the permitted 
amount of funds, the Department will disallow the amount of excess 
conversion.
    (i) How do converted funds affect the calculation of my prior year 
food grant and base NSA grant? For purposes of establishing a State 
agency's prior year food grant and base NSA grant under paragraphs 
(c)(2)(i) and (c)(3)(i) of this section, respectively, amounts converted 
from food funds to NSA funds under paragraphs (f) and (g) of this 
section and Sec.  246.14(e) during the preceding fiscal year will be 
treated as though no conversion had taken place.

[50 FR 6121, Feb. 13, 1985, as amended at 52 FR 21237, June 4, 1987; 52 
FR 25190, July 2, 1987; 53 FR 2221, Jan. 27, 1988; 53 FR 25315, July 6, 
1988; 54 FR 18091, Apr. 27, 1989, 54 FR 19486, May 5, 1989; 58 FR 51568, 
Oct. 4, 1993; 59 FR 11504, Mar. 11, 1994; 59 FR 50823, Oct. 6, 1994; 63 
FR 63974, Nov. 18, 1998; 64 FR 56674, Oct. 21, 1999; 64 FR 61016, Nov. 
9, 1999; 64 FR 68000, Dec. 6, 1999; 65 FR 51224, Aug. 23, 2000; 65 FR 
53528, Sept. 5, 2000; 65 FR 77771, Dec. 13, 2000; 65 FR 80281, Dec. 21, 
2000]



Sec.  246.16a  Infant formula cost containment.

    (a) Who must use cost containment procedures for infant formula? All 
State agencies must continuously operate a cost containment system for 
infant formula that is implemented in accordance with this section 
except:
    (1) State agencies with home delivery or direct distribution food 
delivery systems;
    (2) Indian State agencies with 1,000 or fewer participants in April 
of any fiscal

[[Page 371]]

year, which are exempt for the following fiscal year;
    (3) State agencies granted a waiver under paragraph (e) of this 
section; and
    (4) State agencies granted a postponement under paragraph (f) of 
this section.
    (b) What cost containment procedures must be used? State agencies 
must use either a single-supplier competitive system as outlined in 
paragraph (c) of this section, or an alternative cost containment system 
as outlined in paragraph (d) of this section.
    (c) What is the single-supplier competitive system? Under the 
single-supplier competitive system, a State agency solicits sealed bids 
from infant formula manufacturers to supply and provide a rebate for 
infant formulas. The State agency must conduct the procurement in a 
manner that maximizes full and open competition consistent with the 
requirements of this section.
    (1) How must a State agency structure the bid solicitation? (i) 
Single solicitation. Under the single solicitation system, the State 
agency's bid solicitation must require the winning bidder to supply and 
provide a rebate on all infant formulas it produces that the State 
agency chooses to issue, except exempt infant formulas. Rebates must 
also be paid on any new infant formulas that are introduced after the 
contract is awarded. The solicitation must require bidders that do not 
produce a soy-based infant formula to subcontract with another 
manufacturer to supply a soy-based infant formula under the contract. In 
this case, the bid solicitation must require that the winning bidder pay 
the State agency a rebate on the soy-based infant formula supplied by 
the subcontractor that is issued by the State agency. The bid 
solicitation must require all rebates (including those for soy-based 
infant formula supplied by a subcontractor) to be calculated in 
accordance with paragraph (c)(5) of this section. All of these infant 
formulas are called contract brand infant formulas.
    (ii) Separate solicitations. Under the separate solicitation system, 
a State agency issues two bid solicitations. The first solicitation must 
require the winning bidder to supply and provide a rebate on all milk-
based infant formulas it produces that the State agency chooses to 
issue, except exempt infant formulas. Rebates must also be paid on any 
new milk-based infant formulas that are introduced by the manufacturer 
after the contract is awarded. These infant formulas are considered to 
be contract brand infant formulas. The second bid solicitation must 
require the winning bidder to supply and provide a rebate on all soy-
based infant formulas it produces that the State agency chooses to 
issue. Rebates must also be paid on any new soy-based infant formulas 
that are introduced by the manufacturer after the contract is awarded. 
These infant formulas are also considered to be contract brand infant 
formulas.
    (2) On what types and physical forms of infant formula must bids be 
solicited? The bid solicitation must require bidders to specify a rebate 
for each of the types and physical forms of infant formulas specified in 
the following chart. These rebates apply proportionally to other infant 
formulas produced by the winning bidder(s) (see paragraph (c)(5) of this 
section). For purposes of this section the infant formula on which bids 
are solicited is the primary contract brand infant formula.

------------------------------------------------------------------------
                                Physical forms of      Infant formula
    Type of infant formula        infant formula        requirements
------------------------------------------------------------------------
 (i) For a single solicitation, the solicitation must require bidders to
               specify a rebate amount for the following:
------------------------------------------------------------------------
A single milk-based infant      Concentrated       Meets requirements
 formula (primary contract       liquid,            under Sec.
 brand infant formula);          powdered, and      246.10(c)(1)(i) and
 bidders must specify the        ready-to-feed.     suitable for routine
 brand name of the milk-based                       issuance to the
 infant formula for which the                       majority of
 rebate is being specified.                         generally healthy,
                                                    full-term infants.
-------------------------------

[[Page 372]]

 
 (ii) For separate solicitations, the solicitation must require bidders
              to specify a rebate amount for the following:
------------------------------------------------------------------------
(A) A single milk-based infant  Concentrated       Meets requirements
 formula (primary milk-based     liquid,            under Sec.
 contract brand infant           powdered, and      246.10(c)(1)(i) and
 formula); bidders must          ready-to-feed.     suitable for routine
 specify the brand name of the                      issuance to the
 milk-based infant formula for                      majority of
 which the rebate is being                          generally healthy,
 specified.                                         full-term infants.
-------------------------------
(B) A single soy-based infant   Concentrated       Meets requirements
 formula (primary soy-based      liquid,            under Sec.
 contract brand infant           powdered, and      246.10(c)(1)(i).
 formula); bidders must          ready-to-feed.
 specify the brand name of the
 soy-based infant formula for
 which the rebate is being
 specified.
------------------------------------------------------------------------

    (3) How are contracts awarded? A State agency must award the 
contract(s) to the responsive and responsible bidder(s) offering the 
lowest total monthly net price for infant formula or the highest monthly 
rebate (subject to paragraph (c)(3)(ii) of this section) for a 
standardized number of units of infant formula. The State agency must 
calculate the lowest net price using the lowest national wholesale cost 
per unit for a full truckload of the infant formula on the date of the 
bid opening.
    (i) Calculating the standardized number of units of infant formula. 
The State agency must specify a standardized number of units (e.g., 
cans) of infant formula by physical form (e.g., concentrated liquid, 
powdered, and ready-to-feed) to be bid upon. The standardized number of 
units must contain the equivalent of the total number of ounces by 
physical form needed to give the maximum allowance to the average 
monthly number of infants using each form. The number of infants does 
not include infant participants who are exclusively breastfed and those 
who are issued exempt infant formula. The average monthly number of 
infant using each physical form must be based on at least 6 months of 
the most recent participation and issuance data. In order to calculate 
the standardized number of units of infant formula by form to be bid 
upon, the average monthly number of infants using each physical form is 
multiplied by the maximum monthly allowable number of ounces for each 
form (as allowed under Sec.  246.10(c)(1)(vi)), and divided by the 
corresponding unit size (i.e., number of ounces per unit being bid). In 
order to compare bids, total cost is calculated by multiplying this 
standardized number of units by the net price for each physical form. 
Alternative calculations that arrive at a mathematically equivalent 
result are acceptable.
    (ii) Determining the lowest total monthly net price or highest 
rebate. To determine the lowest total monthly net price a State agency 
must multiply the net price per unit by the established standardized 
amount of infant formula to be bid upon as calculated in paragraph 
(c)(3)(i) of this section. If the bid evaluation is based on highest 
rebate offered, the State agency must multiply the rebate offered by the 
established amount of infant formula to be bid upon as calculated in 
paragraph (c)(3)(i) of this section.
    (iii) Highest rebate limitation. Before issuing the bid 
solicitation, a State agency that elects to evaluate bids by highest 
rebate must demonstrate to FNS' satisfaction that the weighted average 
retail prices for different brands of infant formula in the State vary 
by 5 percent or less. The weighted average retail price must take into 
account the prices charged for each type and physical form of infant 
formula by authorized vendors or, if a State agency elects, it may 
include stores that do not participate in the WIC program in the State. 
The State agency must also base calculations on the proportion of each 
type and physical form of infant formula the State agency issues based 
on the data provided to bidders pursuant to paragraph (c)(4) of this 
section.
    (4) What data must be provided to bidders? The State agency must 
provide as part of the bid solicitation the participation and infant 
formula usage data and the standardized number of ounces

[[Page 373]]

by physical form of infant formula to be used in evaluating bids as 
described in paragraph (c)(3) of this section. The State agency must 
notify bidders that the participation and infant formula usage data does 
not necessarily reflect the actual issuance and redemption that will 
occur under the contract.
    (5) How is the rebate to be calculated on all other contract brand 
infant formulas? All bids must specify the rebates offered by each 
bidder for the primary contract brand infant formula(s). After the 
contract is awarded, the State agency must calculate the percentage 
discount for all other contract brand infant formulas (i.e., all other 
infant formulas produced by the bidder other than exempt infant 
formulas) approved for issuance by the State agency. The State agency 
must use the following method in calculating the rebates:
    (i) Calculation of percentage discounts. Rebates for contract brand 
infant formulas, other than the primary contract brand infant formula(s) 
for which bids were received, must be calculated by first determining 
the percentage discount for each physical form (e.g., concentrated 
liquid, powdered, and ready-to-feed) of the primary contract brand 
infant formula(s). The percentage discount must be calculated by 
dividing the rebate for the primary contract brand infant formula by the 
manufacturer's lowest national wholesale price per unit, as of the date 
of the bid opening, for a full truckload of the primary contract infant 
formula. The percentage discounts must be used to determine the rebate 
for all other contract brand infant formulas approved for issuance by 
the State agency.
    (ii) Calculation of rebate amount. The rebate for each type and form 
of all other contract brand infant formulas must be calculated by 
multiplying the percentage discount by the manufacturer's lowest 
national wholesale price per unit, as of the date of the bid opening, 
for a full truckload of the other contract brand infant formula. The 
percentage discount used for each of the other contract brand infant 
formulas depends on the physical form of the infant formula. For 
example, if the percentage discount provided for the primary contract 
brand powdered infant formula is 80 percent of its wholesale price, the 
same percentage discount must be applied to all other contract brand 
powdered infant formulas. The rebate for any types or forms of contract 
brand infant formulas that are introduced during the contract period 
must be calculated using the wholesale prices of these new contract 
brand infant formulas at the time the infant formulas are approved for 
issuance by the State agency.
    (iii) Calculation of rebates during contract term. The rebates 
resulting from the application of the percentage discount must remain 
the same throughout the contract period except for the inflation 
adjustments required in paragraph (c)(5)(iv) of this section.
    (iv) Inflation provisions. Bid solicitations must require the 
manufacturer to adjust for price changes subsequent to the bid opening. 
The inflation provision may require either a cent-for-cent increase in 
the rebate amounts whenever there is any change in the lowest national 
wholesale price for a full truckload of the particular infant formula, 
or may require another equally effective cost adjustment mechanism for 
inflation as established by the State agency in the bid solicitation.
    (6) Does a State agency have to approve the issuance of all contract 
brand infant formulas? No, the State agency may choose to approve for 
issuance, in addition to the primary contract brand infant formula(s), 
none, some, or all of the winning bidder's other infant formula(s). In 
addition, the State agency may require medical documentation before 
issuing any contract brand infant formula (see Sec.  246.10(c)(1)(i)) 
and must require medical documentation before issuing any WIC formula 
covered by Sec.  246.10(c)(1)(iii).
    (d) What is an alternative cost containment system? Under an 
alternative cost containment system, a State agency elects to implement 
an infant formula cost containment system of its choice. The State 
agency may only implement an alternative system if such a system 
provides a savings equal to or greater than a single-supplier 
competitive system. A State agency must conduct a cost comparison 
demonstrating such savings as described in paragraphs (d)(1) and (d)(2) 
of this section.

[[Page 374]]

    (1) How must the State agency structure the bid solicitation? The 
State agency must solicit bids simultaneously using the single-supplier 
competitive system described in paragraph (c) of this section and the 
alternative cost containment system(s) the State agency has selected. 
The State agency may prescribe standards of its choice for the 
alternative cost containment system(s), provided that conditions 
established for each system addressed in the bid solicitation include 
identical bid specifications for the contract period length and the 
types and forms of infant formula(s) to be included in the systems. In 
addition, the alternative cost containment system must cover the types 
and forms of infant formulas routinely issued to the majority of 
generally healthy, full-term infants. The State agency must use the 
procedure outlined in paragraph (d)(2) of this section in conducting a 
cost comparison to determine which system offers the greatest savings 
over the entire contract period specified in the bid solicitation.
    (2) How does the State agency conduct the cost comparison? (i) 
Establishing infant formula cost containment savings. (A) Savings under 
the single-supplier competitive system. The State agency must project 
food cost savings in the single-supplier competitive system based on the 
lowest monthly net price or highest monthly rebate, as described in 
paragraph (c)(3) of this section.
    (B) Savings under an alternative cost containment system. The State 
agency must project food cost savings under alternative cost containment 
systems based on the lowest monthly net cost or highest monthly rebate, 
as described in paragraph (c)(3) of this section. Food cost savings must 
be based on the standardized amount of infant formula expected to be 
issued as calculated for a single-supplier competitive system, prorated 
by the percentage of anticipated total infant formula purchases 
attributable to each manufacturer. The State agency must use the 
aggregate market share of the manufacturers submitting bids in 
calculating its cost savings estimate.
    (C) General. In establishing the potential food cost savings under 
each system, the State agency must take into consideration in its 
estimate of savings any inflation factors which would affect the amount 
of savings over the life of the contract. Further, the State agency must 
not subtract any loss of payments which would occur under the terms of a 
current contract as a result of any State agency action to be effective 
after expiration of the contract.
    (ii) Nutrition services and administration cost adjustment. The 
State agency must deduct from the food cost savings projected for each 
system under this paragraph (d) the nutrition services and 
administration costs associated with developing and implementing--but 
not operating--each cost containment system. This includes any 
anticipated costs for modifying its automated data processing system or 
components of its food delivery system(s), and of training participants, 
local agencies, vendors, and licensed health care professionals on the 
purpose and procedures of the new system. For contracts of two years or 
less, such costs must be proportionately distributed over at least a two 
year period. The State agency must not deduct any costs associated with 
procurement. The State agency must itemize and justify all nutrition 
services and administration cost adjustments as necessary and reasonable 
for the development and implementation of each system.
    (iii) Final cost comparison. The State agency must calculate the 
food costs savings and deduct the appropriate nutrition services and 
administration costs for each system for which bids were received. The 
State agency must implement the single-supplier competitive system, 
unless its comparative cost analysis shows that, over the length of the 
contract stipulated in the bid solicitation, an alternative cost 
containment system offers savings at least equal to, or greater than, 
those under the competitive single-supplier system. If the comparative 
cost analysis permits selection of the alternative cost containment 
system and the State agency wishes to implement that system, it must 
first submit a State Plan amendment with the calculations and supporting 
documentation for this cost analysis to FNS for approval. Only after the 
calculations are approved by FNS may the State agency award the contract 
or contracts

[[Page 375]]

under the alternative cost containment system.
    (e) How does a State agency request a waiver of the requirement for 
a single-supplier competitive system? A State agency which, after 
completing the cost comparison in paragraphs (d)(2)(i) through 
(d)(2)(iii) of this section, is required to implement the single-
supplier competitive cost containment system for infant formula 
procurement, may request a waiver from FNS to permit it to implement an 
alternative system. State agencies must support all waiver requests with 
documentation in the form of a State Plan amendment as required under 
Sec.  246.4(a)(14)(xi) and may submit such requests only in either of 
the following circumstances:
    (1) The difference between the single-supplier competitive system 
and the alternative cost containment system is less than 3 percent of 
the savings anticipated under the latter system and not more than 
$100,000 per annum.
    (2) The single-supplier competitive system would be inconsistent 
with the efficient or effective operation of the program. Examples of 
justifications FNS will not accept for a waiver, include, but are not 
limited to: preservation of participant preference for otherwise 
nutritionally equivalent infant formulas; maintenance of health care 
professionals' prerogatives to prescribe otherwise nutritionally 
equivalent infant formulas for non-medical reasons; potential loss of 
free or otherwise discounted materials to WIC clinics and other health 
care facilities; potential inability of a manufacturer selected in 
accordance with applicable State procurement procedures to supply 
contractually-specified amounts of infant formula; and the possibility 
of interrupted infant formula supplies to retail outlets as a 
consequence of entering into a contract with a single manufacturer.
    (f) How does a State agency request a postponement of the 
requirement for a continuously operated cost containment system for 
infant formula? A State agency may request a postponement of the 
requirement to continuously operate a cost containment system for infant 
formula that has been implemented in accordance with this section. 
However, a State agency may only request a postponement when it has 
taken timely and responsible action to implement a cost containment 
system before its current system expires but has been unable to do so 
due to procurement delays, disputes with FNS concerning cost containment 
issues during the State Plan approval process or other circumstances 
beyond its control. The written postponement request must be submitted 
to FNS before the expiration of the current system. The postponement 
period may be no longer than 120 days. If a postponement is granted, the 
State agency may extend, renew or otherwise continue an existing system 
during the period of the postponement.
    (g) May a State agency implement cost containment systems for other 
supplemental foods? Yes, when a State agency finds that it is 
practicable and feasible to implement a cost containment system for any 
WIC food other than infant formula, the State agency must fully 
implement that system in accordance with the time frames established by 
the State agency and notification must be given to FNS by means of the 
State agency's State Plan.
    (h) What are the implementation time frames for Indian State 
agencies that lose their exemption from the infant formula cost 
containment requirement? If an Indian State agency operating a retail 
food delivery system expands its program participation above 1000 and 
thereby loses its exemption from the requirements of paragraph (a) of 
this section regarding the method of cost containment for infant 
formula, then the Indian State agency must begin compliance with 
paragraph (a) of this section in accordance with time frames established 
by FNS.
    (i) What are the penalties for failure to comply with the cost 
containment requirements? Any State agency that FNS determines to be out 
of compliance with the cost containment requirements of this part must 
not draw down on or obligate any Program grant funds, nor will FNS make 
any further Program funds available to such State agency, until it is in 
compliance with these requirements.
    (j) What provisions are prohibited to be included in cost 
containment contracts? A

[[Page 376]]

State agency may not issue bid solicitations or enter into contracts 
which:
    (1) Prescribe conditions that would void, reduce the savings under 
or otherwise limit the original contract if the State agency solicited 
or secured bids for, or entered into, a subsequent cost containment 
contract to take effect after the expiration of the original contract;
    (2) Does not include the registration and certification requirements 
in Sec.  246.10(f); or
    (3) Require infant formula manufacturers to submit bids on more than 
one of the systems specified in the invitation for bids.
    (k) What are the requirements for the national cost containment bid 
solicitation and selection for infant formula? FNS will solicit and 
select bids for infant formula rebates on behalf of State agencies with 
retail food delivery systems based on the following guidelines:
    (1) FNS will solicit bids and select the winning bidder(s) for 
infant formula cost containment contracts only if two or more State 
agencies with retail food delivery systems request FNS to conduct bid 
solicitation and selection on their behalf. FNS will conduct the bid 
solicitation and selection process only and will not award or enter into 
any infant formula cost containment contract on behalf of the individual 
State agencies. Each State agency will individually award and enter into 
infant formula cost containment contract(s) with the winning bidder(s). 
State agencies must obtain the rebates directly from the infant formula 
manufacturer(s). FNS will conduct the bid solicitation in accordance 
with this paragraph (k) and the competitive bidding procurement 
procedures of the State agency with the highest infant participation in 
the bid group on whose behalf bids are being solicited. Any bid protests 
and contractual disputes are the responsibility of the individual State 
agencies to resolve.
    (2) FNS will make a written offer to all State agencies to conduct 
bid solicitation and selection on their behalf at least once every 12 
months. FNS will send State agencies a copy of the draft Request for 
Rebates when making the offer to State agencies. Only State agencies 
that provide the information required by this paragraph (k)(2) in 
writing, signed by a responsible State agency official, by certified 
mail, return receipt requested or by hand delivery with evidence of 
receipt within 15 days of receipt of the offer will be included in the 
national bid solicitation and selection process. Each interested State 
agency must provide:
    (i) A statement that the State agency requests FNS to conduct bid 
solicitation and selection on its behalf;
    (ii) A statement of the State agency's minimum procurement 
procedures applicable to competitive bidding (as defined in Sec.  246.2) 
for infant formula cost containment contracts and supporting 
documentation;
    (iii) A statement of any limitation on the duration of infant 
formula cost containment contracts and supporting documentation;
    (iv) A statement of any contractual provisions required to be 
included in infant formula cost containment contracts by the State 
agency;
    (v) The most recent available average monthly number of infant 
participants less those infant participants who are exclusively 
breastfed and those who are issued exempt infant formula. The average 
monthly participation level must be based on at least 6 months of 
participation data.
    (vi) Infant formula usage rates by type (e.g., milk-based or soy-
based), form (e.g., concentrated, powdered, ready-to-feed), container 
size, and supporting documentation;
    (vii) A statement of the termination date of the State agency's 
current infant formula cost containment contract; and
    (viii) Any other related information that FNS may request.
    (3) If FNS determines that the number of State agencies making the 
request provided for in paragraph (k)(2) of this section so warrants, 
FNS may, in consultation with such State agencies, divide such State 
agencies into more than one group and solicit bids for each group. These 
groups of State agencies are referred to as ``bid groups''. In 
determining the size and composition of the bid groups, FNS will, to the 
extent practicable, take into account the need to maximize the

[[Page 377]]

number of potential bidders so as to increase competition among infant 
formula manufacturers and the similarities in the State agencies' 
procurement and contract requirements (as provided by the State agencies 
in accordance with paragraphs (k)(2)(ii), (k)(2)(iii) and (k)(2)(iv) of 
this section). FNS reserves the right to exclude a State agency from the 
national bid solicitation and selection process if FNS determines that 
the State agency's procurement requirements or contractual requirements 
are so dissimilar from those of the other State agencies in any bid 
group that the State agency's inclusion in the bid group could adversely 
affect the bids.
    (4) For each bid group formed pursuant to paragraphs (k)(2) and 
(k)(3) of this section, FNS will use for soliciting bids the competitive 
bidding procurement procedures of the State agency in the group with the 
highest infant participation. To the extent not inconsistent with the 
requirements of this paragraph (k), FNS will use that set of procedures 
in soliciting the bids for that bid group of State agencies. FNS will 
notify each State agency in the bid group of the choice and provide them 
each a copy of the procurement procedures of the chosen State agency. 
Each State agency must provide FNS a written statement, signed by a 
responsible State agency official, by certified mail, return receipt 
requested or by hand delivery with evidence of receipt stating whether 
that State agency is legally authorized to award an infant formula cost 
containment contract pursuant to that set of procedures within 10 days 
of the receipt of the notification. If the State agency determines it is 
not legally authorized to award an infant formula cost containment 
contract pursuant to those procedures, that State agency may not 
continue in that round of the national bid solicitation and selection.
    (5) At a minimum, in soliciting bids FNS will address the following:
    (i) Unless FNS determines that doing so would not be in the best 
interest of the Program, bids will be solicited for either:
    (A) A single contract for each State agency under which the winning 
bidder will be required to supply and provide rebates on all infant 
formulas produced by that manufacturer (except exempt infant formulas) 
that are issued by the State agency. If that manufacturer does not 
produce a soy-based infant formula, the winning bidder will be required 
to subcontract with another manufacturer for a soy-based infant formula 
and the winning bidder will be required to pay a rebate on the soy-based 
infant formula; or
    (B) Two separate contracts for each State agency. Under the first 
contract, the winning bidder will supply and provide a rebate on all the 
milk-based infant formulas the winning bidder produces (except exempt 
infant formulas) that are issued by the State agency and under the 
second contract the winning bidder will supply and provide a rebate on 
all the soy-based infant formulas the winning bidder produces (except 
exempt infant formulas) that are issued by the State agency.
    (ii) The infant formula cost containment contract(s) to be entered 
into by the State agencies and infant formula manufacturers must provide 
for a constant net price for infant formula for the full term of the 
infant formula cost containment contract(s).
    (iii) The duration of the infant formula cost containment contracts 
for each bid group will be determined by FNS in consultation with the 
State agencies. The term will be for a period of not less than 2 years, 
unless the law applicable to a State agency regarding the duration of 
infant formula cost containment contracts is more restrictive than this 
paragraph (k)(5)(iii). In such cases, the term of the contract for only 
that State agency will be for one year, with the option provided to the 
State agency to extend the contract for a specified number of additional 
years (to be determined by FNS in consultation with the State agency). 
The date on which the individual State agencies' current infant formula 
cost containment contracts terminate may vary, so the infant formula 
cost containment contracts awarded by the State agencies within a bid 
group may begin on different dates.
    (iv) FNS will not prescribe conditions that are prohibited under 
paragraph (j) of this section.

[[Page 378]]

    (v) FNS will solicit bids for rebates only from infant formula 
manufacturers. FNS may limit advertising to contacting in writing each 
infant formula manufacturer which has registered with the Secretary of 
Health and Human Services under the Federal Food, Drug, and Cosmetic Act 
(21 U.S.C. 321 et seq.).
    (6) FNS will select the winning bidder(s). The winning bidder(s) 
will be the responsive and responsible bidder(s) meeting the 
specifications and all bid terms and conditions which offers the lowest 
net price weighted to take into account infant formula usage rates and 
infant participation. In all instances the winning bidder(s) will be 
those which singly or in combination yield the greatest aggregate 
savings based on the net price weighted to take into account the infant 
formula usage rates. To break a tie between 2 equally low bids, FNS will 
select the bidder to be awarded the infant formula cost containment 
contract by a drawing by lot limited to the bidders which submitted 
those bids.
    (7) Once FNS has conducted bid selection, a State agency may decline 
to award the infant formula cost containment contract(s) only if the 
State agency determines that awarding the contract(s) would not be in 
the best interests of its Program, taking into account whether the 
national bid solicitation and selection would achieve a lower aggregate 
savings.
    (8) As soon as practicable after selecting the winning bid(s), FNS 
will notify the affected State agencies in writing of the bid results, 
including the name(s) of the winning bidder(s). If a State agency 
chooses to request approval to decline to award the infant formula cost 
containment contract(s) in accordance with paragraph (k)(7) of this 
section, it must notify FNS in writing, signed by a responsible State 
agency official, together with supporting documentation, by certified 
mail, return receipt requested or by hand delivery with evidence of 
receipt within 10 days of the State agency's receipt of this 
notification of bid results.
    (9) If FNS approves any State agency's request to decline to award 
the infant formula cost containment contract(s) in accordance with 
paragraphs (k)(7) and (k)(8) of this section, FNS will notify the 
bidders of the decision. If two or more State agencies remain in the 
group, FNS will require the bidders to indicate in writing whether they 
wish to withdraw or modify their bids within 5 days of receipt of this 
notification. FNS will again permit State agencies to decline to award 
the infant formula cost containment contract(s) in accordance with 
paragraphs (k)(7) and (k)(8) of this section. If FNS approves these 
additional State agency requests to decline contract awards, FNS may 
conduct a resolicitation of bids in accordance with this paragraph (k).

[65 FR 51224, Aug. 23, 2000]



Sec.  246.17  Closeout procedures.

    (a) General. State agencies shall submit preliminary and final 
closeout reports for each fiscal year. All obligations shall be 
liquidated before closure of a fiscal year grant. Obligations shall be 
reported for the fiscal year in which they occur.
    (b) Fiscal year closeout reports. State agencies--
    (1) Shall submit to FNS, within 30 days after the end of the fiscal 
year, preliminary financial reports which show cumulative actual 
expenditures and obligations for the fiscal year, or part thereof, for 
which Program funds were made available;
    (2) Shall submit to FNS, within 150 days after the end of the fiscal 
year, final fiscal year closeout reports;
    (3) May submit revised closeout reports. FNS will reimburse State 
agencies for additional costs claimed in a revised closeout report up to 
the State's original grant level, if costs are properly justified and if 
funds are available for the fiscal year pertaining to the request. FNS 
will not be responsible for reimbursing State agencies for unreported 
expenditures later than one year after the end of the fiscal year in 
which they were incurred.
    (c) Grant closeout procedures. When grants to State agencies are 
terminated, the following procedures shall be performed in accordance 
with 7 CFR part 3016.
    (1) FNS may disqualify a State agency's participation under the 
Program,

[[Page 379]]

in whole or in part, or take such remedies as may be legal and 
appropriate, whenever FNS determines that the State agency failed to 
comply with the conditions prescribed in this part, in its Federal-State 
Agreement, or in FNS guidelines and instructions. FNS will promptly 
notify the State agency in writing of the disqualification together with 
the effective date. A State agency shall disqualify a local agency by 
written notice whenever it is determined by FNS or the State agency that 
the local agency has failed to comply with the requirements of the 
Program.
    (2) FNS or the State agency may disqualify the State agency or 
restrict its participation in the Program when both parties agree that 
continuation under the Program would not produce beneficial results 
commensurate with the further expenditure of funds. The State agency or 
the local agency may disqualify the local agency or restrict its 
participation in the Program under the same conditions. The two parties 
shall agree upon the conditions of disqualification, including the 
effective date thereof, and, in the case of partial disqualification, 
the portion to be disqualified.
    (3) Upon termination of a grant, the affected agency shall not incur 
new obligations for the disqualified portion after the effective date, 
and shall cancel as many outstanding obligations as possible. FNS will 
allow full credit to the State agency for the Federal share of the 
noncancellable obligations properly incurred by the State agency prior 
to disqualification, and the State agency shall do the same for the 
local agency.
    (4) A grant closeout shall not affect the retention period for, or 
Federal rights of access to, grant records as specified in Sec.  246.25. 
The closeout of a grant does not affect the State or local agency's 
responsibilities regarding property or with respect to any Program 
income for which the State or local agency is still accountable.
    (5) A final audit is not a required part of the grant closeout and 
should not be needed unless there are problems with the grant that 
require attention. If FNS considers a final audit to be necessary, it 
shall so inform OIG. OIG will be resonsible for ensuring that necessary 
final audits are performed and for any necessary coordination with other 
Federal cognizant audit agencies or the State or local auditors. Audits 
performed in accordance with Sec.  246.20 may serve as final audits 
providing such audits meet the needs of requesting agencies. If the 
grant is closed out without the audit, FNS reserves the right to 
disallow and recover an appropriate amount after fully considering any 
recommended disallowances resulting from an audit which may be conducted 
later.



Sec.  246.18  Administrative review of State agency actions.

    (a) Adverse actions subject to administrative reviews. (1) Vendor 
appeals. (i) Adverse actions subject to full administrative reviews. 
Except as provided elsewhere in paragraph (a)(1) of this section, the 
State agency must provide full administrative reviews to vendors that 
appeal the following adverse actions:
    (A) denial of authorization based on the vendor selection criteria 
for competitive price or for minimum variety and quantity of authorized 
supplemental foods (Sec.  246.12(g)(3)(i) and (g)(3)(ii)) or on a 
determination that the vendor is attempting to circumvent a sanction 
(Sec.  246.12(g)(4));
    (B) termination of an agreement for cause;
    (C) disqualification; and
    (D) imposition of a fine or a civil money penalty in lieu of 
disqualification.
    (ii) Adverse actions subject to abbreviated administrative reviews. 
The State agency must provide abbreviated administrative reviews to 
vendors that appeal the following adverse actions, unless the State 
agency decides to provide full administrative reviews for any of these 
types of adverse actions:
    (A) denial of authorization based on the vendor selection criteria 
for business integrity or for a current Food Stamp Program 
disqualification or civil money penalty for hardship (Sec.  
246.12(g)(3)(iii) and (g)(3)(iv));
    (B) denial of authorization based on a State agency-established 
vendor selection criterion if the basis of the denial is a WIC vendor 
sanction or a Food

[[Page 380]]

Stamp Program withdrawal of authorization or disqualification;
    (C) denial of authorization based on the State agency's vendor 
limiting criteria (Sec.  246.12(g)(2));
    (D) denial of authorization because a vendor submitted its 
application outside the timeframes during which applications are being 
accepted and processed as established by the State agency under Sec.  
246.12(g)(7);
    (E) termination of an agreement because of a change in ownership or 
location or cessation of operations (Sec.  246.12(h)(3)(xvii));
    (F) disqualification based on a trafficking conviction (Sec.  
246.12(l)(1)(i));
    (G) disqualification based on the imposition of a Food Stamp Program 
civil money penalty for hardship (Sec.  246.12(l)(2)(ii)); and
    (H) disqualification or a civil money penalty imposed in lieu of 
disqualification based on a mandatory sanction imposed by another WIC 
State agency (Sec.  246.12(l)(2)(iii)).
    (iii) Actions not subject to administrative reviews. The State 
agency may not provide administrative reviews pursuant to this section 
to vendors that appeal the following actions:
    (A) the validity or appropriateness of the State agency's vendor 
limiting or selection criteria (Sec.  246.12(g)(2) and (g)(3));
    (B) the validity or appropriateness of the State agency's 
participant access criteria and the State agency's participant access 
determinations;
    (C) the State agency's determination whether a vendor had an 
effective policy and program in effect to prevent trafficking and that 
the ownership of the vendor was not aware of, did not approve of, and 
was not involved in the conduct of the violation (Sec.  
246.12(l)(1)(i)(B));
    (D) denial of authorization if the State agency's vendor 
authorization is subject to the procurement procedures applicable to the 
State agency;
    (E) the expiration of a vendor's agreement;
    (F) disputes regarding food instrument payments and vendor claims 
(other than the opportunity to justify or correct a vendor overcharge or 
other error, as permitted by Sec.  246.12(k)(3); and
    (G) disqualification of a vendor as a result of disqualification 
from the Food Stamp Program (Sec.  246.12(l)(1)(vii)).
    (2) Effective date of adverse actions against vendors. The State 
agency must make denials of authorization and disqualifications imposed 
under Sec.  246.12(l)(1)(i) effective on the date of receipt of the 
notice of adverse action. The State agency must make all other adverse 
actions effective no earlier than 15 days after the date of the notice 
of the adverse action and no later than 90 days after the date of the 
notice of adverse action or, in the case of an adverse action that is 
subject to administrative review, no later than the date the vendor 
receives the review decision.
    (3) Local agency appeals. (i) Adverse actions subject to full 
administrative reviews. Except as provided in paragraph (a)(3)(ii) of 
this section, the State agency must provide full administrative reviews 
to local agencies that appeal the following adverse actions:
    (A) denial of a local agency's application;
    (B) disqualification of a local agency; and
    (C) any other adverse action that affects a local agency's 
participation.
    (ii) Actions not subject to administrative reviews. The State agency 
may not provide administrative reviews pursuant to this section to local 
agencies that appeal the following actions:
    (A) expiration of the local agency's agreement; and
    (B) denial of a local agency's application if the State agency's 
local agency selection is subject to the procurement procedures 
applicable to the State agency;
    (iii) Effective date of adverse actions against local agencies. The 
State agency must make denials of local agency applications effective 
immediately. The State agency must make all other adverse actions 
effective no earlier than 60 days after the date of the notice of the 
adverse action and no later than 90 days after the date of the notice of 
adverse action or, in the case of an adverse action that is subject to 
administrative review, no later than the date the local agency receives 
the review decision.

[[Page 381]]

    (b) Full administrative review procedures. The State agency must 
develop procedures for a full administrative review of the adverse 
actions listed in paragraphs (a)(1)(i) and (a)(3) of this section. At a 
minimum, these procedures must provide the vendor or local agency with 
the following:
    (1) Written notification of the adverse action, the procedures to 
follow to obtain a full administrative review and the cause(s) for and 
the effective date of the action. When a vendor is disqualified due in 
whole or in part to violations in Sec.  246.12(l)(1), such notification 
must include the following statement: ``This disqualification from WIC 
may result in disqualification as a retailer in the Food Stamp Program. 
Such disqualification is not subject to administrative or judicial 
review under the Food Stamp Program.''
    (2) The opportunity to appeal the adverse action within a time 
period specified by the State agency in its notification of adverse 
action.
    (3) Adequate advance notice of the time and place of the 
administrative review to provide all parties involved sufficient time to 
prepare for the review.
    (4) The opportunity to present its case and at least one opportunity 
to reschedule the administrative review date upon specific request. The 
State agency may set standards on how many review dates can be 
scheduled, provided that a minimum of two review dates is allowed.
    (5) The opportunity to cross-examine adverse witnesses. When 
necessary to protect the identity of WIC Program investigators, such 
examination may be conducted behind a protective screen or other device 
(also referred to as an ``in camera'' examination).
    (6) The opportunity to be represented by counsel.
    (7) The opportunity to examine prior to the review the evidence upon 
which the State agency's action is based.
    (8) An impartial decision-maker, whose determination is based solely 
on whether the State agency has correctly applied Federal and State 
statutes, regulations, policies, and procedures governing the Program, 
according to the evidence presented at the review. The State agency may 
appoint a reviewing official, such as a chief hearing officer or 
judicial officer, to review appeal decisions to ensure that they conform 
to approved policies and procedures.
    (9) Written notification of the review decision, including the basis 
for the decision, within 90 days from the date of receipt of a vendor's 
request for an administrative review, and within 60 days from the date 
of receipt of a local agency's request for an administrative review. 
These timeframes are only administrative requirements for the State 
agency and do not provide a basis for overturning the State agency's 
adverse action if a decision is not made within the specified timeframe.
    (c) Abbreviated administrative review procedures. Except when the 
State agency decides to provide full administrative reviews for the 
adverse actions listed in paragraph (a)(1)(ii) of this section, the 
State agency must develop procedures for an abbreviated administrative 
review of the adverse actions listed in paragraph (a)(1)(ii) of this 
section. At a minimum, these procedures must provide the vendor with the 
following:
    (1) Written notification of the adverse action, the procedures to 
follow to obtain an abbreviated administrative review, the cause(s) for 
and the effective date of the action, and an opportunity to provide a 
written response; and
    (2) A decision-maker who is someone other than the person who 
rendered the initial decision on the action and whose determination is 
based solely on whether the State agency has correctly applied Federal 
and State statutes, regulations, policies, and procedures governing the 
Program, according to the information provided to the vendor concerning 
the cause(s) for the adverse action and the vendor's response; and
    (3) Written notification of the review decision, including the basis 
for the decision, within 90 days of the date of receipt of the request 
for an administrative review. This timeframe is only an administrative 
requirement for the State agency and does not provide a basis for 
overturning the State agency's adverse action if a decision is not made 
within the specified timeframe.

[[Page 382]]

    (d) Continuing responsibilities. Appealing an action does not 
relieve a local agency or a vendor that is permitted to continue program 
operations while its appeal is in process from the responsibility of 
continued compliance with the terms of any written agreement with the 
State agency.
    (e) Finality and effective date of decisions. The State agency 
procedures must provide that review decisions rendered under both the 
full and abbreviated review procedures are the final State agency 
action. If the adverse action under review has not already taken effect, 
the State agency must make the action effective on the date of receipt 
of the review decision by the vendor or the local agency.
    (f) Judicial review. If the review decision upholds the adverse 
action against the vendor or local agency, the State agency must inform 
the vendor or local agency that it may be able to pursue judicial review 
of the decision.

[65 FR 83266, Dec. 29, 2000]



                     Subpart F_Monitoring and Review



Sec.  246.19  Management evaluation and monitoring reviews.

    (a) Management evaluations and reviews. (1) FNS and each State 
agency shall establish a management evaluation system in order to assess 
the accomplishment of Program objectives as provided under this part, 
FNS guidelines, instructions, and the Federal-State agreement with the 
Department. FNS will provide assistance to States in discharging this 
responsibility, establish standards and procedures to determine how well 
the objectives of this part are being accomplished, and implement 
sanction procedures as warranted by State Program performance.
    (2) The State agency must submit a corrective action plan, including 
implementation timeframes, within 60 days of receipt of an FNS 
management evaluation report containing a finding that the State agency 
did not comply with program requirements. If FNS determines through a 
management evaluation or other means that during a fiscal year the State 
agency has failed, without good cause, to demonstrate efficient and 
effective administration of its program, or has failed to comply with 
its corrective action plan, or any other requirements contained in this 
part or the State Plan, FNS may withhold an amount up to 100 percent of 
the State agency's nutrition services and administration funds for that 
year.
    (3) Sanctions imposed upon a State agency by FNS in accordance with 
this section (but not claims for repayment assessed against a State 
agency) may be appealed in accordance with the procedures established in 
Sec.  246.22. Before carrying out any sanction against a State agency, 
the following procedures will be followed:
    (i) FNS will notify the Chief State Health Officer or equivalent in 
writing of the deficiencies found and of FNS' intention to withhold 
nutrition services and administration funds unless an acceptable 
corrective action plan is submitted by the State agency to FNS within 60 
days after mailing of notification.
    (ii) The State agency shall develop a corrective action plan with a 
schedule according to which the State agency shall accomplish various 
actions to correct the deficiencies and prevent their future recurrence.
    (iii) If the corrective action plan is acceptable, FNS will notify 
the Chief State Health Officer or equivalent in writing within 30 days 
of receipt of the plan. The letter approving the corrective action plan 
will describe the technical assistance that is available to the State 
agency to correct the deficiencies. The letter will also advise the 
Chief State Health Officer or equivalent of the sanctions to be imposed 
if the corrective action plan is not implemented according to the 
schedule set forth in the approved plan.
    (iv) Upon notification from the State agency that corrective action 
as been taken, FNS will assess such action, and, if necessary, will 
perform a follow-up review to determine if the noted deficiencies have 
been corrected. FNS will then advise the State agency of whether the 
actions taken are in compliance with the corrective action plan, and 
whether the deficiency is resolved or further corrective action is 
needed.
    (v) If an acceptable corrective action plan is not submitted within 
60 days, or if corrective action is not completed according to the 
schedule established

[[Page 383]]

in the corrective action plan, FNS may withhold nutrition services and 
administration funds through a reduction of the State agency Letter of 
Credit or by assessing a claim against the State agency. FNS will notify 
the Chief State Health Officer or equivalent of this action.
    (vi) If compliance is achieved before the end of the fiscal year in 
which the nutrition services and administration funds are withheld, the 
funds withheld shall be restored to the State agency's Letter of Credit. 
FNS is not required to restore funds withheld if compliance is not 
achieved until the subsequent fiscal year. If the 60-day warning period 
ends in the fourth quarter of a fiscal year, FNS may elect not to 
withhold funds until the next fiscal year.
    (b) State agency responsibilities. (1) The State agency shall 
establish an on-going management evaluation system which includes at 
least the monitoring of local agency operations, the review of local 
agency financial and participation reports, the development of 
corrective action plans to resolve Program deficiencies, the monitoring 
of the implementation of corrective action plans, and on-site visits. 
The results of such actions shall be documented.
    (2) Monitoring of local agencies must encompass evaluation of 
management, certification, nutrition education, participant services, 
civil rights compliance, accountability, financial management systems, 
and food delivery systems. If the State agency delegates the signing of 
vendor agreements, vendor training, or vendor monitoring to a local 
agency, it must evaluate the local agency's effectiveness in carrying 
out these responsibilities.
    (3) The State agency shall conduct monitoring reviews of each local 
agency at least once every two years. Such reviews shall include on-site 
reviews of a minimum of 20 percent of the clinics in each local agency 
or one clinic, whichever is greater. The State agency may conduct such 
additional on-site reviews as the State agency determines to be 
necessary in the interest of the efficiency and effectiveness of the 
program.
    (4) The State agency must promptly notify a local agency of any 
finding in a monitoring review that the local agency did not comply with 
program requirements. The State agency must require the local agency to 
submit a corrective action plan, including implementation timeframes, 
within 60 days of receipt of a State agency report of a monitoring 
review containing a finding of program noncompliance. The State agency 
must monitor local agency implementation of corrective action plans.
    (5) As part of the regular monitoring reviews, FNS may require the 
State agency to conduct in-depth reviews of specified areas of local 
agency operations, to implement a standard form or protocol for such 
reviews, and to report the results to FNS. No more than two such areas 
will be stipulated by FNS for any fiscal year and the areas will not be 
added or changed more often than once every two fiscal years. These 
areas will be announced by FNS at least six months before the beginning 
of the fiscal year.
    (6) The State agency shall require local agencies to establish 
management evaluation systems to review their operations and those of 
associated clinics or contractors.

[50 FR 6121, Feb. 13, 1985, as amended at 59 FR 11508, Mar. 11, 1994]



Sec.  246.20  Audits.

    (a) Federal audit responsibilities. (1) OIG reserves the right to 
perform audits of State and local agencies and other organizations 
involved in the Program as determined by OIG to be necessary. In 
performing such audits, OIG will rely to the extent feasible on audit 
work performed by other Federal and non-Federal auditors.
    (2) The State agency may take exception to particular audit findings 
and recommendations. The State agency shall submit a response or 
statement to FNS as to the action taken or a proposed corrective action 
plan regarding the findings. A proposed corrective action plan developed 
and submitted by the State agency shall include specific timeframes for 
its implementation and for completion of correction of deficiencies and 
their causes.
    (3) FNS will determine whether Program deficiencies have been 
adequately corrected. If additional corrective action is necessary, FNS 
shall schedule a

[[Page 384]]

follow-up review, allowing a reasonable time for such corrective action 
to be taken.
    (b) State audit responsibilities. (1) State agencies shall comply 
with the provisions of 7 CFR part 3016 regarding independent 
organization-wide audits of financial operations. In conformance with 7 
CFR part 3016, State agencies shall arrange for independent audits of 
financial operations, including compliance with appropriate provisions 
of Federal laws and regulations, and shall ensure that audits are made 
on an organization-wide basis rather than on a program basis. When 
organization-wide audits are done the State agency shall cause 
procedures to be established which ensure that FNS programs are included 
in the universe of Federal awards from which a sample is drawn.
    (2) Such organization-wide audits shall be used to determine 
whether--
    (i) Financial operations are conducted properly;
    (ii) Financial statements are presented fairly;
    (iii) State and local agencies are complying with the laws, 
regulations and administrative requirements that affect the expenditure 
of Federal funds;
    (iv) State and local agencies have established internal procedures 
to meet the financial management objectives of federally assisted 
programs; and
    (v) State and local agencies are providing accurate and reliable 
information to the Federal government. If such agencies fail to arrange 
for the required audits at the appropriate frequency or fail to ensure 
that an acceptable audit is performed at the appropriate frequency, the 
respective cognizant audit agencies may arrange for the performance of 
the required audits. If the cognizant audit agencies arrange for the 
required audits because of these circumstances, the State agencies shall 
reimburse the respective cognizant audit agencies for the pro rata cost 
of their organization-wide audits.
    (3) Each State agency shall make all State or local agency sponsored 
audit reports of Program operations under its jurisdiction available for 
the Department's review upon request. The cost of these audits shall be 
considered a part of nutrition services and administration costs and may 
be funded from the State or local agency nutrition services and 
administration funds, as appropriate. For purposes of determining the 
Program's pro rata share of indirect costs associated with organization-
wide audits, the cost of food shall not be considered in the total 
dollar amount of the Program.



Sec.  246.21  Investigations.

    (a) Authority. The Department may make an investigation of any 
allegation of noncompliance with this part and FNS guidelines and 
instructions. The investigation may include, where appropriate, a review 
of pertinent practices and policies of any State or local agency, the 
circumstances under which the possible noncompliance with this part 
occurred, and other factors relevant to a determination as to whether 
the State or local agency has failed to comply with the requirements of 
this part.
    (b) Confidentiality. No State or local agency, participant, or other 
person shall intimidate, threaten, coerce, or discriminate against any 
individual for the purpose of interfering with any right or privilege 
under this part because that person has made a complaint or formal 
allegation, or has testified, assisted, or participated in any manner in 
an investigation, proceeding, or hearing under this part. The identity 
of every complainant shall be kept confidential except to the extent 
necessary to carry out the purposes of this part, including the 
conducting of any investigation, hearing, or judicial proceeding.



                   Subpart G_Miscellaneous Provisions



Sec.  246.22  Administrative appeal of FNS decisions.

    (a) Right to appeal. When FNS asserts a sanction against a State 
agency under the provisions of Sec.  246.19, the State agency may appeal 
and must be afforded a hearing or review by an FNS Administrative Review 
Officer. The right of appeal shall not apply to claims for repayment 
assessed by FNS against the State agency under Sec.  246.23(a). A State 
agency shall have the option of requesting a hearing to

[[Page 385]]

present its position or a review of pertinent documents and records 
including any additional written submission prepared by the State 
agency.
    (1) FNS will send a written notice by Certified Mail-Return Receipt 
Requested to the state agency or otherwise ensure receipt of such notice 
by the agency when asserting a sanction against a State agency as 
specified in Sec.  246.19(a).
    (2) A State agency aggrieved by a sanction asserted against it may 
file a written request with the Director, Administrative Review 
Division, U.S. Department of Agriculture, Food and Nutrition Service, 
3101 Park Center Drive, Alexandria, Va. 22302, for a hearing or a review 
of the record. Such request shall be sent by Certified Mail-Return 
Receipt Requested and postmarked within 30 days of the date of receipt 
of the sanction notice. The envelope containing the request shall be 
prominently marked ``REQUEST FOR REVIEW OR HEARING.'' The request shall 
clearly identify the specific FNS sanction(s) being appealed and shall 
include a photocopy of the FNS notice of sanction. If the State agency 
does not request a review of hearing within 30 days of receipt of the 
notice, the administrative decision on the sanctions will be considered 
final.
    (b) Acknowledgment of request. Within 15 days of receipt by the 
Director of the Administrative Review Division of a request for review 
or hearing, the Director will provide the State agency with a written 
acknowledgment of the request.
    (1) The acknowledgment will include the name and address of the FNS 
Administrative Review Officer to review the sanction;
    (2) The acknowledgment will also notify the State agency that within 
30 days of the receipt of the acknowledgment, the State agency shall 
submit three sets of the following information to the Administrative 
Review Officer--
    (i) A clear, concise identification of the issue(s) in dispute;
    (ii) The State agency's position with respect to the issue(s) in 
dispute;
    (iii) The pertinent facts and reasons in support of the State 
agency's position with respect to the issue(s) in dispute and a copy of 
the specific sanction notice provided by FNS;
    (iv) All pertinent documents, correspondence and records which the 
State agency believes are relevant and helpful toward a more thorough 
understanding of the issue(s) in dispute;
    (v) The relief sought by the State agency;
    (vi) The identity of the person(s) presenting the State agency's 
position when a hearing is involved; and
    (vii) A list of prospective State agency witnesses when a hearing is 
involved.
    (c) FNS action. (1) When a hearing is requested pursuant to this 
section, the Administrative Review Officer will, within 60 days after 
receipt of the State agency's information, schedule and conduct the 
hearing. The State agency will be advised of the time, date and location 
of the hearing at least 10 days in advance.
    (2) When a hearing is requested, the FNS Administrative Review 
Officer will make a final determination within 30 days after the 
hearing, and the final determination will take effect upon delivery of 
the written notice of this final decision to the State agency.
    (3) When a review is requested, the FNS Administrative Review 
Officer will review information presented by a State agency and will 
make a final determination within 30 days after receipt of that 
information. The final determination will take effect upon delivery of 
the written notice of this final decision to the State agency.



Sec.  246.23  Claims and penalties.

    (a) Claims against State agencies. (1) If FNS determines through a 
review of the State agency's reports, program or financial analysis, 
monitoring, audit, or otherwise, that any Program funds provided to a 
State agency for supplemental foods or nutrition services and 
administration purposes were, through State or local agency negligence 
or fraud, misused or otherwise diverted from Program purposes, a formal 
claim will be assessed by FNS against the State agency. The State agency 
shall pay promptly to FNS a sum equal to the amount of the nutrition 
services and administration funds or the value

[[Page 386]]

of supplemental foods or food instruments so misused or diverted.
    (2) If FNS determines that any part of the Program funds received by 
a State agency; or supplemental foods, either purchased or donated 
commodities; or food instruments, were lost as a result of thefts, 
embezzlements, or unexplained causes, the State agency shall, on demand 
by FNS, pay to FNS a sum equal to the amount of the money or the value 
of the supplemental foods or food instruments so lost.
    (3) The State agency shall have full opportunity to submit evidence, 
explanation or information concerning alleged instances of noncompliance 
or diversion before a final determination is made in such cases.
    (4) FNS will establish a claim against any State agency that has not 
accounted for the disposition of all redeemed food instruments and taken 
appropriate follow-up action on all redeemed food instruments that 
cannot be matched against valid enrollment and issuance records, 
including cases that may involve fraud, unless the State agency has 
demonstrated to the satisfaction of FNS that it has:
    (i) Made every reasonable effort to comply with this requirement;
    (ii) Identified the reasons for its inability to account for the 
disposition of each redeemed food instrument; and
    (iii) Provided assurances that, to the extent considered necessary 
by FNS, it will take appropriate actions to improve its procedures.
    (b) Interest charge on claims against State agencies. If an 
agreement cannot be reached with the State agency for payment of its 
debts or for offset of debts on its current Letter of Credit within 30 
days from the date of the first demand letter from FNS, FNS will assess 
an interest (late) charge against the State agency. Interest accrual 
shall begin on the 31st day after the date of the first demand letter, 
bill or claim, and shall be computed monthly on any unpaid balance as 
long as the debt exists. From a source other than the Program, the State 
agency shall provide the funds necessary to maintain Program operations 
at the grant level authorized by FNS.
    (c) Claims. (1) Claims against participants. (i) Procedures. If the 
State agency determines that program benefits have been obtained or 
disposed of improperly as the result of a participant violation, the 
State agency must establish a claim against the participant for the full 
value of such benefits. For all claims, the State agency must issue a 
letter demanding repayment. If full restitution is not made or a 
repayment schedule is not agreed on within 30 days of receipt of the 
letter, the State agency must take additional collection actions until 
restitution is made or a repayment schedule is agreed on, unless the 
State agency determines that further collection actions would not be 
cost-effective. The State agency must establish standards, based on a 
cost benefit analysis, for determining when collection actions are no 
longer cost-effective. At the time the State agency issues the demand 
letter, the State agency must advise the participant of the procedures 
to follow to obtain a fair hearing pursuant to Sec.  246.9 and that 
failure to pay the claim may result in disqualification. In addition to 
establishing a claim, the State agency must determine whether 
disqualification is required by Sec.  246.12(u)(2).
    (ii) Types of restitution. In lieu of financial restitution, the 
State agency may allow participants or parents or caretakers of infant 
or child participants for whom financial restitution would cause undue 
hardship to provide restitution by performing in-kind services 
determined by the State agency. Restitution may not include offsetting 
the claim against future program benefits, even if agreed to by the 
participant or the parent or caretaker of an infant or child 
participant.
    (iii) Disposition of claims. The State agency must document the 
disposition of all participant claims.
    (2) Claims against the State agency. FNS will assert a claim against 
the State agency for losses resulting from program funds improperly 
spent as a result of dual participation, if FNS determines that the 
State agency has not complied with the requirements in Sec.  
246.7(l)(1).
    (3) Delegation of claims responsibility. The State agency may 
delegate to its

[[Page 387]]

local agencies the responsibility for collecting participant claims.
    (d) Penalties. In accordance with section 12(g) of the National 
School Lunch Act, whoever embezzles, willfully misapplies, steals or 
obtains by fraud any funds, assets or property provided under section 17 
of the Child Nutrition Act of 1966, as amended, whether received 
directly or indirectly from USDA, or whoever receives, conceals or 
retains such funds, assets or property for his or her own interest, 
knowing such funds, assets or property have been embezzled, willfully 
misapplied, stolen, or obtained by fraud shall, if such funds, assets or 
property are of the value of $100 or more, be fined not more than 
$10,000 or imprisoned not more than five years, or both, or if such 
funds, assets or property are of a value of less than $100, shall be 
fined not more than $1,000 or imprisoned for not more than one year, or 
both.

[50 FR 6121, Feb. 13, 1985, as amended at 52 FR 21238, June 4, 1987; 65 
FR 83288, Dec. 29, 2000]



Sec.  246.24  Procurement and property management.

    (a) Requirements. State and local agencies shall ensure that 
subgrantees comply with the requirements of 7 CFR part 3016, the 
nonprocurement debarment/suspension requirements of 7 CFR part 3017, and 
if applicable, the lobbying restrictions as required in 7 CFR part 3018 
concerning the procurement and allowability of food in bulk lots, 
supplies, equipment and other services with Program funds. These 
requirements are adopted to ensure that such materials and services are 
obtained for the Program in an effective manner and in compliance with 
the provisions of applicable law and executive orders.
    (b) Contractual responsibilities. The standards contained in A-130 
and 7 CFR part 3016 do not relieve the State or local agency of the 
responsibilities arising under its contracts. The State agency is the 
responsible authority, without recourse to FNS, regarding the settlement 
and satisfaction of all contractual and administrative issues arising 
out of procurements entered into in connection with the Program. This 
includes, but is not limited to, disputes, claims, protests of award, 
source evaluation, or other matters of a contractual nature. Matters 
concerning violation of law are to be referred to such local, State or 
Federal authority as may have proper jurisdiction.
    (c) State regulations. The State or local agency may use its own 
procurement regulations which reflect applicable State and local 
regulations, provided that procurements made with Program funds adhere 
to the standards set forth in A-130 and 7 CFR part 3016.
    (d) Property acquired with Program funds. State and local agencies 
shall observe the standards prescribed in 7 CFR part 3016 in their 
utilization and disposition of real property and equipment, including 
automated data processing equipment, acquired in whole or in part with 
Program funds.

[50 FR 6121, Feb. 13, 1985, as amended at 59 FR 11508, Mar. 11, 1994]



Sec.  246.25  Records and reports.

    (a) Recordkeeping requirements. Each State and local agency shall 
maintain full and complete records concerning Program operations. Such 
records shall comply with 7 CFR part 3016 and the following 
requirements:
    (1) Records shall include, but not be limited to, information 
pertaining to financial operations, food delivery systems, food 
instrument issuance and redemption, equipment purchases and inventory, 
certification, nutrition education, civil rights and fair hearing 
procedures.
    (2) All records shall be retained for a minimum of three years 
following the date of submission of the final expenditure report for the 
period to which the report pertains. If any litigation, claim, 
negotiation, audit or other action involving the records has been 
started before the end of the three-year period, the records shall be 
kept until all issues are resolved, or until the end of the regular 
three-year period, whichever is later. If FNS deems any of the Program 
records to be of historical interest, it may require the State or local 
agency to forward such records to FNS whenever either agency is 
disposing of them.
    (3) Records for nonexpendable property acquired in whole or in part 
with Program funds shall be retained for three years after its final 
disposition.

[[Page 388]]

    (4) All records, except medical case records of individual 
participants (unless they are the only source of certification data), 
shall be available during normal business hours for representatives of 
the Department of the Comptroller General of the United States to 
inspect, audit, and copy. Any reports resulting from such examinations 
shall not divulge names of individuals.
    (b) Financial and participation reports--(1) Monthly reports. State 
agencies shall submit financial and program performance data on a 
monthly basis as specified by FNS. Such information may include, but 
shall not be limited to, actual and projected participation, the number 
of persons on waiting lists, and itemized nutrition services and 
administration funds expenditures. State agencies shall require local 
agencies to report such financial and participation information as is 
necessary for the efficient management of food and nutrition services 
and administration funds. When considered necessary and feasible by FNS, 
State agencies may be required to:
    (i) Show in the ``Remarks'' section of the Financial and 
Participation Report the amount of cash allowances exceeding three days 
need being held by their local agencies or contractors; and
    (ii) Provide short narrative explanations of actions taken by the 
State agency to reduce such excess balances.
    (2) Quarterly reports. Quarterly, on dates specified by FNS, State 
agencies shall report the number of persons participating in the Program 
by category (i.e., pregnant, breastfeeding, and postpartum women, 
infants and children) within each priority level as established in Sec.  
246.7(e)(4).
    (3) Program Participant Characteristic reports. State and local 
agencies shall provide such information as may be required by FNS to 
prepare reports on participant characteristics which includes, at a 
minimum, information on breastfeeding incidence and duration, income and 
nutritional risk characteristics of participants, and participation in 
the Program by members of families of migrant farmworkers.
    (c) Civil rights. The State agency shall ensure that each local 
agency participating under the Program submits a report of racial and 
ethnic participation data to the State agency, at a frequency prescribed 
by FNS.
    (d) Source documentation. To be acceptable for audit purposes, all 
financial and Program performance reports shall be traceable to source 
documentation.
    (e) Certification of reports. Financial and Program reports shall be 
certified as to their completeness and accuracy by the person given that 
responsibility by the State agency.
    (f) Use of reports. FNS will use State agency reports to measure 
progress in achieving objectives set forth in the State Plan, and this 
part, or other State agency performance plans. If it is determined, 
through review of State agency reports, Program or financial analysis, 
or an audit, that a State agency is not meeting the objectives set forth 
in its State Plan, FNS may request additional information including, but 
not limited to, reasons for failure to achieve its objectives.
    (g) Extension of reporting deadline. FNS may extend the due date for 
any Financial and Participation Report upon receiving a justified 
request from the State agency. The State agency should not wait until 
the due date if an extension is to be requested, but should submit the 
request as soon as the need is known. Failure by a State agency to 
submit a report by its due date may result in appropriate enforcement 
actions by FNS in accordance with Sec.  246.19(a)(2), including 
withholding of further grant payments, suspension or termination of the 
grant.

[50 FR 6121, Feb. 13, 1985, as amended at 52 FR 21238, June 4, 1987; 53 
FR 15653, May 3, 1988; 59 FR 11508, Mar. 11, 1994; 65 FR 53528, Sept. 5, 
2000]



Sec.  246.26  Other provisions.

    (a) No aid reduction. The value of benefits or assistance available 
under the Program shall not be considered as income or resources of 
participants or their families for any purpose under Federal, State, or 
local laws, including, but not limited to, laws relating to taxation, 
welfare and public assistance programs.
    (b) Statistical information. FNS reserves the right to use 
information obtained under the Program in a summary, statistical or 
other form which

[[Page 389]]

does not identify particular individuals.
    (c) Medical information. FNS may require the State or local agencies 
to supply medical data and other information collected under the Program 
in a form that does not identify particular individuals, to enable the 
Secretary or the State agencies to evaluate the effect of food 
intervention upon low-income individuals determined to be at nutritional 
risk.
    (d) Confidentiality of applicant and participant information. The 
State agency shall restrict the use or disclosure of information 
obtained from program applicants and participants to:
    (1) Persons directly connected with the administration or 
enforcement of the program, including persons investigating or 
prosecuting violations in the WIC Program under Federal, State or local 
authority;
    (2) Representatives of public organizations designated by the chief 
State health officer (or, in the case of Indian State agencies, the 
governing authority) which administer health or welfare programs that 
serve persons categorically eligible for the WIC Program. The State 
agency shall execute a written agreement with each such designated 
organization:
    (i) Specifying that the receiving organization may employ WIC 
Program information only for the purpose of establishing the eligibility 
of WIC applicants and participants for health or welfare programs which 
it administers and conducting outreach to WIC applicants and 
participants for such programs, and
    (ii) Containing the receiving organization's assurance that it will 
not, in turn, disclose the information to a third party; and
    (3) The Comptroller General of the United States for audit and 
examination authorized by law.
    (e) Confidentiality of vendor information. Confidential vendor 
information is any information about a vendor (whether it is obtained 
from the vendor or another source) that individually identifies the 
vendor, except for vendor's name, address and authorization status. 
Except as otherwise permitted by this section, the State agency must 
restrict the use or disclosure of confidential vendor information to:
    (1) Persons directly connected with the administration or 
enforcement of the WIC Program or the Food Stamp Program who the State 
agency determines have a need to know the information for purposes of 
these programs. These persons may include personnel from its local 
agencies and other WIC State and local agencies and persons 
investigating or prosecuting WIC or Food Stamp Program violations under 
Federal, State, or local law;
    (2) Persons directly connected with the administration or 
enforcement of any Federal or State law. Prior to releasing the 
information to one of these parties (other than a Federal agency), the 
State agency must enter into a written agreement with the requesting 
party specifying that such information may not be used or redisclosed 
except for purposes directly connected to the administration or 
enforcement of a Federal, or State law; and
    (3) A vendor that is subject to an adverse action, including a 
claim, to the extent that the confidential information concerns the 
vendor subject to the adverse action and is related to the adverse 
action.
    (f) Confidentiality of Food Stamp Program retailer information. 
Except as otherwise provided in this section, the State agency must 
restrict the use or disclosure of information about Food Stamp Program 
retailers obtained from the Food Stamp Program, including information 
provided pursuant to Section 9(c) of the Food Stamp Act of 1977 (7 
U.S.C. 2018(c)) and Sec.  278.1(q) of this chapter, to persons directly 
connected with the administration or enforcement of the WIC Program.
    (g) USDA and the Comptroller General. The State agency must provide 
the Department and the Comptroller General of the United States access 
to all WIC Program records, including confidential vendor information, 
pursuant to Sec.  246.25(a)(4).

[50 FR 6121, Feb. 13, 1985, as amended at 53 FR 35301, Sept. 13, 1988; 
65 FR 83288, Dec. 29, 2000]

[[Page 390]]



Sec.  246.27  Program information.

    Any person who wishes information, assistance, records or other 
public material shall request such information from the State agency, or 
from the FNS Regional Office serving the appropriate State as listed 
below:
    (a) Connecticut, Maine, Massachusetts, New Hampshire, New York, 
Rhode Island, Vermont: U.S. Department of Agriculture, FNS, Northeast 
Region, 10 Causeway Street, room 501, Boston, Massachusetts 02222-1066.
    (b) Delaware, District of Columbia, Maryland, New Jersey, 
Pennsylvania, Puerto Rico, Virginia, Virgin Islands, West Virginia: U.S. 
Department of Agriculture, FNS, Mid-Atlantic Region, Mercer Corporate 
Park, 300 Corporate Boulevard, Robbinsville, New Jersey 08691-1598.
    (c) Alabama, Florida, Georgia, Kentucky, Mississippi, North 
Carolina, South Carolina, Tennessee: U.S. Department of Agriculture, 
FNS, Southeast Region, 77 Forsyth Street, SW., suite 112, Atlanta, 
Georgia 30303.
    (d) Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin: U.S. 
Department of Agriculture, FNS, Midwest Region, 77 West Jackson 
Boulevard--20th Floor, Chicago, Illinois 60604-3507.
    (e) Arkansas, Louisiana, New Mexico, Oklahoma, Texas: U.S. 
Department of Agriculture, FNS, Southwest Region, 1100 Commerce Street, 
room 5-C-30, Dallas, Texas 75242.
    (f) Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North 
Dakota, South Dakota, Utah, Wyoming: U.S. Department of Agriculture, 
FNS, Mountain Plains Region, 1244 Speer Boulevard, suite 903, Denver, 
Colorado 80204.
    (g) Alaska, American Samoa, Arizona, California, Guam, Hawaii, 
Idaho, Nevada, Oregon, Trust Territory of the Pacific Islands, the 
Northern Mariana Islands, Washington: U.S. Department of Agriculture, 
FNS, Western Region, 550 Kearny Street, room 400, San Francisco, 
California 94108.

[50 FR 6121, Feb. 13, 1985; 50 FR 8098, Feb. 28, 1985, as amended at 59 
FR 11508, Mar. 11, 1994]



Sec.  246.28  OMB control numbers.

    The following control numbers have been assigned to the information 
collection requirements in 7 CFR part 246 by the Office of Management 
and Budget pursuant to the Paperwork Reduction Act of 1980, Pub. L. 96-
511.

------------------------------------------------------------------------
                                                               Currrent
  7 CFR part 246 section where requirements are described    OMB control
                                                                 no.
------------------------------------------------------------------------
.4(a) (8), (9), (11).......................................    0584-0386
.5.........................................................    0584-0043
.6.........................................................    0584-0043
.7(a)......................................................    0584-0386
.7(e), (h), (j)............................................    0584-0043
.7(n)......................................................    0584-0386
.7(i)......................................................    0584-A536
.10........................................................    0584-A536
.11(a)(3)..................................................    0584-0386
.11(d).....................................................    0584-0043
.12(f), (i), (i)(3), (j)...................................    0584-0043
.14(d)(1)..................................................    0584-0043
.16(c).....................................................    0584-0043
.17(c)(1)..................................................    0584-0043
.19........................................................    0584-0043
.20(a).....................................................    0584-0043
.25(a), (b)................................................   0584-0043,
                                                               0584-0347
------------------------------------------------------------------------


[50 FR 6121, Feb. 13, 1985, as amended at 53 FR 15653, May 3, 1988; 54 
FR 51295, Dec. 14, 1989; 58 FR 11507, Feb. 26, 1993]



PART 247_COMMODITY SUPPLEMENTAL FOOD PROGRAM--Table of Contents




Sec.
247.1 General purpose and scope.
247.2 Definitions.
247.3 Administration.
247.4 Donation of supplemental foods.
247.5 State agency plan of program operation and administration.
247.6 Selection of local agencies.
247.7 Certification.
247.8 Nutrition education.
247.9 Financial management systems.
247.10 Caseload assignment and administrative funding.
247.11 Administrative costs.
247.12 Program income.
247.13 Records and reports.
247.14 Procurement and property management standards.
247.15 Audits.
247.16 Investigations.
247.17 Claims.
247.18 Closeout procedures.
247.19 Nondiscrimination.
247.20 Fair hearing procedures.
247.21 Management evaluation and reviews.
247.22 Administrative appeal of State agency decisions.
247.23 Miscellaneous provisions.

    Authority: Sec. 5, Pub. L. 93-86, 87 Stat. 249, as added by Sec. 
1304(b)(2), Pub. L. 95-113, 91 Stat. 980 (7 U.S.C. 612c note); sec. 
1335, Pub. L. 97-98, 95 Stat. 1293 (7 U.S.C. 612c note); sec.

[[Page 391]]

209, Pub. L. 98-8, 97 Stat. 35 (7 U.S.C. 612c note); sec. 2(8), Pub. L. 
98-92, 97 Stat. 611 (7 U.S.C. 612c note); sec. 1562, Pub. L. 99-198, 99 
Stat. 1590 (7 U.S.C. 612c note); sec. 101(k), Pub. L. 100-202; sec. 
1771(a), Pub. L 101-624, 101 Stat. 3806 (7 U.S.C. 612c note); sec. 
402(a), Pub. L. 104-127, 110 Stat. 1028 (7 U.S.C. 612c note), Sec. 
4201(b), Pub. L. 107-171.

    Source: 46 FR 6341, Jan. 21, 1981, unless otherwise noted.



Sec.  247.1  General purpose and scope.

    This part specifies the policies and prescribes the regulations for 
the Commodity Supplemental Food Program (CSFP) under which women, 
infants and children in low-income groups, vulnerable to malnutrition, 
may obtain supplemental nutritious foods donated by the U.S. Department 
of Agriculture. The purpose of the Program is to provide supplemental 
foods and nutrition education to eligible persons through State or local 
agencies.



Sec.  247.2  Definitions.

    For the purpose of this part and of all contracts, guidelines, 
instructions, forms, and other related documents, the term:
    Administrative costs means those direct and indirect costs, 
identified under FMC 74-4, which State and local agencies determine to 
be necessary to support Program operations. Such costs are further 
addressed in Sec.  247.11.
    A-90 means Office of Management and Budget Circular A-90 which 
provides guidance for the coordinated development and operation of 
information systems.
    A-102 means Office of Management and Budget Circular A-102 which 
sets forth uniform administrative requirements for grants-in-aid to 
State and local governments and federally recognized Indian tribal 
governments.
    A-110 means Office of Management and Budget Circular A-110 which 
sets forth uniform administrative requirements for grants to, and other 
agreements with, institutions of higher education, hospitals, and other 
quasi-public and private non-profit organizations.
    Breastfeeding women means women up to one year postpartum who are 
breastfeeding their infants.
    Caseload means the monthly average number of persons a State agency 
is authorized by FNS to serve over a specified period of time.
    Caseload cycle means the period beginning with the later of (1) each 
December 1 or (2) a date not to exceed 30 days after enactment of 
appropriations legislation for the full fiscal year, and ending each 
November 30.
    Categorical ineligibility means persons who do not meet the 
definition of pregnant women, breastfeeding women, postpartum women, 
infants, children, or elderly persons.
    Certification means the use of criteria and procedures to assess and 
document each applicant's eligibility for the Program.
    Children means persons who are at least one year of age but have not 
reached their sixth birthday.
    Department means the U.S. Department of Agriculture.
    Distributing agency means an agency which has entered into an 
agreement with a State agency and with the Department for the 
distribution of commodities under 7 CFR part 250, subchapter B--Food 
Distribution Regulations.
    Dual participation means simultaneous participation by an individual 
in the CSFP in more than one local agency or clinic, or simultaneous 
participation in the CSFP and in the Special Supplemental Nutrition 
Program for Women, Infants and Children (WIC) 7 CFR part 246.
    Elderly persons means persons 60 years of age or older.
    Fiscal year means the Federal fiscal year covering the period of 12 
calendar months beginning October 1 of any calendar year and ending 
September 30 of the following year.
    FMC 74-4 means Federal Management Circular 74-4, which sets forth 
principles for determining costs applicable to grants and contracts with 
State and local governments.
    FNS means the Food and Nutrition Service of the U.S. Department of 
Agriculture.
    Homebound elderly persons means persons who are, in the judgment of 
the local agency, unable to obtain monthly food packages without 
assistance provided by or through the local agency.
    Infants means persons under one year of age.

[[Page 392]]

    Local agency means a public or private nonprofit agency which enters 
into an agreement with the State agency to administer the Program at the 
local level. A local agency determines the eligibility of applicants, 
distributes supplemental foods and provides nutrition education to low-
income persons, either directly or through another agency with which it 
has entered into a written agreement in accordance with Sec.  247.6. In 
addition, existing local agencies are required to maintain the health-
ties at the same level that were effective prior to March 3, 1978. All 
other local agencies are encouraged to develop health services linkages 
and, at a minimum, are required to advise participants of the importance 
of health care and where low-income persons can obtain such services. 
The term local agency includes an IHS service unit, an Indian tribe, 
band or group recognized by the Department of the Interior, or an 
intertribal council or group that is an authorized representative of 
Indian tribes, bands or groups recognized by the Department of the 
Interior.
    Nonprofit agency means a private agency which is exempt from income 
tax under the Internal Revenue Code of 1954, as amended.
    Participants means pregnant women, breastfeeding women, postpartum 
women, infants, children and elderly persons who are receiving 
supplemental foods under the Program.
    Participation means the number of persons who have received 
supplemental foods through the Program in the reporting period.
    Postpartum women means women up to 12 months after termination of 
pregnancy.
    Pregnant women means women determined to have one or more embryos or 
fetuses in utero.
    Program means the Commodity Supplemental Food Program (CSFP) of the 
Food and Nutrition Service of the U.S. Department of Agriculture.
    Secretary means the Secretary of the U.S. Department of Agriculture.
    SFPD means the Supplemental Food Programs Division of the Food and 
Nutrition Service of the U.S. Department of Agriculture.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
the Trust Territory of the Pacific Islands and the Northern Mariana 
Islands.
    State agency means the agency of a State designated by the State to 
administer the Program; or an Indian tribe, band or group recognized by 
the Department of the Interior; or an Intertribal council or group 
recognized by the Department of the Interior and which has an ongoing 
relationship with Indian tribes, bands or groups for other purposes and 
has contracted with them to administer the Program; or the appropriate 
area office of the Indian Health Service of the Department of Health and 
Human Services.
    State Agency Plan of Program Operation and Administration (State 
Plan) means the document which, as required by Sec.  247.5 describes the 
manner in which the State agency intends to implement and operate all 
aspects of Program administration within its jurisdiction.
    Supplemental foods means foods donated by the Department for use by 
eligible persons in low-income groups who are vulnerable to 
malnutrition.
    WIC Program means the Special Supplemental Nutrition Program for 
Women, Infants and Children (7 CFR part 246).

[46 FR 6341, Jan. 21, 1981, as amended at 48 FR 29124, June 24, 1983; 51 
FR 32900, Sept. 17, 1986; 53 FR 4838, Feb. 18, 1988]



Sec.  247.3  Administration.

    (a) Delegation of Authority to FNS. Within the Department, FNS shall 
act on behalf of the Department in the administration of the Program. 
Within FNS, SFPD and the Regional Offices are responsible for Program 
administration. FNS will provide assistance to State and local agencies 
and evaluate all levels of Program operations to assure that the goals 
of the Program are achieved in the most effective and efficient manner 
possible.
    (b) Delegation of authority to State agency. The State agency is 
responsible for all operations under the Program within its jurisdiction 
and shall administer the Program in accordance with the requirements of 
this part, FMC 74-4, A-90, A-95, A-102, A-110, and 7 CFR

[[Page 393]]

part 250 subchapter B where applicable. The State agency shall provide 
guidance to local agencies on all aspects of Program operations. If 
distribution of supplemental foods or other Program operations at the 
State level are performed by an agency of the State other than the State 
agency, the State agency shall enter into a written agreement with the 
other agency. The agreement shall outline the responsibilities of each 
agency under the Program and shall be included in the State Plan. In 
addition, when a State agency enters into an agreement with a 
distributing agency, the distributing agency still must enter into a 
separate agreement with the Department as required by 7 CFR part 250 
subchapter B, Food Distribution.
    (c) Agreement and State plan. Each State agency desiring to 
administer the Program shall annually submit a State Plan and enter into 
a written agreement with the Department for the administration of the 
Program in the jurisdiction of the State agency in accordance with the 
provisions of this part.
    (d) Delegation of authority to local agency. The local agency shall 
provide Program benefits to participants in the most effective and 
efficient manner, and shall comply with this part and the State Plan.

(Approved by the Office of Management and Budget under control number 
0584-0063)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.4  Donation of supplemental foods.

    The Department shall donate supplemental foods for use in the 
Program in accordance with the terms and conditions of this part and 
with the terms and conditions applicable to distributing agencies under 
7 CFR part 250 subchapter B, Food Distribution Regulations, as long as 
these provisions are not inconsistent with this part. The State agency 
is strictly liable to FNS for losses of supplemental foods donated by 
the Department and shall safeguard items from theft, spoilage, other 
damage or destruction or other loss. If supplemental foods donated by 
the Department are lost through any cause, prior to issuance to the 
participant, the State agency shall provide replacement in kind or 
submit payment to FNS in accordance with Sec.  250.6(m) under 7 CFR part 
250 subchapter B, Food Distribution regulations.



Sec.  247.5  State agency plan of program operation and administration.

    (a) Requirements. State applications to continue or initiate program 
operations and requests for additional caseload to expand service to 
women, infants, children, and elderly persons shall be made through 
State Plan submissions. By August 15 of each year, the State agency 
shall submit to FNS for approval a State Plan for the following fiscal 
year. State agencies whose Plans are approved by the beginning of the 
fiscal year shall be eligible to commence program operations or receive 
caseload increases at the beginning of the first caseload cycle to 
commence after that date. Plans or Plan amendments to initiate or expand 
operations which are approved after this date may be considered for 
caseload assignment if additional resources become available during that 
caseload cycle. The State agency may submit the State Plan in the format 
provided by FNS guidance. Alternatively, the State agency may submit the 
Plan in combination with other federally required planning documents or 
develop its own format, provided that the information required below is 
included. FNS requests advance notification that a State agency intends 
to use an alternative format. The State Plan and all amendments shall be 
signed by the State-designated official responsible for ensuring that 
the program is operated in accordance with the State Plan. FNS shall 
provide written approval or denial of a completed State Plan or 
amendment within 30 days of receipt. Within 15 days after FNS receives 
an incomplete submission, FNS shall notify the State agency that 
additional information is needed to complete the Plan. Any disapproval 
shall be accompanied by a statement of the reasons for the disapproval. 
Approval of the Plan by FNS is a prerequisite to the assignment of 
caseload and payment of funds for administration to the State agency. In 
approving the State Plan or Plan amendment to initiate or

[[Page 394]]

expand program operations, FNS shall specify the number of caseload 
slots it believes the State agency can use, and which the State agency 
has the administrative capacity to manage. This determination shall be 
based on the content of the Plan or amendment, demographic data, past 
performance of the State agency, and other information which FNS 
considers relevant. Portions of the State Plan which do not change from 
year to year need not be resubmitted. However, the State agency shall 
provide the title of each section that remains unchanged, as well as the 
year of the last Plan in which the section was submitted. The State Plan 
shall provide the following:
    (1) The names and addresses of each local agency (i) which have an 
agreement with the State agency for Program administration; and (ii) the 
name and address of each certification, food distribution and storage 
site under the jurisdiction of the local agency.
    (2) The specific income criteria and nutritional risk criteria (if 
used) to be used in certifying persons as being in need of supplemental 
foods and the period of time covered by certifications in each local 
agency.
    (3) A description of any plans for requesting program expansion or 
major redistribution of caseloads within the State during the fiscal 
year.
    (4) A description of any plans for conducting outreach to ensure 
that all women, infants, and children, and elderly persons are aware of 
program benefits.
    (5) The plan for nutrition education services for the fiscal year. 
The nutrition education portion of the State Plan shall include an 
evaluation component which includes a systematic procedure for 
participants' input.
    (6) A detailed description of the manner in which foods are 
distributed to each local agency and to participants by the local 
agency.
    (7) A description of the manner in which the State agency plans to 
monitor each local agency.
    (8) A description of plans to involve local agencies, participants 
and other interested parties in the development of the State Plan for 
the next fiscal year.
    (9) A description of how the financial management system will 
provide an accurate, current and complete disclosure of the financial 
status of the State's Program including an accurate accounting of all 
administrative funds received and expended.
    (10) A plan for the detection of dual participation within the 
jurisdiction of the State agency. In States where the CSFP and either an 
Indian State agency for CSFP or a WIC Program State agency operate in 
the same area, a copy of the written agreement between the State 
agencies for the detection and prevention of dual participation must be 
submitted.
    (11) Procedures developed in accordance with Sec.  250.6(u) and 
provided to local agencies for reporting, processing and resolving 
complaints about supplemental foods.
    (12) A description of the audit procedures, including: (i) A 
description of the scope and frequency of audits of the State agency and 
local agencies and a delineation of the procedures used that assure 
audit examinations of the CSF Program at reasonable frequency. Audit 
agency guidelines for selecting a sample of grant programs for audits 
should be addressed; (ii) a description of the audit organization in 
sufficient detail to demonstrate the independence of the audit 
organization; and (iii) the number of local agencies in which the CSF 
Program was included in the audit in the last four full quarters, and 
the number of local agency audits planned for the coming fiscal year 
which include examinations of the CSF Program.
    (13) A description of the procedures used to comply with the 
nondiscrimination requirements of title VI of the Civil Rights Act of 
1964, the FNS Civil Rights Instruction 113-2 and with 7 CFR part 15, 
including racial and ethnic participation data collection, public 
notification procedures and the annual civil rights compliance review 
process.
    (14) A description of the fair hearing procedures for participants.
    (15) If a State agency wishes to initiate service to the elderly, or 
request expansion caseload to serve the elderly, a description of plans 
for providing program benefits to elderly persons within

[[Page 395]]

the State during the caseload cycle. Such description shall include--
    (i) An identification of the elderly population to be served, 
including documentation of the extent of need in the proposed service 
area; and
    (ii) A description of the means by which the State agency will meet 
the needs of the homebound elderly.
    (b) Submission of local agency information. Local agencies under the 
State agency's jurisdiction may be required to submit information, 
similar to the preceding requirements, to the State agency for its use 
in assuring compliance with this section.
    (c) Amendments. Except as provided in paragraph (a) of this section, 
the State agency may amend the State Plan at any time. The State agency 
shall submit the amendments to FNS for approval.
    (d) Retention of copy. A copy of the approved State Plan shall be 
kept on file at the State agency for public inspection.

(Approved by the Office of Management and Budget under control number 
0584-0063)

(44 U.S.C. 3506; E.O. 12372 (July 14, 1982, 47 FR 30959); secs. 401(b), 
Intergovernmental Cooperation Act of 1968 (42 U.S.C. 4231(b)))

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982; 48 FR 
29123, June 24, 1983; 51 FR 32900, Sept. 17, 1986; 53 FR 4838, Feb. 18, 
1988; 62 FR 55145, Oct. 23, 1997]



Sec.  247.6  Selection of local agencies.

    (a) Application of local agencies. The State agency shall require 
each agency which desires approval as a local agency to submit a written 
application which contains sufficient information to enable the State 
agency to make a determination as to the eligibility of that agency. If 
the State agency and the local agency are the same, this requirement 
does not apply. The State agency shall notify the agency of the approval 
or disapproval of its application within 30 days of receipt of the 
agency's application. If the application is denied the State agency 
shall advise the agency of the reasons for the denial in writing and the 
right to appeal as set forth in Sec.  247.22 of this part. When an 
agency submits an application and there are no funds to serve the area, 
the applicant agency shall be notified within 30 days of receipt of the 
application that there are currently no funds available for Program 
initiation or expansion. The State agency shall return the application 
and maintain a record of the name and address of the applicant agency. 
The potential agency whose application was returned shall be notified by 
the State agency when funds become available. The State agency may 
approve the application of a local agency in an area already served by 
the Program or a WIC program only if a new local agency is necessary to 
serve the full extent of need in that area or population. If the State 
agency approves the operation of a new local agency in an area already 
served by an existing Program or a WIC Program, documentation which 
indicates the need for both local agencies in that area shall be 
maintained on file at the State agency for FNS review and evaluation.
    (b) Agreements between State and local agencies. (1) State agencies 
shall enter into agreements with local agencies which are approved to 
participate in the Program. If the State agency and the local agency are 
the same, this requirement does not apply. Copies of the agreement shall 
be kept on file at both the State and local agency for purposes of 
review and audit. Such agreements shall be in writing and shall contain 
the following:
    (i) An assurance that local agencies will comply with all the fiscal 
and operational requirements prescribed by the State agency as required 
by this part; (ii) an assurance that local agencies will provide 
nutrition education as required by this part; (iii) for those local 
agencies in existence prior to March 3, 1978, an assurance that they 
will continue arrangements with health service providers for the 
provision of services to Program participants at least at the level that 
existed on March 2, 1978, and for other local agencies, an assurance 
that they will advise participants of the importance of health care and 
where low-income persons can obtain such care; (iv) an assurance that 
issuance of supplemental food is in accordance with this part and FNS 
food package instructions; (v) a statement that local agencies are 
responsible to the State agency for any loss resulting from improper

[[Page 396]]

or negligent issuance by them of prescriptions for supplemental foods; 
(vi) a statement that local agencies are responsible to the State agency 
for any Program losses caused by other agencies which have entered into 
agreements with the local agency; (vii) the names and address of each 
certification, food distribution and storage site under the jurisdiction 
of the local agency; and (viii) an assurance that the local agencies 
will maintain accurate and complete records with respect to their 
activities under the Program and retain such records for a period of 3 
years following the date of submission of the final expenditure report 
for the period to which the report pertains.
    (c) Agreements between local agencies and other agencies. A local 
agency which cannot fulfill one or more of these requirements shall 
enter into written agreement with another agency(s) in order to comply 
with these requirements. The written agreement shall state the Program 
responsibilities of the other agency, shall be approved by the State 
agency, and shall be on file at both the State agency and local agency. 
State agency approval of agreements with applicant agencies shall be 
accomplished during the application process.

(Approved by the Office of Management and Budget under control number 
0584-0063)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.7  Certification.

    (a) Eligibility requirements. To be certified as eligible to receive 
supplemental foods under the Program, each applicant shall meet the 
following requirements:
    (1) Categorical eligibility as an infant, child, pregnant, 
postpartum or breastfeeding woman, or elderly person;
    (2) For women, infants and children, income eligibility for local 
benefits under existing Federal, State or local food, health or welfare 
programs for low-income persons;
    (3) For elderly persons certified on or after September 17, 1986, 
household income at or below 130 percent of the Federal Poverty Income 
Guidelines published annually by the Department of Health and Human 
Services. Elderly persons certified before September 17, 1986, shall be 
subject to the terms and conditions in effect on the date of their 
certification.
    (4) At the State agency's discretion, be determined by a physician, 
a staff member of the local agency or his or her designee to be at 
nutritional risk; and
    (5) Meet a residency requirement if one is established by the State 
agency. The State agency may determine a service area for any local 
agency, and may require that an applicant be residing within the service 
area at the time of application to be eligible for the Program. However, 
the State agency may not impose any durational or fixed residency 
requirements. For example, migrant and seasonal farmworkers entering a 
CSFP service area shall be considered as meeting the res idency 
requirement.
    (b) Processing standards. (1) When there are no funds available to 
provide program benefits, the local agency shall maintain waiting lists 
of individuals who visit the local agency to apply for the Program. To 
enable the local agency to contact the individuals when caseload space 
becomes available, these waiting lists shall include the name of the 
applicant, the date placed on the waiting list, an address or phone 
number of the applicant and the applicant's status, i.e., pregnant, 
breastfeeding, child's age. Individuals shall be notified of their 
placement on a waiting list within 20 days after they visit the local 
agency during clinic office hours to request Program benefits.
    (2) The following priorities based on categorical eligibility shall 
be applied when vacancies occur after the local agency has filled all 
caseload, except that these priorities shall not apply to the minimum 
protected caseload assigned under Sec.  247.10(a) (2)(i).
    (i) Priority I. Pregnant women, breastfeeding women, and infants.
    (ii) Priority II. Children ages 1 through 3.
    (iii) Priority III. Children ages 4 through 5.
    (iv) Priority IV. Postpartum women.
    (v) Priority V. Elderly persons.
    (c) Issuance of supplemental foods. Participants shall be issued 
prescriptions for supplemental foods by personnel of

[[Page 397]]

the local agency or by such other personnel as the local agency may 
designate. The local agency may choose to issue either a one month 
supply of supplemental foods each month or a two month supply of 
supplemental foods every other month. However, local agencies which 
choose to issue a two month supply every other month shall inform 
participants that they may still receive one month's supply if they so 
request.
    (d) Certification forms. All certification data for each applicant 
shall be recorded on a certification form. At a minimum the information 
on the form shall include the following:
    (1) The person's name and address.
    (2) The date of initial visit to apply for participation and the 
date of the certification or denial.
    (3) The criteria used to determine the person's eligibility or 
ineligibility and the signature and title of the persons making the 
eligibility determination.
    (4) The following statement shall be located directly above the 
applicant's signature line and shall be read by or to the applicant, or 
the applicant's parent or caretaker, before the application is signed:

    This certification form is being completed in connection with the 
receipt of Federal assistance. Program officials may verify information 
on this form. I am aware that deliberate misrepresentation may subject 
me to prosecution under applicable State and Federal statutes. I have 
been advised of my rights and obligations under the Program. I certify 
that the information I have provided for my eligibility determination is 
correct to the best of my knowledge.

    (e) Applicant's rights. The following sentences shall be read by, or 
read to, the applicant or the applicant's parent or caretaker at the 
time of certification. When a significant proportion of the population 
served by a local agency is composed of non-English or limited English 
speaking persons who speak the same language, the sentences shall be 
stated to such persons in a language they understand:
    (1) Standards for participation in the Program are the same for 
everyone regardless of race, color, or national origin.
    (2) You may appeal any decision made by the local agency regarding 
your denial or termination from the Program.
    (3) If your application is approved, the local agency will make 
nutrition education available to you and you are encouraged to 
participate.
    (f) Notification requirements. The following responsibilities shall 
be performed by the State or local agency;
    (1) Each applicant shall be informed during the certification 
procedure of the right to a fair hearing and of the illegality of 
participation in the Commodity Supplemental Food Program in more than 
one local agency, or simultaneous participation in the Commodity 
Supplemental Food Program and in the WIC Program.
    (2) A person found ineligible for the Program during a certification 
visit shall be advised in writing of the ineligibility and of the right 
to a fair hearing in accordance with the provisions in Sec.  247.20. The 
reasons for ineligibility shall be properly documented and shall be 
retained on file at the local agency.
    (3) A person found ineligible for the Program at any time during the 
certification period shall be advised in writing 15 days before 
termination of eligibility of the reasons for ineligibility and of the 
right to a fair hearing.
    (4) Each participant shall be notified at least 15 days before the 
expiration of each certification period that eligibility for the Program 
is about to expire.
    (5) Each participant shall receive an explanation of how the food 
delivery system in the local agency operates.
    (6) Each participant shall be advised of the importance of 
participating in ongoing routine health care, the types of health 
services available, where they are located and how they may be obtained.
    (g) Certification periods. (1) Program benefits shall be based upon 
certifications established in accordance with the following time frames.
    (i) Pregnant women shall be certified for the duration of their 
pregnancy and for up to 6 weeks postpartum;
    (ii) Postpartum and breastfeeding women, infants and children shall 
be certified at intervals prescribed by the State agency, provided such 
intervals do not exceed 6 months in length; and

[[Page 398]]

    (iii) Elderly persons, except those certified before September 17, 
1986, shall be certified at intervals prescribed by the State agency, 
provided such intervals do not exceed 6 months in length. The Initial 
and any subsequent odd-numbered certifications of elderly persons first 
certified on or after September 17, 1986 shall be based on an assessment 
of newly submitted information for all applicable eligibility 
requirements, except that age need be established only at the first 
certification. The State agency may authorize local agencies to certify 
such elderly participants for an additional 6 months without reviewing 
the case record or collecting new eligibility data at the second and any 
subsequent even-numbered certifications if there are no women, infants 
or children waiting to be served. State agencies shall, however, require 
local agencies to establish contact with such participants prior to such 
even-numbered certifications in order to confirm each participant's 
address and continued interest in program participation.
    (iv) Elderly persons certified before September 17, 1986 shall be 
subject to the terms and conditions in effect on the date of their 
certification.
    (2) Program benefits may be continued until the end of the month in 
which categorical ineligibility begins, for example, until the end of 
the month in which a child reaches its sixth birthday.
    (h) Restrictions. The following restrictions shall be observed by 
State agencies:
    (1) Participants shall not be required to make any payments in 
money, materials or services for, or in connection with, the receipt of 
supplemental foods. Also, they shall not be solicited in connection with 
the receipt of supplemental foods for voluntary cash contributions for 
any purpose.
    (2) Distribution of supplemental foods shall not be used as a means 
for furthering the political interest of any person or party.
    (i) Transfer of certification. Each State agency shall ensure 
issuance of a verification of certification form to every participant 
who intends to relocate during the certification period. The State 
agency shall require the local agencies under its jurisdiction to accept 
verification of certification forms from participants who have been 
participating in the Program or the WIC Program in another local agency 
within or outside of the jurisdiction of the State agency. The 
verification of certification is valid until the certification period 
expires, and shall be accepted as proof of eligibility for Program 
benefits. However, if the receiving local agency has waiting lists for 
participation, the transferring participant shall be placed on the list 
ahead of all waiting applicants. The verification of certification shall 
include the name of the participant, the date the certification was 
performed, the date the certification period expires, the signature and 
printed or typed name of the local agency official in the originating 
jurisdiction, the name and address of the certifying local agency and an 
identification number or some other means of accountability. The 
verification of certification form shall be uniform throughout the 
jurisdiction of the State agency.
    (j) Dual participation. The State agency shall be responsible for 
the following:
    (1) In conjunction with the local agency, the detection and 
prevention of dual participation within each local agency and between 
local agencies. As part of the certification process, applicants shall 
be informed of the illegality of simultaneous participation in the WIC 
Program and this Program or of simultaneous participation in more than 
one CSFP.
    (2) In areas where a local agency serves the same area as an Indian 
State agency or WIC Program, the CSFP State agency for the Program or 
the WIC State agency shall agree to a plan for the detection and 
prevention of dual participation. The agreement must be in writing and 
must be made prior to operation within the same area.
    (3) Participants found committing dual participation shall be 
terminated from one of the Programs immediately and shall be notified of 
termination from the other program as specified in Sec.  247.7.

[[Page 399]]

    (4) At certification the local agency shall check the identification 
of each participant. For a child participant, an immunization record, 
birth certificate, or other records that local agency personnel consider 
adequate identification shall be acceptable. Also, when issuing 
supplemental foods, the local agency shall check the identification of 
each participant or the identity of the adult responsible for picking up 
the food for a child participant.
    (k) Disqualification. (1) The State agency may disqualify applicants 
and participants from Program participation for a period not to exceed 3 
months if it is established by the State or local agency that the 
applicant, participant, parent, or caretaker fraudulently applied for 
and/or obtained Program benefits. However, if the person who determined 
the participant's eligibility determines that a serious health risk will 
result from disqualification from the Program and the participant is 
currently eligible, the disqualification shall be waived. In addition, 
participants may request a fair hearing, as specified in Sec.  247.20, 
to contest a disqualification.
    (2) For Program purposes, fraud includes, but is not limited to, the 
following actions if they are taken knowingly, willfully and 
deceitfully:
    (i) Making false statements orally or in writing in order to obtain 
benefits to which the individual would not otherwise be eligible; (ii) 
concealing information in order to obtain benefits to which the 
individual is not eligible; (iii) altering Program documents for the 
purpose of receiving increased benefits to which the individual is not 
eligible or for the purpose of transferring benefits to an unauthorized 
individual; (iv) using supplemental foods in an unauthorized manner, 
such as trading or selling the foods; or (v) committing dual 
participation.

[46 FR 6341, Jan. 21, 1981, as amended at 51 FR 32901, Sept. 17, 1986; 
53 FR 4839, Feb. 18, 1988]



Sec.  247.8  Nutrition education.

    (a) General. Nutrition education shall be thoroughly integrated into 
Program operations. Nutrition education shall be designed to be easily 
understood by individual participants and shall bear a practical 
relationship to their nutritional needs and household situations.
    (b) Goals. Nutrition education shall be based on the following two 
broad goals: (1) To emphasize the relationship of proper nutrition to 
the total concept of good health, with special emphasis on the 
nutritional needs of pregnant, postpartum, and breastfeeding women, 
infants and children under 6 years of age; and
    (2) To assist participants in obtaining a positive change in food 
habits, resulting in improved nutritional status and in the prevention 
of nutrition related problems through maximum use of the supplemental 
and other nutritious foods. This use is to be within the context of 
ethnic, cultural and geographic preferences. Consideration should also 
be given to tailoring nutrition education to meet any limitations 
experienced by groups of participants, such as lack of running water, 
lack of electricity, and limited cooking or refrigeration facilities.
    (c) State agency responsibilities. The State agency shall ensure 
that the local agency fully performs its responsibilities as set forth 
in paragraph (d) of this section. The State agency shall also ensure 
that an evaluation procedure is maintained to determine the 
effectiveness of the nutrition education. Such evaluation procedure 
shall include a systematic procedure for participant input and may be 
conducted directly by State and local agencies or by contract for such 
services, so long as the evaluation is directed by a nutritionist or 
other professional determined by the State agency to be qualified to 
perform the evaluation procedure.
    (d) Local agency responsibilities. (1) The local agency shall make 
nutrition education available to all adult participants and to parents 
or guardians of infant and child participants. Where appropriate, 
nutrition education for child participants is encouraged.
    (2) The local agency shall direct Program funds for nutrition 
education to the benefit of participants and local agency staff members 
involved in nutrition education, in accordance with this part.
    (3) The local agency shall conduct or arrange for nutrition 
education in a

[[Page 400]]

manner consistent with the nutrition education portion of the State 
Plan.
    (4) The local agency shall include the following subject matter in 
the instruction given to participants:
    (i) An explanation of the importance of the consumption of the 
supplemental foods by the participant for whom they are prescribed 
rather than by other family members; (ii) reference to any special 
nutritional needs of participants and ways to provide adequate diets; 
(iii) an explanation of the Program as a supplemental rather than a 
total food program; (iv) information on the use of the supplemental 
foods and on the nutritional value of these foods; (v) information on 
the benefits of breastfeeding; and (vi) an explanation of the importance 
of health care.
    (e) Food demonstrations. Any food demonstrations using supplemental 
foods shall be conducted by the State or local agency solely in 
conjunction with nutrition education and primarily for participants 
under the Program. Supplemental foods may not be used for outreach, 
refreshments for participants, or any other such purpose. Supplemental 
foods may not be provided to any other community agency or facility for 
any purpose whatsoever, unless such agency has entered into a signed 
written agreement with the State or local agency to provide nutrition 
education services under the Program.

(Approved by the Office of Management and Budget under control number 
0584-0063)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.9  Financial management systems.

    (a) Disclosure of expenditures. The State agency shall maintain a 
financial management system which provides accurate, current and 
complete disclosure of the financial status of the Program. This shall 
include an accounting for all property and other assets and all Program 
funds received and expended each fiscal year.
    (b) Reports. The State agency shall maintain its financial and 
donated food accounts in a manner sufficient to permit the preparation 
of the reports required in Sec.  247.13.
    (c) Record of expenditures. The State agency shall maintain records 
which adequately identify the source and use of funds expended for 
Program activities. These records shall contain, but are not limited to, 
information pertaining to authorization, receipt of funds, obligations, 
unobligated balances, assets, liabilities, outlays and income.
    (d) Payment of costs. The State agency shall implement procedures 
which ensure prompt and accurate payment of allowable costs, and ensure 
the allowability and allocation of costs in accordance with the cost 
principles and standard provisions of this part, and FMC 74-4.
    (e) Identification of obligated funds. The State agency shall 
implement procedures which accurately identify obligated Program funds 
at the time obligations are made.
    (f) Resolutions of audit findings. The State agency shall implement 
procedures which ensure timely and appropriate resolution of claims and 
other matters resulting from audit findings and recommendations.
    (g) Letters of Credit. All administrative funds made available under 
this section shall be provided to participating State agencies by means 
of issuance of Letters of Credit unless other funding arrangements are 
made with FNS. If at the end of the fiscal year, funds authorized by a 
Letter of Credit issued to any State agency exceed obligations, FNS 
shall reduce the amount of the Letter of Credit by the unobligated 
portion.
    (h) Payments. Letters of Credit shall be issued to the appropriate 
Regional Disbursing Office in favor of the State agency. The State 
agency shall obtain funds needed through presentation by designated 
officials of a payment voucher on the Letter of Credit in accordance 
with procedures prescribed by FNS and consistent with the U.S. Treasury 
Department Circular 1075.
    (i) Transfer of cash. The State agency shall have controls to 
minimize the time elapsing between receipt of Federal funds from the 
U.S. Department of Treasury and the disbursement of these funds for 
Program costs. In the Letter of Credit system, the State agency shall 
make drawdowns from the U.S. Department of Treasury's Regional 
Disbursing Office as close as possible to the time of the actual 
disbursement of

[[Page 401]]

funds. Advances made by the State agency to local agencies shall also 
conform to these same standards.
    (j) Local agency financial management. The State agency shall ensure 
that all local agencies develop and implement a financial management 
system consistent with the requirements prescribed by the State agency 
pursuant to the requirements of this section.

(Approved by the Office of Management and Budget under control number 
0584-0063)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.10  Caseload assignment and administrative funding.

    (a) State agency caseload assignment. (1) FNS shall assign caseload 
to State agencies on December 1 of each year or within 30 days after 
enactment of appropriations legislation covering the full fiscal year, 
whichever comes later. In the event appropriations legislation for the 
year is not enacted by December 1, caseload assignments for the previous 
caseload cycle shall remain in effect, subject to the availability of 
sufficient funding, until assignments are made for the current caseload 
cycle. Any caseload assigned for a period beyond the end of the current 
fiscal year shall be available only to the extent that program funds are 
appropriated for the next fiscal year.
    (2) To the extent that funds are available, FNS shall assign 
caseload to State agencies in the following order.
    (i) State agencies for the three elderly feeding projects in 
Detroit, New Orleans, and Des Moines shall be assigned caseload equal to 
the level of participation for each project in December 1985.
    (ii) Currently participating State agencies, except those entering 
their second cycle of program service, shall receive caseload in amounts 
equal to the greatest of their total participation of women, infants, 
and children, and elderly persons (except for caseload equal to the 
December 1985 level of participation at the three elderly feeding 
projects) during September, or monthly average participation for the 
period July through September, or for the prior fiscal year; provided, 
however, that a State agency shall not receive caseload under this 
paragraph in excess of caseload assigned for the preceding caseload 
cycle. State agencies entering their second caseload cycle of program 
service shall receive caseload equal to the caseload level assigned for 
their first cycle of program service.
    (iii) Requests from currently participating State agencies to expand 
service to women, infants, and children, and the elderly, shall be 
addressed in the following manner. Expansion requests to increase 
service to women, infants, and children shall receive priority over 
expansion requests to increase service to the elderly.
    (A) State agencies shall be eligible to receive expansion caseload 
only if, during the preceding September, the period July through 
September, or the prior fiscal year, their monthly average participation 
equaled at least 90 percent of their assigned caseload level for the 
preceding caseload cycle.
    (B) State agencies requesting expansion caseload to increase service 
to women, infants, and children shall be assigned the lesser of an equal 
share of available caseload or the amount of expansion caseload FNS has 
determined that the State agency needs and can effectively manage. If 
any State agencies' shares exceed their approved requests, the excess 
caseload shall be divided equally among State agencies whose approved 
requests exceed their shares.
    (C) State agencies requesting expansion caseload to increase service 
to the elderly shall be assigned the lesser of an equal share of 
available caseload or the amount of expansion caseload FNS has 
determined that the State agency needs and can effectively manage. If 
any State agencies' shares exceed their approved requests, the excess 
caseload shall be divided equally among State agencies whose approved 
requests exceed their shares.
    (iv) Requests from State agencies to initiate program service for 
women, infants, and children, and the elderly shall be addressed in the 
following manner. Requests to initiate service to women, infants, and 
children shall receive priority over requests to initiate service to the 
elderly.
    (A) State agencies with approved State plans incorporating requests 
for program initiation to provide service to women, infants, and 
children shall

[[Page 402]]

be assigned caseload in the same manner described in paragraph 
(a)(2)(iii)(B) of this section.
    (B) State agencies with approved State plans incorporating requests 
for program initiation to provide service to the elderly shall be 
assigned caseload in the same manner described in paragraph 
(a)(2)(iii)(C) of this section.
    (b) Administrative funding. This subsection provides the policies 
and procedures for payment by FNS of funds for administrative costs to 
participating State agencies and disbursement by State agencies to local 
agencies. Funds shall be paid to State agencies as specified in Sec.  
247.9, Financial Management Systems. As a prerequisite to the receipt of 
such funds each fiscal year, the State agency shall have executed a 
written agreement with the Department and shall have received FNS 
approval of its State Plan.
    (1) FNS allocates to each State agency an administrative grant per 
assigned caseload slot, adjusted each year for inflation.
    (2) For fiscal year 2003, the amount of the grant per assigned 
caseload slot is equal to the per-caseload slot amount provided in 
fiscal year 2001, adjusted by the percentage change between:
    (i) The value of the State and local government price index, as 
published by the Bureau of Economic Analysis of the Department of 
Commerce, for the 12-month period ending June 30, 2001; and
    (ii) The value of that index for the 12-month period ending June 30, 
2002.
    (3) For subsequent fiscal years, the amount of the grant per 
assigned caseload slot is equal to the amount of the grant per assigned 
caseload slot for the preceding fiscal year, adjusted by the percentage 
change between:
    (i) The value of the State and local government price index, as 
published by the Bureau of Economic Analysis of the Department of 
Commerce, for the 12-month period ending June 30 of the second preceding 
fiscal year; and
    (ii) The value of that index for the 12-month period ending June 30 
of the preceding fiscal year.
    (4) To ensure that State agencies can properly budget for program 
operations, FNS guarantees that 75 percent of the administrative funding 
provided to each State under paragraph (b)(2) of this section will be 
protected from recoveries during the current fiscal year.
    (5) The State agency may retain a percentage of administrative 
funding for State level use, based on the following formula: 15 percent 
of the first $50,000; plus 10 percent of the next $100,000; plus 5 
percent of the next $250,000. The State may retain a maximum amount of 
$30,000 annually for its administrative expenditures. However, if the 
State agency provides warehousing services, FNS approval may be 
requested at the beginning of the applicable fiscal year for funds 
greater than those allowed under the formula, provided that the State 
agency can document the need and ensure that the increase will not 
impose undue hardship on local agencies. The remaining funds and any 
unused funds at the State level shall be distributed to the local 
agencies.
    (6) The State agency, in providing administrative funds to local 
agencies, shall apportion such funds among the local agencies on the 
basis of their respective needs so as to ensure that those local 
agencies evidencing higher administrative costs, while demonstrating 
prudent management and fiscal controls, receive a greater portion of the 
administrative funds.
    (c) Reallocation. FNS reserves the right to periodically recover and 
redistribute unused caseload slots and unspent administrative funds 
(subject to the limitation in paragraph (b)(4) of this section). In the 
event that caseload slots are recovered, they shall be allocated in 
accordance with the order of funding established in Sec.  247.10(a)(2).

[51 FR 32901, Sept. 17, 1986, as amended at 53 FR 4840, Feb. 18, 1988; 
62 FR 55145, Oct. 23, 1997; 68 FR 51677, Aug. 28, 2003]



Sec.  247.11  Administrative costs.

    (a) General. Funds provided to State and local agencies may be used 
to cover administrative costs identified under FMC 74-4 which State 
agencies determine to be necessary to carry out the Program within their 
jurisdiction.
    (b) Allowable costs. The following costs are specifically identified 
as illustrative of costs allowable under the Program:

[[Page 403]]

    (1) The cost of certification procedures including: (i) Laboratory 
fees incurred for tests conducted to determine the eligibility of 
persons to participate in the Program; (ii) expendable medical supplies 
necessary to determine the eligibility of persons to participate in the 
Program; and (iii) centrifuges, measuring boards, skin fold calipers, 
spectrophotometers, hematofluoro meters, hemoglobinom eters, and scales 
used for determining the eligibility of persons, provided that 
expenditure limits will be set by FNS for each piece of equipment and 
expenditures which exceed the limits shall receive prior approval by the 
FNS Regional Office.
    (2) The cost of nutrition education services provided to 
participants and parents and guardians of participants, and used for 
training local agency staff members;
    (3) The cost of transporting food and of administering the food 
distribution system;
    (4) The cost of interpreters and translators for Program materials;
    (5) The cost of outreach services;
    (6) The cost of audits and fair hearings;
    (7) General administration of the State and local agencies 
including, but not limited to, personnel, warehousing, and insurance;
    (8) The cost of monitoring and reviewing Program operations; and
    (9) The cost of transportation for participants to and from the 
local agency when the local agency has determined and documented the 
need for such assistance.
    (c) Restrictions on allowable costs. The following costs are 
allowable only with the prior approval of FNS.
    (1) Automatic Data Processing equipment and system purchases whether 
by outright purchase, rental-purchase agreement or other method of 
purchase;
    (2) Capital expenditures over $2,500.00 such as the cost of 
facilities, equipment, other capital assets and any repairs that 
materially increase the value or useful life of capital assets, provided 
that any subsequent sale of real or personal properties, purchased in 
whole or in part with Program funds, shall be used to reimburse FNS in 
an amount computed by applying to the sale proceeds the percentage of 
FNS participation in the original acquisition costs;
    (3) Occupancy of space under rental-purchase or a lease with option 
to purchase agreements;
    (4) Equipment rental costs where the agreement provides for rental-
purchase or a lease with option to purchase; and
    (5) Management studies performed by agencies or departments other 
than the State or local agency or those performed by outside consultants 
under contract with the State or local agency.
    (d) Unallowable costs. Expenditures by a State agency or local 
agencies which result in costs that may not be applicable to the Program 
objectives are ``unallowable costs.'' A State agency's system for 
financial management shall identify such unallowable costs. In addition 
to unallowable costs identified in FMC 74-4 the following are 
specifically unallowable costs for reimbursement by FNS:
    (1) Costs incurred for rearrangement and alteration of facilities 
not required specifically for the program;
    (2) Actual losses which could have been covered by permissible 
insurance (through an approved self-insurance program or otherwise).



Sec.  247.12  Program income.

    Program income means gross income the State agency or local agencies 
earn from grant supported activities, with the exception of income from 
the sale of property as specified in Sec.  247.11(c)(2). Program income 
earned during the agreement period shall be retained by the State agency 
in accordance with the provisions of A-102, Attachment E and used to 
further Program objectives; except that interest earned on Program funds 
at the State or local levels shall be used in accordance with the 
provisions of A-102, Attachment E. A State agency's financial management 
system shall provide guidelines to assure that: income earned is 
recorded as individual transactions within the accounting records in 
conformance with generally accepted accounting principles for recording 
expenditures and revenues; and specifically earmarked Program income is 
used for the purpose(s) intended.

[[Page 404]]



Sec.  247.13  Records and reports.

    (a) Recordkeeping requirements. Each State agency shall, in 
accordance with Sec.  250.6(r), maintain accurate and complete records 
with respect to the receipt, disposal, and inventory of supplemental 
foods, including the determination made as to liability for any improper 
distribution or use of, or loss of, or damage to, such foods and the 
result obtained from the pursuit of claims arising in favor of the State 
agency. Accurate and complete records shall also be maintained with 
respect to the receipt and disbursement of administrative funds. State 
agencies shall require all local agencies to maintain accurate and 
complete records with respect to the receipt, disposal and inventory of 
supplemental foods and with respect to receipt and disbursement of 
administrative funds. All records required by this section shall be 
retained for a period of 3 years following the date of submission of the 
annual expenditure report for the period to which the reports pertain. 
All records, except medical case rec ords of participants (unless they 
are the only source of certification data), shall be available during 
normal business hours for representatives of the Department and the 
General Accounting Office of the United States to inspect, audit, and 
copy. Any reports resulting from such examinations shall not divulge 
names of individuals.
    (b) Financial reports. All financial data shall be submitted 
quarterly on the S.F. 269(WIC/CSFP) and/or the S.F. 272 for State 
agencies on the check payment system.
    (c) Participation and food distribution reports. Participation and 
Food Distribution reports FNS-153 and FNS-155 shall be submitted as 
required by FNS, at a frequency prescribed by FNS. Annually, a physical 
inventory of all foods at each storage and distribution site is required 
to be submitted to FNS at a date specified by FNS.
    (d) Civil rights. Each local agency participating under the Program 
shall submit a report of racial and ethnic participation data FNS-191, 
at a frequency prescribed by FNS.
    (e) Audit acceptability of reports. To be acceptable for audit 
purposes, all financial and Program performance reports shall be 
traceable to source documentation.
    (f) Certification of reports. Financial and Program reports shall be 
certified as to their completeness and accuracy by the person given that 
responsibility by the State agency.
    (g) Use of reports. FNS shall use State agency reports to measure 
progress in achieving objectives set forth in the State Plan. If it is 
determined, through review of State agency reports, Program or financial 
analysis, or an audit, that a State agency is not operating according to 
its State Plan, FNS may request additional information and take other 
appropriate actions.

(Approved by the Office of Management and Budget under control number 
0584-0063)

(44 U.S.C. 3506)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.14  Procurement and property management standards.

    (a) Requirements. State and local agencies shall comply with the 
requirements of Circular A-102, Attachment 0 for procurement of 
equipment and other services with Program funds. These requirements are 
adopted by FNS to ensure that such materials and services are obtained 
for the Program in an effective manner and in compliance with the 
provisions of applicable law and executive orders.
    (b) Contractual responsibilities. The standards contained in 
Circulars A-90, A-102 and A-110, where applicable, do not relieve the 
State or local agency of the responsibilities arising under its 
contracts. The State agency is the responsible authority, without 
recourse to FNS, regarding the settlement and satisfaction of all 
contractual and administrative issues arising out of procurements 
entered into in connection with the Program. This includes, but is not 
limited to: Disputes, claims, protests of awards, source evaluation, or 
other matters of a contractual nature. Matters concerning violation of 
law are to be referred to such local, State or Federal authority as may 
have proper jurisdiction.

[[Page 405]]

    (c) State regulations. The State or local agency may use its own 
procurement regulations which reflect applicable State and local 
regulations, provided that procurements made with Program funds adhere 
to the standards set forth in Circulars A-90, A-102 and Circular A-110, 
where applicable.
    (d) Property acquired with Program funds. State and local agencies 
shall observe the standards prescribed in A-102, Attachment N, and A-
110, Attachment N, where applicable, in their utilization and 
disposition of property acquired in whole or in part with Program funds.

(Approved by the Office of Management and Budget under control number 
0584-0063)

(44 U.S.C. 3506)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.15  Audits.

    (a) Federal access to information. The Secretary, the Comptroller 
General of the United States, or any of their duly authorized 
representatives, or State auditors shall have access to any books, 
documents, papers, and rec ords of the State and local agencies and 
their contractors, for the purpose of making surveys, audits, 
examinations, excerpts, and transcripts.
    (b) State agency response. The State agency may take exception to 
particular audit findings and recommendations. The State agency shall 
submit a response or statement to FNS as to the action taken or planned 
regarding the findings. A proposed corrective action plan developed and 
submitted by the State agency shall include specific time frames for its 
implementation and for completion of the correction of deficiencies and 
problems leading to the deficiencies.
    (c) Corrective action. FNS shall determine whether Program 
deficiencies have been adequately corrected. If additional corrective 
action is necessary, FNS shall schedule a followup review, allowing a 
reasonable time for such corrective action to be taken.
    (d) State sponsored audits. (1) Each State agency shall provide for 
an independent audit of the financial operations of the State agency and 
local agencies. Audits may be conducted by State and local government 
audit staffs, State licensed public accountants who were licensed on or 
before December 31, 1970, or by Certified Public Accountants and audit 
firms under contract to the State or local agencies. Audits shall 
conform to: ``The Standards of Audit of Governmental Organizations, 
Program Activities and Functions,'' issued by the Comptroller General of 
the United States (Reprint 1974, for sale by the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402); the 
``Guidelines for Financial and Compliance Audits of Federally Assisted 
Programs,'' issued by the U.S. General Accounting Office, October 1978 
(for sale by the U.S. General Accounting Office, Distribution Section, 
Room 1518, 441 G Street, NW., Washington, DC 20013); any compliance 
supplements approved by OMB; and generally accepted auditing standards 
established by the American Institute of Certified Public Accountants. 
An audit shall be used to determine whether:
    (i) Financial operations are properly conducted; (ii) the financial 
reports are fairly presented; (iii) the State or local agency has 
complied with applicable laws, regulations, and administrative 
requirements pertaining to financial management; and (iv) proper 
inventory controls (physical and paper) are being maintained.
    (2) The State agency shall conduct audits in accordance with the 
provisions of A-102, Attachment P. Audits of the State agency and the 
local agencies under the State agency's jurisdiction shall be performed 
in a representative sample of grant program audit examinations during 
each audit cycle which occurs, not less frequency than once every two 
years. In some audit cycles, a grant program or programs other than this 
Program may be audited. However, audits of the Program shall be 
performed at intervals frequent enough to ensure consistency with good 
Program management. Also, at any time, the Department, FNS or the State 
agency may at its discretion audit a Program if an audit appears to be 
warranted. If FNS in the course of

[[Page 406]]

Program reviews of State agency operations finds that the efficiency and 
effectiveness of the State agency's financial management system is in 
question, FNS may request the State agency to include the Program in the 
sample for the next audit examination.
    (3) Each State agency shall make all State or local agency sponsored 
audit reports of Program operations under its jurisdiction available for 
the Department's review upon request. The cost of these audits shall be 
considered a part of administrative costs and funded from either State 
or local agency administrative funds.

(Approved by the Office of Management and Budget under control number 
0584-0063)

(44 U.S.C. 3506)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.16  Investigations.

    (a) Authority. The Department may make an investigation of any 
allegation of noncompliance with this part. The investigation may 
include, where appropriate, a review of pertinent practices and policies 
of any State or local agency, the circumstances under which the possible 
noncompliance with this part occurred, and other factors relevant to a 
determination as to whether the State or local agency has failed to 
comply with the requirements of this part.
    (b) Confidentiality. No State or local agency, participant, or other 
person shall intimidate, threaten, coerce, or discriminate against any 
individual for the purpose of interfering with any right or privilege 
under this part because the individual has made a complaint or formal 
allegation, or testified, assisted, or participated in any manner in an 
investigation, proceeding, or hearing under this part. The identity of 
every complainant shall be kept confidential except to the extent 
necessary to carry out the purpose of this part, including the conduct 
of any investigation, hearing, or judicial proceeding.



Sec.  247.17  Claims.

    If FNS determines through a review of the State agency's reports, 
program or financial analysis, monitoring, audit, or otherwise, that any 
Program funds provided to a State agency for administrative purposes 
were, through State agency or local agency negligence or fraud, misused 
or otherwise diverted from Program purposes, a claim shall be made by 
FNS against the State agency, and the State agency shall pay promptly to 
FNS a sum equal to the amount of the administrative funds so misused or 
diverted. Further, if FNS determines that any part of the money received 
by a State agency was lost as a result of thefts, embezzlements, or 
unexplained causes, the State agency shall, on demand by FNS, pay to FNS 
a sum equal to the amount of the money so lost. Claims for losses or 
misuse of supplemental foods shall be handled in accordance with Sec.  
250.6(m), 7 CFR part 250--Subchapter B--Food Distribution. The State 
agency shall have full opportunity to submit evidence, explanations or 
information concerning alleged instances of noncompliance or diversion 
before a final determination is made in such cases.



Sec.  247.18  Closeout procedures.

    (a) Fiscal year closeout reports. State agencies shall submit 
preliminary and final closeout reports for each fiscal year or part 
thereof. All obligations shall be liquidated before final closure of a 
fiscal year grant. Obligations shall be reported for the fiscal year in 
which they occur State agencies shall:
    (1) Submit to FNS, within 30 days after the end of the fiscal year, 
preliminary financial reports which show cumulative actual expenditures 
and obligations for the fiscal year, or part thereof, for which Program 
funds were made available; and
    (2) Submit to FNS, within 90 days after the end of the fiscal year, 
final fiscal year closeout reports.
    (b) Revised closeout reports. Revised closeout reports may be 
submitted at any time. However, FNS shall not be responsible for 
reimbursing unpaid obligations later than one year after the close of 
the fiscal year in which they were incurred.

[[Page 407]]

    (c) Grant closeout procedures. When grants to State agencies are 
terminated, the following closeout procedures for the Program shall be 
performed in accordance with OMB Circular A-102.
    (1) Termination for cause. FNS may terminate a State agency's 
participation under the Program, in whole or in part, whenever FNS 
determines that the State agency has failed to comply with the 
conditions prescribed in this part. FNS shall promptly notify the State 
agency in writing of the termination and the reasons for the 
termination, including the effective date. A State agency shall 
terminate a local agency's participation under the Program by written 
notice whenever it is determined by FNS or the State agency that the 
local agency has failed to comply with the requirements of the Program. 
When a State agency's participation under the Program is terminated for 
cause, any payments made to the State agency, or any recoveries by FNS 
from the State agency, shall be in conformance with the legal rights and 
liabilities of the parties.
    (2) Termination for convenience. FNS or the State agency may 
terminate the State agency's participation under the Program, in whole 
or in part, when both parties agree that continuation under the Program 
would not produce beneficial results commensurate with the further 
expenditure of funds. The State agency or the local agency may terminate 
the local agency's participation, in whole or in part, under the same 
conditions. The two parties shall agree upon the termination conditions, 
including the effective date thereof and, in the case of partial 
termination, the portion to be terminated. The State agency shall not 
incur new obligations for the terminated portion after the effective 
date, and shall cancel as many outstanding obligations as possible. FNS 
shall allow full credit to the State agency for the Federal share of the 
noncancellable obligations, properly incurred by the State agency prior 
to termination.



Sec.  247.19  Nondiscrimination.

    (a) Requirement. The State agency shall comply with the requirements 
of title VI of the Civil Rights Act of 1964, the FNS Civil Rights 
Instruction 113-2 and the Department's regulations concerning 
nondiscrimination (7 CFR part 15), including requirements of racial and 
ethnic participation data collection, public notification of the 
nondiscrimination policy, and annual reviews of each local agency to 
assure compliance with such policy, to the end that no person shall, on 
the grounds of race, color or national origin, be excluded from 
participation in, be denied the benefits of, or be otherwise subjected 
to discrimination under the Program.
    (b) Non-English materials and staff. Where a significant proportion 
of the population of the area served by a local agency is composed of 
non-English or limited English speaking persons who speak the same 
language, the State agency shall take action to ensure that Program 
information, except certification forms, is provided to such persons in 
the appropriate language orally and in writing. The State agency shall 
ensure that there are bilingual staff members or interpreters available 
to serve these persons.
    (c) Complaints. Complaints of discrimination filed by applicants or 
participants shall be referred to the Director, Supplemental Food 
Programs Division, Food and Nutrition Service, U.S.D.A., Washington, DC 
20250.

(Approved by the Office of Management and Budget under control number 
0584-0063)

(44 U.S.C. 3506)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.20  Fair hearing procedures.

    (a) Availability of hearings. The State agency shall provide a 
hearing procedure through which any individual may appeal a State or 
local agency action which results in the denial or termination of 
benefits to the individual. The State agency shall conform to Program 
hearing procedures as outlined in this section at all times unless the 
State has an alternate hearing procedure whereby participants can appeal 
State or local agency actions. This alternate procedure may be used with 
FNS approval.
    (b) Notification of appeal rights. At the time of application each 
applicant

[[Page 408]]

shall be informed of the right to a fair hearing.

At the time of denial or termination of benefits, each individual shall 
be informed in writing of the right to a fair hearing, of the method by 
which a hearing may be requested, and that any positions or arguments on 
behalf of the individual may be presented personally or by a 
representative such as a relative, friend, legal counsel or other 
spokesperson. Such notification is not required at the expiration of a 
certification period.
    (c) Request for hearing. A request for a hearing is defined as any 
clear expression by the individual or the individual's parent, guardian 
or other representative, that an opportunity to present its case to a 
higher authority is desired. The State or local agency shall not limit 
or interfere with the individual's freedom to request a hearing.
    (d) Time limit for request. The State or local agency shall provide 
individuals a reasonable period of time to request fair hearings. Such 
time limit shall not be less than 60 days from the date the agency mails 
or gives the applicant or participant the notice of adverse action to 
deny or terminate benefits, as required in Sec.  247.7(f)(2).
    (e) Denial or dismissal of request. A request for a hearing shall 
not be denied or dismissed unless:
    (1) The request is not received within the time limit set by the 
State agency in accordance with paragraph (d) of this section.
    (2) The request is withdrawn in writing by the applicant or a 
writing by the applicant or a representative.
    (3) The applicant or representative fails, without good cause, to 
appear at the scheduled hearing.
    (f) Continuation of benefits. Participants who appeal the 
termination of benefits within the 15 day advance adverse notice period 
provided by Sec.  247.7(f)(2) shall continue to receive Program benefits 
until the hearing official reaches a decision. Applicants who are denied 
benefits at initial certification or at subsequent certifications may 
appeal the denial but shall not receive benefits while awaiting the 
hearing.
    (g) Rules of procedure. The State and local agency shall process 
each request for a hearing under uniform rules of procedure. The uniform 
rules of procedure shall be available for public inspection and copying. 
At a minimum, the uniform rules of procedure shall include: The time 
limits for requesting and conducting a hearing; all advance notice 
requirements; the rules of conduct at the hearing; and the rights and 
responsibilities of the applicant. The procedures shall not be unduly 
complex or legalistic and the applicant's background shall be taken into 
consideration.
    (h) Hearing official. Hearings shall be conducted by an impartial 
official who does not have any personal stake or involvement in the 
decision and who was not directly involved in the initial determination 
of the action being contested. The hearing official shall:
    (1) Administer oaths or affirmations if required by the State;
    (2) Ensure that all relevant issues are considered;
    (3) Request, receive and make part of the hearing record all 
evidence determined necessary to decide the issues being raised;
    (4) Regulate the conduct and course of the hearing consistent with 
due process to ensure an orderly hearing;
    (5) Render a hearing decision which will resolve the dispute.
    (i) Conduct of the hearing. The hearing shall be accessible to the 
applicant. The State or local agency shall provide the applicant with a 
minimum of 10 days advance written notice of time and place of the 
hearing and shall enclose the rules of procedure. The State and local 
agency shall also provide the applicant or representative an opportunity 
to:
    (1) Examine, prior to and during hearing, the documents and records 
presented to support the decision under appeal; (2) be assisted or 
represented by an attorney or other persons; (3) bring witnesses; (4) 
advance arguments without undue interference; (5) question or refute any 
testimony or evidence, including an opportunity to confront and cross-
examine adverse witnesses; and (6) submit evidence to establish all 
pertinent facts and circumstances in the case.

[[Page 409]]

    (j) Hearing decisions. (1) Decisions of the hearing official shall 
comply with Federal law or regulations and shall be based on facts in 
the hearing record. The verbatim transcript or recording of testimony 
and exhibits, or an official report containing the substance of what 
transpired at the hearing, together with all papers and requests filed 
in the proceeding shall constitute the exclusive record for a final 
decision by the hearing official. This record shall be retained in 
accordance with Sec.  247.13. This record shall also be available, for 
copying and inspection, to the appellant or representative at any 
reasonable time.
    (2) A decision by the hearing official shall be binding on the local 
agency and shall summarize the facts of the case, specify the reasons 
for the decision, and identify the supporting evidence and the pertinent 
regulations. The decision shall become a part of the record.
    (3) Within 45 days of the request for the hearing, the applicant or 
representative shall be notified in writing of the decision and the 
reasons for the decision in accordance with paragraph (j)(2) of this 
section. Also, if the decision is in the favor of the applicant and 
benefits were denied, benefits shall begin within this 45-day time 
period. If the decision is in favor of the agency, as soon as 
administratively feasible any continued benefits shall be terminated as 
decided by the hearing official.
    (4) All State and local agency hearing records and decisions shall 
be available for public inspection and copying, subject to the 
disclosure safeguards provided in Sec.  247.22(d), and provided the 
names and addresses of participants and other members of the public are 
kept confidential.
    (k) Judicial review. If a State level decision upholds the agency 
action, the State agency shall explain any available State review of the 
decision and any State rehearing process. If neither are available or 
have been exhausted, the State agency shall explain the right to pursue 
judicial review of the decision.

(Approved by the Office of Management and Budget under control number 
0584-0063)

(44 U.S.C. 3506)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.21  Management evaluation and reviews.

    (a) General. FNS and each State agency shall establish a management 
evaluation system in order to assess the accomplishment of Program 
objectives as provided under these regulations, the State Plan, and the 
written agreement with the Department. FNS will provide assistance to 
States in discharging this responsibility, and will establish standards 
and procedures to determine how well the objectives of this part are 
being accomplished.
    (b) Responsibilities of FNS. FNS shall establish evaluation 
procedures to determine whether State agencies carry out the purposes 
and provisions of this part, the State Plan, and the written agreement 
with the Department. As a part of the evaluation procedure, FNS shall 
review audits performed by the State agency to ensure that the Program 
at both the State and local levels has been included in audit 
examinations at a reasonable frequency. These evaluations shall include 
a review of each State agency, including on-site reviews of selected 
local agencies. These evaluations will measure the State agency's 
progress toward meeting the objective outlined in its State Plan and 
compliance with these regulations.
    (c) Responsibilities of State agencies. The State agency is 
responsible for meeting the following requirements:
    (1) The State agency shall establish evaluation and review 
procedures and document the results of such procedures. The procedures 
shall include, but not be limited to:
    (i) Annual monitoring of the operation of all local agencies to 
evaluate certification procedures, management,

[[Page 410]]

nutrition education, civil rights compliance, food storage, inventory 
accountability, and financial management systems. However, more frequent 
reviews may be performed as the State agency deems necessary. The State 
agency shall provide a continuing evaluation of each local agency 
through on-site reviews of the local agency, reviews of local agency 
reports including inventory reports, reviews of storage facilities and 
safeguards for supplemental foods.
    (ii) Instituting the necessary followup procedures to correct 
identified problem areas.
    (2) On its own initiative or when required by FNS, the State agency 
shall provide special reports on Program activities, and take positive 
action to correct deficiencies in Program operations.
    (3) The State agency shall require that local agencies establish 
Program review procedures to be used in reviewing their own operations 
and those of subsidiaries or contractors.

(Approved by the Office of Management and Budget under control number 
0584-0063)

(44 U.S.C. 3506)

[46 FR 6341, Jan. 21, 1981, as amended at 47 FR 746, Jan. 7, 1982]



Sec.  247.22  Administrative appeal of State agency decisions.

    (a) Requirements. The State agency shall provide a hearing procedure 
whereby a local agency adversely affected by a State action may appeal 
the action. The right to appeal shall be granted when the local agency's 
application to participate is denied, when participation is terminated, 
when a contract is not renewed by the State agency or when any other 
adverse action which affects participation is taken. The adverse action 
shall be postponed until a hearing decision is reached.
    (b) Procedure. The State agency hearing procedure shall at a minimum 
provide the local agency:
    (1) Adequate advance notice of the time and place of the hearing to 
provide all parties involved sufficient time to prepare for the hearing;
    (2) The opportunity to present its case;
    (3) The opportunity to confront and cross-examine adverse witnesses;
    (4) The opportunity to be represented by counsel, if desired;
    (5) The opportunity to review the case record prior to the hearing;
    (6) An impartial decision maker, whose decision as to the validity 
of the State or local agency's action shall rest solely on the evidence 
presented at the hearing and the statutory and regulatory provisions 
governing the Program. The basis for the decision shall be stated in 
writing, although it need not amount to a full opinion or contain formal 
finding of fact and conclusions of law; and
    (7) Written notification of the decision concerning the appeal, 
within 60 days from the date of the request for a hearing.



Sec.  247.23  Miscellaneous provisions.

    (a) No aid reduction. The value of benefits or assistance available 
under the Program shall not be considered as income to or resources of 
participants or their families for any purpose under Federal, State or 
local laws, including, but not limited to, laws relating to taxation, 
welfare and public assistance programs.
    (b) Statistical information. FNS reserves the right to use 
information obtained under the Program in a summary, statistical or 
other form which does not identify particular individuals. FNS may 
require the State or local agencies to supply data and other information 
collected under the Program in a form that does not identify particular 
individuals, to enable the Secretary or the State agencies to evaluate 
the effect of food intervention upon low-income individuals determined 
to be eligible for Program benefits.
    (c) Confidentiality. Each State agency shall restrict the use or 
disclosure of information obtained from Program applicants or 
participants to persons directly connected with the administration or 
enforcement of the Program.
    (d) Public information. Any person who wishes information, 
assistance, rec ords or other public material shall request such 
information from the

[[Page 411]]

State agency, or from the FNS Regional Office serving the appropriate 
State as listed below:
    (1) Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, 
Vermont:

U.S. Department of Agriculture, FNS, New England Region, 33 North 
Avenue, Burlington, Massachusetts 01803.

    (2) Delaware, District of Columbia, Maryland, New Jersey, New York, 
Pennsylvania, Puerto Rico, Virginia, Virgin Islands, West Virginia:

U.S. Department of Agriculture, FNS, Mid-Atlantic Region, One Vahlsing 
Center, Robbinsville, New Jersey 08691.

    (3) Alabama, Florida, Georgia, Kentucky, Mississippi, North 
Carolina, South Carolina, Tennessee:

U.S. Department of Agriculture, FNS, Southeast Region, 1100 Spring 
Street, NW, Atlanta, Georgia 30309.

    (4) Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin:

U.S. Department of Agriculture, FNS, Midwest Region, 536 South Clark 
Street, Chicago, Illinois 60605.

    (5) Arkansas, Louisiana, New Mexico, Oklahoma, Texas:

U.S. Department of Agriculture, FNS, Southwest Region, 1100 Commerce 
Street, Room 5-C-30, Dallas, Texas 75242.

    (6) Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North 
Dakota, South Dakota, Utah, Wyoming:

U.S. Department of Agriculture, FNS, Mountain Plains Region, 2420 West 
26th Avenue, Room 430-D, Denver, Colorado 80211.

    (7) Alaska, American Samoa, Arizona, California, Guam, Hawaii, 
Idaho, Nevada, Oregon, Trust Territory of the Pacific Islands, 
Washington:

U.S. Department of Agriculture, FNS, Western Region, 550 Kearney Street, 
Room 400, San Francisco, California 94108.



PART 248_WIC FARMERS' MARKET NUTRITION PROGRAM (FMNP)--Table of Contents




                            Subpart A_General

Sec.
248.1 General purpose and scope.
248.2 Definitions.
248.3 Administration.

                   Subpart B_State Agency Eligibility

248.4 State Plan.
248.5 Selection of new State agencies.

                     Subpart C_Recipient Eligibility

248.6 Recipient eligibility.
248.7 Nondiscrimination.

                      Subpart D_Recipient Benefits

248.8 Level of benefits and eligible foods.
248.9 Nutrition education.

                    Subpart E_State Agency Provisions

248.10 Coupon and market management.
248.11 Financial management system.
248.12 FMNP costs.
248.13 FMNP income.
248.14 Distribution of funds.
248.15 Closeout procedures.
248.16 Administrative appeal of State agency decisions.

            Subpart F_Monitoring and Review of State Agencies

248.17 Management evaluations and reviews.
248.18 Audits.
248.19 Investigations.

                   Subpart G_Miscellaneous Provisions

248.20 Claims and penalties.
248.21 Procurement and property management.
248.22 Nonprocurement debarment/suspension, drug-free workplace, and 
          lobbying restrictions.
248.23 Records and reports.
248.24 Other provisions.
248.25 FMNP information.
248.26 OMB control number.

    Authority: 42 U.S.C. 1786.

    Source: 59 FR 11517, Mar. 11, 1994, unless otherwise noted.



                            Subpart A_General



Sec.  248.1  General purpose and scope.

    This part announces regulations under which the Secretary of 
Agriculture shall carry out the WIC Farmers' Market Nutrition Program. 
The dual purposes of the FMNP are:
    (a) To provide resources in the form of fresh, nutritious, 
unprepared foods (fruits and vegetables) from farmers' markets to women, 
infants, and children who are nutritionally at risk and who are 
participating in the Special Supplemental Nutrition Program for Women, 
Infants and Children (WIC) or

[[Page 412]]

are on the waiting list for the WIC Program; and
    (b) To expand the awareness, use of and sales at farmers' markets.
    This will be accomplished through payment of cash grants to approved 
State agencies which administer the FMNP and deliver benefits at no cost 
to eligible persons. The FMNP shall be supplementary to the food stamp 
program carried out under the Food Stamp Act of 1977 (7 U.S.C. 2011 et 
seq.) and to any other Federal or State program under which foods are 
distributed to needy families in lieu of food stamps.



Sec.  248.2  Definitions.

    For the purpose of this part and all contracts, guidelines, 
instructions, forms and other documents related hereto, the term:
    Administrative costs means those direct and indirect costs, 
exclusive of food costs, as defined in Sec.  248.12(b), which State 
agencies determine to be necessary to support FMNP operations. 
Administrative costs include, but are not limited to, the costs of 
administration, start-up, training, monitoring, auditing, the 
development of and accountability for coupon and market management, 
nutrition education, outreach, eligibility determination, and 
developing, printing, and distributing coupons.
    Compliance buy means a covert, on-site investigation in which a FMNP 
representative poses as a FMNP participant and transacts one or more 
FMNP food coupons.
    Coupon means a coupon, voucher, or other negotiable financial 
instrument by which benefits under the FMNP are transferred to 
recipients.
    Days means calendar days.
    Demonstration project means the Farmers' Market Coupon Demonstration 
Project authorized by section 17(m) of the Child Nutrition Act of 1966 
(CNA), (42 U.S.C. 1786(m)), as amended by section 501 of the Hunger 
Prevention Act of 1988 (Pub. L. 100-435), enacted September 19, 1988. 
Public Law 102-314 authorized the Secretary to competitively award, 
subject to the availability of funds, a 3-year grant (which was 
subsequently extended for an additional year by Public Law 102-142) to 
up to 10 States that submitted applications that were approved for the 
establishment of demonstration projects designed to provide WIC 
participants with coupons that could be exchanged for fresh, nutritious, 
unprepared foods at farmers' markets. Those States are: Connecticut, 
Iowa, Maryland, Massachusetts, Michigan, New York, Pennsylvania, Texas, 
Vermont, and Washington.
    Department means the U.S. Department of Agriculture.
    Eligible foods means fresh, nutritious, unprepared, locally grown 
fruits, vegetables and herbs for human consumption. Eligible foods may 
not be processed or prepared beyond their natural state except for usual 
harvesting and cleaning processes. Honey, maple syrup, cider, nuts, 
seeds, eggs, meat, cheese and seafood are examples of foods not eligible 
for purposes of the FMNP. State agencies shall consider locally grown to 
mean produce grown only within State borders but may also define it to 
include areas in neighboring States adjacent to its borders. Under no 
circumstances can produce grown outside of the United States and its 
territories be considered eligible foods.
    Farmer means an individual authorized to sell produce at 
participating farmers' markets. Individuals who exclusively sell produce 
grown by someone else, such as wholesale distributors, cannot be 
authorized to participate in the FMNP. For purposes of this part, the 
term ``farmer'' shall mean ``producer'' as that term is used in section 
17(m)(6)(D) of the CNA (42 U.S.C. 1786(m)(6)(D)). A participating State 
agency has the option to authorize individual farmers or farmers' 
markets.
    Farmers' market means an association of local farmers who assemble 
at a defined location for the purpose of selling their produce directly 
to consumers. In cases where recipient access to farmers' markets is an 
issue, with prior FNS approval this definition may be expanded at the 
State agency's option to include farmstands at which authorized farmers 
sell their produce.
    Farmstand means a location at which a single, individual farmer 
sells his/her produce directly to consumers. This is in contrast to a 
group or association of

[[Page 413]]

farmers selling their produce at a farmers' market. With prior FNS 
approval, through the State Plan process, a State agency may authorize a 
farmstand or a nonprofit organization operating a farmstand to 
participate in the FMNP where necessary to ensure adequate recipient 
access to farmers' markets.
    Fiscal year means the period of 12 calendar months beginning October 
1 of any calendar year and ending September 30 of the following calendar 
year.
    FMNP funds means Federal grant funds provided for the FMNP, plus the 
required matching funds.
    FNS means the Food and Nutrition Service of the U.S. Department of 
Agriculture.
    Food costs means the cost of eligible supplemental foods.
    Household has the same definition as that of ``family'' defined in 
Sec.  246.2 of this chapter. Each such family shall constitute a 
separate household for FMNP benefit issuance purposes.
    In-kind contributions means property or services which benefit the 
FMNP and which are contributed by non-Federal parties without charge to 
the FMNP.
    Local agency means any nonprofit entity or local government agency 
which issues FMNP coupons, and provides nutrition education and/or 
information on operational aspects of the FMNP to FMNP recipients.
    Matching requirement means State, local or private funds, or program 
income equal to not less than 30 percent of the total FMNP costs for the 
fiscal year. The Secretary may negotiate with an Indian State agency a 
lower percentage of matching funds, but not less than 10 percent of the 
total cost of the program, if the Indian State agency demonstrates to 
the Secretary financial hardship for the affected Indian tribe, band, 
group, or council. The match may be satisfied through expenditures for 
similar farmers' market programs which operate during the same period as 
the FMNP. Similar programs include other farmers' market programs which 
serve low-income women, infants and children (who may or may not be WIC 
participants or on the waiting list for WIC services), as well as other 
categories of low-income recipients, such as, but not limited to, low-
income elderly persons.
    Nonprofit agency means a private agency which is exempt from income 
tax under the Internal Revenue Code of 1986, as amended, (26 U.S.C. 1 
et. seq.).
    Nutrition education means individual or group education sessions and 
the provision of information and educational materials designed to 
improve health status, achieve positive change in dietary habits, and 
emphasize relationships between nutrition and health, all in keeping 
with the individual's personal, cultural, and socioeconomic preferences.
    OIG means the Department's Office of the Inspector General.
    Program or FMNP means the WIC Farmers' Market Nutritiona Program 
authorized by section 17(m) of the CNA (42 U.S.C. 1786(m)), as amended 
by Public Law 102-214, the WIC Farmers' Market Nutrition Act of 1992, 
enacted on July 2, 1992. The Special Supplemental Nutrition Program for 
Women, Infants and Children (WIC) is authorized by section 17 of the 
Child Nutrition Act of 1966, as amended. Within section 17, section 
17(m) authorizes the FMNP.
    Recipient means a person chosen by the State agency to receive FMNP 
benefits. Such person must be a woman, infant over 4 months of age, or 
child, who receives benefits under the WIC Program or is on the waiting 
list to receive benefits under the WIC Program.
    SFPD means the Supplemental Food Programs Division of the Food and 
Nutrition Service of the U.S. Department of Agriculture.
    Similar programs means other farmers' market projects or programs 
which serve low-income women, infants and children, or other categories 
of recipients, such as, but not limited to, elderly persons.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
and the Northern Marianas Islands.
    State agency means the agriculture department, the health department 
or any other agency approved by the chief executive officer of the 
State; an Indian tribe, band or group recognized by the Department of 
the Interior; an

[[Page 414]]

intertribal council or group which is an authorized representative of 
Indian tribes, bands or groups recognized by the Department of the 
Interior and which has an ongoing relationship with such tribes, bands 
or groups for other purposes and has contracted with them to administer 
the Program; or the appropriate area office of the Indian Health Service 
(IHS), an agency of the Department of Health and Human Services.
    State Plan means a plan of FMNP operation and administration that 
describes the manner in which the State agency intends to implement, 
operate and administer all aspects of the FMNP within its jurisdiction 
in accordance with Sec.  248.4.
    Total FMNP costs means the sum of all allowable costs incurred for 
FMNP purposes, whether funded from the Federal or the State matching 
share of total FMNP funds.
    Total FMNP funds means the sum of the Federal funds provided to the 
State agency and non-Federal contributions provided by the State agency 
for FMNP purposes.
    WIC means the Special Supplemental Nutrition Program for Women, 
Infants and Children authorized by section 17 of the Child Nutrition Act 
of 1966, as amended (42 U.S.C. 1771 et. seq.).

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49745, Sept. 27, 1995; 
64 FR 48076, Sept. 2, 1999]



Sec.  248.3  Administration.

    (a) Delegation to FNS. Within the Department, FNS shall act on 
behalf of the Department in the administration of the FMNP. Within FNS, 
SFPD and the FNS Regional Offices are responsible for FMNP 
administration. FNS shall provide assistance to State agencies and 
evaluate all levels of FMNP operations to ensure that the goals of the 
FMNP are achieved in the most effective and efficient manner possible.
    (b) Delegation to State agency. The State agency is responsible for 
the effective and efficient administration of the FMNP in accordance 
with the requirements of this part; the requirements of the Department's 
regulations governing nondiscrimination (7 CFR parts 15, 15a and 15b), 
administration of grants (7 CFR part 3016), nonprocurement debarment/
suspension (7 CFR part 3017), drug-free workplace (7 CFR part 3017), and 
lobbying (7 CFR part 3018); and, Office of Management and Budget 
Circular A-130, FNS guidelines, and Instructions issued under the FNS 
Directives Management System. The State agency shall provide guidance to 
cooperating WIC State and local agencies on all aspects of FMNP 
operations. Pursuant to section 17(m)(2) of the CNA, State agencies may 
operate the FMNP locally through nonprofit organizations or local 
government entities and must ensure coordination among the appropriate 
agencies and organizations.
    (c) Agreement and State Plan. Each State agency desiring to 
administer the FMNP shall annually submit a State Plan and enter into a 
written agreement with the Department for administration of the Program 
in the jurisdiction of the State agency in accordance with the 
provisions of this part.
    (d) State agency ineligibility. A State agency shall be ineligible 
to participate in the FMNP if State or local sales tax is collected on 
Program food purchases in the area in which it administers the Program, 
except that, if sales tax is collected on Program food purchases by 
sovereign Indian entities which are not State agencies, the State agency 
shall remain eligible so long as any farmers' markets collecting such 
tax are disqualified.
    (e) Coordination with WIC agency. The Chief Executive Officer of the 
State shall ensure coordination between the designated administering 
State agency and the WIC State agency, if different, by ensuring that 
the two agencies enter into a written agreement. Such coordination 
between agencies is necessary for the successful operation of the FMNP, 
because WIC participants or persons on the waiting list for WIC services 
are the only persons eligible to receive Federal benefits under the 
FMNP. The written agreement shall delineate the responsibilities of each 
agency, describe any compensation for services, and shall be signed by 
the designated representative of each agency. This agreement shall be 
submitted each year along with the State Plan.

[[Page 415]]

    (f) State staffing standards. Each State agency shall ensure that 
sufficient staff is available to efficiently and effectively administer 
the FMNP. This shall include, but not be limited to, sufficient staff to 
provide nutrition education in coordination with the WIC Program, coupon 
and market management, fiscal reporting, monitoring, and training. The 
State agency shall provide an outline of administrative staff and job 
descriptions for staff whose salaries will be paid from program funds in 
their State Plans.



                   Subpart B_State Agency Eligibility



Sec.  248.4  State Plan.

    (a) Requirements. By November 15 of each year, each applying or 
participating State agency shall submit to FNS for approval a State Plan 
for the following year as a prerequisite to receiving funds under this 
section. The State Plan shall be signed by the State designated official 
responsible for ensuring that the Program is operated in accordance with 
the State Plan. FNS will provide written approval or denial of a 
completed State Plan or amendment within 30 days. Portions of the State 
Plan which do not change annually need not be resubmitted. However, the 
State agency shall provide the title of the sections that remain 
unchanged, as well as the year of the last Plan in which the sections 
were submitted. At a minimum, the Plan must address the following areas 
in sufficient detail to demonstrate the State agency's ability to meet 
the requirements of the FMNP:
    (1) A copy of the agreement between the designated administering 
State agency and the WIC State agency, if different, for services such 
as nutrition education, and documentation of coordinated efforts as 
required in Sec.  248.3(e), as well as copies of agreements with 
agencies other than the WIC State agency.
    (2) Estimated number of recipients for the fiscal year, and proposed 
months of operation.
    (3) Estimated cost of the FMNP, including a minimum amount necessary 
to operate the FMNP.
    (4) Description of how the Program will achieve its dual purposes of 
providing a nutritional benefit to WIC (or waiting list) participants 
and expanding the awareness and use of farmers' markets.
    (5) Outline of administrative staff and job descriptions.
    (6) Detailed description of the recordkeeping system including, but 
not limited to, the system for maintaining records pertaining to 
financial operations, coupon issuance and redemption, and FMNP 
participation.
    (7) Detailed description of the financial management system, 
including, but not limited to documentation of how the State will meet 
the matching requirement and procedures for obligating funds.
    (8) Detailed description of the service area including:
    (i) The number and addresses of participating markets, farmstands 
and area WIC clinics including a map outlining the service area and 
proximity of markets/farmstands to clinics; and
    (ii) Estimated number of WIC participants and persons on the WIC 
waiting list that will receive FMNP coupons.
    (9) Description of the coupon issuance system including:
    (i) How the State agency will target areas with highest 
concentrations of eligible persons and greatest access to farmers' 
markets within the broadest possible geographic area;
    (ii) Annual benefit amount per recipient;
    (iii) Method for instructing recipients on the proper use of FMNP 
coupons and the purpose of the FMNP; and
    (iv) Method for ensuring that FMNP coupons are only issued to 
eligible recipients.
    (10) Detailed description of the coupon and farmers' market 
management system including:
    (i) criteria for authorizing farmers' markets;
    (ii) For those State agencies desiring to authorize farmstands, 
justification for doing so.
    (iii) Procedures for training farmers and market managers, at 
authorization, and annually thereafter;
    (iv) Procedures for monitoring farmers' markets;
    (v) Description of system for identifying high risk farmers and 
farmers' markets and procedures for sanctioning farmers and farmers' 
markets;

[[Page 416]]

    (vi) Facsimile of the FMNP coupon;
    (vii) Identification of the fresh, nutritious, unprepared fruits, 
vegetables, and herbs which are eligible for purchase under the Program;
    (viii) Description of FMNP coupon replacement policy;
    (ix) Procedures for handling recipient and farmer/farmers' market 
complaints.
    (11) Detailed description of the FMNP coupon redemption process 
including:
    (i) Procedures for ensuring the secure transportation and storage of 
FMNP coupons;
    (ii) System for identifying and reconciling FMNP coupons;
    (iii) Timeframes for FMNP coupon redemption by recipients; 
submission for payment by markets, and payment by the State agency;
    (12) System for ensuring that FMNP coupons are redeemed only by 
authorized farmers/farmers' markets and only for eligible foods.
    (13) System for identifying FMNP coupons which are redeemed or 
submitted for payment outside valid dates or by unauthorized farmers/
farmers' markets.
    (14) A copy of the written agreement to be used between the State 
agency and authorized farmers/farmers' markets. In those States which 
authorize farmers' markets, but not individual farmers, this agreement 
shall specify in detail the role of and procedures to be used by 
farmers' markets for monitoring and sanctioning farmers, and the 
appropriate procedures to be used by a farmer to appeal a sanction or 
disqualification imposed by a farmers' market.
    (15) If available, information on the change in consumption of fresh 
fruits and vegetables by recipients. This information shall be submitted 
as an addendum to the State Plan and shall be submitted at such a date 
specified by the Secretary.
    (16) If available, information on the effects of the program on 
farmers' markets. This information shall be submitted as an addendum to 
the State Plan and shall be submitted at such a date specified by the 
Secretary.
    (17) A description of the procedures the State agency will use to 
comply with the civil rights requirements described in Sec.  248.7(a), 
including the processing of discrimination complaints.
    (18) State agencies which have not previously participated in the 
FMNP, shall provide the following additional information:
    (i) A statement assuring that if the State agency receives Federal 
funds, as specified under Sec.  248.14 to operate the FMNP, and applies 
those funds to similar programs operated in the previous fiscal year 
with State or local funds, the amount of State and local funds that were 
available to similar programs in the fiscal year preceding the first 
year of operation shall not be reduced. The State agency shall include 
data in the State Plan showing that it did not reduce the amount of 
State and local funds available to the similar program in the preceding 
fiscal year.
    (ii) A capability statement which includes a summary description of 
any prior experience with farmers' market projects or programs, 
including information and data describing the attributes of such 
projects or programs.
    (19) For States making expansion requests, documentation which 
demonstrates:
    (i) The need for an increase in funding;
    (ii) That the use of the increased funding will be consistent with 
serving WIC participants, or persons on a waiting list for WIC benefits, 
by expanding benefits to more persons, by enhancing current benefits, or 
a combination of both, and expanding the awareness and use of farmers' 
markets;
    (iii) The ability to satisfactorily operate the existing FMNP;
    (iv) The management capabilities of the State agency to expand; and
    (v) Whether, in the case of a State agency that intends to use the 
funding to increase the value of the Federal share of the benefits 
received by a recipient, the funding provided will increase the rate of 
coupon redemption.
    (20) For those State agencies requesting the extra 2 percent 
administrative rate for market development or technical assistance to 
promote such development in disadvantaged areas or remote rural areas, 
an explanation of their justification and plans for the use of such 
funds.

[[Page 417]]

    (b) Amendments. At any time after approval, the State agency may 
amend the State Plan to reflect changes. The State agency shall submit 
the amendments to FNS for approval. The amendments shall be signed by 
the State designated official responsible for ensuring that the FMNP is 
operated in accordance with the State Plan.
    (c) Retention of copy. A copy of the approved State Plan shall be 
kept on file at the State agency for public inspection.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49746, Sept. 27, 1995; 
64 FR 48076, Sept. 2, 1999]



Sec.  248.5  Selection of new State agencies.

    In selecting new State agencies, the Department will use objective 
criteria to rank and approve State plans submitted in accordance with 
Sec.  248.4. In making this ranking, the Department will consider the 
amount of funds necessary to successfully operate the FMNP in the State 
compared with other States and with the total amount of funds available 
to the FMNP. Approval of a State Plan does not equate to an obligation 
on the part of the Department to fund the FMNP within that State agency.

[64 FR 48076, Sept. 2, 1999]



                     Subpart C_Recipient Eligibility



Sec.  248.6  Recipient eligibility.

    (a) Eligibility for certification. Individuals who are eligible to 
receive Federal benefits under the FMNP are those, excluding infants 4 
months of age or younger, who are currently receiving benefits under WIC 
or who are on the waiting list to receive benefits from WIC.
    (b) Limitations on certification. If necessary to limit the number 
of recipients, State agencies may impose additional eligibility 
requirements, such as limiting participant certification to certain 
geographic areas, or to high priority WIC participants such as pregnant 
and breastfeeding women. States may also preclude groups of low priority 
persons, such as persons on the waiting list for WIC. Each State agency 
must specifically identify these limitations on certification in its 
State Plan.
    (c) Recipient or household benefit allocation. On a Statewide basis, 
State agencies shall elect to allocate and issue benefits either to 
recipients or households. A State agency allocating benefits on a 
household basis shall not issue more benefits to a household than it 
otherwise would if benefits were allocated to individual recipients 
within the household. For those State agencies issuing FMNP benefits on 
a household basis, each family as defined in Sec.  246.2 of this chapter 
shall constitute a separate household. Foods provided, regardless of 
method of issuance, are intended for the sole benefit of FMNP recipients 
and are not intended to be shared with other non-participating household 
members. If a State agency issues benefits on a household basis, data 
concerning number and type of recipients must still be provided as 
required by Sec.  248.23(b). Recipients shall receive FMNP benefits free 
of charge.



Sec.  248.7  Nondiscrimination.

    (a) Civil rights requirements. The State agency shall comply with 
the requirements of title VI of the Civil Rights Act of 1964, title IX 
of the Education Amendments of 1972, section 504 of the Rehabilitation 
Act of 1973, the Age Discrimination Act of 1975, Department of 
Agriculture regulations on nondiscrimination (7 CFR parts 15, 15a and 
15b), and applicable FNS Instructions to ensure that no person shall, on 
the grounds of race, color, national origin, age, sex or handicap, be 
excluded from participation, be denied benefits, or be otherwise 
subjected to discrimination, under the FMNP. Because racial and ethnic 
participation data (as required by title VI of the Civil Rights Act of 
1964) are collected at the time women, infants, and children are 
certified for participation in the WIC Program, the Department has 
determined that the WIC data collection effort is sufficient to fulfill 
the racial/ethnic data collection requirement for the FMNP. Therefore, 
no additional data collection is required. Compliance with title VI of 
the Civil Rights Act of 1964, Title IX of the Education Amendments of 
1972, section 504 of the Rehabilitation Act of 1973, the Age 
Discrimination Act of

[[Page 418]]

1975, and regulations and instructions issued thereunder shall include, 
but not be limited to:
    (1) Notification to the public of the nondiscrimination policy and 
complaint rights of recipients and potentially eligible persons, which 
may be satisfied through the Department's required nondiscrimination 
statement on brochures and publications;
    (2) Review and monitoring activity to ensure FMNP compliance with 
the nondiscrimination laws and regulations;
    (3) Establishment of grievance procedures for handling recipient 
complaints based on sex and handicap.
    (b) Complaints. Persons seeking to file discrimination complaints 
may file them either with the Secretary of Agriculture, or the Director, 
Office of Equal Opportunity, USDA, Washington, DC 20250 or with the 
office established by the State agency to handle discrimination 
grievances or complaints. All complaints received by State agencies 
which allege discrimination based on race, color, national origin, or 
age shall be referred to the Secretary of Agriculture or the Director of 
the Office of Equal Opportunity, USDA. A State agency may process 
complaints which allege discrimination based on sex or handicap if 
grievance procedures are in place.



                      Subpart D_Recipient Benefits



Sec.  248.8  Level of benefits and eligible foods.

    (a) General. State agencies shall identify in the State Plan the 
fresh, nutritious, unprepared, locally grown fruits, vegetables and 
herbs which are eligible for purchase under the FMNP. Ineligible foods 
for the purpose of the FMNP include, but are not limited to: honey, 
maple syrup, cider, nuts and seeds, eggs, cheese, meat and seafood. 
Locally grown shall mean produce grown only within a State's borders but 
may be defined to include border areas in adjacent States. Under no 
circumstances can produce grown outside of the United States and its 
territories be considered eligible foods.
    (b) The value of the Federal benefits received. The value of the 
Federal share of the FMNP benefits received by each recipient, or by 
each family within a household in those States which elect to issue 
benefits on a household basis under Sec.  248.6(c) may not be less than 
$10 per year or more than $20 per year.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49746, Sept. 27, 1995]



Sec.  248.9  Nutrition education.

    (a) Goals. Nutrition education shall emphasize the relationship of 
proper nutrition to the total concept of good health, including the 
importance of consuming fresh fruits and vegetables.
    (b) Requirement. The State agency shall integrate nutrition 
education into FMNP operations and may satisfy nutrition education 
requirements through coordination with other agencies within the State. 
Such other agencies may include the WIC Program which routinely offers 
nutrition education to participants and which may wish to use the 
opportunity of the FMNP to reinforce nutrition messages. State agencies 
wishing to coordinate nutrition education with WIC shall enter into a 
written cooperative agreement with WIC agencies to offer nutrition 
education relevant to the use and nutritional value of foods available 
to FMNP recipients. In cases where relevant WIC nutrition education 
sessions are used to meet this requirement, reimbursement to the WIC 
local agency shall not be permitted. In cases where FMNP recipients are 
not receiving relevant nutrition education from the WIC Program, the 
State agency shall arrange alternative methods for the provision of such 
nutrition education which is an allowable cost under the FMNP.



                    Subpart E_State Agency Provisions



Sec.  248.10  Coupon and market management.

    (a) General. This section sets forth State agency responsibilities 
regarding the authorization of farmers/farmers' markets. The State 
agency is responsible for the fiscal management of, and accountability 
for FMNP-related activities for farmers/farmers' markets. Each State 
agency may decide whether to authorize farmers individually, farmers' 
markets, or both farmers and

[[Page 419]]

farmers' markets. All contracts or agreements entered into by the State 
agency for the management or operation of farmers/farmers' markets shall 
conform with the requirements of 7 CFR part 3016, Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments.
    (1) Only farmers' markets authorized by the State agency may redeem 
FMNP coupons. Only farmers authorized by the State agency or that have a 
valid agreement with an authorized farmers' market, may redeem coupons.
    (2) The State agency shall establish criteria for the authorization 
of individual farmers and/or farmers' markets. Any authorized farmer/
farmers' market must agree to sell recipients only those foods 
identified as eligible by the State agency, in exchange for FMNP 
coupons. Individuals who exclusively sell produce grown by someone else, 
such as wholesale distributors, cannot be authorized to participate in 
the FMNP, except individuals employed by a farmer otherwise qualified 
under these regulations, or individuals hired by a nonprofit 
organization to sell produce at urban farmstands on behalf of local 
farmers.
    (3) The State agency shall ensure that an appropriate number of 
farmers/farmers' markets are authorized for adequate recipient 
convenience and access in the area(s) proposed to be served and for 
effective management of the farmers/farmers' markets by the State 
agency. The State agency may establish criteria to limit the number of 
authorized farmers/farmers' markets.
    (4) The State agency shall ensure that face-to-face training is 
conducted prior to start up of the first year of FMNP participation of a 
farmers' market and individual farmer. The face-to-face training shall 
include at a minimum those items listed in paragraph (d) of this 
section.
    (5) Authorized farmers shall display a sign stating that they are 
authorized to redeem FMNP coupons.
    (6) Authorized farmers/farmers' markets shall comply with the 
requirements of Title VI of the Civil Rights Act of 1964, title IX of 
the Education Amendments of 1972, section 504 of the Rehabilitation Act 
of 1973, the Age Discrimination Act of 1975, Department of Agriculture 
regulations on nondiscrimination (7 CFR parts 15, 15a and 15b), and FNS 
Instructions as outlined in Sec.  248.7.
    (7) The State agency shall ensure that there is no conflict of 
interest between the State or local agency and any participating farmer/
farmers' market.
    (b) Farmers' market agreements. The State agency shall ensure that 
all participating farmers' markets enter into written agreements with 
the State agency. State agencies which authorize individual farmers 
shall also enter into written agreements with the individual farmers. 
The agreement shall be signed by a representative who has legal 
authority to obligate the farmers/farmers' market. Agreements shall 
include a description of sanctions for noncompliance with FMNP 
requirements and shall contain at a minimum, the following 
specifications, although the State agency may determine the exact 
wording to be used:
    (1) The farmer/farmers' market shall:
    (i) Provide such information as the State agency may require for its 
periodic reports to FNS;
    (ii) Assure that FMNP coupons are redeemed only for eligible foods;
    (iii) Provide eligible foods at the current price or less than the 
current price charged to other customers;
    (iv) Accept FMNP coupons within the dates of their validity and 
submit such coupons for payment within the allowable time period 
established by the State agency;
    (v) In accordance with a procedure established by the State agency, 
mark each transacted coupon with a farmer identifier. In those cases 
where the agreement is between the State agency and the farmer, each 
transacted FMNP coupon shall contain a farmer identifier and shall be 
batched for reimbursement under that identifier. In those cases where 
the agreement is between the State agency and the farmers' market, each 
transacted FMNP coupon shall contain a farmer identifier and be batched 
for reimbursement under a farmers' market identifier.
    (vi) Accept training on FMNP procedures and provide training to 
farmers

[[Page 420]]

and any employees with FMNP responsibilities on such procedures;
    (vii) Agree to be monitored for compliance with FMNP requirements, 
including both overt and covert monitoring;
    (viii) Be accountable for actions of farmers or employees in the 
provision of foods and related activities;
    (ix) Pay the State agency for any coupons transacted in violation of 
this agreement;
    (x) Offer FMNP recipients the same courtesies as other customers;
    (xi) Comply with the nondiscrimination provisions of USDA 
regulations as provided in Sec.  248.7; and
    (xii) Notify the State agency if any farmer or farmers' market 
ceases operation prior to the end of the authorization period.
    (2) The farmers' market/farmer shall not:
    (i) Collect sales tax on FMNP coupon purchases;
    (ii) Seek restitution from FMNP recipients for coupons not paid by 
the State agency;
    (iii) Issue cash change for purchases that are in an amount less 
than the value of the FMNP coupon(s).
    (3) Neither the State agency nor the farmer/farmers' market has an 
obligation to renew the agreement. Either the State agency or the 
farmer/farmers' market may terminate the agreement for cause after 
providing advance written notification.
    (4) The State agency may deny payment to the farmer/farmers' market 
for improperly redeemed FMNP coupons and may demand refunds for payments 
already made on improperly redeemed coupons.
    (5) The State agency may disqualify a farmer/farmers' market for 
FMNP abuse. The farmer/farmers' market has the right to appeal a denial 
of an application to participate, a disqualification, or a FMNP sanction 
by the State agency. Expiration of a contract or agreement with a 
farmer/farmers' market, and claims actions under Sec.  248.20, are not 
appealable.
    (6) A farmer or farmers' market which commits fraud or engages in 
other illegal activity is liable to prosecution under applicable 
Federal, State or local laws.
    (7) Agreements may not exceed 3 years.
    (c) Farmer agreements for State agencies which do not authorize 
farmers. Those State agencies which authorize farmers' markets but not 
individual farmers shall require authorized farmers' markets to enter 
into a written agreement with each farmer within the market that is 
participating in FMNP. The State agency shall set forth the required 
terms for the agreement and provide a sample agreement which may be 
used.
    (d) Annual training for farmers/farmers' market managers. State 
agencies shall conduct annual training for farmers/farmers' market 
managers participating in the FMNP. The State agency shall conduct a 
face-to-face training for all farmers and farmers' market managers who 
have never previously participated in the program prior to their 
commencing participation in the FMNP. After a farmer/farmers' market 
manager's first year of FMNP operation, State agencies have discretion 
in determining the method used for annual training purposes. At a 
minimum, annual training shall include instruction emphasizing:
    (1) Eligible food choices;
    (2) Proper FMNP coupon redemption procedures, including deadlines 
for submission of coupons for payment;
    (3) Equitable treatment of FMNP recipients, including the 
availability of produce to FMNP recipients that is of the same quality 
and cost as that sold to other customers;
    (4) Civil rights compliance and guidelines;
    (5) Guidelines for storing FMNP coupons safely; and
    (6) Guidelines for cancelling FMNP coupons, such as punching holes 
or rubber stamping.
    (e) Monitoring and review of farmers/farmers' markets and local 
agencies. The State agency shall be responsible for the monitoring of 
farmers/farmers' markets, and local agencies within its jurisdiction. 
This shall include developing a system for identifying high risk 
farmers/farmers' markets and ensuring on-site monitoring, conducting 
further investigation, and sanctioning of such farmers/farmers' markets 
as appropriate.

[[Page 421]]

    (1) Where coupon reimbursement responsibilities are delegated to 
farmers' market managers, farmers' market associations, or nonprofit 
organizations, the State agency may establish bonding requirements for 
these entities. Costs of such bonding are not reimbursable 
administrative expenses.
    (2) Each State agency shall rank participating farmers and farmers' 
markets by risk factors, and shall conduct annual, on-site monitoring of 
at least 10 percent of farmers and 10 percent of farmers' markets which 
shall include those farmers and markets identified as being the highest-
risk. Mandatory high-risk indicators are a proportionately high volume 
of FMNP coupons redeemed by a farmer as compared to other farmers within 
the farmers' market and within the State, recipient complaints, and 
farmers and farmers' markets in their first year of FMNP operation. 
States are encouraged to formally establish other high risk indicators 
for identifying potential problems. If additional high risk indicators 
are established, they shall be set forth in the farmers/farmers' market 
agreement and in the State Plan. If application of the high-risk 
indicators results in fewer than 10 percent of farmers and farmers' 
markets as high-risk, the State agency shall randomly select additional 
farmers and farmers' markets to be monitored in order to meet the 10 
percent minimum. The high-risk indicators listed above generally apply 
to a State agency already participating in the FMNP. A State agency 
participating in the FMNP for the first time shall, in lieu of applying 
the high-risk indicators, randomly select 10 percent of its 
participating farmers and 10 percent of its participating farmers' 
markets for monitoring visits.
    (3) The following shall be documented for all on-site farmers and 
farmers' markets monitoring visits, at a minimum: Names of both farmer/
farmers' market and reviewer; date of review; nature of problem(s) 
detected or the observation that the farmer/farmers' market appears to 
be in compliance with FMNP requirements; record of interviews with 
recipients, market managers and/or farmers; and signature of the 
reviewer. Reviewers are not required to notify the farmer/farmers' 
market of the monitoring visit during, or immediately after the visit. 
The State agency shall do so after a reasonable delay when necessary to 
protect the identity of the reviewer(s) or the integrity of the 
investigation. After the farmer/farmers' market has been informed of any 
deficiencies detected by the monitoring visit, and instances where the 
farmer/farmers' market will be permitted to continue participation, the 
farmer/farmers' market shall provide plans as to how the deficiencies 
will be corrected.
    (4) At least every 2 years, the State agency shall review all local 
agencies within its jurisdiction. WIC State agency reviews of WIC local 
agencies, which include reviews of FMNP practices, may contribute to 
meeting the requirement that all local agencies be reviewed once every 2 
years.
    (f) Control of FMNP coupons. (1) The State agency shall control and 
provide accountability for the receipt and issuance of FMNP coupons.
    (2) The State agency shall ensure that there is secure 
transportation and storage of unissued FMNP coupons.
    (3) The State agency shall design and implement a system of review 
of FMNP coupons to detect errors. At a minimum, the errors the system 
must detect are a missing recipient signature, a missing farmer and/or 
market identification, and redemption by a farmer outside of the valid 
date. The State agency shall implement procedures to reduce the number 
of errors in transactions, where possible.
    (g) Payment to farmers/farmers' markets. The State agency shall 
ensure that farmers/ farmers' markets are promptly paid for food costs.
    (h) Reconciliation of FMNP coupons. The State agency shall identify 
the disposition of all FMNP coupons as validly redeemed, lost or stolen, 
expired, or not matching issuance records. Validly redeemed FMNP coupons 
are those that are issued to a valid recipient and redeemed by an 
authorized farmers/farmers' market within valid dates. FMNP coupons that 
were redeemed but cannot be traced to a valid recipient or authorized 
farmer/farmers' market shall be subject to claims action in accordance 
with Sec.  248.20. (1) If the State

[[Page 422]]

agency elects to replace lost, stolen or damaged FMNP coupons, it must 
describe its system for doing so in the State Plan.
    (2) The State agency shall use uniform FMNP coupons within its 
jurisdiction.
    (3) FMNP coupons must include, at a minimum, the following 
information:
    (i) The last date by which the recipient may use the coupon. This 
date shall be no later than November 30 of each year.
    (ii) A date by which the farmer or farmers' market must submit the 
coupon for payment. When establishing this date, State agencies shall 
take into consideration the date financial statements are due to the 
FNS, and allow time for the corresponding coupon reconciliation that 
must be done by the State agency prior to submission of financial 
statements. Currently, financial statements are due to FNS by January 
30.
    (iii) A unique and sequential serial number.
    (iv) A denomination (dollar amount).
    (v) A farmer identifier for the redeeming farmer when agreements are 
between the State agency and the farmer.
    (vi) In those instances where State agencies have agreements with 
farmers' markets, there must be a farmer identifier on each coupon and a 
market identifier on the cover of coupons which are batched by the 
market manager for reimbursement.
    (i) Instructions to recipients. Each recipient shall receive 
instructions on the proper use and redemption of the FMNP coupons, 
including, but not limited to: (1) A list of names and addresses of 
authorized farmers/farmers' markets at which FMNP coupons may be 
redeemed.
    (2) A description of eligible foods and the prohibition against cash 
change.
    (3) An explanation of their right to complain about improper farmer/
farmers' market practices with regard to FMNP responsibilities and the 
process for doing so.
    (j) Recipients and farmer/farmers' market complaints. The State 
agency shall have procedures which document the handling of complaints 
by recipients and farmers/farmers' markets. Complaints of civil rights 
discrimination shall be handled in accordance with Sec.  248.7(b).
    (k) Recipients and farmer/farmers' market sanctions. The State 
agency shall establish policies which determine the type and level of 
sanctions to be applied against recipients and farmers/farmers' markets, 
based upon the severity and nature of the FMNP violations observed, and 
such other factors as the State agency determines appropriate, such as 
whether repeated offenses have occurred over a period of time. Farmers/
farmers' markets may be sanctioned, disqualified, or both, when 
appropriate. Sanctions may include fines for improper FMNP coupon 
redemption procedures and the penalties outlined in Sec.  248.20, in 
case of deliberate fraud. In those instances where compliance purchases 
are conducted, the results of covert compliance purchases can be a basis 
for farmer/farmers' market sanctions. A farmer/farmers' market 
committing fraud or other unlawful activities is liable to prosecution 
under applicable Federal, State or local laws. State agency policies 
shall ensure that a farmer that is disqualified from the FMNP at one 
market shall not participate in the FMNP at any other farmers' market in 
the State's jurisdiction during the disqualification period.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49746, Sept. 27, 1995]



Sec.  248.11  Financial management system.

    (a) Disclosure of expenditures. The State agency shall maintain a 
financial management system which provides accurate, current and 
complete disclosure of the financial status of the FMNP. This shall 
include an accounting for all property and other assets and all FMNP 
funds received and expended each fiscal year.
    (b) Internal controls. The State agency shall maintain effective 
controls over and accountability for all FMNP funds. The State agency 
must have effective internal controls to ensure that expenditures 
financed with FMNP funds are authorized and properly chargeable to the 
FMNP.
    (c) Record of expenditures. The State agency shall maintain records 
which adequately identify the source and use

[[Page 423]]

of funds expended for FMNP activities. These records shall contain, but 
are not limited to, information pertaining to authorization, receipt of 
funds, obligations, unobligated balances, assets, liabilities, outlays, 
and income.
    (d) Payment of costs. The State agency shall implement procedures 
which ensure prompt and accurate payment of allowable costs, and ensure 
the allowability and allocability of costs in accordance with the cost 
principles and standard provisions of this part, 7 CFR part 3016, and 
FNS guidelines and Instructions.
    (e) Identification of obligated funds. The State agency shall 
implement procedures which accurately identify obligated FMNP funds at 
the time the obligations are made.
    (f) Resolution of audit findings. The State agency shall implement 
procedures which ensure timely and appropriate resolution of claims and 
other matters resulting from audit findings and recommendations.
    (g) Reconciliation of food instruments. The State agency shall 
reconcile FMNP coupons in accordance with Sec.  248.10(h).
    (h) Transfer of cash. The State agency shall establish the timing 
and amounts of its cash draws against its Letter of Credit in accordance 
with 31 CFR part 205.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49747, Sept. 27, 1995]



Sec.  248.12  FMNP costs.

    (a) General.--(1) Composition of allowable costs. In general, a cost 
item will be deemed allowable if it is reasonable and necessary for FMNP 
purposes and otherwise satisfies allowability criteria set forth in 7 
CFR 3016.22 and this part. FMNP purposes include the administration and 
operation of the FMNP. Program costs supported by State matching 
contributions must meet the same criteria for allowability as costs 
supported by Federal funds. Allowable FMNP costs may be classified as 
follows:
    (i) Food costs and administrative costs. Food costs are the costs of 
food benefits provided to FMNP recipients. Administrative costs are the 
costs associated with providing FMNP benefits and services to recipients 
and generally administering the FMNP. Specific examples of allowable 
administrative costs are listed in paragraph (b) of this section. Except 
as provided in Sec.  248.14(g) of this part, a State agency's 
administrative costs under the FMNP may not exceed 17 percent of its 
total FMNP costs. Any costs incurred for food and/or administration 
above the Federal grant level will be the State agency's responsibility.
    (ii) Market development or technical assistance costs. Market 
development or technical assistance costs are those costs under Sec.  
248.14(h) incurred to promote the development of farmers' markets in 
socially or economically disadvantaged areas, or remote rural areas, 
where individuals eligible for participation in the program have limited 
access to locally grown fruits and vegetables. Subject to a 
determination by the Secretary under Sec.  248.14(h), a State agency 
may, during any fiscal year, use not more than 2 percent of total 
program funds for such market development or technical assistance.
    (iii) Direct and indirect costs. Direct costs are food and 
administrative costs incurred specifically for the FMNP. Indirect costs 
are administrative costs that benefit multiple programs or activities, 
and cannot be identified to any one without effort disproportionate to 
the results achieved. In accordance with the provisions of 7 CFR part 
3016, a claim for reimbursement of indirect costs shall be supported by 
an approved allocation plan for the determination of such costs. An 
indirect cost rate developed through such an allocation plan may not be 
applied to a base that includes food costs.
    (2) Costs allowable with prior approval. A State or local agency 
must obtain prior approval in accordance with 7 CFR 3016.22 before 
charging to the FMNP any capital expenditures and other cost items 
designated by 7 CFR 3016.22 as requiring such approval.
    (3) Unallowable costs. Costs that are not reasonable and necessary 
for FMNP purposes, or that do not otherwise satisfy the cost principles 
of 7 CFR 3016.22, are unallowable. Notwithstanding any other provision 
of part 3016 or this part, the cost of constructing or operating a 
farmers' market is unallowable. Unallowable costs

[[Page 424]]

may never be claimed for Federal reimbursement or counted toward the 
State matching requirement.
    (b) Specified allowable administrative costs. Allowable 
administrative costs include the following:
    (1) The costs associated with the provision of nutrition education 
which meets the requirements of Sec.  248.9 of this part.
    (2) The costs of FMNP coupon issuance, or recipient education 
covering proper coupon redemption procedures.
    (3) The cost of outreach services.
    (4) The costs associated with the food delivery process, such as 
printing FMNP coupons, processing redeemed coupons, and training market 
managers on the food delivery system.
    (5) The cost of monitoring and reviewing Program operations.
    (6) The cost of FMNP training.
    (7) The cost of required reporting and recordkeeping.
    (8) The cost of determining which local WIC sites will be utilized.
    (9) The cost of recruiting and authorizing farmers/farmers' markets 
to participate in the FMNP.
    (10) The cost of preparing contracts for farmers/farmers' markets 
and local WIC providers.
    (11) The cost of developing a data processing system for redemption 
and reconciliation of FMNP coupons.
    (12) The cost of designing program training and informational 
materials.
    (13) The cost of coordinating FMNP implementation responsibilities 
between designated administering agencies.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49747, Sept. 27, 1995]



Sec.  248.13  FMNP income.

    Program income means gross income the State agency earns from grant 
supported activities. It includes fees for services performed and 
receipts from the use or rental of real or personal property acquired 
with Federal grant funds, but does not include proceeds from the 
disposition of such property. The State agency shall retain Program 
income earned during the agreement period and use it for Program 
purposes in accordance with the addition method described in 7 CFR 
3016.25(g)(2). Fines, penalties or assessments paid by local agencies or 
farmers/farmers' markets are also deemed to be FMNP income. The State 
agency shall ensure that the sources and applications of Program income 
are fully documented.



Sec.  248.14  Distribution of funds.

    (a) Conditions for receipt of Federal funds.--(1) Matching of 
funds--(i) Match amount. As a prerequisite to the receipt of Federal 
funds, a State agency must agree to contribute State, local or private 
funds, or program income, equal to not less than 30 percent of its total 
FMNP cost. The Secretary may negotiate a lower percentage of matching 
funds, but not lower than 10 percent of the total cost of the program, 
in the case of an Indian State agency that demonstrates to the Secretary 
financial hardship for the affected Indian tribe, band, group, or 
council. The State agency may contribute more than this minimum amount. 
State, local or private funds for similar programs as defined in (248.2 
may satisfy the State matching requirement.
    (ii) Sources of matching contributions. A State agency may count any 
form of contribution authorized by 7 CFR 3016.24 toward the State 
matching requirement including in-kind contributions.
    (iii) Failure to match. A State agency's failure to meet the State 
matching requirement will result in the establishment of a claim for the 
amount of Federal grant funds not matched. The matching requirement will 
be considered satisfied if State or other non-Federal matching 
contributions reported on the final closeout report required by Sec.  
248.15(a) of this part amount to at least 30 percent of the total FMNP 
costs. This match amount may be lower for those Indian State agencies 
that have demonstrated to the Secretary financial hardship as set forth 
in paragraph (a)(1)(i) of this section.
    (2) State Plan and agreement. A State agency shall have its State 
Plan approved and shall execute an agreement with the Department in 
accordance with Sec.  248.3(c) of this part.
    (b) Distribution of FMNP funds to previously participating State 
agencies. Provided that sufficient FMNP funds are

[[Page 425]]

available, each State agency that participated in the FMNP in any prior 
fiscal year, shall receive not less than the amount of funds the State 
agency received in the most recent fiscal year in which it received 
funding, if it otherwise complies with the requirements established in 
this part.
    (c) Ratable reduction. If amounts appropriated for any fiscal year 
for grants under the FMNP are not sufficient to pay to each previously 
participating State agency at least an amount as identified in paragraph 
(b) of this section, each State agency's grant shall be ratably reduced, 
except that, to the extent permitted by available funds, each State 
agency shall receive at least $75,000 or the amount that the State 
agency received for the most recent prior fiscal year in which the State 
participated, if that amount is less than $75,000.
    (d) Expansion of participating State agencies and establishment of 
new State agencies. Any FMNP funds remaining for allocation after 
meeting the requirements of paragraph (b) of this section shall be 
allocated in the following manner:
    (1) Of the remaining funds, 75 percent shall be made available to 
State agencies already participating in the FMNP that wish to serve 
additional recipients. If this amount is greater than that necessary to 
satisfy all State plans approved for additional recipients, the 
unallocated amount shall be applied toward satisfying any unmet need in 
paragraph (d)(2) of this section.
    (2) Of the remaining funds, 25 percent shall be made available to 
State agencies that have not participated in the FMNP in any prior 
fiscal year. If this amount is greater than that necessary to satisfy 
the approved State Plans for new States, the unallocated amount shall be 
applied toward satisfying any unmet need in paragraph (d)(1) of this 
section. The Department reserves the right not to fund every State 
agency with an approved State Plan.
    (3) In any fiscal year, any FMNP funds that remain unallocated after 
satisfying the requirements of paragraphs (d)(1) and (d)(2) of this 
section, shall be reallocated in accordance with paragraph (k) of this 
section.
    (e) Expansion for current State agencies. In providing funds to 
State agencies that participated in the FMNP in the previous fiscal 
year, the Department shall consider on a case-by-case basis, the 
following:
    (1) Whether the State agency utilized at least 80 percent of its 
prior year food grant. States that did not spend at least 80 percent of 
their prior year food grant may still be eligible for expansion funding 
if, in the judgment of the Department, good cause existed which was 
beyond the management control of the State, such as severe weather 
conditions, or unanticipated decreases in participant caseload in the 
WIC Program.
    (2) Documentation supporting the funds expansion request as outlined 
in Sec.  248.4(a)(19).
    (f) Funding of new State agencies. Funds will be awarded to new 
State agencies in accordance with Sec.  248.5.
    (g) Administrative funding. A State agency shall have available for 
administrative costs an amount not greater than 17 percent of total FMNP 
funds. The 17 percent administrative cost limitation shall not apply to 
any funds that a State agency may contribute in excess of its minimum 
matching requirement. A State agency may use any non-Federal 
contributions in excess of the 30 percent (or the negotiated percentage 
for those Indian State agencies that received a lower amount) matching 
requirement for food and/or administrative costs.
    (h) Market development. A State agency shall be permitted to use not 
more than 2 percent of total program funds for market development or 
technical assistance to farmers' markets if the Secretary determines 
that the State intends to promote the development of farmers' markets in 
socially or economically disadvantaged areas, or remote rural areas, 
where individuals eligible for participation in the program have limited 
access to locally grown fruits and vegetables.
    (i) Transfer of funds. A State agency may use not more than 5 
percent of the Federal FMNP funds made available for the fiscal year to 
reimburse expenses incurred by the FMNP during a preceding fiscal year. 
The State agency shall provide such justification for its

[[Page 426]]

request to spend back funds under this paragraph as FNS may require.
    (j) Recovery of unused funds. State agencies shall return to FNS any 
unexpended funds made available for a fiscal year by February 1 of the 
following fiscal year.
    (k) Reallocation of funds. Any funds recovered under paragraphs 
(d)(3) and (j) of this section will be reallocated in accordance with 
the appropriate method determined by FNS.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49747, Sept. 27, 1995; 
60 FR 57148, Nov. 14, 1995; 64 FR 48076, Sept. 2, 1999]



Sec.  248.15  Closeout procedures.

    (a) General. State agencies shall submit to FNS a final closeout 
report for the fiscal year on a form prescribed by FNS on a date 
specified by FNS.
    (b) Grant closeout procedures. When grants to State agencies are 
terminated, the following procedures shall be performed in accordance 
with 7 CFR part 3016.
    (1) FNS may disqualify a State agency's participation under the 
FMNP, in whole or in part, or take such remedies as may be appropriate, 
whenever FNS determines that the State agency failed to comply with the 
conditions prescribed in this part, in its Federal-State Agreement, or 
in FNS guidelines and instructions. FNS will promptly notify the State 
agency in writing of the disqualification together with the effective 
date.
    (2) FNS may disqualify the State agency or restrict its 
participation in the FMNP when both parties agree that continuation 
under the FMNP would not produce beneficial results commensurate with 
the further expenditure of funds.
    (3) Upon termination of a grant, the affected agency shall not incur 
new obligations after the effective date of the disqualification, and 
shall cancel as many outstanding obligations as possible. FNS will allow 
full credit to the State agency for the Federal share of the 
noncancellable obligations properly incurred by the State agency prior 
to disqualification, and the State agency shall do the same for farmers/
farmers' markets.
    (4) A grant closeout shall not affect the retention period for, or 
Federal rights of access to, FMNP records as specified in Sec.  
248.24(b) and (c). The closeout of a grant does not affect the 
responsibilities of the State agency regarding property or with respect 
to any FMNP income for which the State agency is still accountable.
    (5) A final audit is not a required part of the grant closeout and 
should not be needed unless there are problems with the grant that 
require attention. If FNS considers a final audit to be necessary, it 
shall so inform OIG. OIG will be responsible for ensuring that necessary 
final audits are performed and for any necessary coordination with other 
Federal cognizant audit agencies or State or local auditors. Audits 
performed in accordance with Sec.  248.18 may serve as final audits 
providing such audits meet the needs of requesting agencies. If the 
grant is closed out without an audit, FNS reserves the right to disallow 
and recover an appropriate amount after fully considering any 
recommended disallowances resulting from an audit which may be conducted 
later.



Sec.  248.16  Administrative appeal of State agency decisions.

    (a) Requirements. The State agency shall provide a hearing procedure 
whereby recipients, local agencies and farmers/farmers' markets 
adversely affected by certain actions of the State agency may appeal 
those actions. A recipient may appeal disqualification/suspension of 
FMNP benefits. A local agency may appeal an action of the State agency 
disqualifying it from participating in the FMNP. A farmer/farmers' 
market may appeal an action of the State agency denying its application 
to participate, imposing a sanction, or disqualifying it from 
participating in the FMNP. Expiration of a contract or agreement shall 
not be subject to appeal.
    (b) Postponement pending decision. An adverse action may, at the 
State agency's option, be postponed until a decision in the appeal is 
rendered.
    (1) In a case where an adverse action affects a local agency or 
farmer/farmers' market, a postponement is appropriate where the State 
agency finds

[[Page 427]]

that recipients would be unduly inconvenienced by the adverse action. In 
addition, the State agency may determine other relevant criteria to be 
considered in deciding whether or not to postpone an adverse action.
    (2) In a case where a recipient appeals the termination of benefits, 
that recipient shall continue to receive FMNP benefits until the hearing 
official reaches a decision or the expiration of the current FMNP 
season, whichever occurs first. Applicants who are denied benefits may 
appeal the denial, but shall not receive benefits while awaiting the 
decision.
    (c) Procedure. The State agency hearing procedure shall at a minimum 
provide the recipient, local agency or farmer/farmers' market with the 
following:
    (1) Written notification of the adverse action, the cause(s) for the 
action, and the effective date of the action, including the State 
agency's determination of whether the action shall be postponed under 
paragraph (b) of this section if it is appealed, and the opportunity for 
a hearing. Such notification shall be provided within a reasonable 
timeframe established by the State agency and in advance of the 
effective date of the action.
    (2) The opportunity to appeal the action within the time specified 
by the State agency in its notification of adverse action.
    (3) Adequate advance notice of the time and place of the hearing to 
provide all parties involved sufficient time to prepare for the hearing.
    (4) The opportunity to present its case and at least one opportunity 
to reschedule the hearing date upon specific request. The State agency 
may set standards on how many hearing dates can be scheduled, provided 
that a minimum of two hearing dates is allowed.
    (5) The opportunity to confront and cross-examine adverse witnesses.
    (6) The opportunity to be represented by counsel, or in the case of 
a recipient appeal, by a representative designated by the recipient, if 
desired.
    (7) The opportunity to review the case record prior to the hearing.
    (8) An impartial decision maker, whose decision as to the validity 
of the State agency's action shall rest solely on the evidence presented 
at the hearing and the statutory and regulatory provisions governing the 
FMNP. The basis for the decision shall be stated in writing, although it 
need not amount to a full opinion or contain formal findings of fact and 
conclusions of law.
    (9) Written notification of the decision in the appeal, within 60 
days from the date of receipt of the request for a hearing by the State 
agency.
    (d) Continuing responsibilities. Appealing an adverse action does 
not relieve a farmer/farmers' market or local agency permitted to 
continue in the FMNP while its appeal is pending, from responsibility 
for continued compliance with the terms of the written agreement or 
contract with the State agency.
    (e) Judicial review. If a State level decision is rendered against 
the recipient, local agency or farmer/farmers' market and the appellant 
expresses an interest in pursuing a further review of the decision, the 
State agency shall explain any further State level review of the 
decision and any available State level rehearing process. If neither is 
available or both have been exhausted, the State agency shall explain 
the right to pursue judicial review of the decision.
    (f) Additional appeals procedures for State agencies which authorize 
farmers' markets and not individual farmers. A State agency which 
authorizes farmers' markets and not individual farmers shall ensure that 
procedures are in place to be used when a farmer seeks to appeal an 
action of a farmers' market or association denying the farmer's 
application to participate, or sanctioning or disqualifying the farmer. 
The procedures shall be set forth in the State Plan and in the 
agreements entered by the State agency and the farmers' market and the 
farmers' market and the farmer.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49748, Sept. 27, 1995; 
60 FR 57148, Nov. 14, 1995]

[[Page 428]]



            Subpart F_Monitoring and Review of State Agencies



Sec.  248.17  Management evaluations and reviews.

    (a) General. FNS and each State agency shall establish a management 
evaluation system in order to assess the accomplishment of FMNP 
objectives as provided under these regulations, the State Plan, and the 
written agreement with the Department. FNS will provide assistance to 
State agencies in discharging this responsibility, and will establish 
standards and procedures to determine how well the objectives of this 
part are being accomplished, and implement sanction procedures as 
warranted by State FMNP performance.
    (b) Responsibilities of FNS. FNS shall establish evaluation 
procedures to determine whether State agencies carry out the purposes 
and provisions of this part, the State Plan, and the written agreement 
with the Department. As a part of the evaluation procedure, FNS shall 
review audits to ensure that the FMNP has been included in audit 
examinations at a reasonable frequency. These evaluations shall also 
include reviews of selected local agencies, and on-site reviews of 
selected farmers/farmers' markets. These evaluations will measure the 
State agency's progress toward meeting the objectives outlined in its 
State Plan and the State agency's compliance with these regulations.
    (1) If FNS determines that the State agency has failed, without good 
cause, to demonstrate efficient and effective administration of its FMNP 
or has failed to comply with the requirements contained in this section 
or the State Plan, FNS may withhold an amount up to 100 percent of the 
State agency's administrative grant.
    (2) Sanctions imposed upon a State agency by FNS in accordance with 
this section (but not claims for repayment assessed against a State 
agency) may be appealed in accordance with the procedures established in 
Sec.  248.20. Before carrying out any sanction against a State agency, 
the following procedures will be followed:
    (i) FNS will notify the chief departmental officer of the 
administering agency in writing of the deficiencies found and of FNS' 
intention to withhold administrative funds unless an acceptable 
corrective action plan is submitted by the State agency to FNS within 45 
days after mailing of notification.
    (ii) The State agency shall develop a corrective action plan, 
including timeframes for implementation to address the deficiencies and 
prevent their future recurrence.
    (iii) If the corrective action plan is acceptable, FNS will notify 
the chief departmental officer of the administering agency in writing 
within 30 days of receipt of the plan. The letter will advise the State 
agency of the sanctions to be imposed if the corrective action plan is 
not implemented according to the schedule set forth in the approved 
plan.
    (iv) Upon notification from the State agency that corrective action 
has been taken, FNS will assess such action, and, if necessary, perform 
a follow-up review to determine if the noted deficiencies have been 
corrected. FNS will then advise the State agency of whether the actions 
taken are in compliance with the corrective action plan, and whether the 
deficiency is resolved or further corrective action is needed. 
Compliance buys can be required if during FNS management evaluations by 
regional offices, a State agency is found to be out of compliance with 
its responsibility to monitor and review farmers/farmers' markets.
    (v) If an acceptable corrective action plan is not submitted within 
45 days, or if corrective action is not completed according to the 
schedule established in the corrective action plan, FNS may withhold the 
award of FMNP administrative funds. If the 45-day warning period ends in 
the fourth quarter of a fiscal year, FNS may elect not to withhold funds 
until the next fiscal year. FNS will notify the chief departmental 
officer of the administering State agency.
    (vi) If compliance is achieved before the end of the fiscal year in 
which the FMNP administrative funds are withheld, the funds withheld may 
be restored to the State agency. FNS is not required to restore funds 
withheld beyond the end of the fiscal year for which the funds were 
initially awarded.

[[Page 429]]

    (c) Responsibilities of State agencies. The State agency is 
responsible for meeting the following requirements:
    (1) The State agency shall establish evaluation and review 
procedures and document the results of such procedures. The procedures 
shall include, but are not limited to:
    (i) Annual monitoring reviews of participating farmers' farmers' 
markets, including on-site reviews of a minimum of 10 percent of farmers 
and 10 percent of farmers' markets, which includes those farmers and 
markets identified as being the highest risk. First year of operation in 
the FMNP shall be considered a high-risk indicator. More frequent 
reviews may be performed as the State agency deems necessary.
    (ii) Conducting monitoring reviews of all local agencies within the 
State agency's jurisdiction at least once every 2 years. Monitoring of 
local agencies shall encompass, but not be limited to, evaluation of 
management, accountability, certification, nutrition education, 
financial management systems, and coupon management systems. WIC State 
agency reviews of local agencies conducted for the WIC Program may 
contribute to meeting the FMNP requirement that all local agencies be 
reviewed once every two years if the reviews include reviews of FMNP 
practices. When the WIC State agency conducts a review of the local 
agency outside of the FMNP season, a review of documents and procedural 
plans of the FMNP, rather than actual FMNP activities, is acceptable.
    (iii) Instituting the necessary follow-up procedures to correct 
identified problem areas.
    (2) On its own initiative or when required by FNS, the State agency 
shall provide special reports on FMNP activities, and take positive 
action to correct deficiencies in FMNP operations.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49748, Sept. 27, 1995]



Sec.  248.18  Audits.

    (a) Federal access to information. The Secretary, the Comptroller 
General of the United States, or any of their duly authorized 
representatives, or duly authorized State auditors shall have access to 
any books, documents, papers, and records of the State agency and their 
contractors, for the purpose of making surveys, audits, examinations, 
excerpts, and transcripts.
    (b) State agency response. The State agency may take exception to 
particular audit findings and recommendations. The State agency shall 
submit a response or statement to FNS as to the action taken or planned 
regarding the findings. A proposed corrective action plan developed and 
submitted by the State agency shall include specific time frames for its 
implementation and for completion of the correction of deficiencies and 
problems leading to the deficiencies.
    (c) Corrective action. FNS shall determine whether FMNP deficiencies 
identified in an audit have been adequately corrected. If additional 
corrective action is necessary, FNS shall schedule a follow-up review, 
allowing a reasonable time for such corrective action to be taken.
    (d) State sponsored audits. State and local agencies shall conduct 
independent audits in accordance with 7 CFR part 3015, Sec.  3016.26 or 
part 3051, as applicable. A State or local agency may elect to obtain 
either an organization-wide audit or an audit of the Program if it 
qualifies to make such an election under applicable regulations.



Sec.  248.19  Investigations.

    (a) Authority. The Department may make an investigation of any 
allegation of noncompliance with this part and FNS guidelines and 
instructions. The investigation may include, where appropriate, a review 
of pertinent practices and policies of any State and local agency, the 
circumstances under which the possible noncompliance with this part 
occurred, and other factors relevant to a determination as to whether 
the State and local agency has failed to comply with the requirements of 
this part.
    (b) Confidentiality. No State or local agency, recipient, or other 
person shall intimidate, threaten, coerce, or discriminate against any 
individual for the purpose of interfering with any right or privilege 
under this part because that person has made a complaint or formal 
allegation, or has testified, assisted, or participated in any

[[Page 430]]

manner in an investigation, proceeding, or hearing under this part. The 
identity of every complainant shall be kept confidential except to the 
extent necessary to carry out the purposes of this part, including the 
conducting of any investigation, hearing, or judicial proceeding.



                   Subpart G_Miscellaneous Provisions



Sec.  248.20  Claims and penalties.

    (a) Claims against State agencies. (1) If FNS determines through a 
review of the State agency's reports, program or financial analysis, 
monitoring, audit, or otherwise, that any FMNP funds provided to a State 
agency for food or administrative purposes were, through State agency 
negligence or fraud, misused or otherwise diverted from FMNP purposes, a 
formal claim will be assessed by FNS against the State agency. The State 
agency shall pay promptly to FNS a sum equal to the amount of the 
administrative funds or the value of coupons so misused or diverted.
    (2) If FNS determines that any part of the FMNP funds received by a 
State agency; or coupons, were lost as a result of theft, embezzlement, 
or unexplained causes, the State agency shall, on demand by FNS, pay to 
FNS a sum equal to the amount of the money or the value of the FMNP 
coupons so lost.
    (3) The State agency shall have full opportunity to submit evidence, 
explanation or information concerning alleged instances of noncompliance 
or diversion before a final determination is made in such cases.
    (4) FNS is authorized to establish claims against a State agency for 
unreconciled FMNP coupons. When a State agency can demonstrate that all 
reasonable management efforts have been devoted to reconciliation and 99 
percent or more of the FMNP coupons issued have been accounted for by 
the reconciliation process, FNS may determine that the reconciliation 
process has been completed to satisfaction.
    (b) Interest charge on claims against State agencies. If an 
agreement cannot be reached with the State agency for payment of its 
debts or for offset of debts on its current Letter of Credit within 30 
days from the date of the first demand letter from FNS, FNS will assess 
an interest (late) charge against the State agency. Interest accrual 
shall begin on the 31st day after the date of the first demand letter, 
bill or claim, and shall be computed monthly on any unpaid balance as 
long as the debt exists. From a source other than the FMNP, the State 
agency shall provide the funds necessary to maintain FMNP operations at 
the grant level authorized by FNS.
    (c) Penalties. In accordance with section 12(g) of the National 
School Lunch Act, whoever embezzles, willfully misapplies, steals or 
obtains by fraud any funds, assets or property provided under section 17 
of the Child Nutrition Act of 1966, as amended, whether received 
directly or indirectly from USDA, or whoever receives, conceals or 
retains such funds, assets or property for his or her own interest, 
knowing such funds, assets or property have been embezzled, willfully 
misapplied, stolen, or obtained by fraud shall, if such funds, assets or 
property are of the value of $100 or more, be fined not more than 
$10,000 or imprisoned not more than five years, or both, or if such 
funds, assets or property are of a value of less than $100, shall be 
fined not more than $1,000 or imprisoned for not more than one year, or 
both.



Sec.  248.21  Procurement and property management.

    (a) Requirements. State agencies shall comply with the requirements 
of 7 CFR part 3016 for procurement of supplies, equipment and other 
services with FMNP funds. These requirements are adopted by FNS to 
ensure that such materials and services are obtained for the FMNP in an 
effective manner and in compliance with the provisions of applicable law 
and executive orders.
    (b) Contractual responsibilities. The standards contained in 7 CFR 
part 3016 do not relieve the State agency of the responsibilities 
arising under its contracts. The State agency is the responsible 
authority, without recourse to FNS, regarding the settlement and 
satisfaction of all contractual and administrative issues arising out of 
procurements entered into in connection with the FMNP. This includes, 
but is not

[[Page 431]]

limited to, disputes, claims, protests of award, source evaluation, or 
other matters of a contractual nature. Matters concerning violation of 
law are to be referred to such local, State or Federal authority as may 
have proper jurisdiction.
    (c) State regulations. The State agency may use its own procurement 
regulations which reflect applicable State and local regulations, 
provided that procurements made with FMNP funds adhere to the standards 
set forth in 7 CFR part 3016.
    (d) Property acquired with program funds. State and local agencies 
shall observe the standards prescribed in 7 CFR part 3016 in their 
utilization and disposition of real property and equipment acquired in 
whole or in part with FMNP funds.



Sec.  248.22  Nonprocurement debarment/suspension, drug-free workplace, 
and lobbying restrictions.

    The State agency shall ensure compliance with the requirements of 
the Department's regulations governing nonprocurement debarment/
suspension (7 CFR part 3017), drug-free workplace (7 CFR part 3017), and 
the Department's regulations governing restrictions on lobbying (7 CFR 
part 3018), where applicable.



Sec.  248.23  Records and reports.

    (a) Recordkeeping requirements. Each State agency shall maintain 
full and complete records concerning FMNP operations. Such records shall 
comply with 7 CFR part 3016 and the following requirements:
    (1) Records shall include, but not be limited to, information 
pertaining to financial operations, FMNP coupon issuance and redemption, 
equipment purchases and inventory, nutrition education, and civil rights 
procedures.
    (2) All records shall be retained for a minimum of 3 years following 
the date of submission of the final expenditure report for the period to 
which the report pertains. If any litigation, claim, negotiation, audit 
or other action involving the records has been started before the end of 
the 3-year period, the records shall be kept until all issues are 
resolved, or until the end of the regular 3-year period, whichever is 
later. If FNS deems any of the FMNP records to be of historical 
interest, it may require the State agency to forward such records to FNS 
whenever the State agency is disposing of them.
    (3) Records for nonexpendable property acquired in whole or in part 
with FMNP funds shall be retained for three years after its final 
disposition.
    (4) All records shall be available during normal business hours for 
representatives of the Department of the Comptroller General of the 
United States to inspect, audit, and copy. Any reports resulting from 
such examinations shall not divulge names of individuals.
    (b) Financial and recipient reports. State agencies shall submit 
financial and FMNP performance data on a yearly basis as specified by 
FNS and required by section 17(m)(8) of the CNA. Such information shall 
include, but shall not be limited to:
    (1) Number and type of recipients (Federal and non-Federal).
    (2) Value of coupons issued.
    (3) Value of coupons redeemed.
    (c) Source documentation. To be acceptable for audit purposes, all 
financial and FMNP performance reports shall be traceable to source 
documentation.
    (d) Certification of reports. Financial and FMNP reports shall be 
certified as to their completeness and accuracy by the person given that 
responsibility by the State agency.
    (e) Use of reports. FNS will use State agency reports to measure 
progress in achieving objectives set forth in the State Plan, and this 
part, or other State agency performance plans. If it is determined, 
through review of State agency reports, FMNP or financial analysis, or 
an audit, that a State agency is not meeting the objectives set forth in 
its State Plan, FNS may request additional information including, but 
not limited to, reasons for failure to achieve these objectives.



Sec.  248.24  Other provisions.

    (a) No aid reduction. The value of benefits or assistance available 
under the FMNP shall not be considered as income or resources of 
recipients or their families for any purpose under Federal, State, or 
local laws, including, but not

[[Page 432]]

limited to, laws relating to taxation, welfare and public assistance 
programs. Section 17(m)(7)(B) of the CNA provides that any programs for 
which a grant is received under this subsection shall be supplementary 
to the food stamp program carried out under the Food Stamp Act of 1977 
as amended (7 U.S.C. 2011 et seq.) and to any other Federal or State 
program under which foods are distributed to needy families in lieu of 
food stamps.
    (b) Statistical information. FNS reserves the right to use 
information obtained under the FMNP in a summary, statistical or other 
form which does not identify particular individuals.
    (c) Confidentiality. The State agency shall restrict the use or 
disclosure of information obtained from FMNP applicants and recipients 
to persons directly connected with the administration or enforcement of 
the WIC Program or the FMNP, including persons investigating or 
prosecuting violations in the WIC Program or FMNP under Federal, State 
or local authority.



Sec.  248.25  FMNP information.

    Any person who wishes information, assistance, records or other 
public material shall request such information from the State agency, or 
from the FNS Regional Office serving the appropriate State as listed 
below:
    (a) Connecticut, Maine, Massachusetts, New Hampshire, New York, 
Rhode Island, Vermont: U.S. Department of Agriculture, FNS, Northeast 
Region, 10 Causeway Street, Room 501, Boston, Massachusetts 02222-1066.
    (b) Delaware, District of Columbia, Maryland, New Jersey, 
Pennsylvania, Puerto Rico, Virginia, Virgin Islands, West Virginia: U.S. 
Department of Agriculture, FNS, Mid-Atlantic Region, Mercer Corporate 
Park, 300 Corporate Boulevard, Robbinsville, New Jersey, 08691-1598.
    (c) Alabama, Florida, Georgia, Kentucky, Mississippi, North 
Carolina, South Carolina, Tennessee: U.S. Department of Agriculture, 
FNS, Southeast Region, 77 Forsyth Street, SW., suite 112, Atlanta, 
Georgia 30303.
    (d) Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin: U.S. 
Department of Agriculture, FNS, Midwest Region, 77 West Jackson 
Boulevard--20th floor, Chicago, Illinois 60604-3507.
    (e) Arkansas, Louisiana, New Mexico, Oklahoma, Texas: U.S. 
Department of Agriculture, FNS, Southwest Region, 1100 Commerce Street, 
room 5-C-30, Dallas, Texas 75242.
    (f) Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North 
Dakota, South Dakota, Utah, Wyoming: U.S. Department of Agriculture, 
FNS, Mountain Plains Region, 1244 Speer Boulevard, suite 903, Denver, 
Colorado 80204.
    (g) Alaska, American Samoa, Arizona, California, Guam, Hawaii, 
Idaho, Nevada, Oregon, Trust Territory of the Pacific Islands, the 
Northern Mariana Islands, Washington: U.S. Department of Agriculture, 
FNS, Western Region, 550 Kearny Street, room 400, San Francisco, 
California 94108.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49748, Sept. 27, 1995; 
60 FR 57148, Nov. 14, 1995]



Sec.  248.26  OMB control number.

    The collecting of information requirements for part 248 have been 
approved by the Office of Management and Budget and assigned OMB control 
number 0584-0477.

[60 FR 49748, Sept. 27, 1995]

[[Page 433]]



     SUBCHAPTER B_GENERAL REGULATIONS AND POLICIES_FOOD DISTRIBUTION





PART 250_DONATION OF FOODS FOR USE IN THE UNITED STATES, ITS 
TERRITORIES AND POSSESSIONS AND AREAS UNDER ITS JURISDICTION--Table of Contents




                            Subpart A_General

Sec.
250.1 General purpose and scope.
250.2 Administration.
250.3 Definitions.

                 Subpart B_General Operating Provisions

250.10 Eligible distributing and subdistributing agencies.
250.11 Eligibility determination for recipient agencies and recipients.
250.12 Agreements and contracts.
250.13 Distribution and control of donated foods.
250.14 Warehousing, distribution and storage of donated foods.
250.15 Financial management.
250.16 Maintenance of records.
250.17 Reports.
250.18 Audits.
250.19 Reviews.
250.20 Sanctions.
250.21 Civil rights.
250.22 Complaints.
250.23 Buy American.
250.24 Distributing agency performance standards.

           Subpart C_Processing and Labeling of Donated Foods

250.30 State processing of donated foods.

           Subpart D_Eligible Recipient Agencies and Programs

250.40 Nonprofit summer camps for children.
250.41 Charitable institutions.
250.42 Nutrition programs for the elderly.
250.43 Disaster food assistance.
250.44 Food assistance in situations of distress.
250.45 Commodity Supplemental Food Program.
250.46 Food Distribution Program in the Trust Territory of the Pacific 
          Islands.
250.47 Food Distribution Program on Indian reservations.
250.48 School food authorities and commodity schools.
250.49 Nonresidential child and adult care institutions.
250.50 Service institutions.
250.51 Special Supplemental Nutrition Program for Women, Infants, and 
          Children.

                  Subpart E_Where To Obtain Information

250.60 Program information.

    Authority: 5 U.S.C. 301; 7 U.S.C. 612c, 612c note, 1431, 1431b, 
1431e, 1431 note, 1446a-1, 1859, 2014, 2025; 15 U.S.C. 713c; 22 U.S.C. 
1922; 42 U.S.C. 1751, 1755, 1758, 1760, 1761, 1762a, 1766, 3030a, 5179, 
5180.

    Source: 53 FR 20426, June 3, 1988, unless otherwise noted.



                            Subpart A_General



Sec.  250.1  General purpose and scope.

    This part prescribes the terms and conditions under which donated 
foods may be obtained from the Department by Federal, State and private 
agencies for use in any State in child nutrition programs, nonprofit 
summer camps for children, charitable institutions, nutrition programs 
for the elderly, the Commodity Supplemental Food Program, the Special 
Supplemental Nutrition Program for Women, Infants, and Children, the 
Food Distribution Programs on Indian Reservations and the assistance of 
needy persons.



Sec.  250.2  Administration.

    (a) Delegation to FNS. Within the Department, FNS shall act on 
behalf of the Department in the administration of the program. FNS will 
provide assistance to distributing agencies and evaluate all levels of 
program operations to assure that the goals of the program are achieved 
in the most effective and efficient manner possible.
    (b) Delegation to distributing agency. The distributing agency is 
responsible for effective and efficient administration of program 
operations within its jurisdiction and shall administer the program in 
accordance with the requirements of this part and FNS guidelines and 
instructions. Distributing agencies may impose additional requirements 
for participation that are not inconsistent with the provisions of this 
part, except that this provision

[[Page 434]]

shall not apply to distribution to households on all or part of an 
Indian reservation which is participating in the Food Distribution 
Program under part 253 and part 254 of this chapter. The distributing 
agency shall provide guidance to subdistributing agencies and recipient 
agencies on all aspects of program operations.
    (c) Personnel. Each distributing agency shall provide adequate 
personnel, to administer the program in accordance with this part.



Sec.  250.3  Definitions.

    Charitable institutions means:
    (a) A nonpenal, noneducational public (Federal, State or local) 
institution,
    (b) A nonprofit, tax exempt, private hospital, or
    (c) Any other nonprofit, noneducational, tax exempt private 
institution, including hospitals and facilities caring for needy infants 
and children, organized to provide charitable or public welfare services 
in the same place without marked changes and, at the Department's 
option, approved by a public welfare agency as meeting a definite need 
in the community by administering to needy persons, and provides a meal 
service on a regular basis. Charitable institutions include any 
institution defined as ``service institution''; ``nonresidential child 
care institution''; or ``school'' which is not a commodity school or 
does not participate in a child nutrition program. For purposes of this 
paragraph, tax exempt shall mean exempt from income tax under the 
Internal Revenue Code, as amended, and a charitable institution shall be 
considered ``noneducational'' even though educational courses are given, 
where such courses are incidental to the primary purpose of the 
charitable institution.
    Child nutrition program means the National School Lunch Program, the 
School Breakfast Program, the Summer Food Service Program for Children, 
or the Child Care Food Program (parts 210, 220, 225, and 226, 
respectively of this chapter).
    Commodities means foods donated, or available for donation, by the 
Department under any of the legislation referred to in this part (see 
``Donated Foods'').
    Commodity school means a school that does not participate in the 
National School Lunch Program under part 210 of this chapter but which 
operates a nonprofit school food service under agreement with the State 
educational agency or FNSRO as provided for under part 210 of this 
chapter and receives donated foods, or donated foods and cash or 
services of a value of up to 5 cents per lunch in lieu of donated foods 
under part 240 of this chapter for processing and handling of the 
donated foods.
    Contract value of the donated foods means the price assigned by the 
Department to a donated food which shall reflect the Department's 
current acquisition price, transportation and, if applicable, processing 
costs related to the food.
    Contracting agency means the distributing agency, subdistributing 
agency, or recipient agency which enters into a processing contract.
    Department means the United States Department of Agriculture or the 
Commodity Credit Corporation, whichever is the donor under the pertinent 
legislation.
    Disaster means (a) Any natural catastrophe (including any hurricane, 
tornado, storm, high water, wind-driven water, tidal wave, tsunami, 
earthquake, volcanic eruption, landslide, mudslide, snowstorm, drought), 
or, regardless of cause, any fire, flood, or explosion, in any part of 
the United States, which in the determination of the President causes 
damage of sufficient severity and magnitude to warrant major disaster 
assistance under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act (42 U.S.C. 5121 et seq.) (Stafford Act) to supplement the 
efforts and available resources of States, local governments, and 
disaster relief organizations in alleviating the damage, loss, hardship, 
or suffering caused thereby; or
    (b) Any other occasion or instance for which, in the determination 
of the President, Federal assistance is needed to supplement State and 
local efforts and capabilities to save lives and to protect property and 
public health and safety, or to lessen or avert the threat of a 
catastrophe in any part of the United States.

[[Page 435]]

    Disaster organizations means organizations authorized by appropriate 
Federal or State officials to assist disaster victims.
    Disaster victims means persons who, because of acts of God or 
manmade disasters, are in need of food assistance, whether or not they 
are victims of a major disaster or an emergency as defined in this 
section.
    Discount system means a system whereby a recipient agency purchases 
end products directly from a processor at an established wholesale price 
minus the contract value of the donated foods contained in the end 
products.
    Distributing agency means a State, Federal or private agency, or 
Indian Tribal Organization (ITO) which enters into an agreement with the 
Department for the distribution of donated foods to eligible recipient 
agencies and recipients and the Food and Nutrition Service of the 
Department when it accepts title to commodities from the Commodity 
Credit Corporation (CCC) for distribution to eligible recipient agencies 
pursuant to the National Commodity Processing System. A distributing 
agency may also be a recipient agency.
    Distributor means a commercial food purveyor or handler who is 
independent of a processor and both sells and bills for the end products 
delivered to recipient agencies.
    Donated foods means foods donated, or available for donation, by the 
Department under any of the legislation referred to in this part (see 
``Commodities'').
    End product means a product containing any amount of donated foods 
which have been processed.
    Federal acceptance service means the acceptance service provided by:
    (a) The applicable grading branches of the Department's Agricultural 
Marketing Service (AMS),
    (b) The Department's Federal Grain Inspection Service, and
    (c) The National Marine Fisheries Service of the U.S. Department of 
Commerce.
    Fee-for-service means the price by pound or by case representing a 
processor's cost of ingredients (other than donated foods), labor, 
packaging, overhead, and other costs incurred in the conversion of the 
donated food into the specified end product.
    Fiscal year means the period of 12 months beginning October 1 of any 
calendar year and ending September 30 of the following year.
    FNS means the Food and Nutrition Service of the Department of 
Agriculture.
    FNSRO means the appropriate Food and Nutrition Service Regional 
Office of the Food and Nutrition Service of the Department of 
Agriculture.
    Food service management company means a commercial enterprise or a 
nonprofit organization which is or may be contracted with by a recipient 
agency to manage any aspect of its food service in accordance with Sec.  
250.12(d) of this part or in accordance with part 210, 220, 225, or 226 
of this chapter.
    Household means a group of related or non-related individuals, 
exclusive of boarders, who are not residents of an institution, but who 
are living as one economic unit and for whom food is customarily 
purchased and prepared in common. It also means a single individual 
living alone.
    In-kind replacement means replacement of lost donated foods with a 
quantity of the same foods of U.S. origin that are of equal or better 
quality than the lost foods and that are of at least equal monetary 
value to the Department's cost of replacing the lost foods.
    Multi-State processor means:
    (a) A processor which has entered into a processing contract with 
contracting agencies in more than one State, or
    (b) A processor which has entered into a processing contract with 
one or more contracting agencies located in a State other than the one 
in which either the processor's plant or business office is located.
    Needy persons means:
    (a) Persons provided service by charitable institutions, who, 
because of their economic status, are in need of food assistance,
    (b) All the members of a household who are certified as in need of 
food assistance, and
    (c) Disaster victims.
    Nonprofit school food service means all food service operations 
conducted by the school food authority principally

[[Page 436]]

for the benefit of school children, all of the revenue from which is 
used solely for the operation or improvement of such food services.
    Nonprofit summer camps for children means nonprofit camps which do 
not participate in the Summer Food Service Program for Children 
authorized under section 13 of the National School Lunch Act, as amended 
(42 U.S.C. 1761), and in which, during the months of May through 
September, meal services are conducted for children of high school grade 
and under.
    Nonresidential child or adult care institution means any child or 
adult care institution (as defined in part 226 of this chapter) which 
participates in the Child and Adult Care Food Program authorized under 
section 17 of the National School Lunch Act, as amended (42 U.S.C. 
1766).
    Nutrition program for the elderly means a project conducted by a 
recipient of a grant or contract under title III or title VI of the 
Older Americans Act of 1965, as amended (42 U.S.C. 3030a).
    Offer-and-acceptance system means a procedure whereby a school food 
authority is given the opportunity to order only the amounts and 
varieties of donated foods it desires for its school lunch program on 
the basis of advance notification by the distributing agency.
    Performance supply and surety bond means a written instrument issued 
by a surety company which guarantees performance and supply of end 
products by a processor under the terms of a processing contract.
    Processing means:
    (a) The conversion of a donated food or donated foods into a 
different end product or
    (b) The repackaging of a donated food or donated foods.
    Processor means any commercial facility which processes or 
repackages donated foods. However, commercial enterprises which handle, 
prepare and/or serve products or meals containing donated foods on-site 
solely for the individual recipient agency under contract are exempt 
under this definition. Notwithstanding this definition, a recipient 
agency which prepares products or meals containing donated foods for 
more than one recipient agency under more than one contract in the same 
facility or prepares products or meals for any one recipient agency off-
site shall not be a processor if the recipient agency preparing products 
or meals provides: (1) accountability for any donated foods received 
from another recipient agency consistent with Sec.  250.16 of this part 
and (2) any funds received as payment for preparing products or meals 
shall be deposited in the non-profit meal account of the recipient 
agency preparing products or meals.
    Program means the Food Distribution Program.
    Recipient agencies means nonprofit summer camps for children, 
charitable institutions, nutrition programs for the elderly, disaster 
organizations, school food authorities, schools, nonresidential child 
care institutions, service institutions, and welfare agencies receiving 
foods for their own use or for distribution to eligible recipients.
    Recipients means the needy persons receiving commodities for 
household consumption.
    Refund means (a) a credit or check issued to a distributor in an 
amount equal to the contract value of donated foods contained in an end 
product sold by the distributor to a recipient agency at a discounted 
price and (b) a check issued to a recipient agency in an amount equal to 
the contract value of donated foods contained in an end product sold to 
the recipient agency under a refund system.
    Refund application means an application by a recipient agency in any 
form acceptable to the processor which certifies purchase of end 
products and requests a refund of the contract value of the donated 
foods contained in the end products purchased.
    Refund system means a system whereby a recipient agency purchases a 
processor's end products and receives from the processor a payment 
equivalent to the contract value of the donated foods contained in the 
end products.
    School means (a) An educational unit of high school grade or under, 
recognized as part of the educational system in the State and operating 
under public or nonprofit private ownership in a single building or 
complex of buildings. The term ``high school grade or under''

[[Page 437]]

includes classes of preprimary grade when recognized as part of the 
education system of the States;
    (b) Any public or nonprofit private classes of preprimary grade when 
they are conducted in those schools defined in paragraph (a) of this 
definition having classes of primary or of higher grade;
    (c) Any public or nonprofit private residential child care 
institution, or distinct part of such institution, which operates 
principally for the care of children, and if private, is licensed to 
provide residential child care services under the appropriate licensing 
code by the State or a subordinate level of government, except for 
residential summer camps which participate in the Summer Food Service 
Program for Children, Job Corps centers funded by the Department of 
Labor and private foster homes. The term ``residential child care 
institutions'' includes, but is not limited to: homes for the mentally, 
emotionally or physically impaired, and unmarried mothers and their 
infants; group homes; halfway houses; orphanages; temporary shelters for 
abused children and for runaway children; long-term care facilities for 
chronically ill children; and juvenile detention centers. A long-term 
care facility is a hospital, skilled nursing facility, intermediate care 
facility, or distinct part thereof, which is intended for the care of 
children confined for 30 days or more; or
    (d) With respect to the Commonwealth of Puerto Rico, nonprofit child 
care centers certified as such by the Governor of Puerto Rico.
    School food authority means the governing body which is responsible 
for the administration of one or more schools and which has the legal 
authority to operate a nonprofit school food service therein or 
otherwise approved by FNS to operate the NSLP.
    School year means the period of 12 months beginning July 1 of any 
calendar year and ending June 30 of the following calendar year.
    Secretary means the Secretary of Agriculture.
    Section 4(a) means section 4(a) of the Agriculture and Consumer 
Protection Act of 1973, as amended (7 U.S.C. 612c note). Section 4(a) 
authorizes the purchase of foods for distribution to maintain the 
traditional level of assistance for food assistance programs as are 
authorized by law, including institutions, supplemental feeding 
programs, disaster areas, summer camps for children, the Trust Territory 
of the Pacific Islands, and Indians whenever a tribal organization 
requests distribution of federally-donated foods under section 4(b) of 
the Food Stamp Act of 1977 (7 U.S.C. 2013(b)).
    Section 6 means section 6 of the National School Lunch Act, as 
amended (42 U.S.C. 1755). Section 6 authorizes the purchase of foods for 
distribution to schools and institutions participating in child 
nutrition programs under the National School Lunch Act and specifies the 
level of assistance which is to be provided.
    Section 14 means section 14 of the National School Lunch Act, as 
amended (42 U.S.C. 1762a). Section 14 authorizes the purchase of foods 
for distribution to maintain the annually programmed level of assistance 
for programs carried on under the National School Lunch Act, the Child 
Nutrition Act of 1966, and title III of the Older Americans Act of 1965.
    Section 32 means section 32 of Pub. L. 74-320, as amended (7 U.S.C. 
612c). Section 32 authorizes the Department to purchase nonbasic 
perishable foods available under surplus-removal operations, for the 
purpose of encouraging the domestic consumption of such foods by 
diverting them from the normal channels of trade or commerce.
    Section 311 means section 311 of the Older Americans Act of 1965, as 
amended (42 U.S.C. 3030a). Section 311 authorizes the purchase of 
commodities for nutrition programs for the elderly.
    Section 416 means section 416 of the Agricultural Act of 1949, as 
amended (7 U.S.C. 1431). Section 416 authorizes the Department to donate 
basic nonperishable foods acquired through Federal price-support 
operations for use by needy persons, for use in nonprofit school lunch 
programs and nonprofit summer camps for children, and for use in 
charitable institutions to the extent that needy persons are served.
    Section 709 means section 709 of the Food and Agricultural Act of 
1965, as amended (7 U.S.C. 1446a-1). Section 709

[[Page 438]]

authorizes the purchase of adequate supplies of dairy products to meet 
the requirements of schools, domestic relief distribution, and other 
programs authorized by law when the stocks of the Commodity Credit 
Corporation are insufficient to meet those requirements.
    Service institutions means camps or sponsors (as those terms are 
defined in part 225 of this chapter) which participate in the Summer 
Food Service program authorized under section 13 of the National School 
Lunch Act, as amended (42 U.S.C. 1761).
    Similar replacement means replacement of lost donated foods with a 
quantity of similiar foods of U.S. origin of the same types as those 
normally donated by the Department and of at least equal monetary value 
to the Department's cost of replacing the lost foods. Such replacement 
shall be subject to the approval of the FNSRO.
    Situation of distress means (a) A hurricane, tornado, storm, flood, 
high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic 
eruption, landslide, mudslide, snowstorm, drought, fire, explosion, or 
other natural catastrophe not declared by the President to be a 
disaster, but which, in the judgment of the distributing agency, 
warrants the use of USDA commodities for congregate feeding; and
    (b) Any other situation not declared by the President to be a 
disaster, but which, in the judgment of FNS, warrants the use of USDA 
commodities for congregate feeding or household distribution.
    State and United States means any one of the 50 States, the District 
of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and 
the Trust Territory of the Pacific Islands.
    State Agency on Aging means:
    (a) The State agency that has been designated by the Governor and 
approved by the United States Department of Health and Human Services 
(DHHS) to administer nutrition programs for the elderly under title III 
of the Older Americans Act of 1965, as amended or
    (b) The Indian tribal organization which has been approved by DHHS 
to administer nutrition programs for the elderly under title VI of such 
act.
    Storage facility means an operation that provides warehousing 
services, or provides both warehousing and delivery services.
    Students in home economics means students in regular classes wherein 
they are taught general home economics including food preparation, 
cooking, serving, nutrition, food purchasing, child care and health.
    Subdistributing agency means an agency performing one or more 
distribution functions for a distributing agency other than, or in 
addition to, functions normally performed by common carriers or 
warehousemen. A subdistributing agency may also be a recipient agency. 
State and local agencies, and Indian Tribal Organizations administering 
the Emergency Food Assistance Program, the Food Distribution Program on 
Indian Reservations, or the Commodity Supplemental Food Program, are 
subdistributing agencies subject to all provisions relative to 
subdistributing agencies contained in this part, unless specifically 
exempt under part 251, part 253, part 254, or part 247 of this chapter.
    Substituted food means domestically produced food that is purchased 
or manufactured by a processor and is substituted for donated food.
    Substitution means:
    (a) The replacement of donated foods with like quantities of 
domestically produced commercial foods of the same generic identity and 
of equal or better quality (i.e. cheddar cheese for cheddar cheese, 
nonfat dry milk for nonfat dry milk, etc.).
    (b) In the case of donated nonfat dry milk, substitution as defined 
under (a) of this definition or replacement with an equivalent amount, 
based on milk solids content, of domestically produced concentrated skim 
milk.
    (c) A processor can substitute commercial product for donated 
commodity, as described in paragraph (a) of this section, without 
restrictions under full substitution. The processor must return to the 
contracting agency, in finished end products, the same number of pounds 
of commodity that the

[[Page 439]]

processor originally received for processing under full substitution. 
This is the 100-percent yield requirement.
    (d) A processor can substitute commercial product for donated 
commodity product, as described in paragraph (a) of this section, with 
some restrictions under limited substitution. Restrictions include, but 
are not limited to, the prohibition against substituting for backhauled 
poultry commodity product. FNS may also prohibit substitution of certain 
types of the same generic commodity. (For example, FNS may decide to 
permit substitution for bulk chicken but not for canned chicken.)
    Welfare agency means a public (Federal, State or local) or private 
agency offering assistance on a charitable or welfare basis to needy 
persons, who are not residents of an institution, and to Tribal councils 
designated by the Bureau of Indian Affairs.

[53 FR 20426, June 3, 1988, as amended at 53 FR 20598, June 6, 1988; 53 
FR 27475, July 21, 1988; 58 FR 39120, July 22, 1993; 59 FR 16972, Apr. 
11, 1994; 59 FR 62983, Dec. 7, 1994; 62 FR 8365, Feb. 25, 1997; 62 FR 
53729, Oct. 16, 1997; 64 FR 72902, Dec. 29, 1999; 67 FR 65014, Oct. 23, 
2002]



                 Subpart B_General Operating Provisions



Sec.  250.10  Eligible distributing and subdistributing agencies.

    (a) State and Federal agencies. Federal agencies and such State 
agencies as are designated by the Governor of the State, or by the State 
legislature, and approved by the Secretary are eligible to become 
distributing agencies.
    (b) Private agencies. Where distributing agencies are not permitted 
by law to make distribution to private recipient agencies, or to any 
class of private recipient agency, private agencies which agree to make 
distribution of donated food on a State-wide basis and which apply 
directly to FNS, and are approved by the Secretary are eligible to 
become distributing agencies.
    (c) Subdistributing agencies. If distributing agencies use 
subdistributing agencies to distribute donated foods, the distributing 
agencies' responsibilities to the Department for overall management and 
control of the distribution program shall not be delegated to such 
subdistributing agencies.



Sec.  250.11  Eligibility determination for recipient agencies and recipients.

    (a) Verification of recipient agency eligibility. Distributing 
agencies at the request of FNS shall:
    (1) Verify that recipient agencies registered to participate in the 
National Commodity Processing (NCP) Program have a current agreement 
with the distributing agency to receive donated food in accordance with 
Sec.  252.1(c) and
    (2) Report the results of such verification to FNS within timeframes 
determined by FNS.
    (b) Eligibility of recipient agencies and recipients. Distributing 
agencies shall determine the eligibility of any agency which submits an 
application for participation in the program. Distributing agencies 
shall consider the past performance of recipient agencies when approving 
applications for participation. Once a recipient agency has been 
determined to be eligible for participation in the program, the 
distributing agency shall enter into an agreement with the agency in 
accordance with Sec.  250.12(b) and make donated food available. 
Distributing agencies shall impose upon welfare agencies the 
responsibility for determining that recipients to whom welfare agencies 
distribute donated foods are eligible: Provided, however: That the State 
agency or FNSRO administering the applicable program shall determine the 
eligibility under this part of school food authorities participating 
under part 210 or part 220, or sponsors participating in the Summer Food 
Service Program for Children under part 225, of this chapter, and of 
nonresidential child care institutions participating in the Child Care 
Food Program under part 226 of this chapter.



Sec.  250.12  Agreements and contracts.

    (a) Agreements with Department. Prior to the beginning of a 
distribution program, distributing agencies shall enter into written 
agreements with the Department which shall incorporate the terms and 
conditions set forth in this part. When requested by the Department an 
eligible agency shall present evidence of its authority to enter into

[[Page 440]]

such agreements. The agreements shall be considered permanent, with 
amendments initiated by distributing agencies, or submitted by them at 
the Department's request, all of which shall be subject to approval by 
the Department. In addition, agreements between the Department and State 
Agencies on Aging that elect to receive cash in lieu of commodities 
shall also be considered permanent, with amendments initiated by these 
agencies, or submitted by them at the Department's request, all of which 
amendments shall be subject to approval by the Department.
    (b) Distributing agency agreements. Distributing agencies shall 
enter into written agreements with all subdistributing agencies, 
recipient agencies, warehouses, carriers, or other entities to which 
distributing agencies deliver donated foods under their distribution 
program. Distributing agencies shall be responsible for ensuring that 
program integrity is maintained by all entities with whom agreements are 
entered into. All agreements shall contain such terms and conditions as 
the distributing agency deems necessary to ensure that:
    (1) The distribution and use of donated foods is in accordance with 
this part,
    (2) Subdistributing agencies, recipient agencies, warehouses, 
carriers, or other persons to whom donated foods are delivered by the 
distributing agency are responsible to the distributing agency for any 
improper distribution or use of donated foods or for any loss of, or 
damage to, donated foods caused by their fault or negligence,
    (3) Subdistributing agencies and recipient agencies have and 
preserve a right to assert claims against other persons to whom donated 
foods are delivered for care, handling or distribution, and
    (4) Subdistributing agencies and recipient agencies will take action 
to obtain restitution in connection with claims for improper 
distribution, use or loss of, or damage to, donated foods.
    (c) Duration of distributing agency agreements.--(1) Recipient 
agencies. Distributing agency agreements with recipient agencies shall 
be considered permanent, with amendments to be made as necessary. 
Distributing agencies shall ensure that recipient agencies provide, on a 
timely basis, by amendment to the agreement, any changed information, 
including, but not limited to, any changes resulting from amendments to 
Federal regulatory requirements and policy and changes in site 
locations, and number of meals or needy persons to be served.
    (2) Subdistributing agencies, carriers, and other entities. 
Distributing agency agreements with subdistributing agencies (as defined 
in Sec.  250.3) that are not recipient agencies, carriers, and other 
entities shall be in effect for not longer than one year, and shall 
provide that they may be extended at the option of both parties for two 
additional one-year periods. The party contracting with the distributing 
agency shall update all pertinent information and demonstrate that all 
donated food received during the period of the previous agreement has 
been accounted for, before an agreement is extended.
    (3) Termination of agreements. Agreements may be terminated for 
cause by either party upon 30 days notice.
    (d) Food service management company contracts. Food service 
management companies may be employed to conduct the food service 
operations of nonprofit summer camps for children, charitable 
institutions, nutrition programs for the elderly, schools, 
nonresidential child care institutions, and service institutions. When a 
food service management company is employed to provide such services, 
the recipient agency shall enter into a written contract with the food 
service management company. The contract shall expressly provide that 
any donated foods received by the recipient agency and made available to 
the food service management company shall be utilized solely for the 
purpose of providing benefits for the employing agency's food service 
operation, and it shall be the responsibility of the recipient agency to 
demonstrate that the full value of all donated foods is used solely for 
the benefit of the recipient agency. All food service management 
companies shall be subject to review by the distributing agency for 
compliance with contractual requirements, in accordance with Sec.  
250.19(b)(1). In the case of nonprofit summer camps for children,

[[Page 441]]

charitable institutions, and nutrition programs for the elderly, the 
contract shall be in effect for no longer than one year, and may provide 
that it be extended at the option of both parties for not more than four 
additional one-year periods. Contracts shall provide that they may be 
terminated for cause by either party upon 30 days notice. Prior to 
extension of the contract, the nonprofit summer camp for children, 
charitable institution, or nutrition program for the elderly shall 
update all pertinent information and demonstrate that all donated food 
received during the previous contract period has been accounted for.
    (e) Storage facility contracts. When contracting for storage 
facilities, distributing agencies and subdistributing agencies shall 
enter into a written contract, in accordance with Sec.  250.14(d).
    (f) Processing contracts. When contracting for the processing of 
donated foods, contracting agencies shall enter into agreements with 
processors in accordance with Sec.  250.30(c).

[53 FR 20426, June 3, 1988, as amended at 62 FR 53729, Oct. 16, 1997]



Sec.  250.13  Distribution and control of donated foods.

    (a) Availability and use of donated foods--(1) General. (i) Donated 
foods shall be available only for distribution and use in accordance 
with the provisions of this part and, with respect to distribution to 
households on all or part of an Indian reservation, of parts 253 and 254 
of this chapter.
    (ii) Donated foods shall not be sold, exchanged or otherwise 
disposed of without the approval of the Department.
    (iii) Donated foods which are provided as part of an approved food 
package or authorized level of assistance may be transferred between 
like recipient agencies only with prior authorization of the 
distributing agency. Donated foods which are provided in addition to the 
State's authorized level of assistance may be transferred between 
recipient agencies which are eligible to receive such foods with the 
prior authorization of the distributing agency. However, the transfer of 
donated foods between unlike recipient agencies (e.g., from schools to 
charitable institutions), which have been provided as part of an 
approved food package or authorized level of assistance, must be 
approved by the appropriate FNSRO.
    (iv) Food donated under section 32 of Public Law 74-320 (7 U.S.C. 
612c) may also be transferred by recipient agencies to eligible 
recipient agencies which are distributing donated foods under part 251 
of this chapter. A transfer between recipient agencies and eligible 
recipient agencies may be made only with the prior approval of the 
distributing agency and the State agency responsible for administering 
TEFAP.
    (v) All transfers of donated foods shall be documented. Such 
documentation shall be maintained in accordance with the recordkeeping 
requirements in Sec. Sec.  250.16 and 251.10(a) of this chapter.
    (2) Quantities. (i) The quantity of donated foods to be made 
available for donation under this part shall be determined in accordance 
with the pertinent legislation and the program obligations of the 
Department, and shall be such as can be effectively distributed to 
further the objectives of the pertinent legislation.
    (ii) Donated foods shall be requested and distributed only in 
quantities which can be consumed without waste in providing food 
assistance for persons eligible under this part. Distributing agencies 
shall impose similar restrictions on recipient agencies.
    (3) Minimum donations. Foods shall be donated only in such 
quantities as will protect the lower truck load freight rate, except as 
the Department determines to be in the best interest of the program.
    (4) Allocations. As foods become available for donation, FNS shall 
notify distributing agencies regarding the donated foods, the class or 
classes of recipient agencies or recipients eligible to receive them, 
and any special terms and conditions of donation and distribution which 
attach to a particular donated food, in addition to the general terms 
and conditions set forth herein.
    When a commodity is available in limited quantities, the Department 
shall allocate such commodities among the States using allocation 
percentages which are based on appropriate participation data for the 
program designated to receive the commodity.

[[Page 442]]

    (5) Commodity value. Distributing agencies shall establish a value 
for each commodity for school food authorities and nonresidential child 
and adult care institutions for purposes of offering and crediting each 
recipient agency with the correct amount of commodities to fulfill 
planned commodity assistance levels (i.e., volume of commodities 
expected to be needed in order to meet the anticipated assistance at the 
local level, as determined by the distributing agency). Each commodity 
value shall be used consistently throughout the State to value 
commodities. The distributing agencies shall document and maintain on 
file for FNS review the method used to determine commodity values. 
Distributing agencies shall notify recipient agencies of the cost-per-
pound used to value commodities at the time a commodity is offered to 
recipient agencies. If the cost used to credit a commodity differs from 
the cost used to offer a commodity, distributing agencies shall also 
advise recipient agencies of the cost used to credit a commodity. To 
value a commodity offered to a recipient agency and to credit a 
commodity towards a recipient agency's planned commodity assistance 
level, distributing agencies shall use one of the following: The actual 
cost-per-pound data used to charge a State's commodity entitlement; the 
estimated cost-per-pound data provided by the Department; or the USDA 
commodity file cost as of a specified date. Actual cost data shall be 
defined as the cost-per-pound for an individual commodity charged to a 
State's entitlement on the Entitlement Food Order Report, which is based 
on the USDA purchase cost. Estimated cost data shall be defined as the 
cost provided by USDA on commodity survey memoranda. The USDA commodity 
file cost shall be defined as the cost that is listed for a commodity as 
of a date specified by the distributing agency. For purposes of 
complying with OMB Circular A-133, Audits of States, Local Governments, 
and Non-Profit Organizations on inventory valuation, recipient agencies 
shall comply with guidance provided by the Food and Nutrition Service. 
(For availability of OMB Circulars referenced in this paragraph (a), see 
5 CFR 1310.3.)
    (6) Announcement and delivery of commodities. The Department shall 
make every reasonable effort to arrange commodity deliveries based on 
information obtained from distributing agencies. However, the Department 
shall not be held fiscally responsible for any delay in delivering or 
for nondelivery of donated foods due to any cause. Distributing agencies 
shall maintain monthly distribution schedules which provide for 
equitable and reliable deliveries to recipient agencies, recognize local 
hours of operation, holidays and vacations and, whenever possible, other 
special needs of recipient agencies. Upon request by the recipient 
agency, the distributing agency may make deliveries less frequent than 
monthly when the distributing agency determines that monthly service is 
not cost effective, due to distance or the size of a food order, or 
other necessary reasons, such as seasonal school closures. Distributing 
agencies shall notify recipient agencies of:
    (i) General USDA purchase information at least quarterly;
    (ii) Anticipated State delivery schedules at least quarterly, 
including the types and quantities of commodities available; and
    (iii) Changes in delivery schedules when such changes affect the 
recipient agency.
    (7) Demonstrations and tests. Notwithstanding any other provision of 
this part, a quantity of any food donated for use by any recipient 
agency or recipient may be transferred by the distributing agency or by 
the recipient agency to bona fide experimental or testing agencies, or 
for use in workshops, or for demonstrations or tests relating to the 
utilization of such donated food by the recipient agency or recipient. 
No such transfer by any recipient agency shall be made without the 
approval of the appropriate distributing agency.
    (b) Processing and other costs. The Department shall pay such 
processing, reprocessing, transporting, handling and other charges 
accruing up to the time of transfer of title to distributing agencies as 
is deemed in the best interest of the Department.

[[Page 443]]

    (c) Transfer of title. Title to donated foods shall pass to 
distributing agencies upon their acceptance of donated foods at time and 
place of delivery, limited, however, by the obligation of the 
distributing agency to use such donated foods for the purposes and upon 
the terms and conditions set forth in this part.
    (d) Distribution of donated foods to recipient agencies or 
recipients--(1) Distribution. Donated foods shall be distributed only to 
recipient agencies and recipients eligible to receive them under this 
part (see subpart D). Distributing agencies shall require that welfare 
agencies and disaster organizations distribute donated foods only to 
recipients eligible to receive them under this part. It shall not be 
deemed a failure to comply with the provisions of this part if recipient 
agencies serve meals containing donated foods to persons other than 
those who are eligible under this part, when such persons share common 
preparation, serving or dining facilities with eligible persons (needy 
persons, children, participants in nutrition programs for the elderly) 
and at least one of the following is true:
    (i) Such other persons are common beneficiaries with the eligible 
persons of the program of the recipient agency, or
    (ii) Such other persons are few in number compared to the eligible 
persons and receive their meals as an incident of their service to the 
eligible persons.

Such other persons include, but are not limited to teachers, disaster 
relief workers, and staff members. Nothing in this paragraph shall be 
construed as authorizing allocation or issuance of donated foods to 
recipient agencies in greater quantity than that authorized for the 
assistance of persons eligible under this part.
    (2) Normal food expenditures. Section 416 donated foods shall not be 
distributed to any recipient agencies or recipients whose normal food 
expenditures are reduced because of the receipt of donated foods.
    (e) Improper distribution, loss of or damage to donated foods. (1) 
If a distributing agency improperly distributes or uses any donated 
foods or causes loss of or damage to a donated food through its failure 
to provide proper storage, care or handling, the provisions set forth in 
Sec.  250.15(c) shall apply.
    (2) In instances when it is determined by a distributing agency that 
a claim exists against a subdistributing agency, recipient agency, 
warehouse, carrier, processor or other person, the distributing agency 
shall pursue claims in accordance with Sec.  250.15(c).
    (f) Disposition of damaged or out-of-condition foods. Donated foods 
which are found to be damaged or out-of-condition and are declared unfit 
for human consumption by Federal, State or local health officials, or by 
other inspection services or persons deemed competent by the Department, 
shall be disposed of in accordance with instructions of the Department. 
Such instructions may direct that unfit donated food be:
    (1) Sold in a manner prescribed by the Department with the net 
proceeds thereof remitted to the Department;
    (2) Sold in a manner prescribed by the Department with the proceeds 
thereof retained for use in accordance with the provisions of Sec.  
250.15(f);
    (3) Used in such manner as will serve a useful purpose as determined 
by the Department; or
    (4) Destroyed in accordance with applicable sanitation laws and 
regulations.

Upon a finding by the Department that donated food are unfit for human 
consumption at the time of delivery to the distributing agency and when 
the Department or appropriate health officials require that such donated 
foods be destroyed, the Department may pay to the distributing agency 
any expenses incurred in connection with such donated foods as 
determined by the Department. The Department may, in any event, 
repossess damaged or out-of-condition donated foods.
    (g) Replacement of damaged commodities. (1) The Department shall 
replace donated foods received by distributing or recipient agencies 
when:
    (i) The distributing agency documents that the donated foods were 
stale, spoiled, out of condition or not in compliance with USDA 
specifications at the time they were delivered by the Department;

[[Page 444]]

    (ii) The donated foods have been provided as part of the State's 
authorized level of assistance (entitlement) as established by law; or, 
when the donated foods have been provided in addition to the State's 
entitlement, but the total amount of the specific donated food which the 
distributing agency can order is limited by the Department;
    (iii) The loss is reported to the FNSRO within three months of the 
date the donated foods were received in the State, except that for 
canned commodities the reporting deadline shall be six months after 
receipt;
    (iv) A signed consignee receipt or acceptable written documentation 
of delivery is submitted to the FNSRO; and
    (v) At the request of the Department, the product has been 
reinspected and has been determined to be stale, spoiled, out of 
condition or not in compliance with USDA specifications.
    (2) In instances in which a recipient agency seeks replacement of 
donated foods, the recipient agency shall submit the information listed 
above to its distributing agency. The distributing agency shall promptly 
submit the information to the FNSRO.
    (3) Replacement by the vendor shall be made with either the same or 
similar food agreed to by the Department. Physical replacement shall be 
on a per-pound or per-case basis. In rare instances, and only with the 
approval of the Department, distributing agency and recipient agency, 
vendor replacement will be made with a cash payment to the recipient or 
distributing agency. Any such cash payments shall be used to purchase 
replacement commodities which are the same or similar to the original 
commodities. Cash payments shall be made on the basis of the dollar 
value established by the Department of the donated food at the time the 
product was delivered or the cost to the Department for replacement, 
whichever is higher.
    (4) Replacement by the Department shall be with either the same or 
similar food or by crediting the State's entitlement or cap. Physical 
replacement shall be on a per-pound or per-case basis. Entitlement or 
cap crediting shall be equal to the dollar value or the number of pounds 
which was deducted from the State's entitlement or cap for that 
shipment. The Department shall arrange for delivery of the replacement 
donated foods when the quantities to be delivered are sufficient to make 
it cost effective. Once the Department has replaced the donated foods, 
the distributing agency shall make arrangements for providing 
replacement donated foods to the recipient agency which incurred the 
loss.
    (5) In instances in which it is determined that the donated foods 
were in good condition at the time they were delivered by the 
Department, the cost of the reinspection shall be borne by the 
distributing agency and the distributing agency shall follow the claims 
procedures contained in Sec.  250.15(c) of this part and FNS Instruction 
410-1, Non-Audit Claims--FNS Distribution Program.
    (h) Redonations. Whenever a distributing agency has any donated food 
on hand which it cannot efficiently utilize, it shall immediately make a 
request to the appropriate FNSRO, in writing, for instructions as to the 
disposition of such donated food. Distributing agencies requesting 
authority from the Department to make redonation of any donated foods 
shall, upon the Department's request, have such donated foods federally 
inspected. Expenditures incurred by the distributing agency as a result 
of redonation shall be handled in accordance with Sec.  250.15(e).
    (i) Embezzlement, misuse, theft, or obtainment by fraud of donated 
foods and donated food-related funds, assets, or property. 
Notwithstanding paragraph (c) of this section concerning transfer of 
title to donated foods, whoever embezzles, willfully misapplies, steals, 
or obtains by fraud, donated foods or any funds, assets, or property 
deriving from donated foods or whoever receives, conceals, or retains 
such donated foods, funds, assets, or property for his/her own use or 
gain, knowing such donated foods, funds, assets, or property have been 
embezzled, willfully misapplied, stolen, or obtained by fraud shall be 
subject to Federal criminal prosecution under section 12(g) of the 
National School Lunch Act, as amended (42 U.S.C. 1760(g)) or section 
4(c) of the Agriculture and Consumer Protection Act of 1973, as amended 
(7 U.S.C. 612c note).

[[Page 445]]

For the purpose of this paragraph ``funds, assets, or property'' 
include, but are not limited to funds accruing from the sources 
identified in Sec.  250.15(f) (1) and (2), donated foods which have been 
processed into different end products as provided for under subpart C of 
this part, and the containers in which donated foods have been received 
from the Department. Distributing agencies shall immediately notify 
FNSRO of any suspected violation of section 12(g) or section 4(c) to 
allow the Department, in conjunction with the U.S. Department of 
Justice, to determine whether Federal criminal prosecution under section 
12(g) or section 4(c) is warranted. Prosecution of violations by the 
Federal Government shall not relieve any distributing agency of its 
obligation to obtain recovery for improperly distributed or lost donated 
foods, as required by Sec.  250.15(c).
    (j) Commodity specifications. Distributing agencies shall make 
summaries of commodity specifications available to recipient agencies 
upon request.
    (k) Commodity acceptability reports. To ensure that the Department 
is kept apprised of the commodities and packaging that are preferred by 
recipients and participating agencies, information shall be collected as 
follows:
    (1) Information collection. Distributing agencies shall obtain 
information from recipient agencies which reflects:
    (i) The types and forms of donated foods that are most useful to 
recipients;
    (ii) Commodity specification recommendations; and
    (iii) Requests for options regarding package sizes and forms of 
commodities.
    (2) Samples and representation. The distributing agency shall 
collect information from recipient agencies from each of the following 
program categories: The National School Lunch Program, the Child and 
Adult Care Food Program, the Nutrition Program for the Elderly, the 
Commodity Supplemental Food Program, and the Food Distribution Program 
on Indian Reservations. At a minimum, distributing agencies shall obtain 
this information from a sample of at least 10 percent or 100 recipient 
agencies in each program category, whichever is less. To ensure that the 
sample is representative of all recipient agencies, distributing 
agencies shall consider the size and geographic location of all 
recipient agencies within the State and alternate among them so that 
over time each recipient agency is provided an opportunity to express 
its views. Distributing agencies are encouraged to extract information 
regarding commodity acceptability from all available sources.
    (3) Timeframes for submission. Distributing agencies shall submit 
commodity acceptability reports to the appropriate FNSRO by April 30th 
of each year on form FNS-663.

[53 FR 20426, June 3, 1988, as amended at 53 FR 22469, June 16, 1988; 53 
FR 27475, July 21, 1988; 58 FR 39120, July 22, 1993; 62 FR 53730, Oct. 
16, 1997; 64 FR 72902, Dec. 29, 1999; 67 FR 65015, Oct. 23, 2002]



Sec.  250.14  Warehousing, distribution and storage of donated foods.

    (a) Standards for Warehousing and Distribution Systems--(1) Use of 
cost efficient and effective facilities. Distributing agencies shall use 
the most cost effective and efficient system for providing warehousing 
and distribution services to recipient agencies. For the purpose of this 
part, commercial facilities are defined as enterprises that provide 
commercial warehousing services or commercial delivery services, or 
those commercial enterprises that provide both warehousing and delivery 
services.
    (2) Timeframes for evaluation. All distributing agencies shall 
evaluate their current warehousing and distribution systems. Initial 
evaluations shall be submitted to the FNSRO by June 30, 1990. Subsequent 
evaluations of noncommercial systems shall, at a minimum, be submitted 
to FNS every three years by March 31.
    (3) Evaluation of current systems. The evaluation of the system in 
place shall, at a minimum, include the following information:
    (i) A description of the principal warehousing/delivery techniques 
used by the distributing agency. The description should include:
    (A) The frequency of delivery available;

[[Page 446]]

    (B) The timeframes for making deliveries;
    (C) The type of delivery service offered (to the loading dock or 
placement in the storeroom); and
    (D) The system for recipient agencies to order specific amounts of 
food from available inventory; and
    (ii) An estimate of all costs that will be incurred in administering 
the Food Distribution Program for the upcoming school year. These costs 
include transportation, storage and handling of donated foods (if the 
current distributing agency system does not include delivery to 
recipient agencies, identification of costs incurred by recipient 
agencies to pick up commodities at a warehouse and to deliver the food 
to a centralized storage facility or the individual preparation sites), 
salaries of persons directly connected with the administration of the 
program and other program related expenses. These expenses shall include 
fringe benefits, travel expenses, rent, utilities, accounting/auditing 
services to recipient agencies such as the costs for administering and 
monitoring the State's processing program, and technical assistance 
workshops.
    (4) Comparison of existing system with commercial systems. All 
distributing agencies which do not use commercial facilities for a basic 
level of warehousing and distribution services shall compare the cost of 
warehousing and distributing commodities under their current system with 
the cost of comparable services under a commercial system for the 
upcoming school year.
    (i) The cost comparison shall be made between the cost of providing 
a basic level of service under its current system and the cost of 
obtaining an equivalent level of service from commercial facilities. 
This basic level of service shall consist of the transportation, storage 
and handling of donated food from the time of delivery by the Department 
to a distributing agency until delivery to a recipient agency's 
centralized storage facility or individual preparation sites and shall 
include monthly deliveries of donated food to all recipient agencies 
except those that have agreed to less frequent deliveries.
    (ii) A distributing agency may base its cost comparison on a level 
of service in excess of the basic level and/or on services not currently 
provided. In all cases, the comparison must be made on the costs of 
providing a comparable level of service under the existing system (as 
identified in Sec.  250.14(a)(2)) versus a commercial system.
    (iii) If a distributing agency is unable to locate any commercial 
facilities expressing interest in providing the basic level of 
warehousing and distribution services, the distributing agency shall 
indicate this in its cost comparison submission, together with 
documentation of its efforts to obtain cost estimates from commercial 
facilities.
    (iv) All initial data regarding the cost of the current warehousing 
and distribution system and the cost for comparable commercial 
facilities shall be submitted to the FNSRO by June 30, 1990. Subsequent 
cost comparisons shall, at a minimum, be submitted to FNS once every 
three years by March 31.
    (5) Approval to use other systems. Distributing agencies that do not 
implement a commercial warehousing and distribution system shall apply 
to the FNSRO for approval to use other facilities and must demonstrate 
that other facilities are more cost effective and efficient. All 
requests for a waiver shall be accompanied with a full evaluation of the 
existing system complete with cost comparison data. Each request will be 
considered on a case by case basis. Initial requests for approval of 
alternative systems shall be submitted to the FNSRO by June 30, 1990. 
Subsequent requests shall, at a minimum, be submitted to the FNSRO once 
every three years by March 31.
    (6) System implementation. (i) Distributing agencies shall implement 
the most cost effective and efficient system for warehousing and 
distribution services to recipient agencies by July 1, 1991. Unless 
otherwise approved by the FNSRO, subsequent to July 1, 1991, a 
distributing agency shall convert to a commercial system within six 
months of:
    (A) The date of submission of evaluation and cost comparison data 
indicating that a commercial system is more cost effective and efficient 
(if no

[[Page 447]]

request for approval of an alternate system is made); or
    (B) The date of the denial of a request to use an alternative 
system.
    (ii) If at any time FNS determines that the warehousing and 
distribution system in place is not cost effective or efficient, the 
distributing agency will be required to reevaluate its system (including 
a cost comparison and request for continued approval to use an 
alternative system) in accordance with this subsection within 90 days of 
notification by the FNSRO.
    (7) Revisions in system. All distributing agencies (using either 
commercial or noncommercial systems) shall request approval from the 
FNSRO at least 90 days in advance of any planned reduction in the level 
of service provided or any increase in distribution charges beyond 
normal inflation. If FNS determines the proposed changes are 
inappropriate, FNS may require the distributing agency to submit 
additional justification, deny the request, or request a reevaluation of 
the system in accordance with paragraph (a)(6)(ii) of this section.
    (b) Standards for storage facilities. Distributing agencies, 
subdistributing agencies and recipient agencies shall provide facilities 
for the handling, storage and distribution of donated foods which:
    (1) Are sanitary and free from rodent, bird, insect and other animal 
infestation;
    (2) Safeguard against theft, spoilage and other loss;
    (3) Maintain foods at proper storage temperatures;
    (4) Excepting recipient agencies, stock and space foods in a manner 
so that USDA-donated foods are readily identified;
    (5) Store donated food off the floor in a manner to allow for 
adequate ventilation; and
    (6) Take other protective measures as may be necessary.

Distributing agencies, subdistributing agencies and recipient agencies 
shall ensure that storage facilities have obtained all required Federal, 
State and/or local health inspections and/or approvals and that such 
inspection/approvals are current.
    (c) Reviews. All distributing agency-level storage facilities shall 
be reviewed annually. Distributing agencies shall ensure that 
subdistributing and recipient agencies conduct annual reviews of their 
respective storage facilities. Documentation shall be maintained on file 
at the distributing agency or local level as appropriate to reflect 
compliance with this section, including documentation of corrective 
action in cases of noncompliance. Corrective action must be taken 
immediately on all deficiencies identified in the review and the result 
of the corrective action must be forwarded to the distributing agency. 
Where applicable, the distributing agency shall determine and pursue 
claims in accordance with Sec.  250.15(c).
    (d) Contracts. When contracting for storage facilities, distributing 
agencies and subdistributing agencies shall enter into written contracts 
to be effective for no longer than five years, including option years 
extending a contract. Before the exercise of option years, the storage 
facility shall update all pertinent information and demonstrate that all 
donated foods received during the previous contract period have been 
accounted for. The contract shall, at a minimum, contain the following:
    (1) Assurance that the storage facilities will be maintained in 
accordance with the standards specified in paragraph (b) of this 
section;
    (2) Evidence that donated food shall be clearly identified;
    (3) Assurance that an inventory system shall be maintained and an 
annual physical inventory will be conducted; and reconciled with the 
inventory records;
    (4) Beginning and ending dates of the contract;
    (5) A provision for immediate termination of the contract due to 
noncompliance on the part of the warehouse management;
    (6) A provision allowing for termination of the contract for cause 
by either party upon 30 days written notification;
    (7) The amount of any insurance coverage, which has been purchased 
to protect the value of food items which are being stored; and

[[Page 448]]

    (8) Express written consent for inspection and inventory by the 
distributing agency, subdistributing agency, recipient agency, the 
Comptroller General, the Department or any of their duly authorized 
representatives.
    (e) Physical inventory. During the annual review required by 
paragraph (c) of this section, distributing agencies and subdistributing 
agencies shall take a physical inventory of their storage facilities. 
The physical inventory shall be reconciled with each storage facility's 
book inventory. The reconciliation records shall be maintained by the 
agency that contracted for or maintained the storage facility. Food 
items that have been lost, stolen, or found to be out of condition, 
shall be identified and recorded. Potential excessive inventory, as 
described in paragraph (f) of this section, shall be reported by the 
subdistributing agency to the distributing agency. Corrective action on 
each deficiency noted during these inventories shall be initiated 
immediately, and a written report of those corrective actions shall be 
forwarded to the distributing agency. Where applicable, the distributing 
agency shall pursue claims in accordance with Sec.  250.15(c).
    (f) Excessive inventories. (1) The distributing agency shall 
determine if a subdistributing agency's inventories are excessive based 
on:
    (i) The rate of distribution;
    (ii) Anticipated distribution; and
    (iii) Other concerns such as logistical and economic considerations.
    (2) In no case may the inventory level of each donated food in 
storage exceed a six-month supply unless sufficient justification for 
additional inventory has been submitted and approved. Subdistributing 
agencies shall submit justification to the distributing agency in 
instances where more than a six-month inventory is needed. Justification 
shall be submitted by the distributing agency to the FNSRO for approval 
in instances where more than a six-month inventory is needed at the 
distributing agency level.
    (3) The distributing agency shall take corrective action to ensure 
that excess inventories at all levels are eliminated and shall document 
actions taken to reduce excessive inventories.

[53 FR 20426, June 3, 1988, as amended at 54 FR 42475, Oct. 17, 1989; 62 
FR 53730, Oct. 16, 1997; 67 FR 65015, Oct. 23, 2002]



Sec.  250.15  Financial management.

    (a) Distribution charges. (1) Recipient agencies may be required to 
pay part or all of the direct costs for intrastate storage and 
distribution of donated food through distribution charges assessed by 
the distributing or subdistributing agency, except as provided in 
paragraph (a)(2) of this section.
    (i) Distributing and subdistributing agencies assessing distribution 
charges shall submit a description of their system with all data used in 
calculating the rate to be used for the upcoming school year to the 
FNSRO for approval. The initial description and data shall be submitted 
by June 30, 1990. Updates to this information shall, at a minimum, be 
submitted to the FNSRO for approval every three years by March 31.
    (ii) At least 90 days before increasing distribution charges beyond 
normal inflation, the distributing/subdistributing agency shall submit 
to the FNSRO a description of the change together with all data used to 
calculate the change. FNS will take action on the proposed increase in 
accordance with paragraph (a)(1)(v) of this section.
    (iii) Allowable costs include but are not limited to those program 
costs referenced in paragraph (f)(2) of this section, i.e. 
transportation, storage and handling of donated foods, salaries of 
persons directly connected with the administration of the program and 
other program related expenses. Examples of other program related 
expenses are administrative costs such as fringe benefits, travel 
expenses, rent, utilities, accounting/auditing services, computer 
services, and the costs of providing program services to recipient 
agencies such as the cost for administering and monitoring the State's 
processing program, and technical assistance workshops.
    (iv) Distribution charges shall not be assessed for costs which 
would be unallowable under the Cost Principles in the Department's 
Uniform Federal Assistance Regulations, 7 CFR part 3015,

[[Page 449]]

subpart T. In no case may distribution charges be assessed for costs 
which are paid for by State Administrative Expense (SAE) funds, State or 
local appropriated funds or any other funds available to the 
distributing or subdistributing agency to administer the program. 
Distribution charges shall not be based on a percentage of the value of 
the commodities distributed.
    (v) FNS shall review the information and inform the distributing 
agency of the appropriateness of its distribution charges. If it is 
determined that a distributing agency's proposed distribution charges 
are excessive or incorporate inappropriate costs, the distributing/
subdistributing agency will be required to adjust the distribution 
charges to reflect an appropriate level or submit further justification 
sufficient to satisfy the FNSRO that the proposed distribution charges 
are essential to cover allowable costs and services. This further 
justification shall include information from recipient agencies 
regarding their satisfaction with services provided.
    (vi) Distribution charges, including any excess distribution charges 
which may accrue (as defined in paragraph (f)(4) of this section) shall 
be used in accordance with provisions of paragraph (f) of this section.
    (2) Whenever a commodity is donated to a State without charge or 
credit against entitlement, recipient agencies may not be assessed for 
any part of the intrastate costs of storage and transportation of such 
commodity that is in excess of the distributing or subdistributing 
agency's direct costs for such storage and transportation minus any 
amount that the Department provides to the State to pay such costs under 
part 251 of this chapter.
    (3) Under no circumstances shall recipients be required to make any 
payments in money, materials, or services for or in connection with the 
receipt of donated foods, nor shall voluntary contributions be solicited 
(except for the nutrition programs for the elderly) in connection with 
the receipt of donated foods for any purpose.
    (b) Sale of containers. When containers or packing materials in 
which donated foods are received are disposed of by sale, the proceeds 
of such sale shall be used solely in accordance with the provisions of 
paragraph (f)(2) of this section.
    (c) Claims. If a distributing agency improperly distributes or uses 
any donated foods, or causes loss of or damage to a donated food through 
its failure to provide proper storage, care, or handling, the 
distributing agency shall, at the Department's option:
    (1) Replace the donated food in its distribution program in kind, 
or, in the case of section 6 donated foods, where replacement in kind 
may not be practicable, with other similar foods, or
    (2) Pay to the Department the value of the donated food as 
determined by the Department.

Upon the happening of any event creating a claim in favor of a 
distributing agency against a subdistributing agency, recipient agency, 
warehouseman, carrier or other person, for the improper distribution, 
use, or loss of, or damage to, a donated food, the distributing agency 
shall take action to obtain recovery. All amounts collected by such 
action shall, at the Department's option, be used in accordance with the 
provisions of paragraph (c)(1) of this section, or, except for amounts 
collected on claims involving section 6 donated foods, shall be expended 
for program purposes in accordance with the provisions of paragraph (f) 
of this section. Determinations by a distributing agency that a claim 
has or has not arisen in favor of the distributing agency against a 
subdistributing agency, recipient agency, warehouseman, carrier or other 
person, shall, at the option of the Department, be approved by the 
Department prior to the distributing agency taking action thereon. Where 
prior approval has not been given by the Department, a distributing 
agency's claim determinations shall be subject to review by the 
Department. In the case of an inventory shortage, when the loss of any 
one commodity does not exceed one percent of the total quantity of the 
donated food distributed or utilized from any single storage facility 
during the fiscal year in which the loss occurred, or during the period 
for which an audit was conducted by representatives of the Department, 
or, if approved by FNS, during the period for which an

[[Page 450]]

audit was conducted by the distributing agency, if the distributing 
agency finds that: (i) The cause of the shortage cannot be established, 
(ii) the lost donated foods were held in non-commercial storage or other 
facilities owned or operated by the distributing agency, a 
subdistributing agency or a recipient agency, and (iii) there is no 
indication that the loss was the result of negligence or continued 
inefficiency in operations, the distributing agency need not take any 
further claims action, but the factual basis for not taking further 
claims action shall be subject to review by the Department. Furthermore, 
distributing agencies shall not be required to file or pursue a claim 
for a loss which does not exceed an amount established by State law, 
regulations, or procedure as a minimum amount for which a claim will be 
made for State losses generally, but no such claim shall be disregarded 
where there is evidence of violation of Federal or State statutes. 
Distributing agencies which fail to pursue claims arising in their 
favor, or fail to provide for the right to assert such claims, or fail 
to require their subdistributing agencies and recipient agencies to 
provide for such rights in accordance with Sec.  250.12(b), shall be 
responsible to the Department for replacing the donated foods or paying 
the value thereof in accordance with the provisions of paragraph (c)(1) 
or (2) of this section. Distributing agencies which pursue claims 
arising in their favor, but fail to obtain full restitution shall not be 
liable to the Department for any deficiency unless the Department 
determines that the distributing agency fraudulently or negligently 
failed to take reasonable action to obtain restitution. The Department 
may, at its option, require assignment to it of any claim arising from 
the distribution of donated foods.
    (d) Demurrage. Demurrage or other charges which accrue after a car 
or truck has been placed for unloading by the delivering carrier, or 
which accrue because placement of a car or truck is prevented, shall be 
borne by the distributing agency, except that demurrage or other charges 
may be borne by the Department where such charges accrue because of 
actions by the Department and without the fault or negligence of the 
distributing agency.
    (e) Redonation expenditures. In accordance with Sec.  250.13(g), 
whenever a distributing agency requests authority to make redonation of 
any donated foods and the Department requests that the donated foods be 
federally inspected, these inspections will be made at the expense of 
the distributing agency. Any donated foods which the Department 
determines are acceptable for redonation shall be moved at the 
distributing agency's expense to the closest point within the FNS region 
in which the State is located where it can be utilized, or to a closer 
point outside the region, if such a transfer is mutually agreed to by 
the Department and the distributing agency. In those instances in which 
the distributing agency satisfactorily demonstrates to the Department 
that the need for any redonation resulted from no fault or negligence on 
its part, the Department shall assume such transportation costs as it 
determines to be proper. Whenever a redonation is made at the request of 
the Department, the Department shall pay all transportation and handling 
costs in connection with such redonation and shall pay to the 
distributing agency all storage and handling costs accrued on the 
donated foods at the time of redonation, as determined by the 
Department, except when the request is made as a result of negligence on 
the part of the distributing agency.
    (f) Use of funds accruing in operation of the program. (1) Funds 
accruing from claims. Funds accruing from recoveries from loss or damage 
claims (which are authorized under paragraph (c) of this section to be 
expended for program purposes) shall be used only for the payment of 
expenses of the food distributing program, including transportation, 
storage and handling or donated foods, salaries of persons directly 
connected with the program, and other administrative expenses. In 
accordance with paragraph (f)(4) of this section, the receipt and 
expenditure of funds so accrued shall be reviewed by the distributing 
agency to determine that fund balances are not in excess of program 
needs.

[[Page 451]]

    (2) Other funds. Funds accruing from the sale of containers, packing 
materials, salvage of donated foods, distribution charges, or insurance 
shall be returned to the Department or used only for the payment of 
expenses of the program which will improve program operations including, 
but not limited to, transportation, storage and handling of donated 
foods, salaries of persons directly connected with the program and other 
program-related expenses. Funds accruing from the collection of 
distribution charges which are determined to be in excess of program 
needs pursuant to paragraph (f)(4) of this section shall be used in 
accordance with that paragraph. Funds accruing from the operation of the 
program shall not be used for those costs which are unallowable under 
the cost Principles in the Department's Uniform Federal Assistance 
Regulations, 7 CFR part 3015, subpart T. These unallowable costs 
include, but are not limited to:
    (i) Bad debts;
    (ii) Contingencies;
    (iii) Contributions and donations;
    (iv) Entertainment;
    (v) Fines and penalties;
    (vi) Governor's expenses;
    (vii) Interest and other financial costs;
    (viii) Legislative expenses; and
    (ix) Losses on other grants.
    (3) Segregation of funds. Distributing agencies and subdistributing 
agencies shall maintain two separate accounts for funds accruing from 
program operations. Funds accruing from the collection of distribution 
charges shall be maintained in an operating account. Funds accruing from 
the sale of containers, salvage of foods, insurance and recoveries of 
claims for the loss or damage of donated foods shall be maintained in a 
salvage account.
    (4) Excess funds. The distributing agency shall review the receipt 
and expenditures of funds annually to ensure that fund balances are not 
in excess of program needs. At a maximum, the operating account fund 
shall not exceed the sum of the previous year's highest three-month 
expenditures. Funds exceeding this maximum shall be considered in excess 
of program needs unless the distributing agency provides sufficient 
justification as to the need for such funds and receives approval from 
the FNSRO. FNSRO may determine that funds equal to or less than the 
expenditures for the previous year's highest three months are in excess 
of what is needed. In such instances, the distributing agency shall 
reduce the excess funds in the operating account by reducing 
distributing charges or returning the funds to the contributor. The 
salvage account will have no set limit. FNSRO must, however, give prior 
approval to each deposit to or expenditure from the salvage fund which 
is in excess of $2,500. The distributing agency shall impose upon 
subdistributing agencies and recipient agencies similar provisions for 
the use of such funds accruing from the operation of their programs.

[53 FR 20426, June 3, 1988, as amended at 54 FR 42476, Oct. 17, 1989]



Sec.  250.16  Maintenance of records.

    (a) General requirements. (1) Accurate and complete records shall be 
maintained with respect to the receipt, distribution/use and inventory 
of donated foods including:
    (i) End products processed from donated foods and
    (ii) The determination made as to liability for any improper 
distribution, use of, loss of, or damage to, such foods and the results 
obtained from the pursuit of claims by the distributing agency.

Such records shall also be maintained with respect to the receipt and 
disbursement of funds arising from the operation of the distribution 
program, including the determination as to the amount of payments to be 
made by any processor, upon termination of processing contracts.
    (2) Distributing agencies shall require all subdistributing agencies 
to maintain accurate and complete records with respect to the receipt, 
distribution/disposal, and inventory of donated foods, including end 
products processed from donated foods. Subdistributing agencies and 
recipient agencies must document any funds that arise from the operation 
of the distribution program, including refunds made to recipient 
agencies by a processor in accordance with Sec.  250.30(k). Further, 
these documents should allow

[[Page 452]]

an independent determination of the specific accounts that benefit from 
these funds.
    (3) Unless a distributing agency maintains an offer-and-acceptance 
system in accordance with Sec.  250.48(e), the distributing agency shall 
maintain accurate and complete records with respect to amounts and value 
of commodities refused by school food authorities. School food 
authorities shall also be required to maintain such records of refusals.
    (4) Each processor, food service management company, warehouse, or 
other entity which contracts with a distributing agency, subdistributing 
agency or recipient agency shall be required to keep accurate and 
complete records with respect to the receipt, distribution/disposal, 
storage and inventory of such foods similar to those required of 
distributing agencies under this paragraph. Where donated foods have 
been commingled with commercial foods, the processor shall maintain 
records which permit an accurate determination of the donated-food 
inventory. The processor shall also be required to keep formula, 
recipes, daily or batch production records, loadout sheets, bills of 
lading, and other processing and shipping records to substantiate the 
use made of such foods and their subsequent redelivery, in whatever 
form, to any distributing agency, subdistributing agency or recipient 
agency. Processors must maintain records which will permit a 
determination regarding compliance with the contracting provisions 
required by Sec.  250.30(f) (3) and (4) as well as maintain records used 
as the basis for compiling the processor performance reports required by 
Sec.  250.30(m).
    (5) All recipient agencies shall be required to keep accurate and 
complete records showing the data and method used to determine the 
number of eligible persons served by that agency.
    (6) Failure by a distributing agency, subdistributing agency, 
recipient agency, processor, food service management company, warehouse 
or other entity to maintain records required by this Section shall be 
considered prima facie evidence of improper distribution or loss of 
donated foods and the agency, processor or entity shall be subject to 
the provisions of Sec.  250.13(e).
    (b) Length of maintenance. All records required by this Section 
shall be retained for a period of three years from the close of the 
fiscal year to which they pertain. However, in instances when claims 
action and/or audit findings have not been resolved, the records shall 
be retained as long as required for the resolution of such action or 
findings.

[53 FR 20426, June 3, 1988, as amended at 67 FR 65015, Oct. 23, 2002]



Sec.  250.17  Reports.

    (a) Inventory reports and receipt of donated foods. Distributing 
agencies shall complete and submit to the FNSRO semiannual reports 
regarding excessive inventories (as defined in Sec.  250.14(f)) of 
donated foods, utilizing form FNS-155, the Inventory Management 
Register, except that distributing agencies shall submit monthly 
inventory information on form FNS-152, for the Food Distribution Program 
on Indian Reservations, and on form FNS-153, for the Commodity 
Supplemental Food Program. FNS may require the use of other reporting 
formats. FNS may also require that form FNS-155 be submitted more 
frequently than semiannually if necessary to maintain program 
accountability, and that any inventory report be submitted less 
frequently if sufficient to meet program needs. Reports shall be 
submitted not later than 30 calendar days after the last month in the 
reporting period as established by FNS.
    (b) Processing inventory reports. Distributing agencies shall 
complete and submit a quarterly processing inventory report in 
accordance with Sec.  250.30(o).
    (c) Performance reports. Monthly reports of performance shall be 
submitted by processors to distributing agencies in accordance with 
Sec.  250.30(m).
    (d) Commodity acceptability reports. Distributing agencies shall 
submit to the FNSRO reports relative to the types and forms of donated 
foods which are most useful to recipient agencies in accordance with 
Sec.  250.13(k) of this part.
    (e) Other reports. Distributing agencies shall complete and submit 
other

[[Page 453]]

reports relative to distribution operations in such form as may be 
required from time to time by the Department.
    (f) Report transmission. Where a report is to be postmarked by a 
specific date and such report is transmitted by means of a facsimile 
machine, the date printed by the facsimile machine on the facsimile copy 
may serve as the postmark.

(Reporting requirements contained in paragraph (a) approved by the 
Office of Management and Budget under control number 0584-0001. 
Reporting requirements contained in paragraph (e) approved by the Office 
of Management and Budget under control numbers 0584-0028, 0584-0109, 
0584-0288 and 0584-0293)

[53 FR 20426, June 3, 1988, as amended at 53 FR 27476, July 21, 1988; 59 
FR 62983, Dec. 7, 1994; 62 FR 53730, Oct. 16, 1997]



Sec.  250.18  Audits.

    (a) Right of inspection and audit. The Secretary, the Comptroller 
General of the United States, or any of their duly authorized 
representatives, may inspect and inventory donated foods in storage or 
the facilities used in the handling or storage of such donated foods, 
and may inspect and audit all records, including financial records, and 
reports pertaining to the distribution of donated foods and may review 
or audit the procedures and methods used in carrying out the 
requirements of this part at any reasonable time. Subdistributing 
agencies, recipient agencies, processors, food service management 
companies and warehouses shall be required to permit similar inspection 
and audit by such entities or their representatives. Fiscal matters 
shall continue to be reviewed in audits under the Single Audit Act (31 
U.S.C. 7501-07) and the Department's Uniform Federal Assistance 
Regulations (7 CFR part 3015).
    (b) Independent CPA audits of multi-State processors. (1) For any 
year in which a multi-State processor receives more than $250,000 in 
donated foods, the processor shall obtain an independent CPA (certified 
public accountant) audit for that year. Multi-State processors which 
receive $75,000 to $250,000 in donated food each year shall obtain an 
independent CPA audit every two years and those which receive less than 
$75,000 in donated foods each year shall obtain an independent CPA audit 
every three years. Those multi-State processors which are in the two or 
three-year audit cycle shall move into the next audit cycle at the point 
in time in which the value of donated foods received reaches $75,000 or 
$250,000 in any year. The total value of donated food received shall be 
computed by adding the value of food received under State and National 
Commodity Processing contracts. In instances in which the Department 
determines that the audit is not acceptable or that the audit has 
disclosed serious deficiencies, the processor shall be subject to 
additional audits at the request of FNS.
    (2) Audits shall be conducted in accordance with the auditing 
provisions set forth under the Uniform Federal Assistance Regulations (7 
CFR part 3015, subpart I) and the FNS Audit Guide for Multi-State 
Processors. At the discretion of FNS, auditors will be required to 
attend training sessions conducted by the Department.
    (3) The costs of the audits, including those costs associated with 
training, shall be borne by the processors.
    (4) Audit findings relative to those elements associated with the 
processing of donated food shall be submitted to the processor and to 
FNS concurrently.
    (5) Noncompliance with the audit requirements in paragraph (b)(1) of 
this section will render the processor ineligible to enter into another 
processing contract with any contracting agency until the required audit 
has been conducted and deficiencies corrected.
    (6) Processor response. Multi-State processors shall develop a 
written response to FNS addressing deficiencies which have been 
identified in the audit. Such responses shall include:
    (i) Corrective action which has already been taken to eliminate the 
deficiency;
    (ii) Corrective action which the processor proposes to take to 
eliminate the deficiency;
    (iii) The timeframes for the implementation and completion of the 
corrective action;
    (iv) A determination of what caused the deficiency; and

[[Page 454]]

    (v) Deficiencies which have been identified that the processor takes 
exception to and an explanation for the exception.

Multi-State processors shall submit a written response to FNS in 
accordance with timeframes established by FNS.

[53 FR 20426, June 3, 1988, as amended at 54 FR 7525, Feb. 22, 1989]



Sec.  250.19  Reviews.

    (a) General. Each distributing agency shall establish a review 
system in order to assess the effectiveness of its food distribution 
program in meeting the requirements of these regulations.
    (b) Responsibilities of distributing agencies. (1) Each distributing 
agency shall establish review procedures encompassing eligibility, food 
ordering procedures, storage practices, inventory controls, reporting 
and recordkeeping requirements and compliance with nondiscrimination 
provisions. The procedures shall include:
    (i) An on-site review of all nutrition programs for the elderly 
under agreement in accordance with Sec.  250.12(b), at least once every 
four years, with not fewer than 25 percent of these programs being 
reviewed each year. These reviews shall also include on-site reviews of 
the storage facilities of sites receiving donated foods to ensure 
compliance with Sec.  250.14(b);
    (ii) An on-site review of all charitable institutions and nonprofit 
summer camps for children under agreement in accordance with Sec.  
250.12(b), and the food service management companies under contract with 
these recipient agencies in accordance with Sec.  250.12(d), at a 
minimum, whenever the distributing agency identifies actual or probable 
deficiencies in program administration, including compliance with civil 
rights provisions, through audits, investigations of complaints, reports 
submitted by recipient agencies, or any other information available to 
the State agency which, at the discretion of the State agency, warrants 
an on-site review, or at the request of FNS;
    (iii) An on-site review at least once every 2 years of all 
processors except those that are multi-State processors as defined in 
Sec.  250.3, with no fewer than 50 percent being reviewed each year;
    (iv) An annual on-site review of each storage facility utilized by 
the distributing agency. On-site reviews conducted by FNS may be 
considered as contributing to the fulfillment of the minimum coverage 
required by this paragraph; and
    (v) A biennial review of all food service management companies under 
contract with recipient agencies in accordance with Sec.  250.12(d), 
except that:
    (A) Food service management companies under contract with charitable 
institutions and nonprofit summer camps for children shall be reviewed 
in accordance with paragraph (b)(1)(ii) of this section; and,
    (B) Food service management companies under contract with schools 
participating in the National School Lunch Program or commodity schools 
under part 210 of this chapter, or with schools participating in the 
School Breakfast Program under part 220 of this chapter, shall be 
reviewed in accordance with the provisions set forth in parts 210 and 
220.
    (2) Each distributing agency shall design and implement a system to 
verify sales of end products to all recipient agencies under that 
distributing agency's authority in instances when a processor transfers 
end products to a distributor and the distributor sells the end product 
to the recipient agencies at a discount and the distributor receives a 
refund from the processor. At a minimum, such a system must:
    (i) At a minimum, provide for a semi-annual review of a 
statistically valid sample of sales for the previous six-month period 
for all processors which contract with the distributing agency or 
contracting agencies under the authority of the distributing agency, 
including multi-State processors. The sample size must ensure a 95 
percent confidence level;
    (ii) Support the projection of a claim against the processor when, 
in the review of the sample, it is determined that the value of donated 
foods has not been passed on to recipient agencies or when end products 
have been improperly distributed; and
    (iii) Provide for the assessment of claims against the processor in 
accordance with FNS Instruction 410-1, Non-

[[Page 455]]

Audit Claims, Food Distribution Program, in instances when deficiences 
have been identified.
    (iv) Provide for the adjustment of performance reports and 
processing inventory reports to refect any invalid sales;
    (v) Provide for the development and submission by processors to the 
distributing agency of a corrective action plan designed to correct 
problems identified during the sales verification; and
    (vi) In instances in which the distributing agency has delegated the 
responsibility of sales verification to processors, the distributing 
agency must:
    (A) Establish guidelines which ensure that the criteria contained in 
paragraphs (b)(2)(i)-(v) are met;
    (B) Ensure that processors report their findings to the distributing 
agency on a semi-annaul basis in accordance with Sec.  250.30(m);
    (C) Review the processor's findings and select a random sub-sample 
of at least 10 percent of all sales verified by the processor and 
reverify the sale by contacting the recipient agency by telephone or 
through written correspondence; and
    (D) Submit a copy of the processor's review report and findings and 
the results of the reverification efforts to the appropriate FNSRO. In 
instances of poor processor performance, the distributing agency shall 
require the processor to discontinue the abused value pass-through-
system, initiate an audit or review to determine the extent to which 
sales are to be disallowed, establish a claim, and/or terminate the 
contract.
    (3) The distributing agency shall submit a report of review findings 
to each entity reviewed. The report shall include:
    (i) Each deficiency found;
    (ii) The factors contributing to each deficiency;
    (iii) Recommendations for needed corrective action, including 
timetables for completion and/or claims action to be pursued, if any; 
and
    (iv) Provisions for evaluating effectiveness of corrective actions.

A copy of each processor review report shall be provided to the 
appropriate FNSRO.
    (4) Distributing agencies shall monitor progress toward completion 
and the effectiveness of corrective actions taken in eliminating program 
deficiences.
    (5) In addition to the review requirements of paragraph (b)(1) of 
this section, each distributing agency shall make a continuing 
evaluation of all recipient agencies, and processors by monitoring 
performance reports, food requests, participation data, and data 
regarding refunds and discounts to recipient agencies and distributors 
for the receipt of end products.
    (6) Distributing agencies shall, where applicable, require that 
subdistributing agencies monitor and review their operations in 
accordance with this paragraph.
    (c) Corrective action plans. Corrective action plans shall be 
submitted whenever a distributing agency is found by the FNSRO to be 
substantially out of compliance with a performance standard or any other 
provision of this part. The corrective action plan shall identify the 
corrective actions and the timeframes needed to correct the deficiencies 
found by the FNSRO. The plan shall be written, signed by the proper 
official in the State, and submitted to the FNSRO within 60 days after 
the distributing agency receives notification from the FNSRO of a 
deficiency. Extensions beyond 60 days may be made, for cause, with 
written justification to and approved by the FNSRO.
    (d) Responsibilities of State Agencies on Aging. State Agencies on 
Aging which receive cash payments in lieu of donated foods in accordance 
with the provisions of Sec.  250.42(c) shall monitor use of such cash 
after disbursement to nutrition programs for the elderly to ensure that 
the amounts so received are expended solely for the purchase of U.S. 
agricultural commodities and other foods of U.S. origin for such 
programs.

[53 FR 20426, June 3, 1988, as amended at 54 FR 7525, Feb. 22, 1989, 54 
FR 25564, June 16, 1989; 54 FR 42477, Oct. 17, 1989; 62 FR 53731, Oct. 
16, 1997]



Sec.  250.20  Sanctions.

    Any distributing agency which has failed to comply with the 
provisions of

[[Page 456]]

this part or any instructions or procedures issued in connection with it 
or any agreements entered into pursuant to it, may, at the discretion of 
the Department, be disqualified from further participation in any 
distribution program. Reinstatement may be made at the option of the 
Department. Disqualification shall not prevent the Department from 
taking other action through other available means when considered 
necessary, including prosecution under applicable Federal statutes.



Sec.  250.21  Civil rights.

    Distributing agencies, subdistributing agencies and recipient 
agencies shall comply with the Department's nondiscrimination 
regulations (7 CFR parts 15, 15a, and 15b) and the FNS civil rights 
instructions to ensure that in the operation of the program no person is 
discriminated against because of race, color, national origin, age, sex 
or handicap.



Sec.  250.22  Complaints.

    Distributing agencies shall investigate promptly complaints received 
in connection with the distribution or use of donated foods. 
Irregularities which are disclosed shall be corrected immediately. 
Serious irregularities shall be promptly reported to the Department. 
Distributing agencies shall maintain or file evidence of such 
investigations and actions. The Department also reserves the right to 
make investigations and shall have the final determination as to when a 
complaint has been properly handled. Complaints alleged on the basis of 
race, color, national origin, age, sex or handicap shall be handled in 
accordance with Sec.  250.21.



Sec.  250.23  Buy American.

    (a) Purchase requirements. When purchasing food products with 
Federal funds, whenever possible, recipient agencies shall purchase only 
food products that are produced in the United States (U.S.). Food 
products produced in the U.S. means:
    (1) An unmanufactured food product produced in the U.S.; or
    (2) A food product manufactured in the U.S. primarily using food 
grown in the U.S.
    (b) Exceptions. The purchase requirements described in paragraph (a) 
of this section shall not apply in instances when the recipient agency 
determines: (1) Recipients have unusual or ethnic food preferences which 
can only be met through purchases of products not produced in the U.S.; 
(2) the product is not produced or manufactured in the U.S. in 
sufficient and reasonably available quantities of a satisfactory 
quality; (3) the cost of U.S. produced food products is significantly 
higher than foreign products, or (4) the recipient agency is located in 
Alaska, Hawaii, Guam, American Samoa, Puerto Rico, the Virgin Islands, 
or the Commonwealth of the Northern Mariana Islands.

[53 FR 27476, July 21, 1988, as amended at 58 FR 39122, July 22, 1993; 
67 FR 65015, Oct. 23, 2002]



Sec.  250.24  Distributing agency performance standards.

    This section establishes basic performance standards which must be 
followed by distributing agencies responsible for intrastate 
distribution of donated commodities and products. The seven standards 
address the level of service that shall be provided to recipient 
agencies. The basic standards include the following:
    (a) Program management and evaluation. Distributing agencies shall 
conduct reviews in accordance with Sec.  250.19. Distributing agencies 
shall also assess the adequacy of the service provided to recipient 
agencies.
    (b) Information dissemination. Distributing agencies shall provide 
recipient agencies with all information needed for informed 
participation in the program. Distributing agencies shall provide 
program information relative to:
    (1) Current program regulations,
    (2) Summaries of commodity specifications upon request (Sec.  
250.13(j)) and commodity fact sheets,
    (3) Results of any test evaluations and surveys,
    (4) Recipes, and
    (5) Written procedures for ordering commodities, handling 
commodities which are stale, spoiled, out-of-condition or not in 
compliance with specifications (including procedures for replacement by 
the Department under

[[Page 457]]

Sec.  250.13(g)), submitting complaints and other written policy which 
affects program operations.
    (c) Fiscal responsibility. Distributing agencies shall maintain a 
financial management system which ensures fiscal integrity and 
accountability for all funds and includes a recordkeeping system which 
conforms to generally accepted accounting practices. Distributing 
agencies shall submit information relative to distribution charges to 
FNS in accordance with Sec.  250.15(a).
    (d) Ordering and allocation. Distributing agencies shall ensure that 
donated food is provided on an equitable basis and, to the extent 
practicable, in the types and forms most usable by recipient agencies. 
Distributing agencies shall be responsible for:
    (1) Obtaining and utilizing commodity acceptability information in 
accordance with Sec.  250.13(k);
    (2) Providing recipient agencies with information regarding 
commodity availability;
    (3) Providing recipient agencies with information regarding 
commodity assistance levels;
    (4) Ordering and allocating donated food based on participation data 
for those programs which serve meals;
    (5) Ensuring the availability of commodities, to the extent 
possible, in quantities requested and at times specified by recipient 
agencies;
    (6) Permitting recipient agencies to refuse all or a portion of a 
commodity prior to delivery to the distributing agency if time permits;
    (7) Permitting recipient agencies to change orders for Group B 
(grain, dairy, peanut and oil products) and unlimited bonus commodities 
prior to submission of an order to the Department;
    (8) Providing recipient agencies with ordering options and commodity 
values (Sec.  250.13(a)(5));
    (9) Offering schools participating in the National School Lunch 
Program the per meal value of donated food in accordance with Sec.  
250.48(c); and
    (10) Consider the preparation and storage capabilities of recipient 
agencies when ordering donated food, including capabilities of such 
agencies to handle commodity product forms, quantity, packaging and 
quantities.
    (e) Warehousing and distribution. Distributing agencies shall use a 
warehousing and distribution system that is efficient, cost effective 
and responsive to needs of recipient agencies in accordance with Sec.  
250.14(a). In addition, distributing agencies shall:
    (1) Work with recipient agencies capable of receiving direct 
shipments to order donated food directly into their warehouses;
    (2) Solicit information and recommendations regarding the individual 
delivery needs of recipient agencies;
    (3) Maintain distribution schedules which are equitable and 
reliable, recognize hours of operation, holidays and vacations and other 
special needs of recipient agencies;
    (4) And make donated food available at least monthly to all 
recipient agencies except those that have agreed to less frequent 
deliveries (Sec.  250.13(a)(6)); however, the distributing agency shall 
not be held liable for delays in deliveries of donated food when such 
delays are due to late deliveries of donated food to the distributing 
agency by the Department.
    (f) Disposition of damaged or out-of-condition commodities. 
Distributing agencies shall establish a system for handling recipient 
agency complaints, notifying the Department of any commodity losses in 
accordance with Sec.  250.13(f) and arranging for the replacement of 
lost commodities in accordance with Sec.  250.13(g).
    (g) Processing. Distributing agencies shall administer an acceptable 
processing program in accordance with Sec.  250.30. In addition, 
distributing agencies shall inform recipient agencies annually of 
processing options available to them in facilitating participation in 
State or National processing contracts. Prior to entering into a 
processing contract, distributing agencies shall test end products. The 
end product testing may be delegated to the purchasing recipient agency 
provided that test results are reviewed by the distributing agency. 
Distributing agencies shall monitor the acceptability of processed end 
products as required in Sec.  250.30(b)(1).

[54 FR 42477, Oct. 17, 1989, as amended at 62 FR 53731, Oct. 16, 1997; 
64 FR 72902, Dec. 29, 1999]

[[Page 458]]



           Subpart C_Processing and Labeling of Donated Foods



Sec.  250.30  State processing of donated foods.

    (a) General. This section sets forth the terms and conditions under 
which distributing agencies, subdistributing agencies, or recipient 
agencies may enter into contracts for the processing of donated foods 
and prescribes the minimum requirements to be included in such 
contracts.
    (b) Permissible contractual arrangements. (1) A distributing agency, 
subdistributing agency, or recipient agency may contract for processing, 
pay the processing fee, and deliver the end products to eligible 
recipient agencies through its own distribution system. Distributing 
agencies shall assure that the acceptability of processed end products 
is tested with recipient agencies eligible to receive them prior to 
entering into a processing contract and shall develop a system for 
monitoring product acceptability. Distributing agencies may exempt end 
products from testing if they have been used previously, have been 
determined by the distributing agency to be acceptable by recipient 
agencies, and have had no changes in specifications.
    (2) A distributing agency or subdistributing agency may contract for 
processing on behalf of one or more recipient agencies. All recipient 
agencies eligible to receive the donated foods to be processed may 
receive end products made from those foods and produced under such 
processing contracts by virtue of the distributing agency--recipient 
agency agreement required by Sec.  250.12(b). Under this arrangement and 
subject to the approval of the distributing agency:
    (i) Processors shall utilize either a discount or a refund system as 
defined in Sec.  250.3 when they sell end products directly to recipient 
agencies, or
    (ii) When selling end products through a distributor, such sales 
shall be in accordance with paragraph (e) of this section.
    (3) Distributing agencies shall permit subdistributing agencies and 
recipient agencies to enter into processing contracts with a processor 
under arrangements similar to those described in paragraph (b) (1) or 
(2) of this section.
    (c) Requirements for processing contracts. (1) Contracts with 
processors shall be in a standard written form and shall be reviewed by 
the appropriate FNSRO. Processing contracts shall terminate on June 30 
of each year. However, processing contracts may give contracting 
agencies the option of extending contracts for two 1-year periods, 
provided that any changed information must be updated before any 
contract extension is granted, including the information in paragraphs 
(c)(3), (c)(4)(ii), and (c)(4)(viii)(B) of this section. The processor 
must have performed to the satisfaction of the contracting agency during 
the previous contract year, submitted all required reports and any 
corrections to such reports up to the time that contract extension 
occurs, and submitted its certified public accountant report as required 
under paragraph (c)(4)(xi) of this section before the contract may be 
extended. Distributing agencies shall develop criteria for use in 
evaluating and selecting processing contracts. The selection criteria 
shall be used in selecting or rejecting processors in a manner that 
ensures equitable treatment of processors. The selection criteria shall, 
at a minimum, include:
    (i) The nutritional contribution which the end product will provide;
    (ii) The marketability of the end product;
    (iii) The distribution method which the processor intends to 
utilize;
    (iv) Price and yield schedule data;
    (v) Any applicable labeling requirements; and
    (vi) The ability of the processor to meet the terms and conditions 
set forth in the regulations.

These criteria will be reviewed by the appropriate FNSRO during the 
management evaluation review of the distributing agency. Distributing 
agencies and subdistributing agencies which enter into contracts on 
behalf of recipient agencies but which do not limit the types of end 
products which can be sold or the number of processors which can sell 
end products within the State are not required to follow the selection 
criteria. In addition to utilizing these selection criteria, when a 
contracting

[[Page 459]]

agency enters into a contract both for the processing of donated food 
and the purchase of the end products produced from the donated food, the 
procurement standards set forth in Attachment O to OMB Circular A-102 
must be followed. Recipient agencies which purchase end products 
produced under Statewide agreements are also required to comply with 
Attachment O of OMB Circular A-102. Contracting agencies shall not enter 
contracts with processors which cannot demonstrate the ability to meet 
the terms and conditions of the regulations and the distributing agency 
agreements; furnish prior to the delivery of any donated foods for 
processing, a performance bond, an irrevocable letter of credit or an 
escrow account in an amount sufficient to protect the contract value of 
donated food on hand and on order; demonstrate the ability to distribute 
end products to eligible recipient agencies; provide a satisfactory 
record of integrity, business ethics and performance and provide 
adequate storage.
    (2) Standard form contracts shall be prepared or reviewed by the 
appropriate State legal staff to assure conformity with the requirements 
of these regulations and of applicable Federal, State and local laws.
    (3) The contract shall be signed for the processor by the owner, a 
partner, or a corporate officer duly authorized to sign the contract, as 
follows:
    (i) In a sole proprietorship, the owner shall sign the contract;
    (ii) In a partnership, a partner shall sign the contract;
    (iii) In a corporation, a duly authorized corporate officer shall 
sign the contract.
    (4) At a minimum, each processing contract shall include:
    (i) The names and telephone numbers of the contracting agency and 
processor;
    (ii) A description of each end product, the quantity of each donated 
food and the identification of any other ingredient which is needed to 
yield a specific number of units of each end product (except that the 
contracting agency may permit the processor to specify the total 
quantity of any flavorings or seasonings which may be used without 
identifying the ingredients which are, or may be, components of 
flavorings or seasonings), the total weight of all ingredients in the 
batch formula, the yield factor for each donated food, and any pricing 
information provided by the processor in addition to that required in 
paragraph (c)(4)(iii) of this section as requested by the contracting 
agency and a thorough explanation of what this additional pricing 
information represents. The yield factor is the percentage of the 
donated food which must be returned in the end product to be distributed 
to eligible recipient agencies. For substitutable donated foods, at 
least 100 percent of the donated food provided to the processor must be 
physically contained in the end products with no allowable tolerance;
    (iii) The contract value of each donated food to be processed and, 
where processing is to be performed only on a fee-for-service basis as 
defined in Sec.  250.3, the fee-for-service;
    (iv) A provision for:
    (A) Termination of the contract upon thirty days written notice by 
the contracting agency or the processor and
    (B) Immediate termination of the contract when there has been 
noncompliance with its terms and conditions by the contracting agency or 
the processor;
    (v) In the event of contract termination, a provision for 
disposition of donated foods and end products in the processor's 
inventories or payment of funds in accordance with paragraph (j) of this 
section;
    (vi) A provision for inspection and certification during processing, 
where applicable, by the appropriate acceptance service in accordance 
with paragraphs (g) and (h) of this section;
    (vii) A provision that end products containing donated foods that 
are not substitutable under paragraph (f) of this section shall be 
delivered only to eligible recipient agencies and that end products 
containing both substitutable and non-substitutable donated foods may be 
delivered and sold in accordance with the requirements of paragraph (d) 
and (e) of this section;
    (viii) Provisions that the processor shall:
    (A) Fully account for all donated foods delivered into its 
possession by

[[Page 460]]

production and delivery to the contracting agency or eligible recipient 
agencies of an appropriate number of units of end products meeting the 
contract specifications, and where end products are sold through a 
distributor, that the processor remains full accountable for the donated 
foods until refunds or any other credits equal to their contracted value 
have been made to eligible recipient agencies in accordance with 
paragraph (k) of this section or to distributing agencies in accordance 
with paragraph (n)(2) of this section;
    (B) Furnish to the contracting agency prior to the delivery of any 
donated foods for processing documentation that a performance supply and 
surety bond from a surety company listed in the most recent U.S. 
Department of Treasury Circular 570, an irrevocable letter of credit or 
an escrow account has been obtained in an amount that is sufficient to 
protect the contract value of all donated foods. Since the distributing 
agency is held liable by FNS for any donated foods provided to a 
processor the distributing agency shall determine the dollar value of 
the performance supply and surety bond, irrevocable letter of credit or 
the escrow account taking into consideration the
    (1) Value of donated foods on hand;
    (2) Value of donated foods on order and
    (3) Anticipated usage rate during the contract period;
    (C) Use or dispose of the containers in which donated foods are 
received from the Department in accordance with the instructions of the 
contracting agency;
    (D) Apply as credit against the processing fee or return to the 
contracting agency and identify:
    (1) Any funds received from the sale of containers, and
    (2) The market value or the price received from the sale of any by-
products of donated foods or commercial foods which have been 
substituted for donated foods;
    (E) Substitute donated foods with commercially purchased foods only 
in accordance with paragraph (f) of this section;
    (F) Meet the requirements of paragraph (i) of this section for 
labeling end products;
    (G) Maintain accurate and complete records pertaining to the 
receipt, disposal, and inventory of donated foods in accordance with 
Sec.  250.16;
    (H) Submit processing performance reports in accordance with 
paragraph (m) of this section; and
    (I) Submit annual reconciliation reports and make payments to 
distributing agencies for any inventory remaining at the termination of 
the contract in accordance with paragraph (n)(3) of this section.
    (ix) A provision that approval of the contract by distributing 
agency shall not obligate that agency or the Department to deliver 
donated foods for processing;
    (x) A description of the processor's quality control system and 
assurance that an effective quality control system will be maintained 
for the duration of the contract;
    (xi) In instances when the processor is a multi-State processor as 
defined in Sec.  250.3, a provision that the processor agrees to obtain 
an independent audit by a certified public accountant in accordance with 
Sec.  250.18(b);
    (xii) A requirement that inventory drawdowns shall be limited to the 
actual amount of donated foods contained in the end product. Additional 
commodity required to account for production loss shall be obtained from 
non-donated foods;
    (xiii) A provision that the fee-for-service or value pass-through 
system to be used for the sale of end products to recipient agencies 
shall be described and be consistent with paragraphs (d) and (e) of this 
section.
    (xiv) In instances when the distributing agency has delegated the 
responsibility for sales verification for end products provided by a 
distributor to recipient agencies at a discount, assurance that the 
processor will submit sales verification data to the distributing agency 
in accordance with Sec.  250.30(m)(l); and
    (xv) A provision that the contracting agency shall give the 
processor a list of all recipient agencies eligible to purchase end 
products under the contract and provide updates for any changes

[[Page 461]]

which occur during the contract period.
    (xvi) A provision that the processor shall not assign the processing 
contract or delegate any aspect of processing under a subcontract or 
other arrangement without the written consent of the contracting agency 
and the distributing agency.
    (xvii) A provision that the processor shall provide pricing 
information summaries and updated pricing information summaries as 
required in paragraphs (d)(3) and (e)(2) of this section.
    (xviii) A provision that the processor shall maintain documentation 
which demonstrates that the level of the processor's commercial 
production has not been reduced, as required in paragraph (f)(1)(iii) of 
this section.
    (d) End products sold by processors. (1) When recipient agencies pay 
the processor for end products, such sales shall be under:
    (i) A refund system as defined in Sec.  250.3 and in accordance with 
paragraph (k) of this section; or
    (ii) A discount system which provides the price of each unit of end 
product purchased by eligible recipient agencies to be discounted by the 
stated contract value of the donated foods contained therein; or
    (iii) An alternative value pass-through system under which the value 
of the donated food contained in each unit of end product shall be 
passed to the recipient agency and which has been approved by FNS at the 
request of the distributing agency. Any alternative value pass-through 
system approved under this paragraph must comply with the sales 
verification requirements specified in Sec.  250.19(b) of this part, or 
an alternative verification system approved by FNS. The Department 
retains the authority to inspect and review all pertinent records 
including records pertaining to the verification of a statistically 
valid sample of sales. FNS may consider the paperwork and resource 
burden associated with alternative value pass-through systems when 
considering approval and reserves the right to deny the approval of 
systems which are labor-intensive and provide no greater accountability 
than those systems permitted under paragraphs (d) and (e) of this 
section.
    (2) When a processor delivers end products produced under a fee-for-
service contract, the processor shall separately identify on the bill 
for the recipient agency the agreed-upon fee-for-service and any 
delivery costs.
    (3) Processors shall provide pricing information summaries to 
contracting agencies and contracting agencies shall provide this 
information to recipient agencies as soon as possible after contract 
approval. If this pricing information changes during the contract 
period, processors shall provide updated pricing information to the 
contracting agency 30 days prior to the effective date of the change, 
which, in turn, shall provide this updated information to eligible 
recipient agencies.
    (e) End products sold by distributors.
    (1) When a processor transfers end products to a distributor for 
delivery and sale to recipient agencies, such sales shall be under:
    (i) A refund system as defined in Sec.  250.3 and in accordance with 
paragraph (k) of this section; or
    (ii) A hybrid system which provides a refund for the contract value 
of the donated food shall be provided to the distributor in accordance 
with paragraph (k) of this section and the price of each unit of end 
product purchased by eligible recipient agencies through a distributor 
shall be discounted by the contract value of the donated foods contained 
therein; or
    (iii) An alternative value pass-through system under which the 
contract value of the donated food contained in each unit of end product 
shall be passed on to the recipient agency and which has been approved 
by FNS in accordance with paragraph (d)(1)(iii) of this section; or
    (iv) When a processor arranges for delivery of processed end 
products produced under fee-for-service contracts by distributors, the 
products shall be delivered and invoiced using one of the following 
procedures:
    (A) The recipient agency is billed by the processor for the fee-for-
service and the distributor bills the recipient agency for the storage 
and delivery of the end products; or
    (B) The processor arranges for the delivery of end products through 
a distributor on behalf of the recipient

[[Page 462]]

agency. In this system, the processor's invoice must include both the 
fee-for-service and the distributor's charges as separate, clearly 
identifiable charges.
    (2) Processors shall provide pricing information summaries to 
contracting agencies and contracting agencies shall provide this 
information to recipient agencies as soon as possible after contract 
approval. If this pricing information changes during the contract 
period, the processor shall provide updated pricing information to the 
contracting agency, which, in turn, shall provide this information to 
the eligible recipient agencies.
    (f) Substitution of donated foods with commercial foods. (1) The 
processing contract may provide for substitution of donated foods as 
defined in Sec.  250.3 except that donated beef and donated pork shall 
not be substitutable. Any substitution of commercial product for 
commodities other than beef, pork, or poultry is subject to a 100-
percent yield requirement. Under the 100-percent yield requirement, the 
processor is responsible for any manufacturing losses.
    (i) All components of commercial foods substituted for any donated 
food must be of U.S. origin and identical or superior in every 
particular of the donated food specification. Records must be maintained 
to allow independent verification that the substituted food meets the 
above condition.
    (ii) Poultry shall be eligible for limited substitution. Any 
processors that wish to substitute poultry must have a plan approved by 
both FNS and AMS. Only bulk pack chicken, chicken parts, and bulk pack 
turkey delivered by USDA vendors to the processor are eligible for 
substitution. No backhauled poultry product may be substituted. 
(Backhauled product is typically cut-up frozen poultry parts delivered 
to schools that may be turned over to processors for further processing 
at a later time.) Should a processor want to amend its approved plan, it 
shall submit any amendments to USDA for approval prior to implementing 
such amendments.
    (A) Substitution of commercial poultry may occur in advance of the 
actual receipt of the donated poultry by the processor. Should a 
processor choose to use the substitution option prior to the commodity 
being purchased by the USDA, the processor shall assume all risks. Any 
donated poultry not used in end products because of substitution shall 
only be used by the processor at one of its facilities in other 
commercially processed products and cannot be sold as an intact unit. 
However, in lieu of processing the donated poultry, the processor may 
use the commodity product to fulfill other USDA contracts awarded for 
delivery to another processor provided all terms of the other contract 
are met. Any variation between the amount of commercial poultry 
substituted and the amount of donated poultry received by the processor 
shall be adjusted according to guidelines furnished by USDA.
    (B) The substitution plan shall contain a step-by-step description 
of how production will be monitored; a complete description of the 
records that will be maintained for the commercial poultry substituted 
for the donated poultry and the disposition of the donated poultry 
delivered; and how the substitution will be tracked for the purpose of 
monthly reporting to the State distributing agencies. Poultry 
substitution shall not be subject to the 100-percent yield requirement; 
however, the AMS Grading Service must verify processing yields. Should a 
processor choose to have all production of a specific end product, 
identified by name and product code, produced under AMS grading, then 
the label ``Contains Commodities Donated by the United States Department 
of Agriculture. This Product Shall Only Be Sold to Eligible Recipient 
Agencies'' shall not be required. Finished poultry end products that 
have not been produced under AMS grading supervision may not be 
substituted for finished commodity end products.
    (iii) Processors shall maintain documentation that they have not 
reduced their level of commercial production because of participation in 
the State processing program.
    (2) Documentation must be maintained by both parties in accordance 
with Sec.  250.16. Where commercial food is authorized to be substituted 
for any donated, the processor shall maintain records to substantiate 
that it continues to acquire on the commercial

[[Page 463]]

market sufficient purchases of substitutable food for commercial 
production and any amounts necessary to meet the 100 percent yield 
requirement. When there is substitution, the donated foods shall be used 
by the processor and shall not otherwise be sold or disposed of in bulk 
form. The applicable Federal acceptance service shall, upon request by 
the Department, the contracting agency or the distributing agency 
determine if the quality analysis meets the requirements set forth in 
the original USDA procurement specification and, in the case of 
concentrated skim milk replacing donated nonfat dry milk, determine if 
the concentrated skim milk contains the amount of milk solids as 
specified in the contract. When donated foods are nonsubstitutable, the 
applicable Federal acceptance service shall ensure against unauthorized 
substitutions, and verify that quantities of donated foods used are as 
specified in the contract.
    (3) When concentrated skim milk is used to replace donated nonfat 
dry milk, the contract shall also specify (in addition to the 
requirements in paragraph (c) of this section):
    (i) The percent of milk solids that, at a minimum, must be contained 
in the concentrated skim milk;
    (ii) The weight ratio of concentrated skim milk to donated nonfat 
dry milk;
    (A) The weight ratio is the weight of concentrated skim milk which 
equals one pound of donated nonfat dry milk, based on milk solids;
    (B) In calculating this weight, nonfat dry milk shall be considered 
as containing 96.5 percent milk solids;
    (C) If more than one concentration of concentrated skim milk is to 
be used, a separate weight ratio must be specified for each 
concentration;
    (iii) The processor's method of verifying that the milk solids 
content of the concentrated skim milk is as stated in the contract;
    (iv) A requirement that inventory drawdowns of donated nonfat dry 
milk shall be limited to an amount equal to the amount of concentrated 
skim milk, based on the weight ratio, used to produce the end product;
    (v) A requirement that the contract value of donated food for a 
given amount of concentrated skim milk used to produce an end product is 
the value of the equivalent amount of nonfat dry milk, based on the 
weight ratio of the two foods;
    (vi) A requirement that the concentrated skim milk shall be produced 
in a USDA approved plant or in a plant approved by the appropriate 
regulatory authority for the processing of Grade A milk products; and
    (vii) A requirement that documentation sufficient to substantiate 
compliance with the contract provisions shall be maintained in 
accordance with Sec.  250.16(a)(4).
    (4) Title to the substituted food shall transfer to the contracting 
agency upon the initiation of the processing of the end product 
containing the substituted food. Title to the equivalent amount of 
donated food shall transfer to the processor at the same time (except 
when the substitution is necessary to meet the 100 percent yield 
requirement or to otherwise replace missing or out-of-condition donated 
food). As with the processing of donated poultry into end products, AMS 
graders must monitor the processing of any substituted commercial 
poultry to ensure that program integrity is maintained. Once title has 
transferred, the processor shall use the substituted food in accordance 
with the terms and conditions of this part.
    (g) Meat and poultry inspection programs. When donated meat or 
poultry products are processed or when any commercial meat or poultry 
products are incorporated into an end product containing one or more 
donated foods, all of the processing shall be performed in plants under 
continuous Federal meat or poultry inspection, or continuous State meat 
or poultry inspection in States certified to have programs at least 
equal to the Federal inspection programs. In addition to FSIS 
inspection, all donated meat and poultry processing shall be performed 
under AMS acceptance service grading. The cost of this service shall be 
borne by the processor. In the event the processor can demonstrate that 
grading is impractical, exemptions in the use of acceptance services 
shall be approved by the distributing agency prior to processing each 
order. Exemptions in

[[Page 464]]

the use of acceptance service graders will be authorized on the basis of 
each order to be processed provided the processor can demonstrate:
    (1) That even with ample notification time, the processor cannot 
secure the services of a grader,
    (2) That the cost for a grader would be unduly excessive relative to 
the value of foods being processed and that production runs cannot be 
combined or scheduled to enable prorating of the costs of services among 
the purchasers of end products, or
    (3) The documented urgency of the recipient agency's need for the 
end product precludes the use of acceptance services.

Prior to approving a processor's request to waive the acceptance service 
requirement the distributing agency shall ensure, based on the 
processor's past performance, that the quality of the end product 
produced will in no way be adversely affected as a result of waiving the 
requirement.
    (h) Certification by acceptance service. (1) All processing 
activities of donated foods shall be subject to review and audit by the 
Department, including the applicable Federal acceptance service. The 
contracting agency may also require acceptance and certification by such 
acceptance service in addition to the requirements set forth in 
paragraph (g) of this section.
    (2) In the case of substitutable donated foods, in deciding whether 
to require acceptance and certification, the contracting agency should 
consider the dollar value of the donated foods delivered to the 
processor.
    (3) When contracting agencies require certification in accordance 
with paragraph (h) (1) or (2) of this section, the degree of acceptance 
and certification necessary under the processing contract shall be 
determined by the appropriate Federal acceptance service after 
consultation with the distributing agency concerning the type and volume 
of the donated foods and anticipated value of end products to be 
processed. The cost of this service shall also be borne by the 
processor.
    (i) Labeling end products. (1) Except when end products contain 
donated foods that are substituted under paragraph (f) of this section, 
the exterior shipping containers of end products and, where practicable, 
the individual wrappings or containers of end products, shall be clearly 
labeled ``Contains Commodities Donated by the United States Department 
of Agriculture. This Product Shall Be Sold Only to Eligible Recipient 
Agencies.''
    (2) Labels on all end products shall meet applicable Federal 
labeling requirements.
    (3) When a processor makes any claim with regard to an end product's 
contribution toward meal requirements of any child nutrition program, 
the processor shall follow procedures established by FNS, the Food 
Safety and Inspection Service of the Department, the National Marine 
Fisheries Service of the U.S. Department of Commerce or other applicable 
Federal agencies for approval of such labels.
    (j) Termination of processing contracts. (1) When contracts are 
terminated or completed and the processor has commodities remaining in 
inventory, the processor shall be directed, at the option of the 
distributing agency and the FNSRO, to do the following:
    (i) With respect to nonsubstitutable commodities, the processor 
shall:
    (A) Return the commodities to the contracting agency;
    (B) Pay the contracting agency for the commodities based on the 
Department's replacement costs, determined by using the most recent data 
provided by the Department; or
    (C) Pay the contracting agency for the commodities based on the 
contract value stated in the processor's contract;
    (D) Pay the contracting agency the CCC unrestricted sales price;
    (ii) With respect to substitutable commodities, the processor shall:
    (A) With the concurrence of any affected contracting agencies, 
transfer the donated foods to the accounts of other contracting agencies 
with which the processor has contracts;
    (B) Return the foods donated to the contracting agency;
    (C) Replace the commodities with the same foods of equal or better 
quality as certified in accordance with paragraph (f)(2) of this section 
and deliver such foods to the contracting agency;

[[Page 465]]

    (D) Pay the contracting agency for the commodities based on the 
Department's replacement costs, determined by using the most recent data 
provided by the Department; or
    (E) Pay the contracting agency for the commodities based on the 
contract value stated in the processor's contract.
    (F) Pay the contracting agency the CCC unrestricted sales price.
    (2) When a processor's contract is terminated at the processor's 
request or due to noncompliance or negligence on the part of the 
processor and commodities remaining in the processor's inventory are 
transported pursuant to paragraph (j)(1)(i)(A), (j)(1)(ii)(B) or 
(j)(1)(ii)(C) of this section, the processor shall pay the 
transportation costs.
    (3) Funds received by distributing agencies upon termination of 
contracts shall be used in accordance with FNS Instruction 410-1, Non-
Audit Claims, Food Distribution Program.
    (k) Refund payments. (1) When end products are sold to recipient 
agencies in accordance with the refund provisions of paragraph (d) or 
(e) of this section, each recipient agency shall submit refund 
applications to the processor within 30 days from the close of the month 
in which the sales were made, except that recipient agencies may submit 
refund applications to a single processor on a Federal fiscal quarterly 
basis if the total anticipated refund due for all purchases of product 
from that processor during the quarter is 25 dollars or less.
    (2) In instances when refunds are to be provided to distributors 
which have sold end products to recipient agencies at a discount, 
distributors shall submit refund applications to processors within 30 
days from the close of the month in which the sales were made of the 
date of sale to recipient agencies in order to receive benefits.
    (3) Not later than 30 days after receipt of the application by the 
processor, the processor shall make a payment to the recipient agency or 
distributor equal to the stated contract value of the donated foods 
contained in the purchased end products covered by the refund 
application, except that processors may group together refund 
applications for a single recipient agency on a Federal fiscal quarterly 
basis if the total anticipated refund due that recipient agency during 
the quarter is 25 dollars or less. Copies of requests for refunds and 
payments to recipient agencies and/or distributors shall be forwarded to 
the appropriate distributing agency by the processor.
    (l) Contract approvals. Distributing agencies shall review and 
approve processing contracts entered into or renewed by subdistributing 
and recipient agencies prior to the delivery of commodities for 
processing under such contracts. The distributing agency which enters 
into or approves a processing contract shall provide a copy of the 
contract and of these regulations to the processors, forward a copy of 
the contract to the appropriate FNSRO, and retain a copy for its files.
    (m) Performance reports. (1) Processors shall be required to submit 
to distributing agencies monthly reports of performance under each 
processing contract with year-to-date totals. Processors contracting 
with agencies other than a distributing agency shall submit such reports 
to the distributing agency having authority over that particular 
contracting agency. Performance reports shall be postmarked no later 
than the final day of the month following the reporting period; however, 
the final performance report for the contract period shall be postmarked 
no later than 60 postmarked days from the close of the contract year. 
The report shall include:
    (i) A list of all recipient agencies purchasing end products under 
the contract;
    (ii) Donated-food inventory at the beginning of the reporting 
period;
    (iii) Amount of donated foods received during the reporting period;
    (iv) Amount of donated foods transferred to and/or from existing 
inventory;
    (v) Number of units approved end products delivered to each eligible 
recipient agency during the reporting period and the number of pounds of 
each donated food represented by these delivered end products;
    (vi) Donated food inventory at the end of the reporting period;
    (vii) [Reserved]

[[Page 466]]

    (viii) In instances in which sales verification has been delegated 
to the processor pursuant to Sec.  250.19(b)(2), sales verification 
findings shall be reported as an attachment to the December and June 
performance reports in whatever format the State distributing agency 
deems necessary.
    (ix) A certification statement that sufficient donated foods are in 
inventory or on order to account for the quantities needed for 
production of end products for State processing contracts and that the 
processor has on hand or on order adequate quantities of foods purchased 
commercially to meet the processor's production requirements for 
commercial sales.
    (2) In addition to reporting the information identified in paragraph 
(m)(1) of this section, processors which substitute concentrated skim 
milk for donated nonfat dry milk shall also report the following 
information for the reporting period:
    (i) The number of pounds of nonfat dry milk used in commercial 
products sold to outlets which are not recipient agencies; and
    (ii) The number of pounds of concentrated skim milk, and the percent 
of milk solids contained therein, used in end products sold to recipient 
agencies.
    (3) Distributing agencies shall review and analyze reports submitted 
by processors to ensure that performance under each contract is in 
accordance with the provisions set forth in this section.
    (n) Inventory controls. (1) Distributing agencies shall monitor 
processor inventories to ensure that the quantity of donated foods for 
which a processor is accountable is the lowest cost-efficient level but 
in no event more than a six-month supply based on the processor's 
average monthly usage, unless a higher level has been specifically 
approved by the distributing agency on the basis of a written 
justification submitted by the processor. Under no circumstances should 
the amount of donated foods ordered by the contracting agency for 
processing purposes be in excess of anticipated usage or beyond the 
processor's ability to accept and store the donated foods at any one 
time. Distributing agencies shall make no further distribution to 
processors whose inventories exceed these limits until such inventories 
have been reduced.
    (2) For processors substituting concentrated skim milk for donated 
nonfat dry milk, distributing agencies shall review the processors' 
monthly performance reports to ensure that:
    (i) Donated nonfat dry milk inventory is being drawn down based on 
the amount of milk solids contained in the concentrated skim milk which 
was used in end products sold to eligible recipient agencies;
    (ii) An amount of milk solids equivalent to the amount in the 
donated nonfat dry milk is contained in end products sold to eligible 
recipient agencies; and
    (iii) Donated nonfat dry milk is not being sold in bulk form.
    (3) The last monthly performance report for the contract period, as 
required in paragraph (m)(1) of this section, shall serve as the annual 
reconciliation report. As a part of the annual reconciliation, a 
processor which has entered into a contract with the contracting agency 
for the next year shall pay the distributing agency, at the contract 
value, for any donated food inventory held which is in excess of the 
inventory level which has been approved by the State distributing 
agency. A processor whose contract has been completed or terminated 
shall return or pay for commodities as required by subsection (j).
    (4) Distributing agencies shall certify the accuracy of the annual 
reconciliation report and forward it to the FNS Regional Office. Such 
report shall be postmarked no later than 90 days following the close of 
the contract year. All monies shall be used in accordance with FNS 
Instruction 410-1, Non-Audit Claims, Food Distribution Program.
    (5) Distributing agencies shall not submit food requisitions for 
processors reporting no sales activity during the prior year's contract 
period unless documentation is submitted by the processor which outlines 
specific plans for product promotion or sales expansion.
    (o) Processing inventory reports. (1) Distributing agencies shall 
forward to the FNS Regional Office the inventory

[[Page 467]]

summary portion of the monthly performance report submitted by the 
processors in accordance with paragraph (m)(1) of this section for the 
last month of each Federal fiscal quarter. Such reports shall be 
postmarked no later than 60 days following the close of each Federal 
fiscal quarter, except that such reports shall be postmarked no later 
than 90 days following the close of the contract year.
    (2) In addition to the reporting requirements in paragraph (o)(1) of 
this section, for each processor which substitutes concentrated skim 
milk for donated nonfat dry milk the distributing agency shall also 
report the following information for the reporting period:
    (i) The number of pounds of nonfat dry milk used in commercial 
products sold to nonprogram outlets; and
    (ii) The number of pounds of concentrated skim milk and the percent 
of milk solids contained therein used in end products sold to recipient 
agencies.
    (p) Cooperation with administering agencies for child nutrition 
programs. If the distributing agency which enters into or approves 
contracts for end products to be used in a child nutrition program does 
not also administer such program, it shall collaborate with the 
administering agency by;
    (1) Giving that agency an opportunity to review all such contracts 
to determine whether end products to be provided contribute to required 
nutritional standards for reimbursement under the applicable regulations 
for such program (7 CFR parts 210, 225, and 226) or are otherwise 
suitable for use in such program;
    (2) Consulting with the agency with regard to the labeling 
requirements for the end products; and
    (3) Otherwise requesting technical assistance as needed from that 
agency.
    (q) FNSRO review of contracts and inventory reports. The FNSRO 
shall:
    (1) Review all processing contracts and provide guidance, including 
written recommendations for termination, where necessary, to 
distributing agencies concerning any contracts which do not meet the 
requirements of this section;
    (2) Allow distributing agencies 30 days to respond to any 
recommendation concerning contracts not meeting the requirements of this 
section;
    (3) Review and analyze the processing inventory reports required by 
paragraph (o) of this section to ensure that no additional donated foods 
shall be distributed to processors with excess inventories until such 
inventories have been reduced;
    (4) Assist distributing agencies in reducing such inventories; and
    (5) Review annual reconciliation reports required by paragraph (n) 
of this section and ensure that payments for commodities have been made.
    (r) Availability of copies of processing contracts. Contracts 
entered into in accordance with this Section are public records and FNS 
will provide copies of such contracts to any person upon request. The 
FNSRO will retain copies of processing contracts submitted by 
distributing agencies for a period of three years from the close of the 
Federal fiscal year to which they pertain.
    (s) Processing activity guidance. Distributing agencies shall 
develop and provide a processing manual or similar procedural material 
for guidance to contracting agencies, recipient agencies, and 
processors. Distributing agencies must revise these materials as 
necessary to reflect policy and regulatory changes. This guidance 
material shall be provided to contracting agencies, recipient agencies 
and processors at the time of the approval of the initial agreement by 
the distributing agency, when there have been regulatory or policy 
changes which necessitate changes in the guidance materials, and upon 
request. The manual shall include, at a minimum, statements of the 
distributing agency's policies and procedures on (1) contract approval, 
(2) monitoring and review of processing activities, (3) recordkeeping 
and reporting requirements, (4) inventory controls, and (5) refund 
applications.
    (t) Waiver authority. The Food and Nutrition Service may waive any 
of the requirements contained in this part for the purpose of conducting 
demonstration projects to test program changes

[[Page 468]]

designed to improve the State processing of donated foods.

(Approved by the Office of Management and Budget under control number 
0584-0007)

[53 FR 20226, June 3, 1988, as amended at 53 FR 20598, June 6, 1988; 53 
FR 27476, July 21, 1988; 53 FR 46080, Nov. 16, 1988; 54 FR 7525, Feb. 
22, 1989; 54 FR 25564, June 16, 1989; 58 FR 39122, July 22, 1993; 59 FR 
62984, Dec. 7, 1994; 61 FR 5272, Feb. 12, 1996; 67 FR 65015, Oct. 23, 
2002]



           Subpart D_Eligible Recipient Agencies and Programs



Sec.  250.40  Nonprofit summer camps for children.

    (a) Distribution. (1) The distributing agency shall distribute 
donated food only to those summer camps which have entered into a 
written agreement for participation in the program with the distributing 
agency in accordance with Sec.  250.12(b). Prior to entering into a 
written agreement, the summer camp shall provide verification of its tax 
exempt status under the Internal Revenue Code. In addition to the terms 
and conditions set forth in Sec.  250.12(b), the written agreement 
shall, at a minimum, include:
    (i) The name and location of the summer camp(s);
    (ii) Number of camps or sites;
    (iii) Number of sessions to be offered during camping season;
    (iv) Number of adults and children participating in the activities 
of the summer camp at each session;
    (v) Total number of days meals will be served;
    (vi) Total number of meals to be served daily;
    (vii) Assurance that tax exempt status will be maintained;
    (viii) Indication of whether the summer camp(s) will employ the 
services of a food service management company;
    (ix) Assurance that a brochure or public announcement of open 
admission policy will be provided and that the summer camp agrees to 
maintain racial/ethnic data;
    (x) Assurance that a physical inventory will be conducted and 
reconciled at the end of the camping session; and
    (xi) Assurance that any excess inventory will, at the distributing 
agency's option, be returned to the distributing agency for redonation 
or transferred in accordance with Sec.  250.13(a)(1).
    (2) Distributing agencies shall distribute donated foods only after 
determining that the number of adults participating in camp activities, 
as compared with the number of children 18 years of age and under, is 
not unreasonable in light of the nature of the camp and the 
characteristics of the children in attendance. Persons 19 years of age 
and over, including program directors, counselors and others who engage 
in recreational, educational, and direct administrative functions, are 
to be considered as adults participating in the activities of a summer 
camp. Employees whose presence on camp premises is solely for the 
purpose of performing duties such as cooking, gardening, property 
maintenance or similar support functions are not considered as adults 
participating in summer camp activities. In addition, persons such as 
nurses, therapists, and attendants who perform professional, 
supervisory, or custodial services are not considered as adults 
participating in the activities of a summer camp if they perform 
services essential to the participation of mentally, emotionally, or 
physically handicapped children.
    (3) Distributing agencies shall authorize the transfer or redonation 
of all donated foods remaining in summer camps at the end of the camping 
season in accordance with Sec.  250.13 (a) or (g) respectively.
    (4) Nonprofit summer camps for children may employ food service 
management companies to conduct food service operations in accordance 
with Sec.  250.12(d).
    (b) Quantities and value of donated foods. Distribution of donated 
food to eligible summer camps shall be made on the basis of the average 
number of meals to be served daily to children as evidence by the most 
recent written caseload factor information contained in the agreement.
    (c) Types of donated foods authorized for donation. Nonprofit summer 
camps for children are eligible to receive donated foods under section 
416, section 32, section 709 and section 4(a).

[53 FR 20426, June 3, 1988, as amended at 62 FR 53729, Oct. 16, 1997]

[[Page 469]]



Sec.  250.41  Charitable institutions.

    (a) Distribution. (1) The distributing agency shall distribute 
donated food only to those charitable institutions which have entered 
into a written agreement for participation in the program with the 
distributing agency in accordance with Sec.  250.12(b). Prior to 
entering into a written agreement, the charitable institution shall 
provide verification of the institution's tax exempt status under the 
Internal Revenue Code. In addition to the terms and conditions set forth 
in Sec.  250.12(b), written agreements shall, at a minimum, include:
    (i) The name and location of the charitable institution;
    (ii) Total number of days meals will be served;
    (iii) Average daily number of participants;
    (iv) Total number of meals by type to be served daily to needy 
persons;
    (v) Data that show the number of needy persons receiving benefits 
under another means-tested program or financial data that show the total 
annual amount of funds received by the institution that are derived, 
respectively, from (A) subsidized income and (B) nonsubsidized income. 
For the purpose of this section ``subsidized income'' shall mean income 
from public tax funds which are provided on behalf of participants that 
have been determined to be in need of financial assistance through a 
means-tested program such as Medicaid or income received through private 
federally tax exempt contributions which are provided for the care of 
participants which the institution had determined to be in need of 
financial assistance. ``Nonsubsidized income'' shall mean all other 
income, including payments made on behalf of participants by persons 
legally responsible for their support;
    (vi) Indication of whether the charitable institution will employ 
the services of a food service management company to conduct its food 
service operations;
    (vii) Assurance that proper inventory controls will be maintained; 
and
    (viii) Assurance that all reports will be submitted as required by 
the distributing agency.
    (2) Adult correctional institutions are eligible to receive donated 
foods as charitable institutions, to the extent that needy persons are 
served, if they conduct rehabilitation programs that are:
    (i) Available to either a majority of the total inmate population 
(including inmates awaiting trial or sentencing) or to a majority of 
sentenced inmates; and
    (ii) Of sufficient scope to permit participation for a minimum of 10 
hours per week per inmate by either a majority of the total inmate 
population or a majority of sentenced inmates.

Prior to entering into an agreement for donation of foods to an adult 
correctional institution, the distributing agency shall require the 
institution's director or other responsible official to provide a 
written statement certifying that the institution conducts such 
rehabilitation programs. The statement shall be reviewed annually and 
maintained as part of the agreement.
    (3) Charitable institutions may employ food service management 
companies to conduct food service operations in accordance with Sec.  
250.12(d).
    (b) Quantities of donated foods. Distribution of donated foods to 
eligible charitable institutions shall be made on the basis of the 
average number of meals served daily to needy persons. To determine the 
number of needy persons being served, the distributing agency shall 
determine the proportion of subsidized income by dividing the subsidized 
income by the total subsidized and nonsubsidized income (as defined in 
paragraph (a)(1) of this section) and multiplying that number by the 
average daily number of participants as required in Sec.  
250.41(a)(1)(v), or by simply counting the number of participants that 
receive benefits under another a means-tested program. The distributing 
agency shall use the income and average daily participation figures 
reflected in the agreement in determining the number of needy persons 
being served by the institution in accordance with the above formula. 
Income and participation figures shall be based on the institution's 
records for the previous year. The distributing agency shall obtain 
updated pertinent

[[Page 470]]

information by September 30 of each fiscal year.
    (c) Types of donated foods authorized for donation. Charitable 
institutions are eligible to receive donated foods under section 416, 
section 32, section 4(a), and section 709.

(Approved by the Office of Management and Budget under control number 
0584-0305)

[53 FR 20426, June 3, 1988, as amended at 59 FR 16972, Apr. 11, 1994; 62 
FR 53729, Oct. 16, 1997]



Sec.  250.42  Nutrition programs for the elderly.

    (a) Distribution. Distributing agencies shall distribute donated 
foods only to nutrition programs for the elderly which have entered into 
an agreement for donation of commodities in accordance with Sec.  
250.12(b). Food service management companies may be employed to conduct 
food service operations in accordance with Sec.  250.12(d).
    (b) Quantities and value of donated foods. (1) Quantities. 
Distribution of donated foods to nutrition programs for the elderly 
shall be based on the level of assistance per meal as required by the 
Older Americans Act of 1965, as amended, and on the number of eligible 
meals served within the State as evidenced by written caseload factor 
information provided by the State Agency on Aging.
    (2) Value. (i) For the fiscal years 1986 through 1991, the quantity 
of donated foods to be made available to each State Agency on Aging for 
distribution to nutrition programs for the elderly shall be valued at 
not less than 56.76 cents for each meal which such State Agency on 
Aging, in accordance with regulations and guidelines authorized by the 
Commissioner on Aging, United States Department of Health and Human 
Services, reports as having been served or, where necessary, estimates 
will be served within the State or to Indian Tribal Organizations during 
the year: Provided, however, That:
    (A) This quantity will be reduced to the extent that a State Agency 
on Aging elects to receive cash in lieu of donated foods in accordance 
with paragraph (c) of this section and
    (B) The quantity of donated foods to be provided to any State Agency 
on Aging for any fiscal year shall not be adjusted on the basis of meal 
reports or estimates submitted after July 1 of such fiscal year.
    (ii) Notwithstanding the provisions of paragraph (b)(2)(i) of this 
section, in any fiscal year in which compliance with paragraph (b)(2)(i) 
of this section costs more than the amounts authorized to be 
appropriated under the Older Americans Act of 1965, as amended for that 
fiscal year, the Secretary shall reduce the cents per meal level 
determined pursuant to paragraph (b)(2)(i) of this section for that 
fiscal year as necessary to meet the authorization of appropriations for 
that fiscal year. If such action is necessary, the per meal level will 
be reduced uniformly for each meal served during that fiscal year.
    (c) Cash in lieu of donated foods. (1) Any State Agency on Aging 
may, for the purposes of the programs authorized by titles III and VI of 
the Older Americans Act of 1965, as amended, elect to receive cash 
payments in lieu of all or any portion of the donated foods that it 
would otherwise receive under paragraph (b) of this section during any 
fiscal year.
    (2) When a State Agency on Aging elects to receive cash payments in 
lieu of donated foods, that election shall be binding on the State 
Agency on Aging for the entire fiscal year to which it pertains, and FNS 
shall make cash payments to the State Agency on Aging equivalent in 
value to the donated foods that would otherwise have been provided. Cash 
payments shall be made for each fiscal quarter by means of Letters of 
Credit issued by FNS through the appropriate U.S. Treasury Regional 
Disbursing Office or, where applicable, by means of U.S. Treasury 
checks, based on the best data available to FNS as to the number of 
meals to be served by nutrition programs for the elderly administered by 
each State Agency on Aging during that fiscal quarter.
    (3) In instances when it is necessary to reduce the annual level of 
assistance specified in paragraph (b)(2)(i) of this section, the level 
will be reduced in accordance with paragraph (b)(2)(ii) of this section. 
Once it has been established that the reduced per meal level will be 
sufficient to avoid any further

[[Page 471]]

adjustment, any remaining funds (up to the level of assistance specified 
in paragraph (b)(2)(i) of this section) will be disbursed so that each 
State will receive an equal amount on a per meal basis.
    (4) To be eligible for reimbursement by FNS, claims for cash payment 
for meals served by nutrition programs for the elderly shall be 
submitted by State Agencies on Aging and Indian Tribal Organizations no 
later than 90 days following the close of the Federal fiscal quarter for 
which payment is claimed.
    (5) The State Agency on Aging desiring to receive funds under this 
paragraph shall enter into a written agreement with FNS pursuant to 
Sec.  250.12(a) to:
    (i) Promptly and equitably disburse any cash it receives in lieu of 
donated foods to nutrition programs for the elderly after consideration 
of the needs of such programs and the availability of other resources, 
including any donated foods available under paragraph (b) of this 
section;
    (ii) Establish such procedures as may be necessary to ensure that 
the cash disbursements are used by nutrition programs for the elderly 
solely for the purpose of purchasing U.S. agricultural commodities and 
other foods of U.S. origin for their food service operations;
    (iii) Maintain and retain for 3 years from the close of the Federal 
fiscal year to which they pertain complete and accurate records of:
    (A) All amounts received and disbursed under paragraph (c) of this 
section and
    (B) The manner in which consideration was given to the needs and 
resources as required by paragraph (c)(5)(i) of this section; and
    (iv) Permit representatives of the Department and of the General 
Accounting Office of the United States to inspect, audit, and copy such 
records at any reasonable time.
    (6) Funds provided under paragraph (c) of this section shall be 
subject to the Department's Uniform Federal Assistance Regulations (7 
CFR part 3015).
    (d) Types of donated foods authorized for donation. Nutrition 
programs for the elderly are eligible to receive donated foods under 
section 416, section 32, section 311, section 709, and section 14.

[53 FR 20426, June 3, 1988, as amended at 62 FR 53729, Oct. 16, 1997]



Sec.  250.43  Disaster food assistance.

    (a) Organizational eligibility. In instances in which the President 
has declared a disaster and FNS has determined that, as a result of the 
disaster, low-income households are unable to purchase adequate amounts 
of nutritious food, disaster organizations (including agencies of State 
and Federal government) may be eligible to receive donated foods for 
congregate meal service or household distribution to disaster victims. 
Applications submitted by disaster organizations to the distributing 
agency for the receipt and distribution of donated foods in accordance 
with paragraphs (b)(2) and (c)(2) of this section shall be initially 
submitted in writing if circumstances permit and, if not, confirmed in 
writing in a timely manner. Both the applications and the written 
approval for the use of USDA commodities shall be maintained in 
accordance with the recordkeeping requirements of this part.
    (b) Congregate meal service--(1) Approval authority and duration. 
Distributing agencies may review and approve applications submitted by 
disaster organizations for the donation of foods for use in preparing 
congregate meals for disaster victims. Distributing agencies also shall 
determine the length of such donations, taking into consideration the 
magnitude of the situation, and may extend the duration of such 
donations as developing circumstances dictate. Following approval of a 
request for donated foods, the distributing agency shall make 
appropriate donated foods available from any source within the State to 
the disaster organization(s) and within 24 hours of approving the 
application shall report the information listed in paragraph (b)(2) of 
this section to the appropriate FNSRO.
    (2) Applications. (i) Disaster organizations wishing to receive 
donated foods for use in preparing meals for disaster victims shall 
submit applications to the distributing agency. Applications shall, to 
the extent possible, include the following information:

[[Page 472]]

    (A) Description of disaster situation;
    (B) Number of people requiring meals;
    (C) Period of time for which commodities are requested; and
    (D) Quantity and types of food needed for congregate meal service.
    (ii) In addition, organizations shall report to the distributing 
agency the number and location of sites providing congregate meal 
service as such sites are established.
    (c) Household distribution--(1) Approval authority and duration. In 
instances in which the distributing agency has determined that the 
distribution of donated foods to households is appropriate, the 
distributing agency shall submit applications requesting approval for 
such distributions to the appropriate FNSRO for submission to FNS for 
prior approval. FNS will determine the length of time such donations 
will be made, taking into consideration the magnitude of the situation, 
and may extend the duration of such donations as developing 
circumstances dictate.
    (2) Applications. (i) Disaster organizations wishing to receive and 
distribute donated foods to households shall submit applications to the 
distributing agency. Applications shall, to the extent possible, include 
the following information:
    (A) Description of disaster situation;
    (B) Identification of the specific area(s) included in the request;
    (C) Number of households affected;
    (D) Explanation as to why the distribution of commodities to 
households is warranted;
    (E) Anticipated distribution period;
    (F) Method(s) of distribution available;
    (G) Quantity and types of food needed for distribution;
    (H) Statement of assurance that simultaneous disaster food stamp 
benefits and commodity assistance will not be provided to individual 
households; and
    (I) Description of the system that will be implemented to prevent 
dual participation.
    (ii) In addition, information on the number and location of sites 
where commodities are to be distributed shall be provided to the 
distributing agency as such sites are established.
    (3) Collection of household information. In instances in which the 
issuance of disaster food stamp benefits has been approved, any entity 
(i.e., Federal, State, or local) distributing donated foods to 
households shall, at a minimum, collect the information listed below in 
a format prescribed by the distributing agency. Such information shall 
be forwarded to the distributing agency and maintained by the 
distributing agency in accordance with the recordkeeping requirements 
contained in this part, except that such information may, at the 
discretion of the distributing agency, be maintained by the organization 
distributing commodities if such organization is an agency of the State 
government.
    (i) Name of household member applying for assistance;
    (ii) Address;
    (iii) Number of household members; and
    (iv) Statement signed by the household certifying that the 
household:
    (A) Is in need of food assistance;
    (B) Understands that misrepresentation of need, and the sale or 
exchange of the donated food, are prohibited and could result in a fine, 
imprisonment, or both;
    (C) Is not residing in a shelter which provides food assistance; and
    (D) Is not receiving disaster food stamp benefits.
    (d) Quantities and value of donated foods. The distributing agency 
shall make donated foods available to approved disaster organizations 
based on the caseload factor information provided by the disaster 
organizations.
    (e) Types of donated foods authorized for donation. Disaster 
organizations providing food assistance under this Section are eligible 
to receive donated foods under section 416, section 32, section 709, 
section 4(a), and sections 412 and 413 of the Stafford Act.
    (f) Summary report. Within 45 days following termination of the 
disaster assistance, the distributing agency shall provide a summary 
report to the appropriate FNSRO using Form FNS-292, Report of Coupon 
Issuance and Commodity Distribution for Disaster Relief.

[[Page 473]]

    (g) Replacement. Distributing agencies which decide to seek 
replacement of foods used from State and/or local inventories for 
disaster assistance shall file their request in writing to the FNSRO 
within 30 days following termination of the assistance. FNS will replace 
such foods in instances when a request for replacement is submitted 
within the required 30 days or sufficient justification exists to waive 
the 30-day requirement.

[62 FR 8365, Feb. 25, 1997]



Sec.  250.44  Food assistance in situations of distress.

    (a) Organizational eligibility. In situations of distress in which 
needs for food assistance cannot be met under other provisions of this 
Part, organizations (including agencies of State and Federal government) 
may be eligible to receive donated foods for congregate meal service or 
household distribution to victims of the situation of distress. 
Applications submitted to the distributing agency for the receipt and 
distribution of donated foods in accordance with paragraphs (b)(2) and 
(c)(2) of this section shall be initially submitted in writing if 
circumstances permit and, if not, confirmed in writing in a timely 
manner. Both the applications and the written approval for the use of 
USDA commodities shall be maintained in accordance with the 
recordkeeping requirements of this Part.
    (b) Congregate meal service. (1) Approval authority and duration. 
Distributing agencies may review and approve applications for the 
donation of foods for use in preparing congregate meals for a period not 
to exceed 30 days for victims of situations of distress in instances in 
which the need for such assistance meets the conditions of paragraph (a) 
of the definition of situation of distress in Sec.  250.3. Following 
approval of a request, distributing agencies shall report the 
information listed in paragraph (b)(2) of this section to the 
appropriate FNSRO within 24 hours. In instances when the distributing 
agency extends the originally approved distribution period from less 
than 30 days to the 30-day limit, it shall notify the FNSRO of such 
extensions. Distributing agencies shall request approval from FNS, via 
the appropriate FNSRO, for donations to exceed 30 days. Upon determining 
that there is a need for the donation of foods for congregate meals in 
instances other than those that meet the criteria in paragraph (a) of 
the definition of situation of distress in Sec.  250.3, the distributing 
agency shall forward applications to the appropriate FNSRO for 
submission to FNS for prior approval. FNS will determine the duration of 
such donations, taking into consideration the magnitude of the 
situation. Determinations as to the length of donations may be revised 
as developing circumstances dictate.
    (2) Applications. (i) Organizations wishing to receive donated foods 
for use in preparing meals shall submit applications to the distributing 
agency. Applications shall, to the extent possible, include the 
following information:
    (A) Description of the situation of distress;
    (B) Number of people requiring meals and congregate meal service 
period; and
    (C) Quantity and types of food needed.
    (ii) In addition, information on the number and location of sites 
providing meals shall be submitted to the distributing agency as such 
sites are established.
    (c) Household distribution.--(1) Approval authority and duration. In 
instances in which the distributing agency has determined that the 
distribution of donated foods to households is appropriate, the 
distributing agency shall submit applications requesting approval for 
such distributions to the appropriate FNSRO for submission to FNS for 
approval. FNS will determine the duration of the donations, taking into 
consideration the magnitude of the situation. Such determinations may be 
revised as developing circumstances dictate.
    (2) Applications. (i) Organizations wishing to receive and 
distribute donated foods to households shall submit applications to the 
distributing agency. Applications shall, to the extent possible, include 
the following information:
    (A) Description of the situation of distress;

[[Page 474]]

    (B) Explanation as to why the distribution of commodities to 
households is warranted;
    (C) Identification of the specific area(s) included in the request;
    (D) Anticipated distribution period;
    (E) Number of households expected to participate;
    (F) Quantity and types of food needed for distribution;
    (G) Statement of assurance that simultaneous disaster food stamp 
benefits and commodity assistance will not be provided to individual 
households; and
    (H) Description of the system that will be implemented to prevent 
dual participation.
    (ii) In addition, information on the number and location of sites 
shall be provided to the distributing agency as such sites are 
established.
    (3) Collection of household information. In a format prescribed by 
the distributing agency, any entity (i.e., Federal, State, or local) 
distributing donated foods to households in an area where the issuance 
of disaster food stamp benefits has been approved shall, at a minimum, 
collect the information listed below. Such information shall be 
forwarded to the distributing agency and maintained by the distributing 
agency in accordance with the recordkeeping requirements contained in 
this part, except that such information may, at the discretion of the 
distributing agency, be maintained by the organization distributing 
commodities if such organization is an agency of the State government.
    (i) Name of household member applying for assistance;
    (ii) Address;
    (iii) Number of household members; and
    (iv) Statement signed by the household certifying that the 
household:
    (A) Is in need of food assistance;
    (B) Understands that misrepresentation of need, and the sale or 
exchange of the donated food are prohibited and could result in a fine, 
imprisonment, or both;
    (C) Is not residing in a shelter which provides food assistance; and
    (D) Is not receiving disaster food stamp benefits.
    (d) Quantities and value of donated foods. The distributing agency 
shall make donated foods available to eligible organizations based on 
the caseload factor information provided by the organizations.
    (e) Types of donated foods authorized for donation. Organizations 
providing food assistance in situations of distress are eligible to 
receive donated foods under section 416, section 32, section 709, and 
section 4(a).
    (f) Summary report. Within 45 days following termination of the 
assistance, the distributing agency shall provide a summary report to 
the appropriate FNSRO using Form FNS-292, Report of Coupon Issuance and 
Commodity Distribution for Disaster Relief.
    (g) Replacement. Distributing agencies which decide to seek 
replacement of foods used from State and/or local inventories for 
situations of distress shall file their request in writing to the FNSRO 
within 30 days following termination of the assistance. FNS will replace 
such foods to the extent that foods are available.

[62 FR 8366, Feb. 25, 1997]



Sec.  250.45  Commodity Supplemental Food Program.

    (a) Distribution. The distributing agency shall distribute donated 
foods to the State agency which is designated by the State to administer 
the Commodity Supplemental Food Program for that State and which has 
entered into a written agreement with the Department for the 
administration of that program in accordance with 7 CFR part 247, the 
regulations for that program. The State agency administering the 
Commodity Supplemental Food Program shall distribute donated foods to 
local agencies for use by eligible recipients in accordance with the 
provisions of 7 CFR part 247 and with the provisions of this part, and 
may enter into an agreement with the distributing agency for use of the 
distributing agency's facilities for distribution.
    (b) Quantities of donated foods. Distribution of donated foods to 
the designated State agencies for the Commodity Supplemental Food 
Program shall be made on the basis of each

[[Page 475]]

State agency's quarterly estimate of need.
    (c) Types of donated foods authorized for donation. State agencies 
distributing donated foods through the Commodity Supplemental Food 
Program are eligible to receive such foods under section 32, section 
416, section 709 and section 4(a).



Sec.  250.46  Food Distribution Program in the Trust Territory of the 
Pacific Islands.

    (a) Distribution. The distributing agency shall make donated foods 
available for distribution to households in the Trust Territory of the 
Pacific Islands by those welfare agencies which certify households in 
accordance with a plan of operation approved by FNS, as required by 
paragraph (d) of this section. Distribution of donated foods to 
households shall be made in accordance with the approved plan of 
operation.
    (b) Quantities and value of donated foods. Distribution of donated 
foods shall be based on the actual number of households in need of food 
assistance.
    (c) Types of donated foods authorized for donation. Agencies which 
make distribution to needy persons are eligible to receive foods under 
section 416, section 32, section 709 and section 4(a).
    (d) Plan of operation. Prior to making distribution to agencies or 
households, the distributing agency shall submit a plan of operation for 
approval by the appropriate FNSRO. Such plans shall incorporate the 
procedures and methods to be used in certifying households in need of 
food assistance, in making distribution to households, and in providing 
a fair hearing to households whose claims for food assistance under the 
plan are denied or are not acted upon with reasonable promptness, or who 
are aggrieved by an agency's interpretation of any provision of the 
plan. No amendment to the plan of operation of the distributing agency 
shall be made without prior approval of FNS, and FNS may require 
amendment of any plan as a condition of continuing approval. The 
distributing agency shall require welfare agencies making distribution 
to households to conduct distribution programs in accordance with all 
provisions of the plan of operation. At a minimum, the plan shall 
include the following:
    (1) The name of the public welfare agency or agencies which will be 
responsible for certification of households;
    (2) The manner in which donated food will be distributed, including, 
but not limited to, the identity of the agency that will distribute 
donated foods, the storage and distribution facilities to be used and 
the method of financing;
    (3) The specific criteria to be used in certifying households as in 
need of food assistance. The income and resource standards establishes 
by the distributing agency for use by welfare agencies in determining 
the eligibility of applicant households, after October 1979, shall 
continue to be those standards used as of that date which were 
incorporated in a plan of operation approved by FNS, unless an amendment 
to such standard is required or approved by FNS;
    (4) The method or methods that will be used to verify the 
information upon which the certification of eligibility is based, 
including the kinds of documentary evidence that applicants are required 
to furnish to obtain certification;
    (5) Provisions for periodically reviewing the certifications of 
households to discover any change in their status which would 
necessitate a change in the determination of eligibility. The 
eligibility of households shall be reviewed at least every three months, 
except that such reviews may be made at longer periods, not to exceed 12 
months, provided that such longer periods are based upon a determination 
by the certifying agency that the income and resources available to such 
households will probably remain essentially unchanged during such 
period;
    (6) Provisions for identifying each person who has been designated 
to receive donated foods for a household;
    (7) Assurance that the distribution of donated foods shall not be 
used as a means to further the political interest of any individual or 
party, and that there shall be no discrimination against recipients of 
donated foods because of race, color, national origin, sex, age or 
handicap;
    (8) Assurance that:

[[Page 476]]

    (i) Citizenship or durational residence requirements shall not be 
imposed as a condition of eligibility and
    (ii) Recipients shall not be requiref to make any payments in money, 
materials or services, for or in connection with the receipt of donated 
foods, and that they shall not be solicited in connection with the 
receipt of donated foods for voluntary cash contributions for any 
purpose;
    (9) The manner in which the distributing agency plans to supervise 
the program; and
    (10) Definitions of any terms used which cannot be determined by 
reference to Webster's New International Dictionary (third edition).
    (e) Operating expense funds--(1) Application for funds. To receive 
administrative funds, the distributing agency shall submit Form AD-623, 
``Application for Federal Assistance,'' to the appropriate FNSRO at 
least three months prior to the beginning of the Federal fiscal year. 
Approval of the application by FNS shall be a prerequisite to payment of 
any funds to the distributing agency. The Department will make payments 
to the distributing agency to assist it in meeting operating expenses 
incurred in administering food distribution for needy persons.
    (2) Availability of funds. FNS will review and evaluate the budget 
information submitted by the distributing agency in relationship to the 
distributing agency's plan of operation and any other factors which may 
be relevant to FNS' determination as to whether the estimated 
expenditures are reasonable and justified. FNS will give written 
notification to the distributing agency of:
    (i) Its approval or disapproval of any or all of the estimated 
expenditures; and
    (ii) The amount of funds which will be made available.
    (3) Payment of funds. Payments shall be made to the distributing 
agency through a Letter of Credit or an advance by Treasury Check. These 
payments will be issued in accordance with Treasury Department 
procedures, Treasury Circular No. 1075 and through the appropriate 
Treasury Regional Disbursing Office (RDO).
    (4) Use of funds. The distributing agency shall make every 
reasonable effort to ensure the availability of a food distribution 
program for needy persons in households and shall assign priority in the 
use of any funds received under this Section to accomplish that 
objective. Any remaining funds shall be used to expand and improve 
distribution to needy households. Such funds may be used for any costs 
which are not disallowed under Office of Management and Budget Circular 
A-87 (a copy of which may be obtained from FNS) and which are incurred 
in distributing donated foods to households, including determining 
eligibility of recipients, except for the purchase cost of land and 
buildings. In no event shall such funds be used to pay any portion of 
any expenses if reimbursement or payment therefore is claimed or made 
available from any other Federal source.
    (5) Accounting for funds. The distributing agency which receives 
administrative funds under this Section shall establish and maintain an 
effective system of fiscal control and accounting procedures. The 
accounting procedures maintained by the distributing agency shall be 
such as to accurately reflect the receipt, expenditure and current 
balance of funds provided by FNS. The accounting procedures shall also 
provide for segregation of costs specifically identifiable to the Food 
Distribution Program from any other costs incurred by the distributing 
agency. Any budget revisions by the distributing agency which require 
the transfer of funds from an FNS approved cost category to another 
shall be in accordance with the budget revision procedures set forth in 
7 CFR part 3015 and shall be approved by FNS prior to any transfer of 
funds.
    (6) Return, reduction and reallocation of funds. (i) FNS may require 
the distributing agency to return prior to the end of the Federal fiscal 
year any or all unobligated funds received under this section, and may 
reduce the amount it has apportioned or agreed to pay to the 
distributing agency if FNS determines that:

[[Page 477]]

    (A) The distributing agency is not administering the Food 
Distribution Program in accordance with its plan of operation approved 
by FNS and the provisions of this part;
    (B) The amount of funds which the distributing agency requested from 
FNS is in excess of actual need, based on reports of expenditures and 
current projections of program needs; or
    (C) Circumstances or conditions justify the return, reallocation or 
transfer of funds to accomplish the purposes of this part.
    (ii) The distributing agency shall return to FNS within 90 days 
following the close of each Federal fiscal year any funds received under 
paragraph (e) of this section which are obligated at that time.
    (7) Financial reports. The distributing agency shall submit 
quarterly and annual reports to FNS on Form SF-269 concerning the 
obligations, expenditure and status of funds received under this 
Section. In addition, the distributing agency receiving funds under 
paragraph (e) of this section shall submit any other reports in such 
form as may be required from time to time by the Department.
    (f) Records, reports and audits. The distributing agency shall:
    (1) Maintain and retain for three years from the close of the 
Federal fiscal year to which they pertain, complete and accurate records 
of all amounts received and disbursed under paragraph (e) of this 
section,
    (2) Keep such accounts and records as may be necessary to enable FNS 
to determine whether there has been compliance with this section, and
    (3) Permit representatives of the Department and of a General 
Accounting Office of the United States to inspect, audit and copy such 
records and accounts at any reasonable time.



Sec.  250.47  Food Distribution Program on Indian reservations.

    (a) Distribution. Distributing agencies which operate a food 
distribution program on Indian reservations shall comply with the 
provisions set forth in Sec. Sec.  250.1, 250.2, 250.3, 250.10, 250.11, 
250.12, 250.13 (with the exception of paragraph (d)(2)), Sec.  250.14, 
Sec. Sec.  250.15 and 250.17(d) to the extent that these provisions are 
not inconsistent with the regulations cited in paragraph (b) of this 
section.
    (b) In addition to complying with the provisions identified in 
paragraph (a) of this section, distributing agencies shall also comply 
with the provisions set forth in part 253, Food Distribution Program on 
Indian Reservations or part 254, Food Distribution Program in Oklahoma, 
as applicable.

[53 FR 20426, June 3, 1988, as amended at 53 FR 27476, July 21, 1988]



Sec.  250.48  School food authorities and commodity schools.

    (a) Distribution. (1) School food authorities which participate in 
the National School Lunch Program or as commodity schools under part 210 
of this chapter or the School Breakfast Program under part 220 of this 
chapter are eligible to receive donated foods. The distributing agency 
shall distribute donated foods only to those school food authorities 
whose eligibility for participation in the program has been confirmed in 
writing by the State agency or FNSRO administering the applicable 
program. Lists of participating school food authorities which have been 
provided to the distributing agency by the administering State agency or 
FNSRO may serve as written confirmation of eligibility. School food 
authorities may employ food service management companies to conduct food 
service operations in accordance with Sec.  250.12(d) and parts 210 and 
220 of this chapter.
    (2) School food authorities which do not participate in the National 
School Lunch Program or as commodity schools under part 210 of this 
chapter or in the School Breakfast Program under part 220 of this 
chapter may receive such commodities as the Secretary may designate, 
provided the schools are public schools or private schools determined by 
the Internal Revenue Service to be exempt from income tax under section 
501(c)(3) of the Internal Revenue Code of 1954 or, in the Commonwealth 
of Puerto Rico, certified as nonprofit by the Governor; and operate a 
nonprofit school food service. Such schools shall be eligible to receive 
only those commodities acquired under section 416 of the Agricultural 
Act of 1949 (7 U.S.C. 1431) to the

[[Page 478]]

extent that such commodities become available and the Secretary has 
determined that surpluses of such commodities exist and surplus 
quantities are sufficient to distribute to nonprogram schools.
    (b) Quantities and Value of Donated Foods--(1) Quantities. 
Distribution of donated food to a State for school food authorities 
shall be calculated by multiplying the number of lunches served in the 
preceding school year which meet the mealpattern requirements 
(reimbursable) prescribed in the regulations for the National School 
Lunch Program under part 210 of this chapter, by the national average 
value of donated food as described in paragraph (b)(2) of this section. 
The number of reimbursable lunches served shall be derived from the 
monthly claims submitted by school food authorities and States as 
required by regulations for the National School Lunch Program at Sec.  
210.8 of this chapter. After the end of each school year, FNS shall 
reconcile the number of reimbursable lunches served by schools in each 
State with the number served in the preceding school year and, based on 
such reconciliation, shall increase or reduce subsequent commodity 
assistance provided to each State. As early as practicable each school 
year, but not later than September 1, the estimated number of lunches 
served in the preceding school year and requests for adjustments shall 
be provided by the administering State agency or the FNSRO to the 
distributing agency. At the discretion of FNS, current year adjustments 
may be made for significant variations in the number of reimbursable 
lunches served. Such current year adjustments will not be routine and 
will only be made for unusual problems encountered in a State, such as a 
teachers' strike or a disaster that necessitates school closures for a 
prolonged period of time.
    (2) Value. (i) For each school year, the national average value of 
donated foods to be made available to States for distribution to school 
food authorities participating in the National School Lunch Program (7 
CFR part 210), or where applicable, cash payments in lieu thereof, shall 
not be less than 11 cents for each lunch and shall be adjusted on July 
1, 1982, and on each July 1 thereafter, to reflect changes in the Price 
Index for food used in schools and institutions as prescribed by section 
6(e) of the National School Lunch Act, as amended. These adjustments 
shall be computed to the nearest one-fourth cent and shall be made 
effective as of the beginning of each school year. Not less than 75 
percent of the food distribution assistance shall be in the form of 
donated foods.
    (ii) For each school year, the national average value of donated 
foods to be provided to States for distribution to commodity schools 
shall not be less than the amount specified in paragraph (b)(2)(i) of 
this section, plus an amount equal to the national average payment 
established under section 4 of the National School Lunch Act, as 
amended, for each lunch served by such schools: Provided, however: That 
this amount shall be reduced to the extent that FNS provides up to 5 
cents per lunch of this value in cash in lieu of donated foods for 
donated food processing and handling expenses on behalf of such school 
food authorities in accordance with part 240 of this chapter.
    (c) Offering the per-meal value of donated foods--(1) Commodity 
offer value. Distributing agencies shall offer each school food 
authority no less than the national average per-meal value of donated 
foods established by the Department on July 1 of each year, in 
accordance with paragraph (b)(2) of this section. This value shall be 
referred to as the commodity offer value. The total value of donated 
foods which must be offered to school food authorities shall be 
calculated by multiplying the per-meal value of donated foods times the 
number of reimbursable meals served by the school food authority during 
the preceding school year; or by another method which the distributing 
agency prefers and can justify as providing each school food authority 
an equitable share of donated food. Distributing agencies shall 
communicate to school food authorities and FNS regional offices the 
methods used to establish the commodity offer value. Distributing 
agencies shall document commodity offerings and refusals in order to 
verify that the per-meal value of commodities

[[Page 479]]

was offered to all school food authorities.
    (2) Commodity variety offered. Distributing agencies shall offer and 
efficiently deliver to each school food authority the full range of all 
commodities equitably and consistently to the extent that quantities 
requested or made available are sufficient to make a statewide 
distribution. At least annually, distributing agencies shall develop and 
disseminate to school food authorities a procedure for the allocation of 
commodities when the amount received from the Department is not 
sufficient to make a statewide distribution to all school food 
authorities.
    (3) Bonus commodities. Bonus commodities (i.e., commodities provided 
in addition to a State's authorized level of assistance) offered shall 
be distinguished from entitlement commodities (i.e., commodities 
provided as part of an authorized level of assistance) and shall not be 
included as a part of the per-meal value of donated foods which must be 
offered to school food authorities.
    (d) Cash in lieu of donated foods for schools. Where a State has 
phased out its food distribution facilities prior to July 1, 1974, such 
State may, in accordance with part 240 of this chapter, elect to receive 
cash payments in lieu of donated foods for use in school lunch programs 
which participate in the National School Lunch Program under part 210 of 
this chapter.
    (e) Types of donated foods authorized for donation. School food 
authorities which participate in the National School Lunch Program or as 
commodity schools under part 210 of this chapter are eligible to receive 
donated foods under section 416, section 32, section 709, section 6 and 
section 14. School food authorities which participate in the School 
Breakfast Program under part 220 are eligible to receive donated foods 
under section 416, section 32, section 709 and section 14.
    (f) Refusal of donated foods by school food authorities. (1) Any 
school food authority participating in food service programs under the 
National School Lunch Act, as amended, may refuse, at the time they are 
offered, donated foods and other foods offered for delivery for lunches 
in any school year if such foods cannot be used effectively. The school 
food authority may receive, in lieu of the refused donated foods, other 
donated foods to the extent that they are available during the school 
year: Provided, however: That not more than 20 percent of the value of 
the donated foods offered to a school food authority for lunches during 
the school year shall be subject to replacement with other available 
donated foods unless replacement based on the refusal of more than 20 
percent of such value is feasible and practical. Prior to making 
distribution to school food authorities, distributing agencies shall 
notify each school food authority of its right to refuse delivery and to 
receive other donated foods, if available, in lieu of those refused. 
Notification of donated food refusal rights shall be provided by means 
of a letter or by an addendum to the agreement required by Sec.  
250.12(b) to each school food authority prior to the beginning of each 
school year.
    (2) If the distributing agency demonstrates on the basis of existing 
records that it is maintaining an effective offer-and-acceptance system 
as defined in Sec.  250.3, there can be no refusal of donated foods as 
provided in paragraph (e)(1) of this section.
    (g) Use of donated foods in home economics courses. School food 
authorities receiving donated foods under this part may use such foods 
for the purpose of training students in home economics, including 
college students if the same facilities and instructors are used for 
training both high school and college students in home economics 
courses. Home economics includes classes in general home economics, food 
purchases, nutrition, food preparation, cooking, child care and health.

[53 FR 20426, June 3, 1988, as amended at 53 FR 26219, July 12, 1988; 53 
FR 27476, July 21, 1988; 58 FR 39122, July 22, 1993; 62 FR 53729, Oct. 
16, 1997]



Sec.  250.49  Nonresidential child and adult care institutions.

    (a) Distribution. The distributing agency shall distribute donated 
foods only to those nonresidential child care institutions whose 
eligibility for participation in Child Care Food Program has been 
confirmed in writing by the State agency of FNSRO administering

[[Page 480]]

the program, where applicable. Lists of participating nonresidential 
child care institutions which have been prepared by the administering 
State agency or FNSRO may serve as written confirmation of eligibility. 
Nonresidential child care institutions may employ food service 
management companies to conduct food service operations in accordance 
with Sec.  250.12(d) and part 226 of this chapter.
    (b) Quantities and value of donated foods--(1) Quantities. 
Distribution of donated food to a State for nonresidential child and 
adult care institutions shall be calculated by multiplying the number of 
lunches and suppers served in the preceding school year which meet the 
meal-pattern requirements (reimbursable) prescribed in the regulations 
for the Child and Adult Care Food Program under part 226 of this chapter 
by the national average value of donated food as described in paragraph 
(b)(2) of this section. The number of lunches and suppers served shall 
be derived from the monthly claims submitted by participating 
institutions as required by Child and Adult Care Food Program 
regulations at Sec.  226.11(b) of this chapter. After the end of the 
school year, FNS shall reconcile the number of reimbursable meals served 
in each State with the number served in the preceding school year and, 
based on such reconciliation, shall increase or reduce subsequent 
commodity assistance provided to each State. As early as practicable 
each year, but not later than September 1, the estimated number of 
lunches and suppers served in the preceding school year and requests for 
adjustments shall be provided by the administering State agency or the 
FNSRO to the distributing agency. At the discretion of FNS, current year 
adjustments may be made for significant variations in the number of 
meals served. Such current year adjustments will not be routine and will 
only be made for unusual problems encountered in a State, such as a 
disaster that necessitates institutional closures for a prolonged period 
of time.
    (2) Value. For each school year, the national average value of 
donated foods to be made available to States for distribution to 
nonresidential child care institutions, or cash payments in lieu 
thereof, shall not be less than 11 cents for each lunch and supper and 
shall be adjusted on July 1, 1982, and on each July 1 thereafter, to 
reflect changes in the Price Index for food used in schools and 
institutions as prescribed by section 6(e) of the National School Lunch 
Act, as amended. These adjustments shall be computed to the nearest one-
fourth cent and shall be made effective at the beginning of each school 
year.
    (c) Cash in lieu of donated foods. In accordance with part 240 of 
this chapter, State agencies may elect to receive cash payments in lieu 
of donated foods for use by institutions which participate in the Child 
Care Food Program under part 226 of this chapter.
    (d) Types of donated foods authorized for donations. Nonresidential 
child care institutions which participate in the Child Care Food Program 
under part 226 of this chapter are eligible to receive donated foods 
under section 416, section 32, section 709, section 6 and section 14.

[53 FR 20426, June 3, 1988, as amended at 58 FR 39123, July 22, 1993; 62 
FR 53729, Oct. 16, 1997]



Sec.  250.50  Service institutions.

    (a) Distribution. The distributing agency shall distribute donated 
foods only to those service institutions whose eligibility to receive 
donated foods for use in the Summer Food Service Program for Children 
under part 225 of this chapter has been confirmed in writing by the 
State agency or FNSRO administering the program, where applicable. Lists 
of participating service institutions which have been prepared by the 
administering State agency or FNSRO may serve as written confirmation of 
eligibility.
    (b) Quantities and value of donated foods. Distribution of donated 
foods to service institutions shall be made on the basis of the average 
daily number of meals by type to be served which meet the meal-type 
requirements prescribed in the regulations for the Summer Food Service 
Program for Children under part 225 of this chapter as evidenced by the 
most recent written caseload factor information which must be provided 
by the State agency or FNSRO administering the program

[[Page 481]]

to the distributing agency by June 1 of each year.
    (c) Types of donated foods authorized for donation. Service 
institutions which participate in the Summer Food Service Program for 
Children under part 225 of this chapter are eligible to receive donated 
foods under section 416, section 32, section 709, and section 14.



Sec.  250.51  Special Supplemental Nutrition Program for Women, Infants 
and Children.

    (a) Distribution. At the request of the State agency responsible for 
administering the Special Supplemental Nutrition Program for Women, 
Infants and Children (WIC Program) under part 246 of this chapter and 
with approval of the Department, donated foods may be made available for 
distribution to program participants. In instances when donated foods 
are made available, State agencies shall pay the Department using funds 
allocated to the State for the WIC Program for those donated foods which 
are provided to participants as part of the food package. Donated foods 
which are provided to participants in addition to the quantities 
authorized for the food package will be made available to the State 
agency free of charge.
    (b) Quantities and value of donated foods. Distribution of donated 
foods to State agencies for the WIC Program shall be made on the basis 
of each State agency's quarterly estimate of need.
    (c) Types of donated foods authorized for donation. State agencies 
participating in the WIC Program under part 246 of this chapter are 
eligible to receive donated foods under section 416 and section 32.



                  Subpart E_Where To Obtain Information



Sec.  250.60  Program information.

    Interested persons desiring information concerning the program may 
make written request to the following Regional Offices:
    (a) Northeast Region, Food and Nutrition Service, USDA, 10 Causeway 
Street, Boston, Massachusetts 02222-1065 for the following States: 
Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island 
and Vermont.
    (b) Mid-Atlantic Region, Food and Nutrition Service, USDA, Mercer 
Corporate Park, Corporate Blvd., CN 02150, Trenton, New Jersey 08650, 
for the following States: Delaware, District of Columbia, Maryland, New 
Jersey, Pennsylvania, Puerto Rico, Virginia, Virgin Islands and West 
Virginia.
    (c) Southeast Region, Food and Nutrition Service, USDA, 1100 Spring 
Street, NW, Atlanta, Georgia 30367, for the following States: Alabama, 
Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina 
and Tennessee.
    (d) Midwest Region, Food and Nutrition Service, USDA, 50 East 
Washington Street, Chicago, Illinois 60602, for the following States: 
Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin.
    (e) Mountain Plains Region, Food and Nutrition Service, USDA, 2420 
West 26th Avenue, Room 430-D, Denver, Colorado 80211, for the following 
States: Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North 
Dakota, South Dakota, Utah and Wyoming.
    (f) Southwest Region, Food and Nutrition Service, USDA, 1100 
Commerce Street, Room 5-C-30, Dallas, Texas 75242, for the following 
States: Arkansas, Louisiana, New Mexico, Oklahoma and Texas.
    (g) Western Region, Food and Nutrition Service, USDA, 550 Kearney 
Street, Room 400, San Francisco, California 94108 for the following 
States: Alaska, American Samoa, Arizona, California, Guam, Hawaii, 
Idaho, Nevada, Oregon, Trust Territory and Washington.



PART 251_THE EMERGENCY FOOD ASSISTANCE PROGRAM--Table of Contents




Sec.
251.1 General purpose and scope.
251.2 Administration.
251.3 Definitions.
251.4 Availability of commodities.
251.5 Eligibility determinations.
251.6 Distribution plan.
251.7 Formula adjustments.
251.8 Payment of funds for administrative costs.
251.9 Matching of funds.

[[Page 482]]

251.10 Miscellaneous provisions.

    Authority: 7 U.S.C. 7501-7516.

    Source: 51 FR 12823, Apr. 16, 1986, unless otherwise noted.



Sec.  251.1  General purpose and scope.

    This part announces the policies and prescribes the regulations 
necessary to carry out certain provisions of the Emergency Food 
Assistance Act of 1983, (7 U.S.C. 612c note).

[51 FR 12823, Apr. 16, 1986, as amended at 64 FR 72902, Dec. 29, 1999]



Sec.  251.2  Administration.

    (a) Food and Nutrition Service. Within the United States Department 
of Agriculture (the ``Department''), the Food and Nutrition Service 
(FNS) shall have responsibility for the distribution of food commodities 
and allocation of funds under the part.
    (b) State AgenciesWithin the States, distribution to eligible 
recipient agencies and receipt of payments for storage and distribution 
shall be the responsibility of the State agency which has: (1) Been 
designated for such responsibility by the Governor or other appropriate 
State executive authority; and (2) entered into an agreement with the 
Department for such distribution and receipt in accordance with 
paragraph (c) of this section.
    (c) Agreements. (1) Agreements between Department and States. Each 
State agency that distributes donated foods to eligible recipient 
agencies or receives payments for storage and distribution costs in 
accordance with Sec.  251.8 must perform those functions pursuant to an 
agreement entered into with the Department. This agreement will be 
considered permanent, with amendments initiated by State agencies, or 
submitted by them at the Department's request, all of which will be 
subject to approval by the Department.
    (2) Agreements between State agencies and eligible recipient 
agencies, and between eligible recipient agencies. Prior to making 
donated foods or administrative funds available, State agencies must 
enter into a written agreement with eligible recipient agencies to which 
they plan to distribute donated foods and/or administrative funds. State 
agencies must ensure that eligible recipient agencies in turn enter into 
a written agreement with any eligible recipient agencies to which they 
plan to distribute donated foods and/or administrative funds before 
donated foods or administrative funds are transferred between any two 
eligible recipient agencies. All agreements entered into must contain 
the information specified in paragraph (d) of this section, and be 
considered permanent, with amendments to be made as necessary, except 
that agreements must specify that they may be terminated by either party 
upon 30 days' written notice. State agencies must ensure that eligible 
recipient agencies provide, on a timely basis, by amendment to the 
agreement, or other written documents incorporated into the agreement by 
reference if permitted under paragraph (d) of this section, any 
information on changes in program administration, including any changes 
resulting from amendments to Federal regulations or policy.
    (d) Contents of agreements between State agencies and eligible 
recipient agencies and between eligible recipient agencies. (1) 
Agreements between State agencies and eligible recipient agencies and 
between eligible recipient agencies must provide:
    (i) That eligible recipient agencies agree to operate the program in 
accordance with the requirements of this part, and, as applicable, part 
250 of this chapter; and
    (ii) The name and address of the eligible recipient agency receiving 
commodities and/or administrative funds under the agreement.
    (2) The following information must also be identified, either in the 
agreement or other written documents incorporated by reference in the 
agreement:
    (i) If the State agency delegates the responsibility for any aspect 
of the program to an eligible recipient agency, each function for which 
the eligible recipient agency will be held responsible; except that in 
no case may State agencies delegate responsibility for establishing 
eligibility criteria for organizations in accordance with Sec.  
251.5(a), establishing eligibility criteria for recipients in accordance 
with Sec.  251.5(b), or

[[Page 483]]

conducting reviews of eligible recipient agencies in accordance with 
Sec.  251.10(e);
    (ii) If the receiving eligible recipient agency is to be allowed to 
further distribute TEFAP commodities and/or administrative funds to 
other eligible recipient agencies, the specific terms and conditions for 
doing so, including, if applicable, a list of specific organizations or 
types of organizations eligible to receive commodities or administrative 
funds;
    (iii) If the use of administrative funds is restricted to certain 
types of expenses pursuant to Sec.  251.8(e)(2), the specific types of 
administrative expenses eligible recipient agencies are permitted to 
incur;
    (iv) Any other conditions set forth by the State agency.

[51 FR 12823, Apr. 16, 1986, as amended at 51 FR 17933, May 13, 1987; 59 
FR 16974, Apr. 11, 1994; 62 FR 53731, Oct. 16, 1997; 64 FR 72902, 72903, 
Dec. 29, 1999]



Sec.  251.3  Definitions.

    (a) The terms used in this part that are defined in part 250 of this 
chapter have the meanings ascribed to them therein, unless a different 
meaning for such a term is defined herein.
    (b) Charitable institution (which is defined differently in this 
part than in part 250 of this chapter) means an organization which--
    (1) Is public, or
    (2) Is private, possessing tax exempt status pursuant to Sec.  
251.5(a)(3); and
    (3) Is not a penal institution (this exclusion also applies to 
correctional institutions which conduct rehabilitation programs); and
    (4) Provides food assistance to needy persons.
    (c) Distribution site means a location where the eligible recipient 
agency actually distributes commodities to needy persons for household 
consumption or serves prepared meals to needy persons under this part.
    (d) Eligible recipient agency means an organization which--
    (1) Is public, or
    (2) Is private, possessing tax exempt status pursuant to Sec.  
251.5(a)(3); and
    (3) Is not a penal institution; and
    (4) Provides food assistance--
    (i) Exclusively to needy persons for household consumption, pursuant 
to a means test established pursuant to Sec.  251.5 (b), or
    (ii) Predominantly to needy persons in the form of prepared meals 
pursuant to Sec.  251.5(a)(2); and
    (5) Has entered into an agreement with the designated State agency 
pursuant to Sec.  251.2(c) for the receipt of commodities or 
administrative funds, or receives commodities or administrative funds 
under an agreement with another eligible recipient agency which has 
signed such an agreement with the State agency or another eligible 
recipient agency within the State pursuant to Sec.  251.2(c); and
    (6) Falls into one of the following categories:
    (i) Emergency feeding organizations (including food banks, food 
pantries and soup kitchens);
    (ii) Charitable institutions (including hospitals and retirement 
homes);
    (iii) Summer camps for children, or child nutrition programs 
providing food service;
    (iv) Nutrition projects operating under the Older Americans Act of 
1965 (Nutrition Program for the Elderly), including projects that 
operate congregate Nutrition sites and projects that provide home-
delivered meals; and
    (v) Disaster relief programs.
    (e) Emergency feeding organization means an eligible recipient 
agency which provides nutrition assistance to relieve situations of 
emergency and distress through the provision of food to needy persons, 
including low-income and unemployed persons. Emergency feeding 
organizations have priority over other eligible recipient agencies in 
the distribution of TEFAP commodities pursuant to Sec.  251.4(h).
    (f) Food bank means a public or charitable institution that 
maintains an established operation involving the provision of food or 
edible commodities, or the products of food or edible commodities, to 
food pantries, soup kitchens, hunger relief centers, or other food or 
feeding centers that, as an integral part of their normal activities, 
provide meals or food to feed needy persons on a regular basis.
    (g) Food pantry means a public or private nonprofit organization 
that distributes food to low-income and unemployed households, including 
food from

[[Page 484]]

sources other than the Department of Agriculture, to relieve situations 
of emergency and distress.
    (h) Formula means the formula used by the Department to allocate 
among States the commodities and funding available under this part. The 
amount of such commodities and funds to be provided to each State will 
be based on each State's population of low-income and unemployed 
persons, as compared to national statistics. Each State's share of 
commodities and funds shall be based 60 percent on the number of persons 
in households within the State having incomes below the poverty level 
and 40 percent on the number of unemployed persons within the State. The 
surplus commodities will be allocated to States on the basis of their 
weight (pounds), and the commodities purchased under section 214 of the 
Emergency Food Assistance Act of 1983 will be allocated on the basis of 
their value (dollars). In instances in which a State determines that it 
will not accept the full amount of its allocation of commodities 
purchased under section 214 of the Emergency Food Assistance Act of 
1983, the Department will reallocate the commodities to other States on 
the basis of the same formula used for the initial allocation.
    (i) State agency means the State government unit designated by the 
Governor or other appropriate State executive authority which has 
entered into an agreement with the United States Department of 
Agriculture under Sec.  251.2(c).
    (j) Soup kitchen means a public or charitable institution that, as 
an integral part of the normal activities of the institution, maintains 
an established feeding operation to provide food to needy homeless 
persons on a regular basis.
    (k) Value of commodities distributed means the Department's cost of 
acquiring commodities for distribution under this part.

[64 FR 72903, Dec. 29, 1999]



Sec.  251.4  Availability of commodities.

    (a) General. The Department shall make commodities available for 
distribution and use in accordance with the provisions of this part and 
also in accordance with the terms and conditions of part 250 of this 
chapter to the extent that the part 250 terms and conditions are not 
inconsistent with this part.
    (b) Displacement. State agencies shall require that eligible 
recipient agencies receiving commodities under this part shall not 
diminish their normal expenditures for food because of receipt of 
commodities. Additionally, the Secretary shall withhold commodities from 
distribution if it is determined that the commodities would substitute 
for the same or a similar product that would otherwise be purchased in 
the market.
    (c) Allocations. (1) Allocations of commodities shall be made to 
State agencies on the basis of the formula defined in Sec.  251.3(h).
    (2) FNS shall promptly notify State agencies regarding their 
allocation of commodities to be made available under this part.
    (3) State agencies shall notify the appropriate FNSRO of the amount 
of the commodities they will accept not later than 30 days prior to the 
beginning of the shipping period.
    (d) Quantities requested. State agencies shall:
    (1) Request commodities only in quantities which can be utilized 
without waste in providing food assistance to needy persons under this 
part;
    (2) Ensure that no eligible recipient agency receives commodities in 
excess of anticipated use, based on inventory records and controls, or 
in excess of its ability to accept and store such commodities; and
    (e) Initial processing and packaging. The Department will furnish 
commodities to be distributed to institutions and to needy persons in 
households in forms and units suitable for institutional and home use.
    (f) Bulk processing by States. Commodities may be made available to 
a State agency or, at the direction of the State agency, directly to 
private companies for processing bulk commodities for use by eligible 
recipient agencies.
    (1) The Department will reimburse the State agency at the current 
flat rate for such processing.
    (2) Minimum yields and product specifications established by the 
Department shall be met by the processor.

[[Page 485]]

    (3) The State shall require the processor to meet State and local 
health standards.
    (4) The external shipping containers of processed products shall be 
clearly labeled ``Donated by the U.S. Department of Agriculture--Not to 
be Sold or Exchanged''. Internal packaging shall be clearly marked 
``Donated by the U.S. Department of Agriculture--Processed Under 
Agreement with the State of ------.'' FNS may grant waivers to the 
internal label requirement if the enforcement of this requirement 
precludes a State's participation in the program, or in cases where 
other processors are not available who are able to meet the labeling 
requirement within the allowed reimbursement.
    (5) Processors and State agencies shall also meet the basic minimum 
requirements of Sec.  250.30.
    (g) Availability and control of donated commodities. Donated 
commodities will be made available to State agencies only for 
distribution and use in accordance with this part. Except as otherwise 
provided in paragraph (f) of this section, donated commodities not so 
distributed or used for any reason may not be sold, exchanged, or 
otherwise disposed of without the approval of the Department. However, 
donated commodities made available under section 32 of Pub. L. 74-320 (7 
U.S.C. 612c) may be transferred by eligible recipient agencies receiving 
commodities under this part, or recipient agencies, as defined in Sec.  
250.3 of this chapter, to any other eligible recipient agency or 
recipient agency which agrees to use such donated foods to provide 
without cost or waste, nutrition assistance to individuals in low-income 
groups. Such transfers will be effected only with prior authorization by 
the appropriate State agency and must be documented. Such documentation 
shall be maintained in accordance with Sec.  251.10(a) of this part and 
Sec.  250.16 of this chapter by the distributing agency and the State 
agency responsible for administering TEFAP and made available for review 
upon request.
    (h) Distribution to eligible recipient agencies--priority system and 
advisory boards. (1) State agencies must distribute commodities made 
available under this part to eligible recipient agencies in accordance 
with the following priorities:
    (i) First priority. When a State agency cannot meet all eligible 
recipient agencies' requests for TEFAP commodities, the State agency 
must give priority in the distribution of such commodities to emergency 
feeding organizations as defined under Sec.  251.3(e). A State agency 
may, at its discretion, concentrate commodity resources upon a certain 
type or types of such organizations, to the exclusion of others.
    (ii) Second priority. After a State agency has distributed TEFAP 
commodities sufficient to meet the needs of all emergency feeding 
organizations, the State agency must distribute any remaining program 
commodities to other eligible recipient agencies which serve needy 
people, but do not relieve situations of emergency and distress. A State 
agency may, at its discretion, concentrate commodity resources upon a 
certain type or types of such organizations, to the exclusion of others.
    (2) Delegation. When a State agency has delegated to an eligible 
recipient agency the authority to select other eligible recipient 
agencies, the eligible recipient agency exercising this authority must 
ensure that any TEFAP commodities are distributed in accordance with the 
priority system set forth in paragraphs (h)(1)(i) and (h)(1)(ii) of this 
section. State agencies and eligible recipient agencies will be deemed 
to be in compliance with the priority system when eligible recipient 
agencies distribute TEFAP commodities to meet the needs of all emergency 
feeding organizations under their jurisdiction prior to making 
commodities available to eligible recipient agencies which are not 
emergency feeding organizations.
    (3) Existing networks. Subject to the constraints of paragraphs 
(h)(1)(i) and (h)(1)(ii) of this section, State agencies may give 
priority in the distribution of TEFAP commodities to existing food bank 
networks and other organizations whose ongoing primary function is to 
facilitate the distribution of food to low-income households, including 
food from sources other than the Department.
    (4) State advisory boards. Each State agency receiving TEFAP 
commodities

[[Page 486]]

is encouraged to establish a State advisory board representing all types 
of entities in the State, both public and private, interested in the 
distribution of such commodities. Such advisory boards can provide 
valuable advice on how resources should be allocated among various 
eligible outlet types, what areas have the greatest need for food 
assistance, and other important issues that will help States to use 
their program resources in the most efficient and effective manner 
possible. A State agency may expend TEFAP administrative funds to 
support the activities of an advisory board in accordance with Sec.  
251.8 of this part.
    (i) Distribution of non-USDA foods. Eligible recipient agencies may 
incorporate the distribution of foods which have been donated by 
charitable organizations or other entities with the distribution of 
USDA-donated commodities or distribute them separately.
    (j) Interstate cooperation. State agencies may enter into 
interagency cooperative agreements to provide jointly or to transfer 
commodities to an eligible recipient agency that has signed an agreement 
with the respective State agencies when such organization serves needy 
persons in a contiguous area which crosses States' borders.
    (k) Distribution in rural areas. State agencies shall encourage 
eligible recipient agencies to implement or expand commodity 
distribution activities to relieve situations of emergency and distress 
through the provision of commodities to needy households in rural areas 
of the State.
    (l) Commodity losses. (1) The State agency shall be responsible for 
the loss of commodities:
    (i) When the loss arises from the State agency's improper 
distribution or use of any commodities or failure to provide proper 
storage, care, or handling; and
    (ii) When the State agency fails to pursue claims arising in its 
favor, fails to provide for the rights to assert such claims, or fails 
to require its eligible recipient agencies to provide for such rights.

Except as provided in paragraph (l)(4) of this section, the State agency 
shall begin claims action immediately upon receipt of information 
concerning the improper distribution, loss of or damage to commodities, 
and shall make a claim determination within 30 days of the receipt of 
information, as described in further detail in FNS Instruction 410-1, 
Non-Audit Claims--Food Distribution. The funds received from the 
collection of claims shall be returned to FNS. In instances in which it 
has been determined by the Department that the collection of funds will 
have a significant adverse effect on the operation of the program, the 
Department may permit in-kind replacement of the donated foods in lieu 
of payment to FNS. Replacement in kind will only be permitted under such 
terms and conditions as agreed to by the Secretary.
    (2) If the State agency itself causes the loss of commodities and 
the value exceeds $250, the State agency shall immediately transmit the 
claim determination to the FNS Regional Office, fully documented as to 
facts and findings. Except as provided in paragraph (l)(4) of this 
section, if the State agency itself causes the loss of commodities, and 
the value does not exceed $250, the State agency shall immediately 
return funds equal to the claim amount to FNS.
    (3) If the State agency determines that a claim exists against an 
eligible recipient agency, warehouseman, carrier or any other entity and 
the value of the lost commodities exceeds $2500, the State agency shall 
immediately transmit the claim determination to the appropriate FNS 
Regional Office, fully documented as to facts and findings. If FNS 
determines from its review of the claim determination that a claim 
exists, the State agency shall make demand for restitution upon the 
entity liable immediately upon receipt of notice from the FNS Regional 
Office. Except as provided in paragraph (l)(4) of this section, if the 
State agency determines that a claim exists in favor of the State agency 
against an eligible recipient agency, warehouseman, carrier or any other 
entity and the value of the lost commodities does not exceed $2500, the 
State agency shall immediately proceed to collect the claim.
    (4) No claim determination shall be required where the value of the 
lost commodities is $100 or less. However,

[[Page 487]]

no such claim shall be disregarded where:
    (i) There is evidence of fraud or a violation of Federal, State or 
local criminal law; or
    (ii) Program operations would be adversely affected.
    (5) The State agency shall maintain records and substantiating 
documents, on all claims actions and adjustments including documentation 
of those cases in which no claim was asserted because of the minimal 
amount involved.
    (6) In making final claim determinations for commodity losses 
incurred by eligible recipient agencies when there is no evidence of 
fraud or negligence, State agencies and FNS Regional Offices, as 
applicable, shall consider the special needs and circumstances of the 
eligible recipient agencies, and adjust the claim and/or conditions for 
claim collection as appropriate. These special needs and circumstances 
include but are not limited to the eligible recipient agency's use of 
volunteers and limited financial resources and the effect of the claim 
on the organization's ability to meet the food needs of low-income 
populations.

(Approved by the Office of Management and Budget under control number 
0584-0313 and 0584-0341)

[51 FR 12823, Apr. 16, 1986, as amended at 52 FR 17933, May 13, 1987; 52 
FR 42634, Nov. 6, 1987; 59 FR 16974, Apr. 11, 1994; 64 FR 72904, Dec. 
29, 1999]



Sec.  251.5  Eligibility determinations.

    (a) Criteria for determining eligibility of organizations. Prior to 
making commodities or administrative funds available, State agencies, or 
eligible recipient agencies to which the State agency has delegated 
responsibility for the distribution of TEFAP commodities or 
administrative funds, must ensure that an organization applying for 
participation in the program meets the definition of an ``eligible 
recipient agency'' under Sec.  251.3(d). In addition, applicant 
organizations must meet the following criteria:
    (1) Agencies distributing to households. Organizations distributing 
commodities to households for home consumption must limit the 
distribution of commodities provided under this part to those households 
which meet the eligibility criteria established by the State agency in 
accordance with paragraph (b) of this section.
    (2) Agencies providing prepared meals. Organizations providing 
prepared meals must demonstrate, to the satisfaction of the State 
agency, or eligible recipient agency to which they have applied for the 
receipt of commodities or administrative funds, that they serve 
predominantly needy persons. State agencies may establish a higher 
standard than ``predominantly'' and may determine whether organizations 
meet the applicable standard by considering socioeconomic data of the 
area in which the organization is located, or from which it draws its 
clientele. State agencies may not, however, require organizations to 
employ a means test to determine that recipients are needy, or to keep 
records solely for the purpose of demonstrating that its recipients are 
needy.
    (3) Tax-exempt status. Private organizations must--
    (i) Be currently operating another Federal program requiring tax-
exempt status under the Internal Revenue Code (IRC), or
    (ii) Possess documentation from the Internal Revenue Service (IRS) 
recognizing tax-exempt status under the IRC, or
    (iii) If not in possession of such documentation, be automatically 
tax exempt as ``organized or operated exclusively for religious 
purposes'' under the IRC, or
    (iv) If not in possession of such documentation, but required to 
file an application under the IRC to obtain tax-exempt status, have made 
application for recognition of such status and be moving toward 
compliance with the requirements for recognition of tax-exempt status. 
If the IRS denies a participating organization's application for 
recognition of tax-exempt status, the organization must immediately 
notify the State agency or the eligible recipient agency, whichever is 
appropriate, of such denial, and that agency will terminate the 
organization's agreement and participation immediately upon receipt of 
such notification. If documentation of IRS recognition of tax-exempt 
status has not been

[[Page 488]]

obtained and forwarded to the appropriate agency within 180 days of the 
effective date of the organization's approval for participation in 
TEFAP, the State agency or eligible recipient agency must terminate the 
organization's participation until such time as recognition of tax-
exempt status is actually obtained, except that the State agency or 
eligible recipient agency may grant a single extension not to exceed 90 
days if the organization can demonstrate, to the State agency's or 
eligible recipient agency's satisfaction, that its inability to obtain 
tax-exempt status within the 180 day period is due to circumstances 
beyond its control. It is the responsibility of the organization to 
document that it has complied with all IRS requirements and has provided 
all information requested by IRS in a timely manner.
    (b) Criteria for determining recipient eligibility. Each State 
agency must establish uniform Statewide criteria for determining the 
eligibility of households to receive commodities provided under this 
part for home consumption. The criteria must:
    (1) Enable the State agency to ensure that only households which are 
in need of food assistance because of inadequate household income 
receive TEFAP commodities;
    (2) Include income-based standards and the methods by which 
households may demonstrate eligibility under such standards; and
    (3) Include a requirement that the household reside in the 
geographic location served by the State agency at the time of applying 
for assistance, but length of residency shall not be used as an 
eligibility criterion.
    (c) Delegation of authority. A State agency may delegate to one or 
more eligible recipient agencies with which the State agency enters into 
an agreement the responsibility for the distribution of commodities and 
administrative funds made available under this part. State agencies may 
also delegate the authority for selecting eligible recipient agencies 
and for determining the eligibility of such organizations to receive 
commodities and administrative funds. However, responsibility for 
establishing eligibility criteria for organizations in accordance with 
paragraph (a) of this section, and for establishing recipient 
eligibility criteria in accordance with paragraph (b) of this section, 
may not be delegated. In instances in which State agencies delegate 
authority to eligible recipient agencies to determine the eligibility of 
organizations to receive commodities and administrative funds, 
eligibility must be determined in accordance with the provisions 
contained in this part and the State plan. State agencies will remain 
responsible for ensuring that commodities and administrative funds are 
distributed in accordance with the provisions contained in this part.

[64 FR 72904, Dec. 29, 1999]



Sec.  251.6  Distribution plan.

    (a) Contents of the plan. The State agency must submit for approval 
by the appropriate FNS Regional Office a plan which contains:
    (1) A designation of the State agency responsible for distributing 
commodities and administrative funds provided under this part, and the 
address of such agency;
    (2) A plan of operation and administration to expeditiously 
distribute commodities received under this part;
    (3) A description of the standards of eligibility for recipient 
agencies, including any subpriorities within the two-tier priority 
system; and
    (4) A description of the criteria established in accordance with 
Sec.  251.5(b) which must be used by eligible recipient agencies in 
determining the eligibility of households to receive TEFAP commodities 
for home consumption.
    (b) Plan submission. A complete plan will be required for Fiscal 
Year 2001, to be submitted no later than August 15, 2000. Thereafter, a 
complete plan must be submitted every 4 years, due no later than August 
15 of the fiscal year prior to the end of the 4 year cycle.
    (c) Amendments. State agencies must submit amendments to the 
distribution plan to the extent that such amendments are necessary to 
reflect any changes in program operations or administration as described 
in the plan, or at the request of FNS, to the appropriate FNS Regional 
Office.

[64 FR 72905, Dec. 29, 1999]

[[Page 489]]



Sec.  251.7  Formula adjustments.  Formula adjustments.

    (a) Commodity adjustments. The Department will make annual 
adjustments to the commodity allocation for each State, based on updated 
unemployment statistics. These adjusted allocations will be effective 
for the entire fiscal year, subject to reallocation or transfer in 
accordance with this part.
    (b) Funds adjustments. The Department will make annual adjustments 
of the funds allocation for each State based on updated unemployment 
statistics. These adjusted allocations will be effective for the entire 
fiscal year unless funds are recovered, withheld, or reallocated by FNS 
in accordance with Sec.  251.8(f).

[64 FR 72905, Dec. 29, 1999]



Sec.  251.8  Payment of funds for administrative costs.

    (a) Availability and allocation of funds. Funds made available to 
the Department for State and local costs associated with the 
distribution of commodities under this part shall, in any fiscal year, 
be distributed to each State agency on the basis of the funding formula 
defined in Sec.  251.3(h).
    (b) Uniform Federal Assistance Regulations. Funds provided under 
this section shall be subject to the Department's regulations issued 
under 7 CFR part 3016 or part 3019, as applicable.
    (c) Payment to States. (1) Funds under this section shall be made 
available by means of letters of credit in favor of the State agency. 
The State agency shall use any funds received without delay in 
accordance with paragraph (d) of this section.
    (2) Upon notification by the FNS Regional Office that an agreement 
has been entered into in accordance with Sec.  251.2(c) of this part, 
FNS shall issue a grant award pursuant to procedures established by FNS, 
and promptly make funds available to each State agency within the 
State's allocation through issuance of a letter of credit. To the extent 
funds are available and subject to the provisions of paragraph (f) of 
this section, funds will be made available to State agencies on an 
advance basis.
    (3) Each State agency shall return to FNS any funds made available 
under this section either through the original allocation or through 
subsequent reallocations which are unobligated as of the end of the 
fiscal year for which they were made available. Such return shall be 
made as soon as practicable but in no event later than 30 days following 
demand made by FNS.
    (d) Priority for eligible recipient agencies distributing USDA 
commodities. State agencies and eligible recipient agencies distributing 
administrative funds must ensure that the administrative funding needs 
of eligible recipient agencies which receive USDA commodities are met, 
relative to both USDA commodities and any non-USDA commodities they may 
receive, before such funding is made available to eligible recipient 
agencies which distribute only non-USDA commodities.
    (e) Use of funds. (1) Allowable administrative costs. State agencies 
and eligible recipient agencies may use funds made available under this 
part to pay the direct expenses associated with the distribution of USDA 
commodities and commodities secured from other sources to the extent 
that the commodities are ultimately distributed by eligible recipient 
agencies which have entered into agreements in accordance with Sec.  
251.2. Direct expenses include the following, regardless of whether they 
are charged to TEFAP as direct or indirect costs:
    (i) The intrastate and interstate transport, storing, handling, 
repackaging, processing, and distribution of commodities; except that 
for interstate expenditures to be allowable, the commodities must have 
been specifically earmarked for the particular State or eligible 
recipient agency which incurs the cost;
    (ii) Costs associated with determinations of eligibility, 
verification, and documentation;
    (iii) Costs of providing information to persons receiving USDA 
commodities concerning the appropriate storage and preparation of such 
commodities;
    (iv) Costs involved in publishing announcements of times and 
locations of distribution; and

[[Page 490]]

    (v) Costs of recordkeeping, auditing, and other administrative 
procedures required for program participation.
    (2) State restriction of administrative costs. A State agency may 
restrict the use of TEFAP administrative funds by eligible recipient 
agencies by disallowing one or more types of expenses expressly allowed 
in paragraph (e)(1) of this section. If a State agency so restricts the 
use of administrative funds, the specific types of expenses the State 
will allow eligible recipient agencies to incur must be identified in 
the State agency's agreements with its eligible recipient agencies, or 
set forth by other written notification, incorporated into such 
agreements by reference.
    (3) Agreements. In order to be eligible for funds under paragraph 
(e)(1) of this section, eligible recipient agencies must have entered 
into an agreement with the State agency or another eligible recipient 
agency pursuant to Sec.  251.2(c).
    (4) Pass-through requirement-local support to emergency feeding 
organizations. (i) Not less than 40 percent of the Federal Emergency 
Food Assistance Program administrative funds allocated to the State 
agency in accordance with paragraph (a) of this section must be:
    (A) Provided by the State agency to emergency feeding organizations 
that have signed an agreement with the State agency as either 
reimbursement or advance payment for administrative costs incurred by 
emergency feeding organizations in accordance with paragraph (e)(1) of 
this section, except that such emergency feeding organizations may 
retain advance payments only to the extent that they actually incur such 
costs; or
    (B) Directly expended by the State agency to cover administrative 
costs incurred by, or on behalf of, emergency feeding organizations in 
accordance with paragraph (e)(1) of this section.
    (ii) Any funds allocated to or expended by the State agency to cover 
costs incurred by eligible recipient agencies which are not emergency 
feeding organizations shall not count toward meeting the pass-through 
requirement.
    (iii) State agencies must not charge for commodities made available 
under this part to eligible recipient agencies.
    (f) Recovery and reallocation. If, during the course of the fiscal 
year, the Department determines that a State agency is unable to use all 
of the funds allocated to it during the fiscal year, the Department 
shall recover or withhold and reallocate such unused funds among other 
States.

[51 FR 12823, Apr. 16, 1986, as amended at 59 FR 16974, Apr. 11, 1994; 
64 FR 72906, Dec. 29, 1999]



Sec.  251.9  Matching of funds.

    (a) State matching requirement. The State must provide a cash or in-
kind contribution equal to the amount of TEFAP administrative funds 
received under Sec.  251.8 and retained by the State agency for State-
level costs or made available by the State agency directly to eligible 
recipient agencies that are not emergency feeding organizations as 
defined in Sec.  251.3(e). The State agency will not be required to 
match any portion of the Federal grant passed through for administrative 
costs incurred by emergency feeding organizations or directly expended 
by the State agency for such costs in accordance with Sec.  251.8(e)(4) 
of this part.
    (b) Exceptions. In accordance with the provisions of 48 U.S.C. 
1469a, American Samoa, Guam, the Virgin Islands and the Northern Mariana 
Islands shall be exempt from the matching requirements of paragraph (a) 
of this section if their respective matching requirements are under 
$200,000.
    (c) Applicable contributions. States shall meet the requirements of 
paragraph (a) of this section through cash or in-kind contributions from 
sources other than Federal funds which are prohibited by law from being 
used to meet a Federally mandated State matching requirement. Such 
contributions shall meet the requirements set forth in 7 CFR 3016.24. In 
accordance with part 3016 or 3019, as applicable, the matching 
requirement shall not be met by contributions for costs supported by 
another Federal grant, except as provided by Federal statute. Allowable 
contributions are only those contributions for costs which would 
otherwise

[[Page 491]]

be allowable as State or local-level administrative costs.
    (1) Cash. An allowable cash contribution is any cash outlay of the 
State agency for a specifically identifiable allowable State- or local-
level administrative cost, including the outlay of money contributed to 
the State agency by other public agencies and institutions, and private 
organizations and individuals. Examples of cash contributions include, 
but are not limited to, expenditures for office supplies, storage space, 
transportation, loading facilities and equipment, employees' salaries, 
and other goods and services specifically identifiable as State- or 
local-level administrative costs for which there has been a cash outlay 
by the State agency.
    (2) In-kind. (i) Allowable in-kind contributions are any 
contributions, which are non-cash outlays, of real property and non-
expendable personal property and the value of goods and services 
specifically identifiable with allowable State administrative costs or, 
when contributed by the State agency to an eligible recipient agency, 
allowable local-level administrative costs. Examples of in-kind 
contributions include, but are not limited to, the donation of office 
supplies, storage space, vehicles to transport the commodities, loading 
facilities and equipment such as pallets and forklifts, and other non-
cash goods or services specifically identifiable with allowable State-
level administrative costs or, when contributed by the State agency to 
an eligible recipient agency, allowable local-level administrative 
costs. In-kind contributions shall be valued in accordance with part 
3016 or 3019, as applicable.
    (ii) In order for a third-party in-kind contribution to qualify as a 
State-level administrative cost for purposes of meeting the match, all 
of the following criteria shall be met:
    (A) In its administration of food assistance programs, the State has 
performed this type of function over a sustained period of time in the 
past;
    (B) The function was not previously performed by the State on behalf 
of eligible recipient agencies; and
    (C) The State would normally perform the function as part of its 
responsibility in administering TEFAP or related food assistance 
programs if it were not provided as an in-kind contribution.
    (d) Assessment fees. States shall not assess any fees for the 
distribution of donated foods to eligible recipient agencies.
    (e) Reporting requirements. State agencies shall identify their 
matching contribution on the FNS-667, Report of TEFAP Administrative 
Costs, in accordance with Sec.  251.10(d).
    (f) Failure to match. If, during the course of the fiscal year, the 
quarterly FNS-667 indicates that the State is or will be unable to meet 
the matching requirements in whole or in part, the Department shall 
suspend or disallow the unmatched portion of Federal funds subject to 
the provisions of paragraph (a) of this section. If, upon submission of 
the final FNS-667 for the fiscal year, the Department determines that 
the State has not met the requirements of paragraph (a) of this section 
in whole or in part, the unmatched portion of Federal funds subject to 
the requirements of paragraph (a) of this section shall be subject to 
disallowance by FNS.

[52 FR 17934, May 13, 1987, as amended at 59 FR 16975, Apr. 11, 1994; 64 
FR 72906, Dec. 29, 1999]



Sec.  251.10  Miscellaneous provisions.

    (a) Records. (1) Commodities. State agencies, subdistributing 
agencies (as defined in Sec.  250.3 of this chapter), and eligible 
recipient agencies must maintain records to document the receipt, 
disposal, and inventory of commodities received under this part that 
they, in turn, distribute to eligible recipient agencies. Such records 
must be maintained in accordance with the requirements set forth in 
Sec.  250.16 of this chapter. Eligible recipient agencies must sign a 
receipt for program commodities which they receive under this part for 
distribution to households or for use in preparing meals, and records of 
all such receipts must be maintained.
    (2) Administrative funds. In addition to maintaining financial 
records in accordance with 7 CFR part 3016, State agencies must maintain 
records to document the amount of funds received

[[Page 492]]

under this part and paid to eligible recipient agencies for allowable 
administrative costs incurred by such eligible recipient agencies. State 
agencies must also ensure that eligible recipient agencies maintain such 
records.
    (3) Household information. Each distribution site must collect and 
maintain on record for each household receiving TEFAP commodities for 
home consumption, the name of the household member receiving 
commodities, the address of the household (to the extent practicable), 
the number of persons in the household, and the basis for determining 
that the household is eligible to receive commodities for home 
consumption.
    (4) Record retention. All records required by this section must be 
retained for a period of 3 years from the close of the Federal Fiscal 
Year to which they pertain, or longer if related to an audit or 
investigation in progress. State agencies may take physical possession 
of such records on behalf of their eligible recipient agencies. However, 
such records must be reasonably accessible at all times for use during 
management evaluation reviews, audits or investigations.
    (b) Commodities not income. In accordance with section 206 of Pub. 
L. 98-8, as amended, and notwithstanding any other provision of law, 
commodities distributed for home consumption and meals prepared from 
commodities distributed under this part shall not be considered income 
or resources for any purposes under any Federal, State, or local law.
    (c) Nondiscrimination. There shall be no discrimination in the 
distribution of foods for home consumption or availability of meals 
prepared from commodities donated under this part because of race, 
color, national origin, sex, age, or handicap.
    (d) Reports. (1) Submission of Form FNS-667. Designated State 
agencies must identify funds obligated and disbursed to cover the costs 
associated with the program at the State and local level. State and 
local costs must be identified separately. The data must be identified 
on Form FNS-667, Report of Administrative Costs (TEFAP) and submitted to 
the appropriate FNS Regional Office on a quarterly basis. The quarterly 
report must be submitted no later than 30 calendar days after the end of 
the quarter to which it pertains. The final report must be submitted no 
later than 90 calendar days after the end of the fiscal year to which it 
pertains.
    (2) Reports of excessive inventory. Each State agency must complete 
and submit to the FNS Regional Office reports to ensure that excessive 
inventories of donated foods are not maintained, in accordance with the 
requirements of Sec.  250.17(a) of this chapter.
    (e) State monitoring system. (1) Each State agency must monitor the 
operation of the program to ensure that it is being administered in 
accordance with Federal and State requirements. State agencies may not 
delegate this responsibility.
    (2) Unless specific exceptions are approved in writing by FNS, the 
State agency monitoring system must include:
    (i) An annual review of at least 25 percent of all eligible 
recipient agencies which have signed an agreement with the State agency 
pursuant to Sec.  251.2(c), provided that each such agency must be 
reviewed no less frequently than once every four years; and
    (ii) An annual review of one-tenth or 20, whichever is fewer, of all 
eligible recipient agencies which receive TEFAP commodities and/or 
administrative funds pursuant to an agreement with another eligible 
recipient agency. Reviews must be conducted, to the maximum extent 
feasible, simultaneously with actual distribution of commodities and/or 
meal service, and eligibility determinations, if applicable. State 
agencies must develop a system for selecting eligible recipient agencies 
for review that ensures deficiencies in program administration are 
detected and resolved in an effective and efficient manner.
    (3) Each review must encompass, as applicable, eligibility 
determinations, food ordering procedures, storage and warehousing 
practices, inventory controls, approval of distribution sites, reporting 
and recordkeeping requirements, and civil rights.
    (4) Upon concurrence by FNS, reviews of eligible recipient agencies

[[Page 493]]

which have been conducted by FNS Regional Office personnel may be 
incorporated into the minimum coverage required by paragraph (e)(2) of 
this section.
    (5) If deficiencies are disclosed through the review of an eligible 
recipient agency, the State agency must submit a report of the review 
findings to the eligible recipient agency and ensure that corrective 
action is taken to eliminate the deficiencies identified.
    (f) Limitation on unrelated activities. (1) Activities unrelated to 
the distribution of TEFAP foods or meal service may be conducted at 
distribution sites as long as:
    (i) The person(s) conducting the activity makes clear that the 
activity is not part of TEFAP and is not endorsed by the Department 
(impermissible activities include information not related to TEFAP 
placed in or printed on bags, boxes, or other containers in which 
commodities are distributed). Recipes or information about commodities, 
dates of future distributions, hours of operations, or other Federal, 
State, or local government programs or services for the needy may be 
distributed without a clarification that the information is not endorsed 
by the Department;
    (ii) The person(s) conducting the activity makes clear that 
cooperation is not a condition of the receipt of TEFAP commodities for 
home consumption or prepared meals containing TEFAP commodities 
(cooperation includes contributing money, signing petitions, or 
conversing with the person(s)); and
    (iii) The activity is not conducted in a manner that disrupts the 
distribution of TEFAP commodities or meal service.
    (2) Eligible recipient agencies and distribution sites shall ensure 
that activities unrelated to the distribution of TEFAP foods or meal 
service are conducted in a manner consistent with paragraph (f)(1) of 
this section.
    (3) Termination for violation. Except as provided in paragraph 
(f)(4) of this section, State agencies shall immediately terminate from 
further participation in TEFAP operations any eligible recipient agency 
that distributes or permits distribution of materials in a manner 
inconsistent with the provisions of paragraph (f)(1) of this section.
    (4) Termination exception. The State agency may withhold termination 
of an eligible recipient agency's or distribution site's TEFAP 
participation if the State agency cannot find another eligible recipient 
agency to operate the distribution in the area served by the violating 
organization. In such circumstances, the State agency shall monitor the 
violating organization to ensure that no further violations occur.
    (g) Use of volunteer workers and non-USDA commodities. In the 
operation of the Emergency Food Assistance Program, State agencies and 
eligible recipient agencies shall, to the maximum extent practicable, 
use volunteer workers and foods which have been donated by charitable 
and other types of organizations.
    (h) Maintenance of effort. The State may not reduce the expenditure 
of its own funds to provide commodities or services to organizations 
receiving funds or services under the Emergency Food Assistance Act of 
1983 below the level of such expenditure existing in the fiscal year 
when the State first began administering TEFAP, or Fiscal Year 1988, 
which is the fiscal year in which the maintenance-of-effort requirement 
became effective, whichever is later.

(Approved by the Office of Management and Budget under control number 
0584-0313)

[51 FR 12823, Apr. 16, 1986. Redesignated and amended at 51 FR 17934, 
May 13, 1987; 53 FR 15357, Apr. 29, 1988; 59 FR 16975, Apr. 11, 1994; 62 
FR 53731, Oct. 16, 1997; 64 FR 72907, Dec. 29, 1999]



PART 252_NATIONAL COMMODITY PROCESSING PROGRAM--Table of Contents




Sec.
252.1 Purpose and scope.
252.2 Definitions.
252.3 Administration.
252.4 Application to participate and agreement.
252.5 Recipient agency responsibilities.
252.6 Miscellaneous provisions.
252.7 OMB control number.

    Authority: Sec. 416, Agricutural Act of 1949 (7 U.S.C. 1431).

[[Page 494]]


    Source: 51 FR 23518, June 30, 1986, unless otherwise noted.



Sec.  252.1  Purpose and scope.

    (a) Purpose. This part provides a program whereby the Food and 
Nutrition Service (FNS) and private processors of food may enter into 
agreements under which the processor will process and distribute 
designated donated food to eligible recipient agencies. The intent of 
the program is to encourage private industry, acting in cooperation with 
the States and FNS, to develop new markets in which donated food may be 
utilized. It is expected that the processors will use their marketing 
abilities to encourage eligible recipient agencies to participate in the 
program. Additionally, recipient agencies will benefit by being able to 
purchase processed end products at a substantially reduced price.
    (b) Scope. The terms and conditions set forth in this part are those 
under which processors may enter into agreements with FNS for the 
processing of commodities designated by the Secretary of Agriculture and 
the minimum requirements which NCP processors must meet. Also prescribed 
are distributing agency and recipient agency responsibilities.
    (c) Eligible recipient agencies. Recipient agencies shall be 
eligible to participate in the NCP Program to the extent of their 
eligibility to receive the food involved in the NCP Program, pursuant to 
Sec.  250.8 and part 251.



Sec.  252.2  Definitions.

    The terms used in this part that are defined in Sec. Sec.  250.3 and 
251.3 shall have the meanings ascribed to them therein, except as set 
forth in this section.
    Agreement value of the donated commodity means the price assigned by 
the Department to a donated food which reflects the Department's current 
acquisition price, transportation and, if applicable, processing costs 
related to the food.
    Distributing agencies means State, Federal or private agencies which 
enter into agreements with the Department for the distribution of 
donated food to eligible recipient agencies and recipients; and FNS when 
it accepts title to commodities from the Commodity Credit Corporation 
(CCC) for distribution to eligible recipient agencies under the National 
Commodity Processing Program. A recipient agency may also be a 
distributing agency.
    Donated food value return system means a system used by a processor 
or distributor to reduce the price of the end product by the agreement 
value of the donated commodity.
    NCP Program means a program under which FNS and private processors 
of food may enter into agreements under which the processor will process 
and distribute designated donated food to eligible recipient agencies.
    Recipient agency means disaster organizations, charitable 
institutions, nonprofit summer camps for children, school food service 
authorities, schools, service institutions, welfare agencies, nutrition 
programs for the elderly, nonresidential child care institutions and 
emergency feeding organizations.
    Refund means (1) a credit or check issued to a distributor in an 
amount equal to the NCP contract value of donated foods contained in an 
end product sold by the distributor to a recipient agency at a 
discounted price or (2) a check issued to a recipient agency in an 
amount equal to the NCP contract value of donated foods contained in an 
end product sold to the recipient agency under a refund system.
    Substitution means (1) the replacement of donated food with like 
quantities of domestically produced commercial food of the same generic 
identity and of equal or better quality (i.e., cheddar cheese for 
cheddar cheese, nonfat dry milk for nonfat dry milk, etc.); or (2) in 
the case of donated nonfat dry milk, substitution as defined under (1) 
of this paragraph or replacement with an equivalent amount, based on 
milk solids content, of domestically produced concentrated skim milk.

[51 FR 23518, June 30, 1986, as amended at 52 FR 24977, July 2, 1987; 53 
FR 34014, Sept. 2, 1988]



Sec.  252.3  Administration.

    (a) Role of FNS. The Secretary will designate those commodities 
which will be available under the NCP Program. Only commodities made 
available without charge or credit under

[[Page 495]]

any nutrition program administered by USDA will be available under NCP. 
FNS will act as the distributing agency and the contracting agency under 
the NCP Program. The Department will pay costs for delivering donated 
commodities to participating NCP Program processors.
    (b) Food orders. When NCP Program processors request donated food, 
FNS will determine whether the quantities ordered are consistent with 
the processor's ability to sell end products and/or the processor's past 
demonstrated performance under the Program. If the quantities are 
appropriate, FNS will request from CCC the donated food for transfer of 
title to FNS and delivery to a mutually agreed upon location for use by 
the NCP Program processor. The title to these commodities transfers to 
FNS upon their acceptance by the processor. FNS retains title to such 
commodities until:
    (1) They are distributed to eligible recipient agencies in processed 
form, at which time the recipient agency takes title;
    (2) They are disposed of because they are damaged or out-of-
condition; or
    (3) Title is transferred to the NCP Program processor upon 
termination of the agreement.
    (c) Substituted food. When the processor substitutes commercial food 
for donated food in accordance with Sec.  252.4(c)(7) of this part, 
title to the substituted food shall transfer to FNS upon the initiation 
of the processing of the end product containing the substituted food. 
Title to the equivalent amount of donated food shall transfer to the 
processor at the same time (except when the substitution is necessary to 
meet the 100 percent yield requirement or to otherwise replace missing 
or out-of-condition donated food). Once title has transferred, the 
processor shall use the substituted food in accordance with the terms 
and conditions of this part.
    (d) Inventory levels. FNS will monitor the inventory of each food 
processor to ensure that the quantity of donated food for which a 
processor is accountable is at the lowest cost-efficient level. In no 
event shall a processor hold in inventory more than a six-month supply, 
based on average monthly usage under the NCP Program, unless a higher 
level has been specifically approved by FNS on the basis of 
justification submitted by the processor. Under no circumstances should 
the amount of donated food requested by the processor be more than the 
processor can accept and store at any one time. FNS will make no further 
distribution to a processor whose inventory exceeds these limits until 
such time as the inventory is reduced.
    (e) Recipient agency registration. FNS will register, upon request, 
eligible recipient agencies. FNS will make available to food processors 
a listing of registered eligible recipient agencies for marketing 
purposes. Any processor desiring additional listings will be charged a 
fee for the listing which is commensurate with the Department's policy 
on user fees.

[51 FR 23518, June 30, 1986, as amended at 52 FR 24978, July 2, 1987; 59 
FR 62986, Dec. 7, 1994]



Sec.  252.4  Application to participate and agreement.

    (a) Application by processors to participate. Any food processor is 
eligible to apply for participation in the NCP Program. Agreement 
applications may be filed with FNS at any time on an FNS-approved form. 
FNS will accept or reject the application of each individual food 
processor within 30 days from the date of receipt, except that FNS may, 
at its discretion, extend such period if it needs more information in 
order to make its determination. In determining whether to accept or 
reject an application, FNS shall take into consideration at least the 
following matters: the financial responsibility of the applicant; the 
ability of the applicant to meet the terms and conditions of the 
regulations and the NCP agreement; ability to accept and store 
commodities in minimum truckload quantities; historical performance 
under the State and NCP processing programs; anticipated new markets for 
NCP end products; geographic areas served by the processor; the ability 
of the applicant to distribute processed products to eligible recipient 
agencies; and a satisfactory record of integrity, business ethics and 
performance. In addition, the processors must demonstrate

[[Page 496]]

their ability to sell end products under NCP by submitting supporting 
documentation such as written intent to purchase, bids awarded, or 
historical sales performance. FNS will make a final determination based 
on all available documentation submitted.
    (b) Agreement between FNS and Participating Food Processors. Upon 
approval of an application for participating in the NCP Program, FNS 
shall enter into an agreement with the applicant food processor. All 
agreements under the NCP Program will terminate on the June 30th 
following the agreement approval date. However, FNS may extend 
processing contracts for two 1-year periods, provided that any changed 
information must be updated before any contract extension is granted, 
including the information in paragraphs (c)(1) and (c)(5) of this 
section.
    (c) Processor requirements and responsibilities. In accordance with 
the following provisions and the NCP agreement, any processor 
participating in the NCP Program may sell to any eligible recipient 
agency nationwide a processed product containing the donated food 
received from FNS.
    (1) The processor shall submit to FNS end product data schedules 
which include a description of each end product to be processed, the 
quantity of each donated food and any other ingredient which is needed 
to yield a specific number of units of each end product. FNS may permit 
processors to specify the total quantity of any flavorings or seasonings 
which may be used without identifying the ingredients which are, or may 
be, components of seasonings or flavorings. The end product data 
schedule shall provide pricing information supplied by the processor as 
requested by FNS and a thorough explanation of what this pricing 
information represents. The end product data schedule shall be made a 
part of the NCP agreement.
    (2) When determining the value of the donated food, the processor 
shall use the agreement value of the donated food which shall be the 
price assigned by the Department to a donated food which reflects the 
Department's current acquisition price, transportation and, if 
applicable, processing costs related to the food.
    (3) The processor shall demonstrate to the satisfaction of FNS that 
internal controls are in place to insure that duplicate reporting of 
sales under the NCP Program and any other food distribution program does 
not occur.
    (4) The processor shall use a method of selling end products to 
recipient agencies which ensures that the price of each case of end 
product is reduced by the agreement value of the donated commodity and 
ensures proper accountability. In line with FNS guidelines and subject 
to FNS approval, the processor shall select one or more of the following 
donated food value return systems to use during the term of the 
agreement. Regardless of the method used, processors shall provide 
pricing information summaries to recipient agencies as soon as possible 
after contract approval by FNS. If the pricing information changes 
during the contract period, processors shall provide updated pricing 
information to FNS and the recipient agencies 30 days prior to the 
effective date. Regardless of the method chosen for selling end 
products, the processor shall reduce his inventory only by the amount of 
donated food represented by the discount or refund placed on the end 
product.
    (i) Direct sale. A direct sale is a sale by the processor directly 
to the eligible recipient agency. The following two methods of direct 
sales are allowed:
    (A) Discount system. When the recipient agency pays the processor 
directly for an end product purchased, the processor shall invoice the 
recipient agency at the net case price which shall reflect the value of 
the discount established in the agreement.
    (B) Refund system. The processor shall invoice the recipient agency 
for the commercial/gross price of the end product. The recipient agency 
shall submit a refund application to the processor within 30 days of 
receipt of the processed end product, except that recipient agencies may 
submit refund applications to a single processor on a Federal fiscal 
quarterly basis if the total anticipated refund due for all purchases of 
end product from that processor during the quarter is 25 dollars or 
less. The processor shall pay directly to the eligible recipient agency 
within

[[Page 497]]

30 days of receipt of the refund application from the recipient agency, 
an amount equal to the established agreement value of donated food per 
case of end product multiplied by the number of cases delivered to and 
accepted by the recipient agency, except that processors may group 
together refund applications for a single recipient agency on a Federal 
fiscal quarterly basis if the total anticipated refund due that 
recipient agency during the quarter is 25 dollars or less. In no event 
shall refund applications for purchases during the period of agreement 
be accepted by the processor later than 60 days after the close of the 
agreement period.
    (ii) Indirect sale. An indirect sale is a sale by the processor 
through a distributor to an eligible recipient agency. Indirect sales 
can be made with or without dual billing. Dual billing involves the 
processor billing the recipient agency for the end product and the 
distributor billing the recipient agency for the cost of services 
rendered in the handling and delivery of the end product. The following 
three methods of indirect sales are allowed:
    (A) Sale through distributor with dual billing. When end products 
are sold to recipient agencies through a distributor under a system 
utilizing dual billing, the processor shall invoice the recipient 
agencies directly for the end products purchased at the net case price 
which reflects the value of the discount established in the agreement. 
The processor shall ensure that the distributor bills the recipient 
agencies only for the services rendered in the handling and delivery of 
the end product. The processor shall maintain delivery and/or billing 
invoices to substantiate the quantity of end product delivered to each 
recipient agency and the net case price charged by the processor which 
reflects the discount established by the agreement.
    (B) Sale through distributor without dual billing. When end products 
are sold to recipient agencies through a distributor without dual 
billing, processors shall provide refunds to the distributor and ensure 
that the distributor provides discounts of equal value to recipient 
agencies. Under this system, the processor shall sell end products to a 
distributor at the processor's commercial/gross price for the end 
product. The processor's invoice shall reflect the value of commodities 
contained in the end product as established by the agreement. The 
processor shall ensure that the distributor submits a refund application 
to the processor within 30 days after the eligible recipient agency 
receives the processed end product. The processor shall ensure that the 
refund application includes documentation of the purchase of end 
products by the eligible recipient agency through substantiating 
invoices and that the recipient agency has purchased the end product at 
the net case price which reflects the value of the discount established 
by the agreement. Within 30 days of the receipt of the refund 
application, the processor shall issue payment directly to the 
distributor in an amount equal to the stated agreement value of the 
donated food contained in the purchased end products covered by the 
application. In no event shall refund applications for purchases during 
the period of agreement be accepted by the processors later than 60 days 
after the close of the agreement period. The processor shall verify a 
statistically valid sample of discount sales made by distributors 
without dual billing in a manner which ensures a 95 percent confidence 
level. All such sales reported during a quarter shall be verified at the 
end of that quarter. Processors shall verify that sales were made only 
to eligible recipient agencies and that the value of donated commodities 
was passed through to those recipient agencies. The processor shall 
report to FNS the level of invalid or inaccurate sales identified in 
each quarter within 60 days after the close of each quarter. At the same 
time such report is submitted, the processor shall submit to FNS a 
corrective action plan designed to correct problems identified in the 
verification effort. The processor shall adjust performance reports to 
reflect the invalid sales identified during the verification effort 
required by this paragraph. If, as a result of this verification, FNS 
determines that the value of donated food has not been passed on the 
recipient agencies or that end products have been improperly 
distributed, FNS may assert a claim against the processor.

[[Page 498]]

    (C) Sale through distributor with a refund. Under the refund system, 
processors shall sell end products to distributors at the commercial/
gross price of the end product. Distributors shall sell end products to 
recipient agencies at the commercial/gross price of the end products. 
Processors shall ensure that their invoices and the invoices of 
distributors identify the discount established by the agreement. 
Recipient agencies shall submit refund applications to processors within 
30 days of receipt of the processed end product. Within 30 days of the 
receipt of the refund application from the recipient agency certifying 
actual purchases of end product from substantiating invoices maintained 
by the recipient agency, the processor shall compute the amount and 
issue payment of the refund directly to the recipient agency. In no 
event shall refund applications for purchases during the period of the 
agreement be accepted by the processor later than 60 days after the 
close of the agreement period.
    (iii) Other value pass-through systems. Processors may submit to FNS 
for approval any proposed value pass-through (VPT) system not identified 
in this section. The ``other'' VPT system must, in the judgment of FNS, 
be verifiable and easily monitored. Any VPT system approved under this 
part must comply with the sales verification requirements specified in 
paragraph (c)(4)(ii)(B) of this section or an alternative system 
approved by FNS. If an alternative system is approved, FNS will notify 
the States in which the system will be used. The Department retains the 
authority to inspect and review all pertinent records under all VPT 
systems, including the verification of a required statistically valid 
sample of sales. FNS may consider the paperwork and resource burden 
associated with alternative value pass-through systems when considering 
approval and reserves the right to deny approval of systems which are 
labor-intensive and provide no greater accountability than those systems 
permitted under paragraph (c)(4) of this section.
    (5) The processor shall furnish to FNS prior to the ordering of any 
donated food for processing, a performance supply and surety bond 
obtained from surety companies listed in the current Department of 
Treasury Circular 570 or an irrevocable letter of credit to cover the 
amount of inventory on hand and on order.
    (6) The processor shall draw down inventory only for the amount of 
donated food used to produce the end product. In instances in which 
concentrated skim milk is substituted for nonfat dry milk, the processor 
shall draw down donated nonfat dry milk inventory only in an amount 
equal to the amount of concentrated skim milk, based on milk solids 
content, used to produce the end product. Processors shall ensure that 
an amount equivalent to 100 percent of the donated food provided to the 
processor under the NCP Program is physically contained in end products. 
Additional commodities required to account for loss of donated food 
during production shall be obtained from non-donated food.
    (7)(i) Only butter, cheese, corn grits, cornmeal, flour, macaroni, 
nonfat dry milk, peanut butter, peanut granules, roasted peanuts, rice, 
rolled oats, rolled wheat, shortening, vegetable oil, and spaghetti may 
be substituted as defined in Sec.  252.2 and such other food as FNS 
specifically approves as substitutable under paragraph (c)(7)(i)(A) of 
this section (substitution of meat and poultry items shall not be 
permitted).
    (A) Processors may request approval to substitute commercial foods 
for donated foods not listed in paragraph (c)(7)(i) of this section by 
submitting such request to FNS in writing and satisfying the 
requirements of paragraph (c)(7) of this section. FNS will notify the 
processor in writing of authorization to substitute commercial foods for 
donated foods not listed in paragraph (c)(7)(i) of this section and such 
authorization shall apply for the duration of all current contracts 
entered into by the processor pursuant to this section.
    (B) The processor shall maintain records to substantiate that it 
continues to acquire on the commercial market amounts of substitutable 
food consistent with their levels of non-NCP Program production and to 
document the receipt and disposition of the donated food.
    (C) FNS shall withhold deliveries of donated food from processors 
that FNS

[[Page 499]]

determines have reduced their level of non-NCP Program production 
because of participation in the NCP Program.
    (ii) When the processor seeks FNS approval to substitute donated 
nonfat dry milk with concentrated skim milk under paragraph (c)(7)(i)(A) 
of this section, an addendum must be added to the request which states:
    (A) The percent of milk solids that, at a minimum, must be contained 
in the concentrated skim milk;
    (B) The weight ratio of concentrated skim milk to donated nonfat dry 
milk:
    (1) The weight ratio is the weight of concentrated skim milk which 
equals one pound of donated nonfat dry milk, based on milk solids;
    (2) In calculating this weight, nonfat dry milk shall be considered 
as containing 96.5 percent milk solids;
    (3) If more than one concentration of concentrated skim milk is to 
be used, a separate weight ratio must be specified for each 
concentration;
    (C) The processor's method of verifying that the milk solids content 
in the concentrated skim milk is as stated in the request;
    (D) A requirement that the concentrated skim milk shall be produced 
in a USDA approved plant or in a plant approved by an appropriate 
regulatory authority for the processing of Grade A milk products; and
    (E) A requirement that the contact value of donated food for a given 
amount of concentrated skim milk used to produce an end product is the 
value of the equivalent amount of donated nonfat dry milk, based on the 
weight ratio of the two foods.
    (iii) Substitution must not be made solely for the purpose of 
selling or disposing of the donated commodity in commercial channels for 
profit.
    (8) The processor shall be liable for all donated food provided 
under the agreement. The processor shall immediately report to FNS any 
loss or damage to donated food and shall dispose of damaged or out-of-
condition food in accordance with Sec.  250.7.
    (9) The processor shall submit to FNS monthly performance reports 
reflecting the sale and delivery of end products during the month.
    (i) The processor shall ensure that the monthly performance report 
is postmarked no later than the last day of the month following the 
month being reported. The processor shall identify the month of delivery 
for each sale reported. The sale and delivery of end products for any 
prior month may be included on the monthly performance report. The 
processor monthly performance report shall include:
    (A) The donated food inventory at the beginning of the reporting 
month;
    (B) Amount of donated food received from the Department during the 
reporting month;
    (C) Amount of donated food transferred to and/or from existing 
inventory;
    (D) A list of all recipient agencies purchasing end products and the 
number of units of end products delivered to each during the report 
month;
    (E) The net price paid for each unit of end product and whether the 
sale was made under a discount or refund system;
    (F) When the sale is made through a distributor, the name of the 
distributor;
    (G) The amount of inventory drawdown represented by reported sales; 
and
    (H) The donated food inventory at the end of the reporting month.
    (ii) In addition to reporting the information identified in 
paragraph (c)(9)(i) of this section, processors substituting 
concentrated skim milk for donated nonfat dry milk shall report the 
following information for the reporting period:
    (A) The number of pounds of nonfat dry milk used in commercial 
products sold to outlets which are not recipient agencies; and
    (B) The number of pounds of concentrated skim milk and the percent 
of milk solids contained therein, used in end products sold to recipient 
agencies.
    (iii) At the end of each agreement period, there will be a final 90 
day reconciliation period in which processors may adjust NCP sales for 
any month.
    (10) The processor shall maintain complete and accurate records of 
the receipt, disposal and inventory of donated food including end 
products processed from donated food.
    (i) The processor shall keep production records, formulae, recipes, 
daily or

[[Page 500]]

batch production records, loadout sheets, bills of lading, and other 
processing and shipping records to substantiate the use of the donated 
food and the subsequent redelivery to an eligible recipient agency.
    (ii) The processor shall document that sales reported on monthly 
performance reports, specified in paragraph (c)(9) of this section were 
made only to eligible recipient agencies and that the normal wholesale 
price of the product was discounted or a refund payment made for the 
agreement value of the donated commodity.
    (iii) When donated food is commingled with commercial food, the 
processor shall maintain records which will permit an accurate 
determination of the donated commodity inventory.
    (iv) The processor shall make all pertinent records available for 
inspection and review upon request by FNS, its representatives and the 
General Accounting Office (GAO). All records must be retained for a 
period of three years from the close of the Federal fiscal year to which 
they pertain. Longer retention may be required for resolution of an 
audit or of any litigation.
    (11) The processor shall obtain, upon FNS request, Federal 
acceptance service grading and review of processing activities and shall 
be bound by the terms and conditions of the grading and/or review.
    (12) The processor shall indemnify and save FNS and the recipient 
agency free and harmless from any claims, damages, judgments, expenses, 
attorney's fees, and compensation arising out of physical injury, death, 
and/or property damage sustained or alleged to have been sustained in 
whole or in part by any and all persons whatsoever as a result of or 
arising out of any act or omission of the processor, his/her agents or 
employees, or caused or resulting from any deleterious substance, 
including bacteria, in any of the products produced from donated food.
    (13) The processor shall be liable for payment for all uncommitted 
food inventory remaining at agreement termination.
    (i) When agreements are terminated at the request of the processor 
or at FNS' request because there has been noncompliance on the part of 
the processor with the terms and conditions of the agreement, or if any 
right of FNS is threatened or jeopardized by the processor, the 
processor shall pay FNS an amount equal to the CCC unrestricted sales 
price, the cost CCC of replacement on the date the agreement is 
terminated, or the agreement value of donated commodities, whichever is 
highest, for the inventory, plus any expenses incurred by FNS.
    (ii) When the agreements are terminated at FNS' request where there 
has been no fault or negligence on the part of the processor, the 
processor shall pay FNS an amount equal to the CCC unrestricted sales 
price, the cost to CCC of replacement on the date the agreement is 
terminated, or the agreement value of the donated commodities, whichever 
is highest, for the inventory, unless FNS and the processor mutually 
agree on another value.
    (14) The processor shall not assign the processing contract or 
delegate any aspect of processing under a subcontract or other 
arrangement without the written consent of FNS. The subcontractor shall 
be required to become a party to the processing contract and conform to 
all conditions contained in that contract.
    (15) The processor shall comply fully with the provisions of the NCP 
agreement and all Federal regulations and instructions relevant to the 
NCP Program.
    (16) The processor shall label end products in accordance with Sec.  
250.15(j) and, when end products contain vegetable protein products, in 
accordance with 7 CFR part 210, 225, or 226 appendix A.
    (17) The processor shall return to FNS any funds received from the 
sale of donated food containers and the market value or the price 
received from the sale of any by-products of donated food or commercial 
food which has been substituted for donated food.
    (18) For any year in which a processor receives more than $250,000 
in donated food, the processor shall obtain an independent audit 
conducted by a Certified Public Accountant (CPA) for that year. 
Processors receiving $75,000 to $250,000 in donated food each year shall 
obtain an independent audit conducted by a CPA every two years and

[[Page 501]]

those receiving less than $75,000 in donated food each year shall obtain 
an independent audit conducted by a CPA every three years. Processors in 
the three year audit cycle shall move into the two year audit cycle when 
the value of donated food received reaches $75,000. If the Department 
determines that the audit is not acceptable or that the audit has 
disclosed serious deficiencies, the processor shall be subject to 
additional audits by OIG at the request of FNS.
    (i) Audits shall be conducted in accordance with the auditing 
provisions set forth under the Standards for Audit of Government 
Organizations, Programs, Activities and Functions, and the FNS Audit 
Guide for Multi-State Processors.
    (ii) The costs of the audits shall be borne by the processor.
    (iii) Audit findings shall be submitted by the processors to FNS.
    (iv) Noncompliance with the audit requirement contained in this part 
will render the processor ineligible to enter into another processing 
contract until the required audit has been conducted and deficiencies 
corrected.

[51 FR 23518, June 30, 1986, as amended at 52 FR 16369, May 5, 1987; 52 
FR 24978, July 2, 1987; 53 FR 16379, May 9, 1988; 53 FR 34014, Sept. 2, 
1988; 59 FR 62986, Dec. 7, 1994]



Sec.  252.5  Recipient agency responsibilities.

    (a) Registration. Recipient agencies that have approved agreements 
with State distributing agencies to receive donated food may register 
with FNS on an FNS approved form to participate in the NCP Program. Upon 
request, FNS will provide recipient agencies with registration forms. 
Recipient agencies shall notify FNS when they are no longer eligible to 
receive donated food under an agreement. Failure to notify FNS shall 
result in claim action.
    (b) Recipient agency records. Each recipient agency shall maintain 
accurate and complete records with respect to the receipt, disposal, and 
inventory of donated food, including products processed from donated 
food, and with respect to any funds which arise from the operation of 
the distribution program.
    (c) Refunds. A recipient agency purchasing end products under the 
NCP Program from a processor utilizing a refund system shall submit a 
refund application supplied by the processor to the processor within 30 
days of receipt of the end products, except that recipient agencies may 
submit refund applications to a single processor on a Federal fiscal 
quarterly basis if the total anticipated refund due for all purchases of 
end product from that processor during the quarter is 25 dollars or 
less. Recipient agencies must insure that any funds received as a result 
of refund payments be designated for use by the food service department.
    (d) Verification. If requested by FNS, each recipient agency shall 
cooperate in the verification of end product sales reported by 
processors under the NCP Program. The recipient agency may be requested 
to verify actual purchases of end products as substantiated by the 
recipient agency's invoices and may also be requested to verify that the 
invoice correctly identifies the discount included or refund due for the 
value of the donated ingredient contained in the end product.

[51 FR 23518, June 30, 1986, as amended at 59 FR 62987, Dec. 7, 1994]



Sec.  252.6  Miscellaneous provisions.

    (a) Improper distribution or loss of or damage to donated food. If a 
processor improperly distributes or uses any donated food, or causes 
loss of or damage to a donated food through its failure to provide 
proper storage, care, or handling, FNS shall require the processor to 
pay to the Department the value of the donated food as determined by the 
Department.
    (b) Disposition of damaged or out-of-condition food. Donated food 
which is found to be damaged or out-of-condition and is declared unfit 
for human consumption by Federal, State, or local health officials, or 
by any other inspection services or persons deemed competent by the 
Department, shall be disposed of in accordance with instructions of the 
Department. This instruction shall direct that unfit donated food be 
sold in a manner prescribed by the Department with the net proceeds 
thereof remitted to the Department. Upon a finding by the Department 
that donated food is unfit for human consumption at the time of delivery 
to a

[[Page 502]]

recipient agency and when the Department or appropriate health officials 
require that such donated food be destroyed, the processor shall pay for 
any expenses incurred in connection with such donated food as determined 
by the Department. The Department may, in any event, repossess damaged 
or out-of-condition donated food.
    (c) FNS sales verification. FNS may conduct a verification of 
processor reported sales utilizing a statistically valid sampling 
technique. If, as a result of this verification, FNS determines that the 
value of the donated food has not been passed on to recipient agencies 
or if end products have been improperly distributed, FNS may assert a 
claim against the processor. This claim may include a projection of the 
verification sample to the total NCP sales reported by the processor.
    (d) Sanctions. Any processor or recipient agency which has failed to 
comply with the provisions of this part or any instructions or 
procedures issued in connection herewith, or any agreements entered into 
pursuant hereto, may, at the discretion of the Department, be 
disqualified from further participation in the NCP Program. 
Reinstatement may be made at the option of the Department. 
Disqualification shall not prevent the Department from taking other 
action through other available means when considered necessary, 
including prosecution under applicable Federal statutes.
    (e) Embezzlement, misuse, theft, or obtainment by fraud of 
commodities and commodity related funds, assets, or property in child 
nutrition programs. Whoever embezzles, willfully misapplies, steals, or 
obtains by fraud commodities donated for use in the NCP Program, or any 
funds, assets, or property deriving from such donations, or whoever 
receives, conceals, or retains such commodities, funds, assets, or 
property for his own use or gain, knowing such commodities, funds, 
assets, or property have been embezzled, willfully misapplied, stolen, 
or obtained by fraud, shall be subject to Federal criminal prosecution 
under section 12(g) of the National School Lunch Act, as amended, or 
section 4(c) of the Agriculture and Consumer Protection Act of 1973, as 
amended. For the purpose of this paragraph ``funds, assets, or 
property'' include, but are not limited to, commodities which have been 
processed into different end products as provided for by this part, and 
the containers in which commodities have been received from the 
Department.



Sec.  252.7  OMB control number.

    The information collection and reporting requirements contained in 
this part have been approved by the Office of Management and Budget 
under control number 0584-0325.



PART 253_ADMINISTRATION OF THE FOOD DISTRIBUTION PROGRAM FOR HOUSEHOLDS 
ON INDIAN RESERVATIONS--Table of Contents




Sec.
253.1 General purpose and scope.
253.2 Definitions.
253.3 Availability of commodities.
253.4 Administration.
253.5 State agency requirements.
253.6 Eligibility of households.
253.7 Certification of households.
253.8 Administrative disqualification procedures for intentional program 
          violation.
253.9 Claims against households.
253.10 Commodity control, storage and distribution.
253.11 Administrative funds for State agencies.

    Authority: 91 Stat. 958 (7 U.S.C. 2011-2032).

    Source: 44 FR 35928, June 19, 1979, unless otherwise noted. 
Redesignated by Amdt. 1, 47 FR 14137, Apr. 2, 1982.



Sec.  253.1  General purpose and scope.

    This part describes the terms and conditions under which: 
commodities (available under part 250 of this chapter) may be 
distributed to households on or near all or any part of any Indian 
reservation, the program may be administered by capable Indian tribal 
organizations, and funds may be obtained from the Department for the 
costs incurred in administering the program. This part also provides for 
the concurrent operation of the Food Distribution Program and the Food 
Stamp Program on Indian reservations when such concurrent operation is 
requested by an ITO.

[[Page 503]]



Sec.  253.2  Definitions.

    (a) Exercises governmental jurisdiction means the active exercise of 
the legislative, executive or judicial powers of government by an Indian 
tribal organization.
    (b) Food distribution program means a food distribution program for 
households on Indian reservations operated pursuant to sections 4(b) and 
1304(a) of Pub. L. 95-113.
    (c) Indian tribal household means a household in which at least one 
household member is recognized as a tribal member by any Indian tribe, 
as defined in paragraph (d) of this section.
    (d) Indian tribe means (1) any Indian tribe, Band, or other 
organized Indian group, for example, a Rancheria, Pueblo, or colony, and 
including any Alaska Native village or regional or village corporation 
(established pursuant to the Alaska Native Claims Settlement Act (85 
Stat. 688)), and that is on a reservation and recognized as eligible for 
Federal programs and services provided to Indians because of their 
status as Indians; or (2) any Indian tribe or Band on a reservation 
holding a treaty with a State government.
    (e) Indian tribal organization (ITO) means: (1) The recognized 
governing body of any Indian tribe on a reservation; or (2) the tribally 
recognized intertribal organization which the recognized governing 
bodies of two or more Indian tribes on a reservation authorize to 
operate the Food Stamp Program or a Food Distribution Program on their 
behalf.
    (f) Overissuance means the dollar value of commodities issued to a 
household that exceeds the dollar value of commodities it was eligible 
to receive.
    (g) Reservation means the geographically defined area or areas over 
which an ITO exercises governmental jurisdiction so long as such area or 
areas are legally recognized by the Federal or a State government as 
being set aside for the use of Indians.
    (h) State means any one of the fifty States, the District of 
Columbia, and the reservation of an Indian tribe whose ITO meets the 
requirements of the Food Stamp Act of 1977 for participation as a State 
agency.
    (i) State agency means:
    (1) The agency of State government, including the local offices 
thereof, which enters into an agreement with FNS for the distribution of 
commodities on all or part of an Indian reservation, and
    (2) The ITO of any Indian tribe, determined by the Department to be 
capable of effectively administering a Food Distribution Program, which 
enters into an agreement with FNS for the distribution of commodities on 
all or part of an Indian reservation.
    (j) Urban place means a town or city with a population of 10,000 or 
more.

[44 FR 35928, June 19, 1979. Redesignated and amended by Amdt. 1, 47 FR 
14137, Apr. 2, 1982; 59 FR 1449, Jan. 11, 1994; 64 FR 73382, Dec. 30, 
1999]



Sec.  253.3  Availability of commodities.

    (a) Conditions for distribution. In jurisdictions where the Food 
Stamp Program is in operation, there shall be no distribution of 
commodities to households under the authority of any law, except that 
distribution may be made (1) on a temporary basis under programs 
authorized by law to meet disaster relief needs, (2) for the purpose of 
the Commodity Supplemental Food Program, and (3) whenever a request for 
concurrent or separate Food Distribution Program on a reservation is 
made by an ITO.
    (b) Concurrent or separate food program operation. Distribution of 
commodities, with or without the Food Stamp Program, shall be made 
whenever an ITO submits to FNS a completed application for the Food 
Distribution Program on all or part of a reservation and the application 
is approved by FNS.
    (1) Except as provided in paragraph (b)(2) of this section, when the 
Food Distribution Program is operating on all or part of a reservation, 
all eligible households within those boundaries may participate in the 
Food Distribution Program, or, if the ITO has elected concurrent 
operation of the Food Stamp Program, may elect to participate in either 
program, without regard to whether the household is an Indian tribal 
household.
    (2) FNS may determine, based on the number of non-Indian tribal 
households located on all or part of a reservation,

[[Page 504]]

that concurrent operation is necessary. When such a determination has 
been made all households residing in such areas may apply to participate 
in either the Food Stamp or the Food Distribution Program.
    (c) Household distribution. Commodities acquired under section 416 
of the Agricultural Act of 1949, as amended; section 32 of Pub. L. 320, 
74th Congress, as amended; section 709 of the Food and Agricultural Act 
of 1963, as amended; and section 4(a) of the Agriculture and Consumer 
Protection Act of 1973, as amended, by section 1304 of the Food and 
Agriculture Act of 1977, may be made available under part 250 of this 
chapter for distribution to households in accordance with the provisions 
of that part and the additional provisions and requirements of this 
part.
    (d) Food distribution program benefits. Households eligible under 
this part shall receive a monthly food package based on the number of 
household members. The food package offered to each household shall 
consist of a quantity and variety of commodities made available by the 
Department to provide eligible households with an opportunity to obtain 
a more nutritious diet and shall represent an acceptable nutritional 
alternative to Food Stamp Program benefits. The food package offered to 
each household by the State agency shall contain a variety of foods from 
each of the food groups in the Food Distribution Program on Indian 
Reservations Monthly Distribution Guide Rates by Household Size--
Vegetables, Fruit, Bread-Cereal-Rice-Pasta, Meat-Poultry-Fish-Dry Beans-
Eggs-Nuts, Milk-Yogurt-Cheese, and Fats-Oils-Sweets. FNS shall 
periodically notify State agencies of the kinds of commodities it 
proposes to make available based, insofar as practicable, on the 
preferences of eligible households as determined by the State agency. In 
the event one or more of the proposed commodities cannot be delivered, 
the Department shall arrange for delivery of a similar commodity within 
the same food group.

[44 FR 35928, June 19, 1979. Redesignated by Amdt. 1, 47 FR 14137, Apr. 
2, 1982, as amended at 65 FR 47833, Aug. 4, 2000]



Sec.  253.4  Administration.

    (a) Federal administration. Within the Department of Agriculture, 
the Food and Nutrition Service (FNS) shall be responsible for the Food 
Distribution Program. FNS shall have the power to determine the amount 
of any claim and to settle and adjust any claim.
    (b) State agency administration. (1) If FNS determines that the ITO 
is capable of effective and efficient administration, the ITO shall 
administer the Food Distribution Program on all or part of the 
reservation. If FNS determines that the ITO is not capable of effective 
and efficient administration of the Food Distribution Program, the 
appropriate agency of the State government shall be responsible for the 
Food Distribution Program on all or part of the Indian reservation. In 
addition, the appropriate agency of the State government may administer 
the Program on behalf of an otherwise capable tribe if agreed to in 
writing by both parties.
    (2) In the case where the Indian reservation boundaries cross State 
lines, the ITO and appropriate State agencies may jointly request FNS 
approval that a single State agency administer the Food Distribution 
Program on all or part of the Indian reservation.
    (3) An agency of State government responsible for administering the 
Food Distribution Program may contract Program functions to an ITO. 
These functions include, but are not limited to, outreach, preparation 
of bilingual materials, commodity issuance, determination of food 
preferences of households, publicizing uses of commodities, and 
transportation and on-site delivery services. The State agency may also 
use the ITO in prescreening translations, interpretive services and 
other noncertification functions. The State agency shall not contract 
responsibility for certification activities such as interviews or 
eligibility determinations with an ITO that has been determined 
incapable of administering the Food Distribution Program. In all cases 
the State agency shall retain full responsibility for program 
administration.
    (c) Qualification as a reservation. (1) The appropriate ITO of an 
established Indian reservation will qualify for participation under the 
provisions of this

[[Page 505]]

part, when that ITO files an application which demonstrates the status 
of an area as an established reservation, unless FNS determines that 
such area(s) does not qualify as a reservation as that term is defined 
in these regulations. For purposes of this part, established reservation 
means the geographically defined area(s) currently recognized and 
established by Federal or State treaty or by Federal statute whereby 
such geographically defined area(s) is set aside for the use of Indians. 
Where such established areas exist, the appropriate ITO is presumed to 
exercise governmental jurisdiction, unless otherwise determined by FNS.
    (2) The appropriate ITO for other areas, in order to qualify as 
reservations for the provisions of this part, must show to FNS:
    (i) That the ITO exercises governmental jurisdiction over a 
geographic area(s) which enjoys legal recognition from the Federal or a 
State government and is set aside for the use of Indians;
    (ii) A clear and precise description of the boundaries of such 
geographic area(s).
    (d) Application by an ITO. Any ITO which desires to participate in 
the Food Distribution Program shall file an application with the FNS 
Regional Office serving the State or States in which the reservation is 
located. The ITO shall specify if it is requesting the Food Distribution 
Program alone or concurrently with the Food Stamp Program. The ITO shall 
also specify whether it wants either or both programs on all or part of 
the reservation, and if on part, shall describe the geographic 
boundaries of the relevant part(s). Additionally, if the ITO wishes to 
serve areas near the reservation, the ITO shall describe the geographic 
boundaries of the near area(s) for FNS review and approval. Any urban 
place inside a reservation can be served by the Food Distribution 
Program. Any urban place outside reservation boundaries may not be 
served. However, an ITO or State agency can request the Department to 
change those limitations with justification. The ITO application shall 
also provide other information requested by FNS, including but not 
limited to, that the ITO serves an established reservation or a 
reservation otherwise qualified as described in paragraph (c) of this 
section. Properly addressed applications shall be acknowledged by the 
FNS Regional Office in writing within five working days of receipt.
    (e) Tribal capability. (1) In determining whether the ITO on a given 
reservation is potentially capable of effectively and efficiently 
administering a Food Distribution Program, allowing for fulfillment of 
that potential through training and technical assistance, FNS shall 
consult with other sources, such as the BIA, and shall consider the 
ITO's experience, if any, in operating other government programs and its 
management and fiscal capabilities. Other factors for evaluation 
include, but are not limited to, the ITO's ability to:
    (i) Order and properly store commodities,
    (ii) Certify eligible households,
    (iii) Arrange for physical issuance of commodities,
    (iv) Keep appropriate records and submit required reports,
    (v) Budget and account for administrative funds,
    (vi) Determine the food preferences of households, and
    (vii) Conduct on-site reviews of certification and distribution 
procedures and practices.
    (2) The Food and Nutrition Service (FNS) shall make a determination 
of potential Indian Tribal Organization (ITO) capability within 30 days 
of receipt of a completed application for the Food Distribution Program. 
FNS shall promptly advise ITOs of the need for additional information if 
an incomplete application is received.
    (3) FNS shall, if requested by an ITO which has been determined by 
FNS to be potentially capable of administering a Food Distribution 
Program, provide the ITO's designees with appropriate training and 
technical assistance to prepare the ITO to take over program 
administration. In determining what training and technical assistance 
are

[[Page 506]]

necessary, FNS shall consult with the ITO and other sources, such as the 
BIA.

[44 FR 35928, June 19, 1979, as amended by Amdt. 163, 45 FR 14006, Mar. 
4, 1980. Redesignated and amended by Amdt. 1, 47 FR 14137, Apr. 2, 1982]



Sec.  253.5  State agency requirements.

    (a) Plan of operation. (1) The State agency that assumes 
responsibility for the Food Distribution Program shall submit a plan of 
operation for approval by FNS. Approval of the plan shall be a 
prerequisite to the donation of commodities available for use by 
households under part 250 of this chapter. The approved plan shall be 
considered permanent, with amendments to be added as changes in State 
agency administration or management of the program, as described in the 
plan, are made, or at the request of FNS. No amendment to the plan of 
operation of any State agency shall be effective without prior approval 
of FNS, and FNS may require amendment of any plan as a condition of 
continuing approval. If the agency is not an ITO, the appropriate agency 
of the State government shall also:
    (i) Consult in good faith with the ITO on the reservation where the 
appropriate agency of the State government is responsible for 
administering the Food Distribution Program.
    (ii) A State agency which is not an ITO shall submit its plan of 
operation, budget and any substantive subsequent amendments to the ITO 
for comment at least 45 days prior to submission of the plan, budget or 
amendment to FNS. Comments by the ITO shall be attached to the plan, 
budget or amendment which is submitted to FNS. This paragraph does not 
apply to amendments required by FNS under Sec.  253.7(a)(1).
    (2) The plan of operation shall describe the manner in which 
commodities will be distributed, including, but not limited to, the 
storage and distribution facilities to be used, the procedures to assure 
ongoing consultation with the ITO where the appropriate agency of the 
State government administers the Program, the method by which the food 
preferences of households shall be determined, the manner in which the 
State agency plans to supervise the Food Distribution Program, and plans 
by which the State agency will control dual participation. The plan 
shall also include by reference or otherwise the following assurances:
    (i) No household on any Indian reservation shall be permitted to 
participate simultaneously in the Food Stamp Program and the Food 
Distribution Program.
    (ii) The value of the commodities provided to any eligible household 
shall not be considered income or resources for any purposes under any 
Federal, State, or local laws, including, but not limited to, laws 
relating to taxation, welfare, and public assistance programs; and no 
State agency shall decrease any assistance otherwise provided to a 
household because of the receipt of commodities.
    (iii) The distribution of commodities shall not be used as a means 
for furthering the political interest of any individual or party.
    (iv) There shall be no discrimination in the certification of 
applicant households or in the distribution of commodities because of 
sex, race, color, age, political beliefs, religion, handicap or national 
origin.
    (v) Households shall not be required to make any payments in money, 
materials or services for, or in connection with, the receipt of 
commodities; and they shall not be solicited in connection with the 
receipt of commodities for voluntary cash contributions for any purpose.
    (vi) Adequate personnel, including supervisory personnel, to review 
the Food Distribution Program shall be provided to ensure compliance 
with the requirements of this part.
    (vii) Use of disclosure of information obtained from food 
distribution applicant households, exclusively for the Food Distribution 
Program, shall be restricted to persons directly connected with the 
administration or enforcement of the provisions of the Food Distribution 
Programs as defined in this part of this subchapter, the Food Stamp Act 
or regulations, or with other Federal or federally aided, means-tested 
assistance programs such as title IV-A (TANF), XIX (Medicaid), or XVI 
(SSI), or with general assistance programs that are subject to the

[[Page 507]]

joint processing requirements specified in Sec.  273.2(j)(2).
    (b) Operating manuals. The State agency shall maintain ongoing 
consultation with the ITO in developing the State agency's written 
internal policies, instructions, and forms which are necessary to carry 
out the Food Distribution Program and shall submit them to FNS for 
approval prior to their use. The State agency shall file any comments or 
recommendations offered by the ITO, for review by FNS.
    (c) Staffing. Personnel used in the certification process shall be 
employed in accordance with (1) the current standards for a Merit System 
of Personnel Administration or any standards later prescribed by the 
Office of Personnel Management under section 208 of the 
Intergovernmental Personnel Act of 1970 or (2) when appropriate, the 
ITO's personnel system if it incorporates the basic elements of a merit 
system.
    (d) Bilingual requirements. (1) The State agency shall provide 
bilingual staff, certification forms, including the application form and 
certification notices as specified in Sec.  253.7(a)(2) and (b)(3), 
respectively, and any form developed by the State agency for reporting 
changes in household composition and income, pursuant to Sec.  253.7(c), 
and outreach materials, when either an estimated 100 or more low income 
households or the majority of low-income households on the reservation 
are a single language minority. Single-language minority refers to 
households which speak the same non-English language and which do not 
contain adults(s) fluent in English as a second language. If the non-
English language is spoken but not written, the State agency shall 
provide bilingual staff, if required, but not bilingual material.
    (2) The State agency shall ensure that offices serving reservations 
subject to the criteria in paragraph (d)(1) of this section provide 
sufficient bilingual staff for the timely processing of non-English 
speaking applicants.
    (3) The State agency shall develop estimates of the numbers of low-
income, single-language minority households by using census data 
(including the Census Bureau's Current Population Report: Population 
Estimates and Projections, Series P-25, No. 627) and knowledge of the 
reservation. Local Bureau of Census offices, Community Services 
Administration offices, Community Action agencies, Bureau of Indian 
Affairs, Indian Health Services, planning agencies, the ITO and school 
officials may be important sources of information in determining the 
need for bilingual services.
    (e) Outreach and referral. The State agency shall inform potentially 
eligible households of the availability of the Food Distribution 
Program. The State agency shall develop and distribute printed 
information in the appropriate languages about the Program and 
eligibility requirements. Outreach material shall contain information 
about a household's right to file an application on the same date it 
contacts the certification office. The State agency shall be 
sufficiently familiar with general eligibility requirements for the 
Supplemental Food Program for Women, Infants and Children (WIC) or the 
Commodity Supplemental Food Program, if available to reservation 
residents, the Supplemental Security Income Program (SSI), and 
appropriate public and general assistance programs, to identify those 
applicants whose households contain persons who may be eligible for 
these programs, to inform the applicants of their potential eligibility, 
and to provide the applicants with the addresses and telephone numbers 
for these programs. For example, the State agency should provide 
information on the WIC program to applicants whose households contain 
pregnant women, nursing or postpartum women, or children up to the fifth 
birthday.
    (f) Training requirements. The State agency shall institute a 
training program for all personnel who are assigned responsibility for 
the certification of applicant households, for fair hearing officers, 
for field supervisors who review local Food Distribution Programs, for 
those involved in outreach and those responsibile for ordering, storing, 
and distributing commodities.
    (1) State agency training programs shall cover eligibility criteria, 
certification procedures, commodity ordering, storage and distribution 
practices, household rights and responsibilities

[[Page 508]]

and other job-related responsibilities. The content of the training 
material shall be reviewed and revised periodically to correct 
deficiencies in program operations or reflect changes in policy and 
procedures.
    (2) FNS shall review the effectiveness of State agency training 
based on information obtained from field reviews, administrative 
analyses and other sources.
    (g) Nutrition education. The State agency shall publicize how 
commodities may be used to contribute to a nutritious diet and how 
commodities may be properly stored by means of visual displays, and 
printed material. The State agency shall encourage appropriate 
organizations, county extension home economists, expanded Food and 
Nutrition Program aides, and qualified volunteers to provide food and 
nutrition information, menus, or cooking demonstrations, as appropriate 
for participating households. The State agency shall encourage the 
dissemination of food and nutrition information designed to improve the 
nutrition of households on reservations.
    (h) Records and reports. The State agency shall keep records and 
submit reports and other information as required by FNS. Records 
required under this part shall be retained for a period of three years 
from the date of the submission of the annual financial status report, 
SF-269; except that, if any litigation, claim or audit is started before 
the expiration of the three year period, the records shall be retained 
until all litigation, claims or audit findings involving the records 
have been resolved.
    (i) Monitoring. In accordance with its responsibility for efficient 
and effective program administration the State agency shall monitor and 
review its operations under this part to ensure compliance with the 
provisions of this part and with any applicable instructions of FNS.
    (1) The State agency shall review program operations at least 
annually, document program deficiencies and establish and implement 
specific plans of corrective action for deficiencies noted.
    (2) Reviews of operations shall include, but not be limited to, 
certification of households, determination of food preferences, 
distribution of commodities, fair hearing procedures, commodity 
inventories and timeliness and accuracy of reports to FNS.
    (3) Program reviews and corrective action plans shall be available 
to FNS upon request.
    (j) Investigations and complaints. The State agency shall promptly 
investigate complaints received of irreg ularities in the handling, 
distribution, receipt or use of commodities, other than use of 
commodities by eligible households in the preparation of meals for home 
consumption, and shall take appropriate action to correct any 
irregularities. The State agency shall also promptly investigate 
complaints of irregularities relating to certification procedures or the 
delivery of services and shall take appropriate action to correct any 
irregularities or noncompliance with provisions relating to 
certification procedures, provision of services or household rights. The 
State agency shall document each investigation and action in sufficient 
detail to allow for FNS review of all State agency actions and 
information. The Department shall make investigations at the request of 
the State agency and ITO or when the Department determines an 
investigation is necessary.
    (k) Sanctions. If the State agency fails to comply with the 
provisions of this part or its plan of operation, FNS may:
    (1) Take action against any State agency under Sec.  253.11(g) with 
respect to administrative funds available from FNS for use by the State 
agency or (2) disqualify the State agency from further distribution of 
commodities to households. Disqualification of the State agency shall 
not prevent FNS or the Department from taking other actions, including 
prosecution under applicable Federal statutes, when deemed necessary. 
Reinstatement shall be contingent upon approval by FNS of the State 
agency's plan for corrective action or determination by FNS that the 
State agency has complied with any other requirements for reinstatement 
which FNS may set forth. These provisions apply to all State agencies, 
regardless of whether the Program is administered by an agency of the 
State government or an ITO. If the ITO is

[[Page 509]]

disqualified as a State agency, an appropriate agency of State 
government shall administer the Food Distribution Program on the 
reservation. If an agency of State government is disqualified as the 
State agency for the Food Distribution Program on the reservation, the 
ITO may request in writing a capability determination for program 
administration in accordance with Sec.  253.4.
    (l) Appeals. (1) The agency of the State government or an ITO may 
appeal an initial determination by FNS on:
    (i) Whether or not the reservation definition is met;
    (ii) The capability of an ITO to administer the Food Distribution 
Program;
    (iii) Sanctions taken under paragraph (k) of this section or Sec.  
253.11(g); or
    (iv) The Federal matching percentage level of administrative funding 
made available by FNS.
    (2) At the time FNS advises the State agency or ITO of its 
determination, FNS shall also advise the State agency or ITO of its 
right to appeal and, except for appeals of funding determinations, shall 
advise the State agency or ITO of its right to request either a meeting 
to present its position in person or a review of the record. On appeals 
of funding determinations, FNS shall advise the State agency or ITO that 
it may indicate if it wishes a meeting, however, FNS need schedule a 
meeting only if FNS determines a meeting is warranted to reach a proper 
adjudication of the matter. Otherwise, FNS shall review supportive 
information submitted by the State agency or ITO in paragraph (l)(3)(ii) 
of this section.
    (3) Procedure--(i) Time limit. Any State agency or ITO that wants to 
appeal an initial FNS determination under paragraph (l) of this section 
must notify the Administrator of FNS, in writing, within 15 days from 
the date of the determination. If the appeal concerns either paragraph 
(l)(1) (i) or (ii) of this section, the implementation timeframes as 
specified in Sec.  paragraph (m) of this section and the timeframe for 
determining an ITO's capability as specified in Sec.  253.4(e)(2) are 
suspended from the date the appeal is requested to the date of the final 
determination.
    (ii) Acknowledgment. Within five days of receipt by the 
Administrator, of FNS, of a request for review, FNS shall provide the 
State agency or ITO with a written acknowledgment of the request by 
certified mail, return receipt requested. The acknowledgment shall 
include the name and address of the official designated by the 
Administrator, FNS, to review the appeal. The acknowledgment shall also 
notify the State agency or ITO that within ten days of receipt of the 
acknowledgment, the State agency or ITO shall submit written information 
in support of its position.
    (4) Scheduling a meeting. If the Administrator, FNS, grants a 
meeting FNS shall advise the State agency or ITO of the time, date and 
location of the meeting by certified mail, return receipt requested at 
least ten days in advance of the meeting. FNS shall schedule and conduct 
the meeting and make a decision within 60 days of the receipt of the 
information submitted in response to paragraph (l)(3)(ii) of this 
section.
    (5) Review. If no meeting is conducted the official designated by 
the Administrator, FNS, shall review information presented by a State 
agency or ITO which requests a review and shall make a final 
determination in writing within 45 days of the receipt of the State 
agency's or ITO's information submitted in response to paragraph 
(l)(3)(ii) of this section setting forth in full the reasons for the 
determination.
    (6) Final decision. The official's decision after a meeting or a 
review shall be final.
    (m) Implementation. The State agency shall implement changes 
required by amendments to these regulations in accordance with schedules 
specified in the amendment.
    (1) Amendment 2. (i) If an ITO currently participates in, but does 
not administer, the Food Distribution Program on Indian Reservations:
    (A) FNS shall determine tribal eligibility and capability to 
administer the Food Distribution Program on Indian Reservations within 
60 days of receipt of a completed application. If an incomplete 
application is received, FNS shall within 15 days, notify the ITO of

[[Page 510]]

what additional information is required. The processing time for the 
capability determination shall start from the date the additional 
information is received by FNS.
    (B) Upon FNS' determination that the ITO will administer the Food 
Distribution Program on Indian Reservations, FNS shall expeditiously 
plan for and provide needed training and technical assistance to 
facilitate timely commencement of tribal administrative 
responsibilities. The ITO shall have 120 days from FNS' determination in 
paragraph (m)(1)(i)(A) of this section to submit and have approved a 
plan of operation, operating manuals, and to commence program operations 
under the regulations as specified in this part. Extensions may be 
granted by FNS to ITOs if good cause is shown.
    (C) If FNS determines that an ITO is not capable of administering 
the Food Distribution Program on Indian Reservations, FNS shall direct 
the State to continue program operations and submit a new plan of 
operation and to commence program operations under the regulations as 
specified in this part within 120 days from FNS' determination in 
paragraph (m)(1)(i)(A) of this section.
    (ii) If an ITO currently administers the Food Distribution Program 
on Indian Reservations, the timeframes specified in paragraph (m)(1)(i) 
of this section apply except that:
    (A) FNS shall determine tribal eligibility and capability to 
administer the Food Distribution Program on Indian Reservations within 
30 days of receipt of a completed application.
    (B) If FNS determines that the ITO will not administer the Food 
Distribution Program on Indian Reservations, FNS shall direct the ITO to 
continue program operations until the State government can commence 
program operations. The State government shall have 120 days from FNS' 
determination in paragraph (m)(1)(i)(A) of this section to submit and 
have approved a plan of operation and to commence program operations 
under the regulations as specified in this part.
    (iii) If an ITO does not currently participate in a Food 
Distribution Program on Indian Reservations, the timeframes in paragraph 
(m)(1)(i) of this section apply except that if FNS determines that an 
ITO cannot administer the program, FNS shall direct the State to submit 
a plan of operation and to commence program operations under the 
regulations as specified in this part within 180 days from the 
determination.
    (iv) Extensions to the above implementation timeframe (except for 
those timeframes set forth in paragraphs (m)(1) (i)(A) and (ii)(A) of 
this section) may be granted by FNS to ITOs or State government agencies 
if there is compelling justification involving circumstances which were 
not reasonably foreseeable and which are not the fault of the ITO or the 
State agency and which circumstances present extraordinary problems that 
would render earlier implementation impossible.

(Approved by the Office of Management and Budget under control number 
0584-0071)

(44 U.S.C. 3506; E.O. 12372, July 14, 1982, 47 FR 30959, sec. 401(b) of 
the Intergovernmental Cooperation Act of 1968, 31 U.S.C. 6506(c))

[44 FR 35928, June 19, 1979, as amended at 47 FR 746, Jan. 7, 1982. 
Redesignated and amended by Amdt. 1, 47 FR 14137, Apr, 2, 1982; Amdt. 2, 
47 FR 19665, May 7, 1982; 48 FR 29123, June 24, 1983; 62 FR 53731, Oct. 
16, 1997; 64 FR 73383, Dec. 30, 1999; 65 FR 47833, Aug. 4, 2000]



Sec.  253.6  Eligibility of households.

    (a) Household concept. (1) The State agency shall determine 
eligibility for the Food Distribution Program on a household basis. 
Household means any of the following individuals or groups of 
individuals, provided that such individuals or groups are not boarders 
or residents of an institution and provided that separate household or 
boarder status shall not be granted to a spouse of a member of the 
household, or to children under 18 years of age under the parental 
control of a member of the household.
    (i) An individual living alone.
    (ii) An individual living with others, but customarily purchasing 
food and preparing meals for home consumption separate and apart from 
the others.
    (iii) A group of individuals living together for whom food is 
customarily purchased in common and for whom meals are prepared together 
for home consumption.

[[Page 511]]

    (2) Nonhousehold members. The following individuals residing with a 
household shall not be considered household members in determining the 
household's eligibility. Nonhousehold members specified in paragraphs 
(a)(2) (i) and (v) who are otherwise eligible may participate in the 
Program as separate households.
    (i) Roomers. Individuals to whom a household furnishes lodging, but 
not meals, for compensation.
    (ii) SSI recipients in ``cash-out'' States. Recipients of SSI 
benefits who reside in a State designated by the Secretary of Health, 
Education, and Welfare to have specifically included the value of the 
coupon allotment in its State supplemental payments. These persons are 
not eligible for Food Distribution Program benefits.
    (iii) Disqualified individuals. Individuals disqualified from the 
Food Stamp Program for fraud, as set forth in Sec.  273.16.
    (iv) Illegal residents. Individuals who are not legal residents of 
the United States. While U.S. citizenship is not required for 
participation in the Food Distribution Program, persons receiving food 
distribution benefits must be lawfully living in the United States.
    (v) Others. Other individuals who share living quarters with the 
household but who do not customarily purchase food and prepare meals 
with the household. For example, if the applicant household shares 
living quarters with another family to save on rent, but does not 
purchase and prepare food together with that family, the members of the 
other family are not members of the applicant household.
    (3) Authorized representatives. The head of the household, spouse, 
or any other responsible member of the household may designate an 
authorized representative to act on behalf of the household in making 
application for commodities and/or obtaining commodities as provided in 
Sec.  253.7(a)(10)(i) and Sec.  253.7(a)(10)(ii) respectively.
    (b) Residency or citizenship. (1) All households residing on a 
reservation on which the FDPIR operates shall be eligible to apply for 
program benefits on that reservation regardless of whether they include 
an Indian member. All Indian tribal households as defined in Sec.  
253.2(c) of this part which reside in near areas established under Sec.  
253.4(d) of this part shall be eligible to apply for program benefits. 
The ITO or State agency shall serve all income-eligible applicant 
households residing on reservations who apply for benefits, and all 
income-eligible applicant Indian tribal households residing in near 
areas. The ITO or State agency administering the program in a near area 
shall, for purposes of determining program eligibility, accept 
documentation from a household member's tribe of origin as proof of 
tribal membership. Residency shall not mean domicile nor shall the State 
agency impose any durational residency requirement. However, persons on 
the reservation solely for vacations shall not be considered residents. 
No household may participate in the Food Stamp Program or in the Food 
Distribution Program in more than one geographical area at the same 
time.
    (2) No person shall participate in the Food Distribution Program on 
an Indian reservation unless the person is legally a resident of the 
United States. A further discussion of ``legal residency'' is provided 
in paragraph (a)(2)(iv) of this section.
    (c) Income and resource eligibility standards of public assistance, 
supplemental security income, and certain general assistance households. 
(1) Households in which all members are included in a federally aided 
public assistance or supplemental security income grant, except as 
provided for in paragraph (a)(2)(ii) of this section, shall, if 
otherwise eligible under this part, be determined to be eligible to 
participate in the Food Distribution Program while receiving such grants 
without regard to the income and resources of the household members.
    (2) If FNS determines that a State or local general assistance 
program applies criteria of need the same as or similar to, those 
applied under any of the federally aided public assistance programs, 
households in which all members are included in such a general 
assistance grant, shall, if otherwise eligible under this part, be 
determined to be eligible to participate in the Food Distribution 
Program while receiving

[[Page 512]]

such grants without regard to the income and resources of household 
members.
    (d) Resource eligibility standards--(1) Uniform household standards 
for nonassistance households. The State agency shall apply uniform 
national resource standards of eligibility to all applicant households, 
except those in which all members are recipients of federally aided 
public assistance, supplemental security income, or certain general 
assistance program benefits as provided in paragraph (c)(2) of this 
section. The maximum allowable resources shall not exceed $1,750 for the 
household; except that, for households of two or more members which 
include a member or members age 60 or over, such resources shall not 
exceed $3,000.
    (2) Resources. In determining the resources of a household, only 
cash on hand, money in checking or savings accounts, savings 
certificates, stocks, or bonds, or other readily negotiable and 
accessible certificates or instruments shall be counted; except that the 
following resources shall be entirely excluded:
    (i) The cash value of life insurance policies and pension funds, 
including funds in pension plans with interest penalties for early 
withdrawals, such as a Keogh plan or an Individual Retirement Account 
(IRA), as long as the funds remain in the pension plans.
    (ii) Any governmental payments which are designated for the 
restoration of a home damaged in a disaster, if the household is subject 
to a legal sanction if the funds are not used as intended, for example 
payments made by the Department of Housing and Urban Development through 
the individual and family grant program of disaster loans or grants made 
by the Small Business Administration.
    (iii) Resources, such as those of students or self-employed persons, 
which have been prorated as income. The treatment of self-employment 
income is explained in Sec.  253.7(b)(1)(iii).
    (iv) Resources which are excluded by express provision of Federal 
statute. The following is the current listing of resources excluded by 
Federal statute:
    (A) Payment received under the Alaska Native Claims Settlement Act 
(Pub. L. 92-203, section 21(a) or the Sac and Fox Indian claims 
agreement Pub. L. 94-189);
    (B) Payments received by certain Indian tribal members under Pub. L. 
94-114, section 6, regarding submarginal land held in trust by the 
United States;
    (C) Payments received by certain Indian tribal members under Pub. L. 
94-540 regarding the Grand River Bank of Ottawa Indians;
    (D) Reimbursements from the Uniform Relocation Assistance and Real 
Property Acquistion Policy Act of 1970 (Pub. L. 91-646, section 216);
    (E) Earned income tax credits received before January 1, 1980, as a 
result of Pub. L. 95-600, the Revenue Act of 1978.
    (3) Jointly owned resources. Resources owned jointly by separate 
households shall be prorated between or among those households unless 
the applicant can demonstrate that such resources are inaccessible to it 
because access to the value of the resource is dependent upon the 
agreement of a joint owner who refuses to comply.
    (4) Resources of disqualified members. Resources of individuals 
disqualified from participation in the Food Stamp Program for fraud 
shall continue to count in their entirety to the remaining household 
members when determining the household's eligibility for the Food 
Distribution Program.
    (e) Income--(1) Income eligibility standards for nonassistance 
households. (i) The State agency shall apply uniform national income 
eligibility standards for the Food Distribution Program except for 
households in which all members are recipients of public assistance, 
supplemental security income except as provided for in paragraph 
(a)(2)(ii) of this section, paragraph (c) of this section, or certain 
general assistance program payments as provided in Sec.  283.6(c). The 
income eligibility standards shall be the monthly income eligibility 
standards for the Food Stamp Program in the State, increased by the 
amount of the standard deduction for that State, as published in the 
appendix to Sec.  273.9.
    (ii) The income eligibility standards for the Food Distribution 
Program shall be adjusted each October 1, as necessary, to reflect 
changes in the

[[Page 513]]

Food Stamp Program income eligibility limits and standard deductions.
    (2) Definition of income. Household income shall mean all income 
from whatever source, excluding only items specified in paragraph (e)(3) 
of this section.
    (i) Earned income shall include:
    (A) All wages and salaries of an employee.
    (B) The total gross income from a self-employment enterprise, 
including the net profit from the sale of any capital goods or equipment 
related to the business. Ownership of rental property shall be 
considered a self-employment enterprise. Payments from a roomer and 
returns on rental property shall be considered self-employment income.
    (C) Training allowances from vocational and rehabilitative programs 
recognized by Federal, State or local governments, such as the Work 
Incentive Program, and programs authorized by the Job Training 
Partnership Act, to the extent they are not a reimbursement.
    (ii) Unearned income shall include, but not be limited to:
    (A) Assistance payments from Federal or Federally aided public 
assistance programs, such as Supplemental Security Income (SSI) or 
Temporary Assistance for Needy Families (TANF), General Assistance (GA) 
programs, or other assistance programs based on need.
    (B) Annuities; pensions; retirement; veteran's or disability 
benefits; worker's or unemployment compensation; old-age, survivors, or 
social security benefits; strike benefits; foster care payments for 
children or adults.
    (C) Support or alimony payments made directly to the household from 
nonhousehold members.
    (D) Scholarships, education grants, fellowships, deferred payment 
loans for education, veteran's education benefit and the like in excess 
of amounts excluded under paragraph (e)(3)(iii) of this section.
    (E) Payments from Government-sponsored programs, dividends, 
interest, royalties, and all other direct money payments from any source 
which can be construed to be a gain or benefit.
    (F) The earned or unearned income of an individual disqualified from 
participation in the Food Stamp Program for fraud shall continue to be 
counted as income, less the pro rata share for the disqualified member. 
Procedures for calculating this pro rata share are described in Sec.  
253.7.
    (iii) Income shall not include the following:
    (A) Monies withheld from an assistance payment, earned income or 
other income source, or monies received from any income source which are 
voluntarily or involuntarily returned to repay a prior overpayment 
received from that income source.
    (B) Child support payments received by TANF recipients which must be 
transferred to the agency administering title IV-D of the Social 
Security Act of 1935, as amended, to maintain TANF eligibility.
    (3) Income exclusions. Only the following items shall be excluded 
from household income and no other income shall be disregarded:
    (i) Any gain or benefit which is not in the form of money payable 
directly to the household, including:
    (A) In-kind income. Nonmonetary or in-kind benefits, such as meals, 
clothing, public housing, or produce from a garden.
    (B) Vendor payments. A payment made in money on behalf of a 
household shall be considered a vendor payment whenever a person or 
organization outside of the household uses its own funds to make a 
direct payment to either the household's creditors or a person or 
organization providing a service to the household. For example, if a 
relative, who is not a household member, pays out of its own resources 
the household's rent directly to the landlord, the payment is considered 
a vendor payment and is not counted as income to the household. Also, 
payments specified by a court order or other written support or alimony 
agreement to go directly to a third party rather than the household and 
support payments which are paid to a third party are excluded as vendor 
payments. Wages garnished or diverted by employers, or money deducted or 
otherwise diverted from a household's public assistance grant by a State 
for purposes such as managing the household's expenses, shall not be 
considered

[[Page 514]]

a vendor payment, since the person or organization making the payment is 
using money payable to the household rather than its own funds.
    (ii) Any income in the certification period which is received too 
infrequently or irregularly to be reasonably anticipated, but not in 
excess of $30 in a quarter.
    (iii) Education loans on which payment is deferred, grants 
scholarships, fellowships, veterans' educational benefits, and the like 
to the extent that they are used for tuition and mandatory school fees. 
Mandatory fees are those charged to all students or those charged to all 
students within a certain curriculum. For example, uniforms, lab fees, 
or equipment charged to all students to enroll in a chemistry course 
would be excluded. However, transportation, supplies, and textbook 
expenses are not uniformly charged to all students and, therefore, would 
not be excluded as mandatory fees.
    (iv) All loans, including loans from private individuals as well as 
commercial institutions, other than education loans on which repayment 
is deferred.
    (v) Reimbursements for past or future expenses to the extent they do 
not exceed actual expenses. For example, reimbursements of flat 
allowances for job or training related expenses such as travel per diem, 
uniforms, and transportation to and from the job or training site are 
excluded as income.
    (vi) Monies received and used for care and maintenance of a third 
party beneficiary who is not a household member.
    (vii) The earned income (as defined in paragraph (e)(2)(i) of this 
section) of children who are members of the household, who are students 
at least half time and who have not attained their eighteenth birthday. 
The exclusion shall continue to apply during temporary interruptions in 
school attendance due to semester or vaction breaks, provided the 
child's enrollment will resume following the break. Individuals are 
considered children for purposes of this provision if they are under the 
parental control of another household member.
    (viii) Money received in the form of a nonrecurring lump sum 
payment, including but not limited to, income tax refunds, rebates, or 
credits; retroactive lump-sum social security, SSI, public assistance, 
railroad retirement benefits or other payments, or retroactive lump-sum 
insurance settlements; refunds of security deposits on rental properties 
or utilities or lump-sum payments arising from land interests held in 
trust for, or by, a tribe. These payments shall be counted as resources 
in the month received unless specifically excluded from consideration as 
a resource by other Federal law.
    (ix) The cost of producing self-employment income. The procedures 
for computing the cost of producing self-employment income are described 
in Sec.  253.7(b)(1)(iii).
    (x) Any income that is specifically excluded by any other Federal 
statute from consideration as income. The following Federal statutes 
provide such an exclusion.
    (A) Reimbursements from the Uniform Relocation Assistance and Real 
Property Acquisition Policy Act of 1970 (Pub. L. 91-646, section 216).
    (B) Payments received under the Alaska Native Claims Settlement Act 
(Pub. L. 92-203, section 21(a)).
    (C) Any payment to volunteers under Title II (RSVP, foster 
grandparents, and others) and title III (SCORE and ACE) of the Domestic 
Volunteer Services Act of 1973 (Pub. L. 93-113), as amended. Payments 
under title I (VISTA) to volunteers shall be excluded for those 
individuals receiving federally donated commodities, food stamps, or 
public assistance at the time they joined the title I program, except 
that households which are receiving an income exclusion for a VISTA or 
other title I subsistence allowance at the time of implementation of 
these rules shall continue to receive an income exclusion for VISTA for 
the length of their volunteer contract in effect at the time of 
implementation of these rules. Temporary interruptions in food 
distribution shall not alter the exclusion once an initial determination 
has been made. New applicants who are not receiving federally donated 
commodities, food stamps or public assistance at the time they joined 
VISTA shall have these volunteer payments included as earned income.
    (D) Income derived from certain submarginal land of the United 
States

[[Page 515]]

which is held in trust for certain Indian tribes (Pub. L. 94-114, 
section 6).
    (E) Payments received by certain Indian tribal members under Pub. L. 
94-540 regarding the Grand River Band of Ottawa Indians.
    (f) Income deductions. (1) Households with earned income, as defined 
in paragraph (e)(2)(i) of this section, shall be allowed a deduction of 
twenty percent of their earned income. Earned income excluded under 
paragraph (e)(3) of this section shall not be considered earned income 
for the purpose of computing this deduction.
    (2) Households shall also receive a deduction for the actual costs 
for the care of a child or other dependent when necessary for a 
household member to accept or continue employment or attend training or 
pursue education which is preparatory to employment. This deduction 
shall not exceed the maximum allowable deduction for dependent care 
costs allowable under the Food Stamp Program in the 48 States and the 
District of Columbia.
    (3) Households will receive a deduction for legally required child 
support payments paid by a household member to or for a nonhousehold 
member, including payments made to a third party on behalf of the 
nonhousehold member (vendor payments). The State agency must allow a 
deduction for amounts paid towards overdue child support (arrearages). 
Alimony payments made to or for a nonhousehold member cannot be included 
in the child support deduction.
    (4) Households will receive a deduction for the full amount of the 
Medicare Part B medical insurance premium that is withheld from the 
Federal retirement or disability payment of a household member or is 
paid by a household member directly to Medicare. This income deduction 
is not allowed in situations where the premium is paid by the State on 
behalf of the Medicare beneficiary or where household members are not 
Medicare beneficiaries because they receive their health care through 
the Indian Health Service.

[44 FR 35928, June 19, 1979. Redesignated by Amdt. 1, 47 FR 14137, Apr. 
2, 1982, and amended at 59 FR 1449, Jan. 11, 1994; 64 FR 73383, Dec. 30, 
1999; 65 FR 47833, Aug. 4, 2000]



Sec.  253.7  Certification of households.

    (a) Application processing--(1) General purpose. The application 
process includes filing and completing an application form, being 
interviewed, and having certain information verified. The State agency 
shall act promptly on all applications. Expedited service shall be 
available to household in immediate need. When the State agency is other 
than the ITO, the ITO, when appropriate, may receive copies of 
certification and/or termination notices to the extent requested or 
agreed upon by the household. State agencies and ITOs may develop 
formalized mechanisms to ensure ITO receipt of notices.
    (2) Food Distribution Program application form. The State agency 
shall use an application form acceptable to FNS. The State agency shall 
consult with the ITO in developing the application form. The State 
agency shall make application forms readily accessible to potentially 
eligible households and those groups or organizations involved in 
outreach efforts. The State agency shall also provide an application 
form to anyone who requests the form. State agencies which elect joint 
PA or GA/Food Distribution Program procedures shall follow the 
requirements of paragraph (g) of this section for the application form. 
State agencies may also use an abbreviated recertification form.
    (3) Filing an application. Households must file an application for 
the Food Distribution Program by submitting the form to a certification 
office in person, through an authorized representative or by mail. The 
State agency shall document the date the application was received. Each 
household has the right to file an application form the same day it 
contacts the certification office during office hours on the reservation 
where the household resides. The household shall be advised that it does 
not have to be interviewed before filing the application and may file an 
incomplete application form as long as the application contains the 
applicant's name and address and is signed by a responsible member of 
the household or the household's authorized representative.
    (4) Household cooperation. To determine eligibility, the application 
form

[[Page 516]]

must be completed and signed, the household or its authorized 
representative must be interviewed, and certain information on the 
application must be verified. If the household refuses to cooperate with 
the State agency in completing this process, the application shall be 
denied upon a determination of refusal. For a determination of refusal 
to be made, the household must be able to cooperate, but clearly 
demonstrate that it will not take actions that it can take and that are 
required to complete the application process. For example, to be denied 
for refusal to cooperate, a household must refuse to be interviewed and 
not merely fail to appear for the interview. If there is any question as 
to whether the household has merely failed to cooperate, as opposed to 
refused to cooperate, the household shall not be denied solely for this 
reason. The household shall also be determined ineligible if it refuses 
to cooperate in any subsequent review of its eligibility. Once denied or 
terminated for refusal to cooperate, the household may reapply but shall 
not be determined eligible until it cooperates.
    (5) Interviews. All applicant households, including those submitting 
applications by mail, shall have an interview with a qualified 
eligibility worker prior to initial certification and all 
recertifications. At State agency discretion, applicants may be 
interviewed by telephone or in the home. No household shall be 
interviewed by telephone for any two consecutive certifications without 
a face-to-face interview. State agencies must attempt to schedule home 
visits in advance. Home visits cannot extend required processing 
standards set forth in paragraphs (a)(7) and (a)(9) of this section. The 
individual interviewed may be the head of household, spouse, any other 
responsible member of the household or an authorized representative. The 
household, if it wishes, may be accompanied to the interview by anyone 
of its choice. The interviewer shall not only review the information 
that appears on the application, but shall explore and resolve with the 
household unclear and incomplete information. Households shall be 
advised of their rights and responsibilities during the interview. The 
interview shall be conducted as an official and confidential discussion 
of household circumstances. The applicant's right to privacy shall be 
protected during the interview. Facilities shall be adequate to preserve 
the privacy and confidentiality of the interview.
    (6) Verification. Verification is the use of third party information 
or documentation to establish the accuracy of statements on the 
application in order to determine eligibility or ineligibility of the 
household.
    (i) Mandatory verification.
    (A) Gross non-exempt income. The State agency must obtain 
verification of each household's gross non-exempt income prior to 
certification. Households certified under the expedited service 
processing standards at paragraph (a)(9) of this section are not subject 
to this requirement. Income does not need to be verified to the exact 
dollar amount unless the household's eligibility would be affected, 
since Food Distribution Program benefits are not reduced as income 
rises. If the eligibility worker is unable to verify the household's 
income, the worker must determine an amount to be used for certification 
purposes based on the best available information. Reasons for inability 
to verify income include failure of the person or organization providing 
the income to cooperate with the household and the State agency, or lack 
of other sources of verification.
    (B) Legal obligation and actual child support payments. The State 
agency must obtain verification of the household's legal obligation to 
pay child support, the amount of the obligation, and the monthly amount 
of child support the household actually pays. Documentation that 
verifies the household's legal obligation to pay child support, such as 
a court order, cannot be used to verify the household's actual monthly 
child support payments.
    (C) Medicare Part B medical insurance premium. The State agency must 
obtain verification of the household's payment of the Medicare Part B 
medical insurance premium. Documentation of this expense could include:
    (1) A copy of the current year Social Security benefit statement 
(SSA-4926-SM), or a similar statement provided to Railroad Retirement 
Board and Civil

[[Page 517]]

Service Retirement beneficiaries, which identifies the amount of the 
Medicare Part B premium withheld each month; or
    (2) A receipt for Medicare Part B premium payments paid directly to 
Medicare by the household.
    (ii) Verification of questionable information. Eligibility criteria 
other than income, including residency on or near the reservation, shall 
be verified prior to certification only if they are questionable. To be 
considered questionable, the information on the application must be 
inconsistent with statements by the applicant, inconsistent with other 
information on the application or previous applications, or inconsistent 
with other information received by the State agency. However, due to the 
difficulty in verifying whether a group of individuals is a household, 
State agencies shall generally accept the household's statement 
regarding food preparation and consumption.
    (iii) Responsibility for obtaining verification. The household has 
primary responsibility for providing documentary evidence or an 
acceptable collateral contact to support its income statements and to 
resolve any questionable information. However, the State agency shall 
assist the household in obtaining the needed verification. The State 
agency shall accept any reasonable documentary evidence provided by the 
household and shall be primarily concerned with how adequately the 
verification proves the statements on the application. The State agency 
shall also accept verification from collateral contacts so long as the 
collateral contacts can provide accurate third party verification. The 
State agency shall rely on the household to provide the name of the 
collateral contact. The State agency is not required to use a collateral 
contact designated by the household if the collateral contact cannot be 
expected to provide accurate third party verification. If the collateral 
contact designated by the household is unacceptable to the State agency, 
the State agency shall ask the household to designate another collateral 
contact, and the State agency shall document the casefile as to the 
reason the collateral contact was rejected and an alternate was 
requested. The State agency shall use collateral contacts, rather than 
documentary evidence, for verification if such verification is 
acceptable, and would result in better service to the household. For 
example, the household may be able to obtain a wage stub from the 
employer, but the State agency could call the employer the same day to 
provide the verification of income. Home visits shall be used as 
verification only if documentary evidence and collateral contacts cannot 
be obtained, and the State agency attempts to schedule the visit in 
advance with the household.
    (iv) Documentation. Casefiles must be documented to support a 
determination of eligibility or denial. Documentation shall be in 
sufficient detail to permit a reviewer to determine the reasonableness 
and accuracy of the determination.
    (v) Verification for recertification. At recertification, the State 
agency shall verify a change in income if the source has changed or the 
amount has changed by more than $50 per month since the last time the 
income was verified. State agencies may verify income which is unchanged 
or has changed by $50 per month or less, provided verification is, at a 
minimum, required when information is questionable as defined in 
paragraph (a)(6)(ii) of this section. All other changes reported at the 
time of recertification shall be subject to the same verification 
procedures as apply at initial certification. Unchanged information, 
other than income, shall not be verified at recertification unless the 
information is questionable as defined in paragraph (a)(6)(ii) of this 
section.
    (7) Processing standards. The State agency shall provide eligible 
households that complete the initial application process an opportunity 
to participate as soon as possible, but not later than seven calendar 
days excluding weekends and holidays after the application was filed. An 
application is filed the day the State agency receives an application 
containing the applicant's name and address and which is signed by 
either a responsible member of the household or the household's 
authorized representative.
    (8) Delays in processing. If the State agency cannot determine a 
household's

[[Page 518]]

eligibility within seven calendar days excluding weekends and holidays 
of the date the application was filed due to lack of verification as 
required in paragraph (a)(6) of this section, the State agency shall 
authorize the distribution of commodities to the household for one month 
pending verification. In order to certify the household pending 
verification, the information on the application form must be complete 
and indicate that the household will likely be eligible. No further 
distribution of commodities shall be made without completing the 
eligibility determination.
    (9) Expedited service. The State agency shall provide an opportunity 
to obtain commodities within one calendar day excluding weekends and 
holidays after the date the application was filed for those households 
with no income in the current month and also for those households which, 
in the judgment of the certifying agency, would likely be eligible and 
would otherwise suffer a hardship. The basis for this determination 
shall be recorded in the casefile. State agencies shall provide same day 
service, if possible, to households eligible for expedited service which 
would likely suffer a hardship if required to return to the office the 
next day. Warehouses or other distribution points need not be open 
during all certification hours to meet this need. However, accessibility 
to federally donated commodities by appropriate certification or other 
personnel should be established for households in immediate need. When 
State agencies can demonstrate a need, FNS may approve other expedited 
timeframes based on circumstances such as distance to warehouses or 
other distribution points. To expedite the certification of households 
in immediate need the State agency shall postpone the verification 
required under paragraph (a)(6) of this section. However, the State 
agency shall verify the household's identity and address through a 
collateral contact or readily available documentary evidence. If 
possible, the household's income statements should be verified at the 
same time. The State agency shall complete the verification for 
households certified on an expedited basis prior to the distribution of 
commodities to the household for any subsequent month.
    (10) Authorized representatives. The head of the household, spouse, 
or any other responsible member of the household may designate an 
authorized representative to act on behalf of the household in one or 
all of the following capacities:
    (i) Making application for commodities. When the head of the 
household or the spouse cannot make application, another household 
member may apply or an adult nonhousehold member may be designated in 
writing as the authorized representative for that purpose. The head of 
the household or the spouse should prepare or review the application 
whenever possible, even though another household member or the 
authorized representative will actually be interviewed. Adults who are 
nonhousehold members may be designated as authorized representatives for 
certification purposes only if they are sufficiently aware of relevant 
household circumstances.
    (ii) Obtaining commodities. An authorized representative of the 
household may be designated to obtain commodities. Designation shall be 
made at the time the application is completed except that the household 
may be permitted to designate an emergency authorized representative in 
the event that illness or other unforeseen circumstances prevent the 
household from otherwise obtaining commodities. Designation of an 
emergency authorized representative must be made in writing by a 
responsible member of the household. State agencies may distribute 
commodities to household members or authorized representatives 
presenting an identification card or other appropriate identification 
that satisfactorily identifies the member obtaining commodities.
    (b) Eligibility determinations--(1) Determining income. (i) The 
State agency shall take into account the income already received by the 
household during the certification period and any anticipated income the 
household and the State agency are reasonably certain will be received 
during the remainder of the certification period. If the amount of 
income that is anticipated is

[[Page 519]]

uncertain, that portion of the household's income that is uncertain 
shall not be counted by the State agency. For example, a household 
anticipating income from a new source, such as a new job or recently 
applied for public assistance benefits, may be uncertain as to the 
timing and amount of the initial payment. These monies shall not be 
anticipated by the State agency unless there is reasonable certainty 
concerning the month in which the payment will be received and in what 
amount. If the exact amount of the income is not known, that portion of 
it which can be anticipated with reasonable certainty shall be 
considered as income. In cases where the receipt of income is reasonably 
certain but the monthly amount may fluctuate, and the household's income 
is close to the income eligibility limit the State agency may elect to 
average income provided that such averaging does not disadvantage the 
household. Such averaging shall be based on income that is anticipated 
to be available to the household during the certification period. The 
State agency shall use income received in the past 30 days as an 
indicator of future income during the certification period unless 
changes in income have occurred or can be anticipated.
    (ii) Income anticipated during the certification period shall be 
counted as income only in the month it is expected to be received, 
unless the income is averaged.
    (iii)(A) Self-employment income which represents a household's 
annual support including the net profit from the sale of any capital 
goods or equipment related to the business shall be annualized over a 
12-month period, even if the income is received in only a short period 
of time. For example, self-employment income received by farmers shall 
be averaged over a 12-month period if the income represents the farmer's 
annual support.
    (B) Self-employment income which represents only a part of a 
household's annual support, including the net profit from the sale of 
any capital goods or equipment related to the business, shall be 
averaged over the period of time the income is intended to cover. For 
example, self-employed vendors who work only in the summer and 
supplement their income from other sources during the balance of the 
year shall have their self-employment income averaged over the summer 
months rather than a 12-month period.
    (C) For the period of time over which self-employment income is 
determined, the State agency shall add all gross self-employment income, 
exclude the cost of producing the self-employment income and divide the 
net self-employment income by the number of months over which the income 
will be averaged. The allowable costs of producing self-employment 
income include but are not limited to, the identifiable costs of labor, 
stock, raw materials, seed and fertilizer, interest paid to purchase 
income producing property, insurance premiums, and taxes paid on income 
producing property.
    (D) In determining net self-employment income, payments on the 
principal of the purchase price of income-producing real estate and 
capital assets, equipment, machinery, and other durable goods, net 
losses from previous periods, Federal, State, and local income taxes, 
money set aside for retirement purposes, and other work-related personal 
expenses (such as transportation to and from work) will not be allowable 
costs of doing business.
    (iv) The monthly net self-employment income shall be added to any 
other earned income received by the household. The total monthly earned 
income, less the 20 percent earned income deduction, shall then be added 
to all monthly unearned income received by the household.
    (v) Allowable costs for dependent care shall be subtracted from the 
household's total monthly income to determine net monthly income.
    (vi) The total net monthly income shall be compared to the income 
eligibility standard for the appropriate household size to determine the 
household's eligibility.
    (2) Certification periods. (i) The State agency shall establish 
definite periods of time within which households shall be eligible to 
receive benefits. Further eligibility shall be established upon a 
recertification based upon a newly completed application, an interview,

[[Page 520]]

and such verification as required by paragraph (a)(6)(v) of this 
section.
    (ii) Certification periods shall conform to calendar months. The 
first month in the certification period of initial applicants shall be 
the month in which eligibility is determined. For example, if a 
household submits an application in late January and the household is 
determined eligible on the fifth working day which falls in February, a 
six-month certification period would include February through July. Upon 
recertification, the certification period will begin with the month 
following the last month of the previous certification period.
    (iii) A household shall be assigned a certification period for as 
long a period as the household's circumstances are expected to remain 
sufficiently stable such that the household is expected to continue to 
meet the program's eligibility standards. In no event shall a 
certification period exceed one year.
    (3) Certification notices--(i) Notice of eligibility. If an 
application is approved, the State agency shall provide the household a 
written notice of eligibility and the beginning and ending dates of the 
certification period. Households certified on an expedited basis shall 
be advised that the subsequent month's eligibility will depend upon 
completion of the postponed verification.
    (ii) Notice of denial. If the application is denied, the State 
agency shall provide the household written notice explaining the basis 
for the denial, the household's right to request a fair hearing, and the 
telephone number and address of the person to contact for additional 
information. If there is an individual or organization available which 
provides free legal representation, the notice shall also advise the 
household of the availability of the service.
    (iii) Notice of adverse action. (A) Prior to any action to reduce or 
terminate a household's benefits within the certification period, except 
for households voluntarily switching program participation from the Food 
Distribution Program to the Food Stamp Program, State agencies shall 
provide the household timely and adequate advance notice before the 
adverse action is taken. The notice must be issued within 10 days of 
determining that an adverse action is warranted. The adverse action must 
take effect with the next scheduled distribution of commodities that 
follows the expiration of the advance notice period, unless the 
household requests a fair hearing.
    (B) In State agencies that have elected joint public assistance or 
general assistance and Food Distribution processing, the notice of 
adverse action shall be considered timely if the advance notice period 
conforms to that period of time defined by the State agency as an 
adequate notice period for its public or general assistance caseload, 
provided that the period includes at least 10 days from the date the 
notice is mailed to the date upon which the action becomes effective. In 
circumstances other than joint processing, the advance notice shall be 
considered timely if the advance notice period includes at least 10 days 
from the date the notice is issued to the date upon which the action 
becomes effective.
    (C) The notice of adverse action must include the following in 
easily understandable language:
    (1) The reason for the adverse action;
    (2) The date the adverse action will take effect;
    (3) The household's right to request a fair hearing and continue to 
receive benefits pending the outcome of the fair hearing;
    (4) The date by which the household must request the fair hearing;
    (5) The liability of the household for any overissuances received 
while awaiting the outcome of the fair hearing, if the fair hearing 
official's decision is adverse to the household;
    (6) The telephone number and address of someone to contact for 
additional information; and
    (7) The telephone number and address of an individual or 
organization that provides free legal representation, if available.
    (D) The State agency shall continue distribution of commodities to 
the household after the end of the adverse notice period if the 
household requests a fair hearing during the advance notice period.

[[Page 521]]

    (E) If the State agency determines that a household received more 
USDA commodities than it was entitled to receive, it must establish a 
claim against the household in accordance with Sec.  253.9. The initial 
demand letter for repayment must be provided to the household at the 
same time the notice of adverse action is issued. It may be combined 
with the notice of adverse action.(c) Reporting changes. (1) Certified 
households are required to report changes in household composition and 
income which would necessitate a change in the determination of 
eligibility. To facilitate reporting changes in income each certified 
household shall be advised at the time of certification what the maximum 
monthly income limit, as defined in Sec.  253.6(e)(1), is for its size 
household, and shall be required to report any change in income that 
goes above that limit to the certification office within ten days after 
the change becomes known to the household. Households must also report 
within ten days when cash on hand, money in checking or savings 
accounts, savings certificates, stocks, or bonds, or other readily 
negotiable instruments exceeds $1,750. The State agency shall develop 
the procedures for when and how changes in household circumstances are 
reported. Changes reported over the telephone or in person shall be 
acted on in the same manner as those reported in writing.
    (2) If the State agency determines that the household is no longer 
eligible or reduces the amount of commodities due the household because 
the household has lost a member or members, the State agency shall 
provide the household with a notice of adverse action not later than ten 
days after the change is reported. If the reported change increases the 
amount of commodities due the household, the household shall be notified 
that the increase shall be effective not later than the month following 
the date the change was reported.
    (d) Recertification. (1) The State agency shall develop a procedure 
for notifying the household prior to or shortly after the end of its 
certification period that the household must reapply and be recertified 
for continued participation. Households shall also be notified of the 
date upon which termination from participation will be effective should 
the household fail to reapply before the expiration of the certification 
period.
    (2) The State agency shall approve or deny a household's application 
for recertification and notify the household of that determination prior 
to the expiration of the household's current certification period. 
Households applying for recertification in the last month of the current 
certification period must be provided an opportunity to obtain commodity 
distribution on an uninterrupted basis.
    (3) The State agency shall continue distribution of commodities to 
the household denied at the point of recertification if the household 
timely requests a fair hearing.
    (e) Controls for dual participation--(1) Prohibition on dual 
participation. No household shall be allowed to participate 
simultaneously in the Food Stamp Program and Food Distribution Program. 
The State agency shall inform each applicant household of this 
prohibition and shall develop a method to detect dual participation. The 
method developed by the State agency shall, at a minimum, employ lists 
of currently certified households provided by and provided to the 
appropriate food stamp agency on a monthly basis. The State agency may 
also employ computer checks, address checks and telephone calls to 
prevent dual participation. The State agency shall coordinate with the 
appropriate food stamp agency or agencies in developing controls for 
dual participation.
    (2) Choice of programs. Households eligible for either the Food 
Stamp Program or Food Distribution Program on reservations on which both 
programs are available may elect to participate in either program. Such 
households may elect to participate in one program, and subsequently 
elect the other at the end of the certification period. Households may 
also elect to switch from one program to the other program within a 
certification period only by terminating their participation, and 
notifying the State agency of their intention to switch programs. 
Households certified in either the Food Distribution or Food Stamp 
Program on

[[Page 522]]

the first day of the month can only receive benefits in the program for 
which they are currently certified during that month. At the point the 
household elects to change programs the household should notify the 
State agency of its intent to switch programs, and should file an 
application for the program in which it wishes to participate. 
Households voluntarily withdrawing from one program with the intent of 
switching to the other shall have their eligibility terminated for the 
program in which they are currently certified on the last day of the 
month in which the household notifies the State agency of its intent to 
change programs. Entitlement in the program for which a household is now 
filing an application, if all eligibility criteria are met, would begin 
in the month following the month of termination in the previous program.
    (f) Treatment of disqualified household members. (1) The following 
are not eligible to participate in the Food Distribution Program:
    (i) Household members disqualified from the Food Distribution 
Program for an intentional program violation under Sec.  253.8. These 
household members may participate, if otherwise eligible, in the Food 
Distribution Program once the period of disqualification has ended.
    (ii) Household members disqualified from the Food Stamp Program for 
an intentional program violation under Sec.  273.16 of this chapter. 
These household members may participate, if otherwise eligible, in the 
Food Distribution Program once the period of disqualification under the 
Food Stamp Program has ended. The State agency must, in cooperation with 
the appropriate food stamp agency, develop a procedure that ensures that 
these household members are identified.
    (iii) Households disqualified from the Food Distribution Program for 
failure to pay an overissuance claim. The circumstances under which a 
disqualification is allowed for such failure are specified in FNS 
Handbook 501.
    (2) During the time a household member is disqualified, the 
eligibility and food distribution benefits of any remaining household 
members will be determined as follows:
    (i) Resources. The resources of the disqualified member will 
continue to count in their entirety to the remaining household members.
    (ii) Income. A pro rata share of the income of the disqualified 
member will be counted as income to the remaining members. This pro rata 
share is calculated by dividing the disqualified member's earned (less 
the 20 percent earned income deduction) and unearned income evenly among 
all household members, including the disqualified member. All but the 
disqualified member's share is counted as income to the remaining 
household members.
    (iii) Eligibility and benefits. The disqualified member will not be 
included when determining the household's size for purposes of assigning 
food distribution benefits to the household or for purposes of comparing 
the household's net monthly income with the income eligibility 
standards.
    (g) Joint processing PA/GA. (1) State agencies which are responsible 
for and administer both the Food Distribution and public assistance (PA) 
or general assistance (GA) programs on Indian reservations may allow a 
household to apply for the Food Distribution Program at the same time 
the household applies for PA or GA benefits. However, while PA 
households are categorically eligible, GA households except for those 
households in GA programs which have been determined by FNS to have 
criteria of need the same as, or similiar to those under federally aided 
public assistance programs as provided for in Sec.  253.6(c)(2) shall 
have their eligibility for commodities based solely on Food Distribution 
eligibility criteria. All criteria provided in this paragraph (f), are 
applicable to State agencies which administer both the Food Distribution 
and assistance programs and which elect joint processing. Under joint 
processing, the State agency shall use joint application forms that 
contain all the information needed to determine eligibility for 
commodities or shall attach a form for the other needed information.
    (2) The State agency shall process all applications for PA or GA as 
applications for the Food Distribution Program as well, unless the 
household

[[Page 523]]

clearly indicates on a space on the application that the household does 
not want commodities. The State agency shall conduct a single interview 
for PA or GA and Food Distribution Program eligibility, unless the State 
agency is unable to do so within the Food Distribution Program 
processing standards specified in paragraphs (a)(7) and (a)(9)of this 
section. In such cases the State agency shall provide separate 
certification for PA or GA and Food Distribution Program eligibility.
    (3) The State agency may verify those factors of eligibility which 
must be verified for PA or GA, under PA or GA rules, but must follow the 
Food Distribution Program rules for all other factors.
    (4) PA households have the same reporting requirements as any other 
food distribution household. PA households which report a change in 
circumstances to the PA worker shall be considered to have reported the 
change for food distribution purposes. All of the requirements 
pertaining to reporting changes for PA households shall be applied to GA 
households in project areas where GA and food distribution cases are 
processed jointly.
    (5) The State agency must follow all Food Distribution Program 
timeliness rules for certification of households for the Food 
Distribution Program.
    (h) Fair hearing--(1) Availability of hearings. The State agency 
shall provide a fair hearing to any household aggrieved by any action of 
the State agency which affects the participation of the household in the 
Food Distribution Program.
    (2) Timely action on hearings--(i) Time frames for the State agency. 
The State agency must conduct the hearing, arrive at a decision, and 
notify the household of the decision within 60 days of receipt of a 
request for a fair hearing. The fair hearing decision may result in a 
change in the household's eligibility or the amount of commodities 
issued to the household based on household size. The State agency must 
implement these changes to be effective for the next scheduled 
distribution of commodities following the date of the fair hearing 
decision. If the commodities are normally made available to the 
household within a specific period of time (for example, from the first 
day of the month through the tenth day of the month), the effective date 
of the disqualification will be the first day of that period.
    (ii) Household requests for postponement. The household may request 
and is entitled to receive, a postponement of the scheduled hearing. The 
postponement shall not exceed 30 days and, the time limit for action on 
the decision may be extended for as many days as the hearing is 
postponed.
    (3) Notification of right to request hearing. At the time of 
application, each household shall be informed of its right to a hearing, 
of the method by which a hearing may be requested, and that its case may 
be presented by a household member or a representative, such as a legal 
counsel, a relative, a friend or other spokesperson. If there is an 
individual or organization available which provides free legal 
representation, the household shall also be informed of the availability 
of that service. Hearing procedures shall be published by the State 
agency and made available to any interested party.
    (4) Time period for requesting hearing. A household shall be allowed 
to request a hearing on any action by the State agency which occurred in 
the prior 90 days or which affects current benefits.
    (5) Request for hearing. A request for a hearing is any clear 
expression, oral or written, by the household or its representative to 
the State agency that it wishes to present its case to a higher 
authority. The freedom to make such a request shall not be limited or 
interfered with in any way. Upon request, the State agency shall make 
available without charge the specific materials necessary for a 
household or its representative to determine whether a hearing should be 
requested or to prepare for a hearing.
    (6) Denial or dismissal of request for hearing. The State agency 
shall not deny or dismiss a request for a hearing unless:
    (i) The request is not received within the time period specified in 
paragraph (g)(4) of this section;
    (ii) The request is withdrawn in writing by the household or its 
representative; or

[[Page 524]]

    (iii) The household or its representative fails, without good cause, 
to appear at the scheduled hearing.
    (7) Notification of time and place of hearing. The time, date and 
place of the hearing shall be convenient to the household. At least 15 
days prior to the hearing, advance written notice shall be provided to 
all parties involved to permit adequate preparation of the case. The 
notice shall:
    (i) Advise the household or its representative of the name, address, 
and the phone number of the person to notify in the event it is not 
possible for the household to attend the scheduled hearing.
    (ii) Specify that the State agency will dismiss the hearing request 
if the household or its representative fails to appear for the hearing 
without good cause.
    (iii) Include the State agency hearing procedures and any other 
information that would provide the household with an understanding of 
the proceedings, and that would contribute to the effective presentation 
of the household's case.
    (iv) Explain that the household or representative may examine the 
casefile prior to the hearing.
    (8) Hearing official. Hearings shall be conducted by an impartial 
official(s), designated by the State agency, who does not have any 
personal interest or involvement in the case and who was not directly 
involved in the initial determination of the action which is being 
contested. The hearing official shall:
    (i) Administer oaths or affirmations if required by the State;
    (ii) Ensure that all relevant issues are considered;
    (iii) Request, receive and make part of the record all evidence 
determined necessary to decide the issues being raised;
    (iv) Regulate the conduct and course of the hearing consistent with 
due process to ensure an orderly hearing; and
    (v) Render a hearing decision in the name of the State agency, in 
accordance with paragraph (g)(11) of this section, which will resolve 
the dispute.
    (9) Attendance at hearing. The hearing shall be attended by a 
representative of the State agency which initiated the action being 
contested and by the household and/or its representative. The hearing 
may also be attended by friends or relatives of the household upon 
household consent.
    (10) Conduct of hearing. The household may not be familiar with the 
rules of order and it may be necessary to make particular efforts to 
arrive at the facts of the case in a manner that makes the household 
feel most at ease. The household or its representative must be given 
adequate opportunity to:
    (i) Examine all documents and records to be used at the hearing at a 
reasonable time before the date of the hearing, as well as during the 
hearing. The contents of the casefile, including the application forms 
and documents of verification used by the State agency shall be made 
available, provided the confidential information is protected from 
release. The State agency shall provide a free copy of the relevant 
portions of the casefile if requested by the household or its 
representative. Confidential information that is protected from release 
and other documents or records which the household will not otherwise 
have an opportunity to contest or challenge shall not be introduced at 
the hearing or affect the hearing official's decision.
    (ii) Present the case or have it presented by a legal counsel or 
other person.
    (iii) Bring witnesses.
    (iv) Advance arguments without undue interference.
    (v) Question or refute any testimony or evidence, including an 
opportunity to confront and cross-examine adverse witnesses.
    (vi) Submit evidence to establish all pertinent facts and 
circumstances in the case.
    (11) Hearing decisions. (i) Decisions of the hearing officials shall 
comply with Federal law or regulations and shall be based on the hearing 
record. The verbatim transcript or recording of testimony and exhibits 
or an official report containing the substance of what transpired at the 
hearing, together with all papers and requests filed in the proceeding, 
shall constitute the exclusive record for a final decision by the 
hearing official.

[[Page 525]]

    (ii) A decision by the hearing official shall be binding on the 
State agency and shall summarize the facts of the case, specify the 
reasons for the decision and identify the supporting evidence and the 
pertinent FNS regulations. The decision shall become a part of the 
record.
    (iii) Within 10 days of the date the fair hearing decision is 
issued, the State agency must issue a notice to the household advising 
it of the decision.
    (A) If the decision upheld the adverse action by the State agency, 
the notice must advise the household of the right to pursue judicial 
review.
    (B) If the decision upheld a disqualification, the notice must also 
include the reason for the decision, the date the disqualification will 
take effect, and the duration of the disqualification (that is, 12 
months; 24 months; or permanent). The State agency must also advise any 
remaining household members if the household's benefits will change, or 
if the household is no longer eligible as a result of the 
disqualification.
    (iv) The State agency must revise the demand letter for repayment 
issued previously to the household to include the value of all 
overissued commodities provided to the household during the appeal 
process, unless the fair hearing decision specifically requires the 
cancellation of the claim. The State agency must also advise the 
household that collection action on the claim will continue, in 
accordance with FNS Handbook 501, unless suspension is warranted.
    (12) Agency conferences. (i) The State agency shall offer agency 
conferences to households which request an immediate resolution by a 
higher authority of a denial of eligibility for food distribution 
benefits. The State agency may also offer agency conferences to 
households adversely affected by any agency action. The State agency 
shall advise households that use of an agency conference is optional and 
that such use shall in no way delay or replace the fair hearing process. 
The agency conferences may be attended by the eligibility worker 
responsible for the agency action, and shall be attended by an 
eligibility supevisor and/or the agency director, as well as the 
household and/or its representative. An agency conference may lead to an 
informal resolution of the dispute. However, a fair hearing must still 
be held if requested by the household.
    (ii) An agency conference for households requesting an immediate 
resolution by a higher authority of an eligibility issue shall be 
scheduled within four working days of the request unless the household 
requests that it be scheduled later or states that it does not wish to 
have an agency conference.

(Approved by the Office of Management and Budget under control number 
0584-0071)

(44 U.S.C. 3506)

[44 FR 35928, June 19, 1979, as amended at 47 FR 746, Jan. 7, 1982. 
Redesignated and amended by Amdt. 1, 47 FR 14137, Apr. 2, 1982; 64 FR 
73383, Dec. 30, 1999; 65 FR 47833, Aug. 4, 2000]



Sec.  253.8  Administrative disqualification procedures for intentional 
program violation.

    (a) What is an intentional program violation? An intentional program 
violation is considered to have occurred when a household member 
knowingly, willingly, and with deceitful intent:
    (1) Makes a false or misleading statement, or misrepresents, 
conceals, or withholds facts in order to obtain Food Distribution 
Program benefits which the household is not entitled to receive; or
    (2) Commits any act that violates a Federal statute or regulation 
relating to the acquisition or use of Food Distribution Program 
commodities.
    (b) What are the disqualification penalties for an intentional 
program violation? Household members determined by the State agency to 
have committed an intentional program violation will be ineligible to 
participate in the program:
    (1) For a period of 12 months for the first violation;
    (2) For a period of 24 months for the second violation; and
    (3) Permanently for the third violation.
    (c) Who can be disqualified? Only the household member determined to 
have committed the intentional program violation can be disqualified. 
However, the disqualification may affect the eligibility of the 
household as a whole, as

[[Page 526]]

addressed under paragraphs (e)(5) and (h) of this section.
    (d) Can the disqualification be appealed? Household members 
determined by the State agency to have committed an intentional program 
violation may appeal the disqualification, as provided under Sec.  
253.7(h)(1).
    (e) What are the State agency's responsibilities?
    (1) Each State agency must implement administrative disqualification 
procedures for intentional program violations that conform to this 
section.
    (2) The State agency must inform households in writing of the 
disqualification penalties for intentional program violations each time 
they apply for benefits, including recertifications. This notice must 
also advise households that an intentional program violation may be 
referred to authorities for prosecution.
    (3) The State agency must attempt to substantiate all suspected 
cases of intentional program violation. An intentional program violation 
is considered to be substantiated when the State agency has clear and 
convincing evidence demonstrating that a household member committed one 
or more acts of intentional program violation, as defined in paragraph 
(a) of this section.
    (4) Within 10 days of substantiating that a household member has 
committed an intentional program violation, the State agency must 
provide the household member with a notice of disqualification, as 
described in paragraph (f) of this section. A notice must still be 
issued in instances where the household member is not currently eligible 
or participating in the program.
    (5) The State agency must advise any remaining household members if 
the household's benefits will change or if the household will no longer 
be eligible as a result of the disqualification.
    (6) The State agency must provide the household member to be 
disqualified with an opportunity to appeal the disqualification through 
a fair hearing, as required by Sec.  253.7(h).
    (7) The State agency must refer all substantiated cases of 
intentional program violations to Tribal, Federal, State, or local 
authorities for prosecution under applicable statutes. However, a State 
agency that has conferred with its legal counsel and prosecutors to 
determine the criteria for acceptance for possible prosecution is not 
required to refer cases that do not meet the prosecutors' criteria.
    (8) The State agency must establish claims, and pursue collection as 
appropriate, on all substantiated cases of intentional program violation 
in accordance with Sec.  253.9.
    (f) What are the requirements for the notice of disqualification?
    (1) Within 10 days of substantiating the intentional program 
violation, the State agency must issue to the household member a notice 
of disqualification. The notice must allow an advance notice period of 
at least 10 days. The disqualification must begin with the next 
scheduled distribution of commodities that follows the expiration of the 
advance notice period, unless the household member requests a fair 
hearing. A notice must still be issued in instances where the household 
member is not currently eligible or participating in the program.
    (2) The notice must conform to the requirements of Sec.  
253.7(b)(3)(iii)(C) for notices of adverse action.
    (g) What are the appeal procedures for administrative 
disqualifications?
    (1) Appeal rights. The household member has the right to request a 
fair hearing to appeal the disqualification in accordance with the 
procedures at Sec.  253.7(h).
    (2) Notification of hearing. The State agency must provide the 
household member with a notification of the time and place of the fair 
hearing as described in Sec.  253.7(h)(7). The notice must also include:
    (i) A warning that if the household member fails to appear at the 
hearing, the hearing decision will be based solely on the information 
provided by the State agency; and
    (ii) A statement that the hearing does not prevent the Tribal, 
Federal, State, or local government from prosecuting the household 
member in a civil or criminal court action, or from collecting any 
overissuance(s).
    (h) What are the procedures for applying disqualification penalties?

[[Page 527]]

    (1) If the household member did not request a fair hearing, the 
disqualification must begin with the next scheduled distribution of 
commodities that follows the expiration of the advance notice period of 
the notice of adverse action. If the commodities are normally made 
available to the household within a specific period of time (for 
example, from the first day of the month through the tenth day of the 
month), the effective date of the disqualification will be the first day 
of that period. The State agency must apply the disqualification period 
(that is, 12 months, 24 months, or permanent) specified in the notice of 
disqualification. The State agency must advise any remaining household 
members if the household's benefits will change or if the household is 
no longer eligible as a result of the disqualification.
    (2) If the household member requested a fair hearing and the 
disqualification was upheld by the fair hearing official, the 
disqualification must begin with the next scheduled distribution of 
commodities that follows the date the hearing decision is issued. If the 
commodities are normally made available to the household within a 
specific period of time (for example, from the first day of the month 
through the tenth day of the month), the effective date of the 
disqualification will be the first day of that period. The State agency 
must apply the disqualification period (that is, 12 months, 24 months, 
or permanent) specified in the notice of disqualification. No further 
administrative appeal procedure exists after an adverse fair hearing 
decision. The decision by a fair hearing official is binding on the 
State agency. The household member, however, may seek relief in a court 
having appropriate jurisdiction. As provided under Sec.  
253.7(h)(11)(iii)(B), the State agency must advise any remaining 
household members if the household's benefits will change, or if the 
household is no longer eligible as a result of the disqualification.
    (3) Once a disqualification has begun, it must continue 
uninterrupted for the duration of the penalty period (that is, 12 
months; 24 months; or permanent). Changes in the eligibility of the 
disqualified household member's household will not interrupt or shorten 
the disqualification period.
    (4) The same act of intentional program violation continued over a 
period of time will not be separated so that more than one penalty can 
be imposed. For example, a household intentionally fails to report that 
a household member left the household, resulting in an overissuance of 
benefits for 5 months. Although the violation occurred over a period of 
5 months, only one penalty will apply to this single act of intentional 
program violation.
    (5) If the case was referred for Tribal, Federal, State, or local 
prosecution and the court of appropriate jurisdiction imposed a 
disqualification penalty, the State agency must follow the court order.

[64 FR 73384, Dec. 30, 1999]



Sec.  253.9  Claims against households.

    (a) What are the procedures for establishing a claim against a 
household for an overissuance?
    (1) The State agency must establish a claim against any household 
that has received more Food Distribution Program commodities than it was 
entitled to receive.
    (2) The procedures for establishing and collecting claims against 
households are specified in FNS Handbook 501, The Food Distribution 
Program on Indian Reservations.
    (b) Who is responsible for repaying a household overissuance claim?
    (1) All adult household members are jointly and separately liable 
for the repayment of the value of any overissuance of Food Distribution 
Program benefits to the household.
    (2) Responsibility for repayment continues even in instances where 
the household becomes ineligible or is not participating in the program.

[64 FR 73385, Dec. 30, 1999]



Sec.  253.10  Commodity control, storage and distribution.

    (a) Control and accountability. The State agency shall be 
responsible for the issuance of commodities to households and the 
control of and accountability for the commodities upon its acceptance of 
the commodities at time and place of delivery.

[[Page 528]]

    (b) Commodity inventories. The State agency shall, in cooperation 
with the FNS Regional office, develop an appropriate procedure for 
determining and monitoring the level of commodity inventories at central 
commodity storage facilities and at each local distribution point. The 
State agency shall maintain the inventories at proper levels taking into 
consideration, among other factors, household preferences and the 
historical and projected volume of distribution at each site. The 
procedures shall provide that commodity inventories at each central 
storage facility and each local distribution point are not in excess, 
but are adequate for, an uninterrupted distribution of commodities.
    (c) Storage facilities and practices. The State agency shall as a 
minimum ensure that:
    (1) Adequate and appropriate storage facilities are maintained. The 
facilities shall be clean and neat and safe-guarded against theft, 
damage, insects, rodents and other pests.
    (2) Department recommended dunnage, stacking and ventilation methods 
are followed.
    (3) Commodities are stacked in a manner which facilitates an 
accurate inventory.
    (4) Commodities are issued on a first-in, first-out basis.
    (5) Commodities held in storage for a protracted period of time are 
reinspected prior to issuance.
    (6) Out-of-condition commodities are disposed of in accordance with 
Department approved methods.
    (7) Notification is provided to certified households of the location 
of distribution sites and days and hours of distribution.
    (8) An adequate supply of commodities which are available from the 
Department is on hand at all distribution sites.
    (9) Sufficient distribution sites, either stationary or mobile, are 
geographically located or routed in relation to population density of 
eligible households.
    (10) Days and hours of distribution are sufficient for caseload size 
and convenience.
    (11) Households are advised they may refuse any commodity not 
desired, even if the commodities are prepackaged by household size.
    (12) Emergency issuance of commodities will be made to households 
certified for expedited service in accordance with the provisions of 
Sec.  253.7(a)(9).
    (13) Eligible households or authorized representatives are 
identified prior to the issuance of commodities.
    (14) Authorized signatures are obtained for commodities issued and 
the issue date recorded.
    (15) Posters are conspicuously displayed advising program 
participants to accept only those commodities, and in such quantities, 
as will be consumed by them.
    (16) Complete and current records are kept of all commodities 
received, issued, transferred, and on hand and of any inventory 
overages, shortages, and losses.
    (17) A list of commodities offered by the Department is displayed at 
distribution sites so that households may indicate preferences for 
future orders.
    (d) Distribution. The State agency shall distribute commodities only 
to households eligible to receive them under this part. If the State 
agency uses any other agency, administration, bureau, service or similar 
organization to effect or assist in the certification of households or 
distribution of commodities, the State agency shall impose upon such 
organization responsibility for determining that households to whom 
commodities are distributed are eligible under this part. The State 
agency shall not delegate to any such organization its responsibilities 
to the Department for overall management and control of the Food 
Distribution Program.
    (e) Improper distribution or loss of or damage of commodities. State 
agencies shall take action to obtain restitution in connection with 
claims arising in their favor for improper distribution, use or loss, or 
damage of commodities in accordance with Sec.  250.13 and Sec.  250.15 
of this chapter.
    (f) Damaged or out-of-condition commodities. The State agency shall 
immediately notify the appropriate Food and Nutrition Service Regional 
Office (FNSRO) if any commodities are found to be damaged or out-of-
condition at

[[Page 529]]

the time of arrival, or at any subsequent time, whether due to latent 
defects or any other reason. FNSRO shall advise the State agency of the 
appropriate action to be taken with regard to such commodities. If the 
commodities are declared unfit for human consumption in accordance with 
Sec.  250.13(f) of this chapter, they shall be disposed of as provided 
for under that section. When out-of-condition commodities do not create 
a hazard to other food at the same location, they shall not be disposed 
of until FNSRO or the responsible commodity contractor approves. When 
circumstances require prior disposal of a commodity, the quantity and 
manner of disposition shall be reported to the appropriate FNSRO. If any 
damaged or out-of-condition commodities are inadvertently issued to a 
household and are rejected or returned by the household because the 
commodities were unsound at the time of issuance and not because the 
household failed to provide proper storage, care or handling, the State 
agency shall replace the damaged or out-of-condition commodities with 
the same or similar kind of commodities which are sound and in good 
condition. The State agency shall account for such replacements on its 
monthly inventory report.

(Approved by the Office of Management and Budget under control number 
0584-0071)

(44 U.S.C. 3506)

[44 FR 35928, June 19, 1979, as amended at 47 FR 746, Jan. 7, 1982. 
Redesignated by Amdt. 1, 47 FR 14137, Apr. 2, 1982, and further 
redesignated at 64 FR 73384, Dec. 30, 1999.]



Sec.  253.11  Administrative funds for State agencies.

    (a) Payments. Within the limitation of funds available to carry out 
the provisions of this part, FNS shall, beginning with fiscal year 1980, 
make available to each State agency 75 percent of approved 
administrative costs. Any approval for payment of funds in excess of 75 
percent shall be based on compelling justification that such additional 
amounts are necessary for the effective operation of the Food 
Distribution Program on an Indian reservation. Compelling justification 
may include, but not be limited to, such factors as the need for a 
larger Federal contribution during a State agency's first year of 
operation of the program, and the need to assure that no State agency 
currently operating the program receives a level of funding that would 
cause a diminution of program services. Administrative costs must be 
included in annual or revised budget information submitted by the State 
agency to FNS for approval prior to the contribution of Federal funds. 
Administrative costs must be allowable under part 277 of this chapter.
    (b) Use of funds by State agencies. Any funds received under this 
section shall be used for any costs which are allowable under part 277 
of this chapter and which are incurred in operating the Food 
Distribution Program for households on a reservation. The value of 
services rendered by volunteers, part 277 notwithstanding, shall be 
allowable to meet the matching administrative costs requirements for the 
Food Distribution Program. In no event shall such funds be used to pay 
any portion of such expenses if reimbursement or payment therefor is 
claimed or made available from any other Federal source. State agencies 
shall also adhere to the provisions of part 277 of this chapter, as 
apply to the Food Distribution Program, which establish:
    (1) Uniform requirements for the adminstration of funds to State 
agencies; and
    (2) Principles for determining costs applicable to activities 
assisted by the Food Stamp Program funds provided to State agencies. The 
provisions of part 277 are generally adaptable to this section and the 
appropriate provisions shall be used in complying with paragraphs (b) 
and (f) of this section.
    (c) Application for funds. (1) Any State agency administering a Food 
Distribution Program that desires to receive administrative funds under 
this section shall submit form SF-424, ``Application for Federal 
Assistance,'' to the appropriate FNS Regional Office at least three 
months prior to the beginning of a Federal fiscal year. The application 
shall include budget information, reflecting by category of expenditure 
the State agency's best estimate of the total amount to be expended in 
the administration of the program during the fiscal year. FNS may 
require that detailed information be submitted by the

[[Page 530]]

State agency to support or explain the total estimated amounts shown for 
each budget cost category. As required by 7 CFR part 3015, Subpart V, 
agencies of State government shall submit the application for Federal 
assistance to the State clearinghouse before submitting it to the FNSRO. 
ITOs shall not be subject to this requirement.
    (2) Approval of the application by FNS shall be a prerequisite to 
the payment of any funds to State agencies.
    (d) Availability of funds. (1) FNS shall review and evaluate the 
budget information submitted by the State agency in relationship to the 
State agency's plan of operation and any other factors which may be 
relevant to FNS' determination as to whether the estimated expenditures 
itemized by budget category are reasonable and justified. FNS shall give 
written notification to the State agency of (i) its approval or 
disapproval of any or all of the itemized expenditures, (ii) the amount 
of funds which will be made available, and (iii) the period for which 
funds are available.
    (2) FNS shall review and evaluate applications submitted by State 
agencies for administrative funds available under this section in the 
following order of priority and shall give preference in making payments 
of funds under this section in the same order of priority:
    (i) Applications from State agencies which desire to continue a Food 
Distribution Program now in operation,
    (ii) Applications from State agencies, in the order received, which 
FNS determines are immediately capable of effectively and efficiently 
administering the Program, and
    (iii) Applications from other States agencies, in the order 
received.
    (e) Method of payment to State agencies. (1) Payments are made to 
State agencies through a Letter of Credit or an advance by Treasury 
check. The Letter of Credit funding method shall be used by FNS except 
when the advances to be made within a 12 month period are estimated to 
be less than $120,000. However, FNS may, at its option, reimburse a 
State agency by Treasury check regardless of the amount in response to a 
valid claim submitted by the State agency.
    (2) The Letter of Credit funding method shall be done in conjunction 
with Treasury Department procedures, Treasury Circular No. 1075 and 
through an appropriate Treasury Regional Disbursing Office (RDO). The 
Standard Form 183, ``Request for Payment on Letter of Credit and Status 
of Funds Report,'' shall be correctly prepared and certified by a duly 
appointed official of the State for requesting payment from an RDO.
    (3) The advance by Treasury check method shall be done by use of the 
Standard Form 270, ``Request for Advance or Reimbursement,'' and 
procedures associated with its use. State agencies receiving payments 
under this method may request payments before cash outlays are made.
    (4) Any State agency receiving payment under the Letter of Credit 
method or the advance by Treasury check method shall have in place and 
in operation, a financial management system which meets the standards 
for fund control and accountability prescribed in part 277 of this 
chapter, as amended. The State agency shall demonstrate on a continuing 
basis its willingness and ability to have and to function within 
procedures that will minimize the time lapse between the transfer of 
funds and its disbursement to meet obligations. For any State agency 
which does not meet the requirement of this paragraph, the reimbursement 
by Treasury check method shall be the preferred method for FNS to make 
payments to that State agency.
    (f) Accounting for funds. Each State agency which receives 
administrative funds under this section shall establish and maintain an 
effective system of fiscal control and accounting procedures. 
Expenditures and accountability of such funds shall be in accordance 
with the appropriate provisions of part 277. The accounting procedures 
maintained by the State agency shall be such as to accurately reflect 
the receipt, expenditure and current balance of funds provided by FNS 
and to facilitate the prompt preparation of reports required by FNS. The 
accounting procedures shall also provide for segregation of costs 
specifically identifiable to the Food Distribution Program from any 
other costs incurred by the State

[[Page 531]]

agency. Any budget revisions by a State agency which require the 
transfer of funds from an approved cost category to another shall be in 
accordance with the budget revision procedures set forth in OMB Circular 
No. A-102, Attachment K, and shall be approved by FNS prior to any 
transfer of funds.
    (g) Return, reduction, and reallocation of funds. (1) FNS may 
require State agencies to return prior to the end of the fiscal year any 
or all unobligated funds received under this section, and may reduce the 
amount it has apportioned or agreed to pay to any State agency if FNS 
determines that:
    (i) The State agency is not administering the Food Distribution 
Program in accordance with its plan of operation approved by FNS and the 
provisions of this part, or
    (ii) The amount of funds which the State agency requested from FNS 
is in excess of actual need, based on reports of expenditures and 
current projections of Program needs.
    (iii) Circumstances or conditions justify the return reallocation or 
transfer of funds to accomplish the purpose of this part.
    (2) The State agency shall return to FNS within 90 days following 
the close of each Federal fiscal year any funds received under this 
section which are unobligated at that time.
    (h) Records, reports, audits. (1) The State agency shall:
    (i) Keep such accounts and records as may be necessary to enable FNS 
to determine whether there has been compliance with this section, and
    (ii) Adhere to the retention and custodial requirements for records 
set forth in Sec.  277.4 of this chapter.
    (2) The State agency receiving funds either through a Treasury RDO 
Letter of Credit system or Treasury check shall submit quarterly reports 
to FNS on Form SF-269, ``Financial Status Report,'' by the 30th day 
after close of the reporting quarter and shall submit such other reports 
as may be required by FNS.
    (3) The appropriate provisions of part 277 are adaptable to this 
section for additional guidance.

(Approved by the Office of Management and Budget under control number 
0584-0071)

(44 U.S.C. 3506)

[44 FR 35928, June 19, 1979, as amended at 47 FR 746, Jan. 7, 1982. 
Redesignated and amended by Amdt. 1, 47 FR 14137, Apr. 2, 1982, as 
amended at 62 FR 53731, Oct. 16, 1997. Redesignated at 64 FR 73385, Dec. 
30, 1999.]



PART 254_ADMINISTRATION OF THE FOOD DISTRIBUTION PROGRAM FOR INDIAN 
HOUSEHOLDS IN OKLAHOMA--Table of Contents




Sec.
254.1 General purpose.
254.2 Definitions.
254.3 Administration by an ITO.
254.4 Application by an ITO.
254.5 Household eligibility.

    Authority: Pub. L. 97-98, sec. 1338; Pub. L. 95-113.

    Source: 49 FR 32756, Aug. 16, 1984, unless otherwise noted.



Sec.  254.1  General purpose.

    This part sets the requirement under which commodities (available 
under part 250 of this chapter) may be distributed to households 
residing in FNS service areas in Oklahoma. This part also sets the 
conditions for administration of the Food Distribution Program by 
eligible Oklahoma tribes determined capable by the Department.



Sec.  254.2  Definitions.

    (a) Exercises governmental jurisdiction means the exercise of 
authorities granted to ITOs under the Oklahoma Indian Welfare Act of 
1936 or by BIA regulations (25 CFR part 81 et. seq.).
    (b) FNS service area means the areas over which FNS has approved the 
food distribution program in Oklahoma, excluding urban places unless 
approved by FNS under 254.5(b).
    (c) Food Distribution Program means a food distribution program for 
households on Indian reservations administered pursuant to section 4(b) 
of the

[[Page 532]]

Food Stamp Act and 1304(a) of Pub. L. 97-98.
    (d) Indian tribal household means a household in which at least one 
household member is recognized as a tribal member by any Indian tribe, 
as defined in Sec.  253.2(d) of this title.
    (e) Indian tribal organization (ITO) means (1) any Indian tribe, 
band, or group organized under the Oklahoma Indian Welfare Act of 1936, 
and which has a tribal organization approved by the Bureau of Indian 
Affairs; (2) a tribal organization established and approved under 
Federal regulations issued by the Bureau of Indian Affairs; or (3) an 
intertribal council authorized by eligible tribes to act in behalf of 
the tribes to operate the program.
    (f) Overissuance means the dollar value of commodities issued to a 
household that exceeds the dollar value of commodities it was eligible 
to receive.
    (g) State agency means the ITO of an Indian tribe, determined by the 
Department to be capable of effectively administering a Food 
Distribution Program, or an agency of State government, which enters 
into an agreement with FNS for the distribution of commodities on an 
Indian reservation.
    (h) Urban place means a town or city with a population of 10,000 or 
more.

[49 FR 32756, Aug. 16, 1984, as amended at 59 FR 1449, Jan. 11, 1994; 64 
FR 73385, Dec. 30, 1999]



Sec.  254.3  Administration by an ITO.

    (a) Applicability of part 253. All of the provisions of part 253 are 
herein incorporated and apply to part 254, except as specifically 
modified by part 254.
    (b) Section 253.4 Administration, does not apply and is replaced by 
Sec.  254.3.
    (c) Federal administration. Within the Department of Agriculture, 
the Food and Nutrition Service (FNS), shall be responsible for the Food 
Distribution Program. FNS shall have the power to determine the amount 
of any claim and to settle and adjust any claim against an ITO.
    (d) ITO administration. The ITO, acting as State agency, shall be 
responsible for the Food Distribution Program within the approved FNS 
service areas if FNS determines the ITO capable of effective and 
efficient administration.
    (e) Qualification as an ITO. The ITO of a tribe in Oklahoma must 
document to the satisfaction of FNS that the ITO meets the definition of 
an ITO in Sec.  254.2, is organized under the provisions of the Oklahoma 
Indian Welfare Act of 1936 or has a tribal organization established and 
approved under BIA regulations.

(The information collection requirements contained in paragraph (e) were 
approved by the Office of Management and Budget under control number 
0584-0316)



Sec.  254.4  Application by an ITO.

    (a) Application to FNS Regional Office. An ITO which desires to 
participate in the Food Distribution Program shall file an application 
with the FNS Regional Office. The application shall also provide other 
information requested by FNS, including but not limited to, the tribe's 
qualification as a reservation as described in Sec.  254.2, paragraph 
(f). Properly addressed applications shall be acknowledged by the FNS 
Regional Office in writing within five working days of receipt. FNS 
shall promptly advise ITOs of the need for additional information if an 
incomplete application is received.
    (b) Tribal capability. (1) In determining whether the ITO is 
potentially capable of effectively and efficiently administering a Food 
Distribution Program in an FNS Service area, allowing for fulfillment of 
that potential through training and technical assistance, FNS shall 
consult with other sources such as the BIA, and shall consider the ITO 
experience, if any, in operating other government programs, as well as 
its management and fiscal capabilities. Other factors for evaluation 
include, but are not limited to, the ITO's ability to:
    (i) Order and properly store commodities,
    (ii) Certify eligible households,
    (iii) Arrange for physical issuance of commodities,
    (iv) Keep appropriate records and submit required reports,
    (v) Budget and account for administrative funds,
    (vi) Determine the food preferences of households, and

[[Page 533]]

    (vii) Conduct on-site reviews of certification and distribution 
procedures and practices.
    (2) FNS shall make a determination of potential ITO capability 
within 60 days of receipt of a completed application for the Food 
Distribution Program. FNS may, however, extend the period for 
determination of ITO capability if FNS finds that a given ITO's 
eligibility under Sec.  254.3 is difficult to establish.
    (3) FNS shall, if requested by an ITO which has been determined by 
FNS to be potentially capable of administering a Food Distribution 
Program, provide the ITO's designees with appropriate training and 
technical assistance to prepare the ITO to take over program 
administration. In determining what training and technical assistance 
are necessary, FNS shall consult with the ITO and other sources, such as 
the BIA.
    (c) Most capable tribe. In cases where two or more applicant 
tribe(s) have overlapping boundaries, FNS shall select the tribe most 
capable of administering a FDP within that service area.

(The information collection requirements contained in paragaph (a) were 
approved by the Office of Management and Budget under control number 
0584-0316)



Sec.  254.5  Household eligibility.

    (a) Certification procedures. All applicant households shall be 
certified in accordance with the eligibility and certification 
provisions in Sec.  253.6 and Sec.  253.7.
    (b) Urban places. No household living in an urban place in Oklahoma 
shall be eligible for the Food Distribution Program on Indian 
Reservations. However, an ITO can request the Department to grant 
individual exemptions from this limitation upon proper justification 
submitted by the ITO as determined by FNS.
    (c) Eligible households. Only Indian tribal households, as defined 
in Sec.  254.2, may be eligible for the Food Distribution Program in FNS 
service areas.

(The information collection requirements contained in paragraph (a) were 
approved by the Office of Management and Budget under control number 
0584-0316)

[49 FR 32756, Aug. 16, 1984, as amended at 64 FR 1098, Jan. 8, 1999]

[[Page 534]]



          SUBCHAPTER C_FOOD STAMP AND FOOD DISTRIBUTION PROGRAM



    Editorial Note: Nomenclature changes to subchapter C appear by Amdt. 
381, 65 FR 64586, Oct. 30, 2000.



PART 271_GENERAL INFORMATION AND DEFINITIONS--Table of Contents




Sec.
271.1 General purpose and scope.
271.2 Definitions.
271.3 Delegations to FNS for administration.
271.4 Delegations to State agencies for administration.
271.5 Coupons as obligations of the United States, crimes and offenses.
271.6 Complaint procedure.
271.7 Allotment reduction procedures.
271.8 Information collection/recordkeeping--OMB assigned control 
          numbers.

    Authority: 7 U.S.C. 2011-2036.



Sec.  271.1  General purpose and scope.

    (a) Purpose of the food stamp program. The food stamp program is 
designed to promote the general welfare and to safeguard the health and 
well being of the Nation's population by raising the levels of nutrition 
among low-income households. Section 2 of the Food Stamp Act of 1977 
states, in part:

    Congress hereby finds that the limited food purchasing power of low-
income households contributes to hunger and malnutrition among members 
of such households. Congress further finds that increased utilization of 
food in establishing and maintaining adequate national levels of 
nutrition will promote the distribution in a beneficial manner of the 
Nation's agricultural abundance and will strengthen the Nation's 
agricultural economy, as well as result in more orderly marketing and 
distribution of foods. To alleviate such hunger and malnutrition, a food 
stamp program is herein authorized which will permit low-income 
households to obtain a more nutritious diet through normal channels of 
trade by increasing food purchasing power for all eligible households 
who apply for participation.

    (b) Scope of the regulations. Part 271 contains general information, 
definitions, and other material applicable to all parts of this 
subchapter. Part 272 sets forth policies and procedures governing State 
agencies which participate in the program. Part 273 describes the 
eligibility criteria to be applied by State agencies and related 
processing requirements and standards. Part 274 provides requirements 
for the issuance of coupons to eligible households and establishes 
related issuance responsibilities. Part 275 sets forth guidelines for 
monitoring the food stamp program, analyzing the results and formulating 
corrective action. Part 276 establishes State agency liability and 
certain Federal sanctions. Part 277 outlines procedures for payment of 
administrative costs of State agencies. Part 278 delineates the terms 
and conditions for the participation of retail food stores, wholesale 
food concerns, meal services, and insured financial institutions. Part 
279 establishes the procedures for administrative and judicial reviews 
requested by food retailers, food wholesalers, and meal services. Part 
280 explains procedures for issuing emergency coupon allotments to 
certain victims of disasters unable to purchase adequate amounts of 
food. Part 281 sets forth guidelines for designating Indian tribes as 
State agencies. Part 282 provides guidelines for initiation, selection, 
and operation of demonstration, research, and evaluation projects. Part 
284 provides for a nutrition assistance program for the Commonwealth of 
the Northern Mariana Islands (CNMI). Part 285 describes the general 
terms and conditions under which grant funds are provided to the 
Commonwealth of Puerto Rico.

[Amdt. 132, 43 FR 47882, Oct. 17, 1982, as amended by Amdt. 216, 47 FR 
23461, May 28, 1982; Amdt. 248, 48 FR 16832, Apr. 19, 1983; Amdt. 356, 
59 FR 29713, June 9, 1994]



Sec.  271.2  Definitions.

    Access device means any card, plate, code, account number, or other 
means of access that can be used alone, or in conjunction with another 
access device, to obtain payments, allotments,

[[Page 535]]

benefits, money, goods, or other things of value, or that can be used to 
initiate a transfer of funds under the Food Stamp Act of 1977, as 
amended.
    Active case means a household which was certified prior to, or 
during, the sample month and issued food stamp benefits for the sample 
month.
    Active case error rate means an estimate of the proportion of cases 
with an error in the determination of eligibility or basis of issuance. 
This estimate will be expressed as a percentage of the completed active 
quality control reviews excluding all results from cases processed by 
SSA personnel or participating in a demonstration proj ect identified by 
FNS as having certification rules that are significantly different from 
standard requirements.
    Adequate notice in a periodic reporting system such as monthly 
reporting or quarterly reporting means a written notice that includes a 
statement of the action the agency has taken or intends to take; the 
reason for the intended action; the household's right to request a fair 
hearing; the name of the person to contact for additional information; 
the availability of continued benefits; and the liability of the 
household for any overissuances received while awaiting a fair hearing 
if the hearing official's decision is adverse to the household. 
Depending on the timing of a State's system and the timeliness of report 
submission by participating households, such notice may be received 
prior to agency action, at the time reduced benefits are received, or, 
if benefits are terminated, at the time benefits would have been 
received if they had not been terminated. In all cases, however, 
participants will be allowed ten days from the mailing date of the 
notice to contest the agency action and to have benefits restored to 
their previous level. If the 10-day period ends on a weekend or a 
holiday and a request is received the day after the weekend or holiday, 
the State agency shall consider the request to be timely.
    Alien Status Verification Index (ASVI) means the automated database 
maintained by the Immigration and Naturalization Service which may be 
accessed by State agencies to verify immigration status.
    Allotment means the total value of coupons a household is authorized 
to receive during each month or other time period.
    Application form means: (1) The application form designed or 
approved by FNS, which is completed by a household member or authorized 
representative; or
    (2) For households consisting solely of public assistance or general 
assistance recipients, it may also mean the application form used to 
apply for public assistance or general assistance, including attachments 
approved by FNS, which is completed by a household member or authorized 
represen- tative.
    Assessment an in-depth evaluation of employability skills coupled 
with counseling on how and where to search for employment. If combined 
with work experience, employment search or training, an assessment of 
this nature could constitute part of an approvable employment and 
training component.
    Authorization document means an intermediary document issued by the 
State agency and used in an issuance system to authorize a specific 
benefit amount for a household.
    Authorization to participate card (ATP) means a document which is 
issued by the State agency to a certified household to show the 
allotment the household is authorized to receive on presentation of such 
document.
    Base period means the first 6-month reporting period of each fiscal 
year.
    Beginning month(s) in a Monthly Reporting and Retrospective 
Budgeting system means either the first month for which the household is 
certified for food stamps (where the State agency has adopted a one 
month accounting system) or the first month for which the household is 
certified for food stamps and the month thereafter (where the State 
agency has adopted a two month accounting system). Except for beginning 
months in sequence as described in the preceding sentences, a beginning 
month cannot be any month which immediately follows a month in which a 
household is certified. The month following the month of termination 
resulting from a one-month

[[Page 536]]

temporary change in household circumstances shall not be considered a 
beginning month.
    Budget month in a Monthly Reporting and Retrospective Budgeting 
system means the fiscal or calendar month from which the State agency 
uses income and other circumstances of the household to calculate the 
household's food stamp allotment to be provided for the corresponding 
issuance month.
    Bulk storage point means an office of the State agency or any 
person, partnership, corporation, organization, political subdivision, 
or other entity with which a State agency has contracted for, or to 
which it has assigned responsibility for, the security and storage of 
food coupons.
    Claims collection point means any office of the State agency or any 
person, partnership, corporation, organization, political subdivision or 
other entity with which a State agency has contracted, or to which it 
has assigned responsibility for the collection of claims.
    Communal dining facility means a public or nonprofit private 
establishment, approved by FNS, which prepares and serves meals for 
elderly persons, or for supplemental security income (SSI) recipients, 
and their spouses, a public or private nonprofit establishment (eating 
or otherwise) that feeds elderly persons or SSI recipients, and their 
spouses, and federally subsidized housing for the elderly at which meals 
are prepared for and served to the residents. It also includes private 
establishments that contract with an appropriate State or local agency 
to offer meals at concessional prices to elderly persons or SSI 
recipients, and their spouses.
    Coupon means any coupon, stamp, type of certificate, authorization 
card, cash or check issued in lieu of a coupon, or access device, 
including an electronic benefit transfer card or personal identification 
number issued pursuant to the provisions of the Food Stamp Act of 1977, 
as amended, for the purchase of eligible food.
    Coupon issuer means any office of the State agency or any person, 
partnership, corporation, organization, political subdivision, or other 
entity with which a State agency has contracted for, or to which it has 
assigned responsibility for, the issuance of coupons to households.
    Deficiency means any aspect of a State's program operations 
determined to be out of compliance with the Food Stamp Act, FNS 
Regulations, or program requirements as contained in the State agency's 
manual, the State agency's approved Plan of Operation or other State 
agency plans.
    Department means the U.S. Department of Agriculture.
    Direct access system means an issuance system in which benefits are 
issued directly to the household, without the use of an intermediary 
document, based on the issuance agent's direct access to information in 
the household's individual record on the master issuance file, which may 
be a card document or an on-line computer system.
    Drug addiction or alcoholic treatment and rehabilitation program 
means any drug addiction or alcoholic treatment and rehabilitation 
program conducted by a private, nonprofit organization or institution, 
or a publicly operated community mental health center, under part B of 
title XIX of the Public Health Service Act (42 U.S.C. 300x et seq.). 
Under part B of title XIX of the Public Health Service Act is defined as 
meeting the criteria which would make it eligible to receive funds, even 
if it does not actually receive funding under part B of title XIX.
    Elderly or disabled member means a member of a household who: (1) Is 
60 years of age or older;
    (2) Receives supplemental security income benefits under title XVI 
of the Social Security Act or disability or blindness payments under 
titles I, II, X, XIV, or XVI of the Social Security Act;
    (3) Receives federally or State-administered supplemental benefits 
under section 1616(a) of the Social Security Act provided that the 
eligibility to receive the benefits is based upon the disability or 
blindness criteria used under title XVI of the Social Security Act;
    (4) Receives federally or State-administered supplemental benefits 
under section 212(a) of Pub. L. 93-66;

[[Page 537]]

    (5) Receives disability retirement benefits from a governmental 
agency because of a disability considered permanent under section 221(i) 
of the Social Security Act.
    (6) Is a veteran with a service-connected or non-service-connected 
disability rated by the Veteran's Administration (VA) as total or paid 
as total by the VA under title 38 of the United States Code;
    (7) Is a veteran considered by the VA to be in need of regular aid 
and attendance or permanently housebound under title 38 of the United 
States Code;
    (8) Is a surviving spouse of a veteran and considered by the VA to 
be in need of regular aid and attendance or permanently housebound or a 
surviving child of a veteran and considered by the VA to be permanently 
incapable of self-support under title 38 of the United States Code;
    (9) Is a surviving spouse or surviving child of a veteran and 
considered by the VA to be entitled to compensation for a service-
connected death or pension benefits for a nonservice-connected death 
under title 38 of the United States Code and has a disability considered 
permanent under section 221(i) of the Social Security Act. ``Entitled'' 
as used in this definition refers to those veterans' surviving spouses 
and surviving children who are receiving the compensation or pension 
benefits stated or have been approved for such payments, but are not yet 
receiving them; or
    (10) Receives an annuity payment under: section 2(a)(1)(iv) of the 
Railroad Retirement Act of 1974 and is determined to be eligible to 
receive Medicare by the Railroad Retirement Board; or section 2(a)(1)(v) 
of the Railroad Retirement Act of 1974 and is determined to be disabled 
based upon the criteria used under title XVI of the Social Security Act.
    (11) Is a recipient of interim assistance benefits pending the 
receipt of Supplemented Security Income, a recipient of disability 
related medical assistance under title XIX of the Social Security Act, 
or a recipient of disability-based State general assistance benefits 
provided that the eligibility to receive any of these benefits is based 
upon disability or blindness criteria established by the State agency 
which are at least as stringent as those used under title XVI of the 
Social Security Act (as set forth at 20 CFR part 416, subpart I, 
Determining Disability and Blindness as defined in Title XVI).
    Eligible foods means: (1) Any food or food product intended for 
human consumption except alcoholic beverages, tobacco, and hot foods and 
hot food products prepared for immediate consumption;
    (2) Seeds and plants to grow foods for the personal consumption of 
eligible households;
    (3) Meals prepared and delivered by an authorized meal delivery 
service to households eligible to use coupons to purchase delivered 
meals; or meals served by an authorized communal dining facility for the 
elderly, for SSI households or both, to households eligible to use 
coupons for communal dining;
    (4) Meals prepared and served by a drug addict or alcoholic 
treatment and rehabilitation center to narcotic addicts or alcoholics 
and their children who live with them;
    (5) Meals prepared and served by a group living arrangement facility 
to residents who are blind or disabled as defined in paragraphs (2) 
through (11) of the definition of ``Elderly or disabled member'' 
contained in this section;
    (6) Meals prepared by and served by a shelter for battered women and 
children to its eligible residents;
    (7) In the case of certain eligible households living in areas of 
Alaska where access to food stores is extremely difficult and the 
households rely on hunting and fishing for subsistence, equipment for 
the purpose of procuring food for eligible households, including nets, 
lines, hooks, fishing rods, harpoons, knives, and other equipment 
necessary for subsistence hunting and fishing but not equipment for the 
purpose of transportation, clothing or shelter, nor firearms, ammunition 
or other explosives;
    (8) In the case of homeless food stamp households, meals prepared 
for and served by an authorized public or private nonprofit 
establishment (e.g. soup kitchen, temporary shelter), approved by an 
appropriate State or local agency, that feeds homeless persons; and

[[Page 538]]

    (9) In the case of homeless food stamp households, meals prepared by 
a restaurant which contracts with an appropriate State agency to serve 
meals to homeless persons at concessional (low or reduced) prices.
    Employment and training (E&T) component a work experience, work 
training or job search program, as described in section 6(d)(4)(B)(iv) 
of the Food Stamp Act of 1977 (7 U.S.C. 2014(2)(4)(B)) designed to help 
food stamp recipients move promptly into unsubsidized employment.
    Employment and training (E&T) mandatory participant a Food Stamp 
Program applicant or participant who is required to work register under 
7 U.S.C. 2014(d)(1) or (2) and who the State determines should not be 
exempted from participation in an employment and training program.
    Employment and training (E&T) program a program operated by each 
State agency consisting of one or more work, training, education or job 
search components.
    Error for active cases results when a determination is made by a 
quality control reviewer that a household which received food stamp 
benefits during the sample month is ineligible or received an incorrect 
allotment. Thus, errors in active cases involve dollar loss to either 
the participant or the government. For negative cases, an ``error'' 
means that the reviewer determines that the decision to deny, suspend, 
or terminate a household was incorrect.
    Exempted for purposes of Sec.  273.7 excluding paragraphs (a) and 
(b)--this term refers to a work registered person or persons excused by 
the State, under the conditions in Sec.  273.7(e) from participation in 
an employment and training program.
    Exercises governmental jurisdiction means the active exercise of the 
legislative, executive or judicial powers of government by an Indian 
tribal organization.
    Federal fiscal year means a period of 12 calendar months beginning 
with each October 1 and ending with September 30 of the following 
calendar year.
    Firm's practice means the usual manner in which personnel of a firm 
or store accept food coupons as shown by the actions of the personnel at 
the time of the investigation.
    FNS means the Food and Nutrition Service of the U.S. Department of 
Agriculture.
    Food Stamp Act means the Food Stamp Act of 1977 (Pub. L. 95-113), 
including any subsequent amendments thereto.
    General assistance (GA) means cash or another form of assistance, 
excluding in-kind assistance, financed by State or local funds as part 
of a program which provides assistance to cover living expenses or other 
basic needs intended to promote the health or well-being of recipients.
    Group living arrangement means a public or private nonprofit 
residential setting that serves no more than sixteen residents that is 
certified by the appropriate agency or agencies of the State under 
regulations issued under section 1616(e) of the Social Security Act or 
under standards determined by the Secretary to be comparable to 
standards implemented by appropriate State agencies under section 
1616(e) of the Social Security Act. To be eligible for food stamp 
benefits, a resident of such a group living arrangement must be blind or 
disabled as defined in paragraphs (2) through (11) of the definition of 
``Elderly or disabled member'' contained in this section.
    Homeless individual means an individual who lacks a fixed and 
regular nighttime residence or an individual whose primary nighttime 
residence is: (1) A supervised shelter designed to provide temporary 
accommodations (such as a welfare hotel or congregate shelter);
    (2) A halfway house or similar institution that provides temporary 
residence for individuals intended to be institutionalized;
    (3) A temporary accommodation for not more than 90 days in the 
residence of another individual; or
    (4) A place not designed for, or ordinarily used, as a regular 
sleeping accommodation for human beings (a hallway, a bus station, a 
lobby or similar places).
    Homeless meal provider means:

[[Page 539]]

    (1) A public or private nonprofit establishment (e.g., soup 
kitchens, temporary shelters) that feeds homeless persons; or
    (2) A restaurant which contracts with an appropriate State agency to 
offer meals at concessional (low or reduced) prices to homeless persons.
    House-to-house trade route means any retail food business operated 
from a truck, bus, pushcart, or other mobile vehicle.
    Identification (ID) card means a card which identifies the bearer as 
eligible to receive and use food coupons.
    Immigration and Naturalization Service (INS) means the Immigration 
and Naturalization Service, U.S. Department of Justice.
    Indian tribe means: (1) Any Indian tribe, Band, Nation, or other 
organized Indian group on a reservation for example, a Rancheria, Pueblo 
or Colony, and including any Alaska Native Village or regional or 
village corporation (established pursuant to the Alaska Native Claims 
Settlement Act(85 Stat. 688)), that is on a reservation and is 
recognized as eligible for Federal programs and services provided to 
Indians because of their status as Indians; or (2) any Indian tribe or 
Band on a reservation holding a treaty with a State government.
    Indian tribal organization (ITO) means: (1) The recognized governing 
body of any Indian tribe on a reservation; or (2) the tribally 
recognized intertribal organization which the recognized governing 
bodies of two or more Indian tribes on a reservation authorizes to 
operate the Food Stamp Program or a Food Distribution Program on their 
behalf.
    Insured financial institution means a financial institution insured 
by the Federal Deposit Insurance Corporation (FDIC) or financial 
institutions which are insured under the Federal Credit Union Act and 
which have retail food stores or wholesale food concerns in their field 
of membership.
    Issuance month in a Monthly Reporting and Retrospective Budgeting 
system means the fiscal or calendar month for which the State agency 
shall issue a food stamp allotment. Issuance is based upon income and 
circumstances in the corresponding budget month. In prospective 
budgeting, the budget month and issuance month are the same. In 
retrospective budgeting, the issuance month follows the budget month and 
the issuance month shall begin within 32 days after the end of the 
budget month.
    Large project area means those project areas/management units with 
monthly active caseloads of more than 15,000 households based on the 
most current information available at the time the large project area 
review schedule is developed.
    Low-income household means a household whose annual income does not 
exceed 125 percent of the Office of Management and Budget poverty 
guidelines.
    Management Evaluation (ME) reviews means reviews conducted by States 
at the project area level to determine if State agencies are 
administering and operating the Food Stamp Program in accordance with 
program requirements.
    Management unit means an area based on a welfare district, region, 
or other administrative structure designated by the State agency and 
approved by FNS to be reviewed for ME review purposes.
    Master issuance file means a cumulative file containing the 
individual records and status of households, and the amount of benefits, 
if any, each household is authorized to receive.
    Meal delivery service means a political subdivision, a private 
nonprofit organization, or a private establishment with which a State or 
local agency has contracted for the preparation and delivery of meals at 
concessional prices to elderly persons, and their spouses, and to the 
physically or mentally handicapped and persons otherwise disabled, and 
their spouses, such that they are unable to adequately prepare all of 
their meals.
    Medicaid means medical assistance under title XIX of the Social 
Security Act, as amended.
    Medium project area means those project areas/management units with 
monthly active caseloads of 2,001 to 15,000 households based on the most 
current information available at the time the medium project area review 
schedule is developed.

[[Page 540]]

    Minimum benefit means the minimum monthly amount of food stamps that 
one- and two-person households receive. The amount of the minimum 
benefit shall be $10.
    National standard payment error rate means the weighted mean of all 
States' payment error rates during a base period.
    Negative case means a household whose application for food stamp 
benefits was denied or whose food stamp benefits were suspended or 
terminated by an action in the sample month or by an action effective 
for the sample month.
    Negative case error rate means an estimate of the proportion of 
denied, suspended, or terminated cases where the household was 
incorrectly denied, suspended, or terminated. This estimate will be 
expressed as a percentage of completed negative quality control reviews 
excluding all results from cases processed by SSA personnel or 
participating in a demonstration project identified by FNS as having 
certification rules that are significantly different from standard 
requirements.
    Newly work registered food stamp participants work registered at the 
point of application.
    Nonprofit cooperative food purchasing venture means any private 
nonprofit association of consumers whose members pool their resources to 
buy food.
    Offset year means the calendar year during which offsets may be made 
to collect certain recipient claims from individuals' Federal income tax 
refunds.
    Overissuance means the amount by which coupons issued to a household 
exceeds the amount it was eligible to receive.
    Overpayment error rate means the percentage of the value of all 
allotments issued in a fiscal year that are either: (1) Issued to 
households that fail to meet basic program eligibility requirements, or
    (2) Overissued to eligible households.
    Payment error rate means the sum of the point estimates of two 
component error rates: an overpayment error rate and an underpayment 
error rate. Each component error rate is the value of allotments either 
overissued or underissued expressed as a percentage of all allotments 
issued to completed active sample cases, excluding those cases processed 
by SSA personnel or participating in certain demonstration projects 
designated by FNS.
    Placed in an employment and training (E&T) program means a State 
agency may count a person as ``placed'' in an E&T program when the 
individual commences a component.
    Program means the food stamp program conducted under the Food Stamp 
Act and regulations.
    Project area means the county or similar political subdivision 
designated by a State as the administrative unit for program operations. 
Upon prior FNS approval, a city, Indian reservation, welfare district, 
or any other entity with clearly defined geographic boundaries, or any 
combination of such entities, may be designated as a project area, or a 
State as a whole may be designated as a single project area.
    Prospective budgeting in a Monthly Reporting and Retrospective 
Budgeting system means the computation of a household's food stamp 
allotment for an issuance month based on an estimate of income and 
circumstances which will exist in that month.
    Public assistance (PA) means any of the following programs 
authorized by the Social Security Act of 1935, as amended: Old-age 
assistance, Temporary Assistance for Needy Families (TANF), including 
TANF for children of unemployed fathers, aid to the blind, aid to the 
permanently and totally disabled and aid to aged, blind, or disabled.
    Quality control review means a review of a statistically valid 
sample of active and negative cases to determine the extent to which 
households are receiving the food stamp allotments to which they are 
entitled, and to determine the extent to which decisions to deny, 
suspend, or terminate cases are correct.
    Record-for-issuance file means a file which is created monthly from 
the master issuance file, which shows the amount of benefits each 
eligible household is to receive for the issuance month, and the amount 
actually issued to the household.
    Regulations means the provisions of this subchapter. Regulatory 
citations

[[Page 541]]

refer to provisions of this subchapter unless otherwise specified.
    Reservation means the geographically defined area or areas over 
which an ITO exercises governmental juris diction so long as such area 
or areas are legally recognized by the Federal or a State government as 
being set aside for the use of Indians.
    Retail food store means: (1) An establishment or house-to-house 
trade route that sells food for home preparation and consumption 
normally displayed in a public area, and either offers for sale, on a 
continuous basis, a variety of foods in sufficient quantities in each of 
the four categories of staple foods including perishable foods in at 
least two such categories (Criterion A) as set forth in Sec. 278.1(b)(1) 
of this chapter, or has more than 50 percent of its total gross retail 
sales in staple foods (Criterion B) as set forth in Sec. 278.1(b)(1) of 
this chapter as determined by visual inspection, marketing structure, 
business licenses, accessibility of food items offered for sale, 
purchase and sales records, counting of stockkeeping units, or other 
inventory or accounting recordkeeping methods that are customary or 
reasonable in the retail food industry as set forth in Sec. 278.1(b)(1) 
of this chapter. Entities that have more than 50 percent of their total 
gross retail sales in hot and/or cold prepared, ready-to-eat foods that 
are intended for immediate consumption either for carry-out or on-
premises consumption, and require no additional preparation, are not 
eligible for FSP participation as retail food stores under 
Sec. 278.1(b)(1) of this chapter.
    (2) Public or private communal dining facilities and meal delivery 
services; private nonprofit drug addict or alcoholic treatment and 
rehabilitation programs; publicly operated community mental health 
centers which conduct residential programs for drug addicts and/or 
alcoholics; public or private nonprofit group living arrangements; 
public or private nonprofit shelters for battered women and children; 
public or private nonprofit establishments, approved by an appropriate 
State or local agency, that feed homeless persons; or a restaurant that 
contracts with an appropriate State agency to provide meals at 
concessional (low or reduced) prices to homeless food stamp households;
    (3) Any stores selling equipment for procuring food by hunting and 
fishing to eligible households in Alaska, as specified in the definition 
of eligible foods;
    (4) Any private nonprofit cooperative food purchasing venture, 
including those whose members pay for food prior to receipt of the food; 
and
    (5) A farmers' market.
    Retrospective budgeting in a Monthly Reporting and Retrospective 
Budgeting system means the computation of a household's food stamp 
allotment for an issuance month based on actual income and circumstances 
which existed in a previous month, the ``budget month.''
    Review date for quality control active cases means a day within the 
sample month, either the first day of the calendar or fiscal month or 
the day a certification action was taken to authorize the allotment, 
whichever is later. The ``review date'' for negative cases, depending on 
the characteristics of individual State systems, could be the date on 
which the eligibility worker makes the decision to suspend, deny, or 
terminate the case, the date on which the decision is entered into the 
computer system, the date of the notice to the client or the date the 
negative action becomes effective. For no case is the ``review date'' 
the day the quality control review is conducted.
    Review period means the 12-month period from October 1 of each 
calendar year through September 30 of the following calendar year.
    Sample frame means a list of all units from which a sample is 
actually selected.
    Sample month means the month of the sample frame from which a case 
is selected (e.g., for all cases selected from a frame consisting of 
households participating in January, the sample month is January).
    Screening an evaluation by the eligibility worker as to whether a 
person should or should not be referred for participation in an 
employment and training program. This activity would not be considered 
an approvable E&T component.

[[Page 542]]

    Secretary means the Secretary of the U.S. Department of Agriculture.
    Shelter for battered women and children means a public or private 
nonprofit residential facility that serves battered women and their 
children. If such a facility serves other individuals, a portion of the 
facility must be set aside on a long-term basis to serve only battered 
women and children.
    Small project area means those project areas/management units with 
monthly active caseloads of 2,000 households or fewer based on the most 
current information available at the time the small project area review 
schedule is developed.
    (2) Who are living together and are holding themselves out to the 
community as husband and wife by representing themselves as such to 
relatives, friends, neighbors, or tradespeople.
    SSA processed/demonstration case means a case that is participating 
or has been denied based upon processing by SSA personnel or is 
participating or has been denied/terminated based upon the rules of a 
demonstration project with significantly different certification rules 
(as identified by FNS).
    Staple food means those food items intended for home preparation and 
consumption in each of the following food categories: meat, poultry, or 
fish; bread or cereals; vegetables or fruits; and dairy products. 
Commercially processed foods and prepared mixtures with multiple 
ingredients shall only be counted in one staple food category. For 
example, foods such as cold pizza, macaroni and cheese, multi-ingredient 
soup, or frozen dinners, shall only be counted as one staple food item 
and will normally be included in the staple food category of the main 
ingredient as determined by FNS. Hot foods are not eligible for purchase 
with food stamps and, therefore, do not qualify as staple foods for the 
purpose of determining eligibility under Sec. 278.1(b)(1) of this 
chapter. Accessory food items including, but not limited to, coffee, 
tea, cocoa, carbonated and uncarbonated drinks, candy, condiments, and 
spices shall not be considered staple foods for the purpose of 
determining eligibility of any firm. However, accessory foods that are 
offered for sale in authorized retail food stores are eligible food 
items which may be purchased with food stamp benefits.
    State means any one of the fifty States, the District of Columbia, 
Guam, the Virgin Islands of the United States, and the reservation of an 
Indian tribe whose ITO meets the requirements of the Food Stamp Act for 
participation as a State agency.
    State agency means: (1) The agency of State government, including 
the local offices thereof, which is responsible for the administration 
of the federally aided public assistance programs within the State, and 
in those States where such assistance programs are operated on a 
decentralized basis, it includes the counterpart local agencies which 
administer such assistance programs for the State agency, and (2) the 
Indiantribal organization of any Indian tribe determined by the 
Department to be capable of effectively administering a Food Stamp 
Program or a Food Distribution Program in accordance with provisions of 
the Food Stamp Act of 1977.
    State Income and Eligibility Verification System (IEVS) means a 
system of information acquisition and exchange for purposes of income 
and eligibility verification which meets the requirements of section 
1137 of the Social Security Act, generally referred to as the IEVS.
    State Wage Information Collection Agency (SWICA) means the State 
agency administering the State unemployment compensation law, another 
agency administering a quarterly wage reporting system, or a State 
agency administering an alternative system which has been determined by 
the Secretary of Labor, in consultation with the Secretary of 
Agriculture and the Secretary of Health and Human Services, to be as 
effective and timely in providing employment related income and 
eligibility data as the two just mentioned agencies.
    Sub-units means the physical location of an organizational entity 
within a project area/management unit involved in the operation of the 
Food Stamp Program, excluding Post Offices.
    Supplemental Security Income (SSI) means monthly cash payments made 
under the authority of: (1) Title XVI of

[[Page 543]]

the Social Security Act, as amended, to the aged, blind and disabled; 
(2) section 1616(a) of the Social Security Act; or (3) section 212(a) of 
Pub. L. 93-66.
    Systematic Alien Verification for Entitlements (SAVE) means the INS 
program whereby State agencies may verify the validity of documents 
provided by aliens applying for food stamp benefits by obtaining 
information from a central data file.
    Thrifty food plan means the diet required to feed a family of four 
persons consisting of a man and a woman 20 through 50, a child 6 through 
8, and a child 9 through 11 years of age, determined in accordance with 
the Secretary's calculations. The cost of such diet shall be the basis 
for uniform allotments for all households regardless of their actual 
composition. In order to develop maximum food stamp allotments, the 
Secretary shall make household size and other adjustments in the Thrifty 
Food Plan taking into account economies of scale and other adjustments 
as required by law.
    Trafficking means the buying or selling of coupons, ATP cards or 
other benefit instruments for cash or consideration other than eligible 
food; or the exchange of firearms, ammunition, explosives, or controlled 
substances, as defined in section 802 of title 21, United States Code, 
for coupons.
    Underissuance means the amount by which the allotment to which the 
household was entitled exceeds the allotment which the household 
received.
    Underissuance error rate. (See Underpayment error rate.)
    Underpayment error rate means the ratio of the value of allotments 
underissued to recipient households to the total value of allotments 
issued in a fiscal year by a State agency.
    Universe means all units for which information is desired.
    Variance means the incorrect application of policy and/or a 
deviation between the information that was used to authorize the sample 
month issuance and the verified information that should have been used 
to calculate the sample month issuance.
    Wholesale food concern means an establishment which sells eligible 
food to retail food stores or to meal services for resale to households.

[Amdt. 132, 43 FR 47882, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
271.2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  271.3  Delegations to FNS for administration.

    (a) Delegation. Within the Department, FNS acts on behalf of the 
Department in the administration of the Food Stamp Program with the 
exception of those functions, which may be delegated to other agencies 
within the Department. The right is reserved at any time to withdraw, 
modify, or amend any delegation of authority. When authority is 
delegated to FNS, the responsibilities may be carried out by the 
Administrator or by another official of FNS, or by State agencies with 
respect to claims against households, as designated.
    (b) Claims settlement. FNS shall have the power to determine the 
amount of and to settle and adjust any claim arising under the 
provisions of the act or this subchapter, and to compromise or deny all 
or part of any claim.
    (c) Demonstration authority. FNS is authorized to undertake 
demonstration projects which test new methods designed to improve 
program administration and benefit delivery. FNS is authorized to 
initiate program research and evaluation efforts for the purposes of 
improving and assessing program administration and effectiveness. The 
procedure for initiating and conducting these projects is established in 
part 282.

[Amdt. 132, 43 FR 47882, Oct. 17, 1982]



Sec.  271.4  Delegations to State agencies for administration.

    (a) General delegation. The State agency shall be responsible for 
the administration of the program within the State, including, but not 
limited to:
    (1) Certification of applicant households;
    (2) Issuance, control, and accountability of coupons;
    (3) Developing and maintaining complaint procedures;

[[Page 544]]

    (4) Developing, conducting, and evaluating training;
    (5) Conducting performance reporting reviews;
    (6) Keeping records necessary to determine whether the program is 
being conducted in compliance with these regulations; and
    (7) Submitting accurate and timely financial and program reports.
    (b) Claims delegation. FNS delegates to the State agency, subject to 
the standards in Sec.  273.18, the authority to determine the amount of, 
and settle, adjust, compromise or deny all or part of any claim which 
results from fraudulent or nonfraudulent overissuances to participating 
households.

[Amdt. 132, 43 FR 47882, Oct. 17, 1978, as amended by Amdt. 207, 47 FR 
52333, Nov. 19, 1982]



Sec.  271.5  Coupons as obligations of the United States, crimes and offenses.

    (a) Coupons as obligations. Pursuant to section 15(d) of the Food 
Stamp Act, coupons are an obligation of the United States within the 
meaning of 18 United States Code (U.S.C.) 8. The provisions of Title 18 
of the United States Code, ``Crimes and Criminal Procedure,'' relative 
to counterfeiting, misuse and alteration of obligations of the United 
States are applicable to coupons.
    (b) Penalties. Any unauthorized issuance, redemption, use, transfer, 
acquisition, alteration, or possession of coupons, ATP cards, or other 
program access device may subject an individual, partnership, 
corporation, or other legal entity to prosecution under sections 15 (b) 
and (c) of the Food Stamp Act or under any other applicable Federal, 
State or local law, regulation or ordinance.
    (1) Section 15(b)(1) of the Food Stamp Act reads as follows:

    Subject to the provisions of paragraph (2) of this subsection, 
whoever knowingly uses, transfers, acquires, alters, or possesses 
coupons, authorization cards, or access devices in any manner contrary 
to this Act or the regulations issued pursuant to this Act shall, if 
such coupons, authorization cards, or access devices are of a value of 
$5000 or more, be guilty of a felony and shall be fined not more than 
$250,000 or imprisoned for not more than twenty years, or both, and 
shall, if such coupons or authorization cards are of a value of $100 or 
more but less than $5000 or if the item used, transferred, acquired, 
altered or possessed is an access device that has a value of $100 or 
more but less than $5000 be guilty of a felony and shall upon the first 
conviction thereof, be fined not more than $10,000 or imprisoned for not 
more than five years, or both, and upon the second and any subsequent 
conviction thereof, shall be imprisoned for not less than six months nor 
more than five years and may also be fined not more than $10,000 or, if 
such coupons or authorization cards are of a value of less than $100, or 
if the item used, transferred, acquired, altered, or possessed is an 
access device that has a value of less than $100, shall be guilty of a 
misdemeanor, and upon the first conviction thereof, shall be fined not 
more than $1000 or imprisoned for not more than one year or both, and 
upon the second and any subsequent conviction thereof, shall be 
imprisoned for not more than one year and may also be fined not more 
than $1000. In addition to such penalties, any person convicted of a 
felony or misdemeanor violation under this subsection may be suspended 
by the court from participation in the food stamp program for an 
additional period of up to eighteen months consecutive to that period of 
suspension mandated by section 6(b)(1) of this Act.

    (2) Section 15(b)(2) of the Food Stamp Act reads as follows:

    In the case of any individual convicted of an offense under 
paragraph (b)(1) of this section, the court may permit such individual 
to perform work approved by the court for the purpose of providing 
restitution for losses incurred by the United States and the State 
agency as a result of the offense for which such individual was 
convicted. If the court permits such individual to perform such work and 
such individual agrees thereto, the court shall withhold the imposition 
of the sentence on the condition that such individual perform the 
assigned work. Upon the successful completion of the assigned work the 
court may suspend such sentence.

    (3) Section 15(c) of the Food Stamp Act reads as follows:

    Whoever presents, or causes to be presented, coupons for payment or 
redemption of the value of $100 or more, knowing the same to have been 
received, transferred, or used in any manner in violation of the 
provisions of this Act or the regulations issued pursuant to this Act, 
shall be guilty of a felony and, upon the first conviction thereof, 
shall be fined not more than $20,000 or imprisoned for not more than 
five years, or both, and upon the second and any subsequent conviction 
thereof, shall be imprisoned for not less than one year nor more than 
five years and may also be fined not more than $20,000 or if such 
coupons are of a

[[Page 545]]

value of less than $100, shall be guilty of a misdemeanor and, upon the 
first conviction thereof, shall be fined not more than $1,000 or 
imprisoned for not more than one year, or both, and upon the second and 
any subsequent conviction thereof, shall be imprisoned for not more than 
one year and may also be fined not more than $1,000. In addition to such 
penalties, any persons convicted of a felony or misdemeanor violation 
under this subsection may be suspended by the court from participation 
in the food stamp program for an additional period of up to eighteen 
months consecutive to that period of suspension mandated by section 
6(b)(1) of this Act.

    (c) Security for coupons and ATP's. All individuals, partnerships, 
corporations, or other legal entities including State agencies and their 
delegatees (referred to in this paragraph as ``persons'') having 
custody, care and control of coupons and ATP's shall, at all times, take 
all precautions necessary to avoid acceptance, transfer, negotiation, or 
use of spurious, altered, or counterfeit coupons and ATP's and to avoid 
any unauthorized use, transfer, acquisition, alteration or possession of 
coupons and ATP's. These persons shall safeguard coupons and ATP's from 
theft, embezzlement, loss, damage, or destruction.
    (d) Coupon issuers. (1) Any coupon issuer or any officer, employee 
or agent, thereof convicted of failing to provide the monthly reports 
required in Sec.  274.5 or convicted of violating part 274 shall be 
subject to a fine of not more than $1,000, or imprisoned for not more 
than 1 year, or both.
    (2) Any coupon issuer or any officer, employee or agent, thereof 
convicted of knowingly providing false information in the reports 
required under Sec.  274.5 shall be subject to a fine of not more than 
$10,000, or imprisoned not more than 5 years, or both.
    (e) Forfeiture and denial of property rights.
    (1) General.
    (i) Any nonfood items, moneys, negotiable instruments, securities, 
or other things of value furnished or intended to be furnished by any 
person in exchange for food coupons, authorization cards, or other 
program benefit instruments or access devices in any manner not 
authorized by the Food Stamp Act or regulations issued pursuant to the 
Act, shall be subject to forfeiture and denial of property rights. Such 
property is deemed forfeited to the United States Department of 
Agriculture (USDA) at the time it is either exchanged or offered in 
exchange.
    (ii) These forfeiture and denial of property rights provisions shall 
apply to property exchanged or offered in exchange during investigations 
conducted by the Inspector General, USDA, and by other authorized 
Federal law enforcement agencies.
    (iii) These forfeiture and denial of property rights provisions 
shall not apply to property exchanged or intended to be exchanged during 
the course of internal investigations by retail firms, during 
investigations conducted solely by State and local law enforcement 
agencies and without the participation of an authorized Federal law 
enforcement agency, or during compliance investigations conducted by the 
Food and Nutrition Service.
    (2) Custodians and their responsibilities.
    (i) The Inspector General, USDA, the Inspector General's designee, 
and other authorized Federal law enforcement officials shall be 
custodians of property acquired during investigations.
    (ii) Upon receiving property subject to forfeiture the custodian 
shall:
    (A) Place the property in an appropriate location for storage and 
safekeeping, or
    (B) Request that the General Services Administration (GSA) take 
possession of the property and remove it to an appropriate location for 
storage and safekeeping.
    (iii) The custodian shall store property received at a location in 
the judicial district where the property was acquired unless good cause 
exists to store the property elsewhere.
    (iv) Custodians shall not dispose of property prior to the 
fulfillment of the notice requirements set out in paragraph 3, or prior 
to the conclusion of any related administrative, civil, or criminal 
proceeding, without reasonable cause. Reasonable cause to dispense with 
notice requirements might exist, for example, where explosive materials 
are being stored which may present a danger to persons or property.
    (v) Custodians may dispose of any property in accordance with 
applicable

[[Page 546]]

statutes or regulations relative to disposition. The custodian may:
    (A) Retain the property for official use;
    (B) Donate the property to Federal, State, or local government 
facilities such as hospitals or to any nonprofit charitable 
organizations recognized as such under section 501(c)(3) of the Internal 
Revenue Code; or
    (C) Request that GSA take custody of the property and remove it for 
disposition or sale.
    (vi) Proceeds from the sale of forfeited property and any moneys 
forfeited shall be used to pay all proper expenses of the proceedings 
for forfeiture and sale including expenses of seizure, maintenance of 
custody, transportation costs, and any recording fees. Moneys remaining 
after payment of such expenses shall be deposited into the general fund 
of the United States Treasury.
    (3) Notice requirements.
    (i) The custodian shall make reasonable efforts to notify the actual 
or apparent owner(s) of or person(s) with possessory interests in the 
property subject to forfeiture except for the good cause exception if 
the owner cannot be notified.
    (ii) The notice shall:
    (A) Include a brief description of the property;
    (B) Inform the actual or apparent owner(s) of or person(s) with 
possessory interests in the property subject to forfeiture of the 
opportunity to request an administrative review of the forfeiture;
    (C) Inform the actual or apparent owner(s) of or person(s) with 
possessory interests in the property subject to forfeiture of the 
requirements for requesting administrative review of the forfeiture; and
    (D) State the title and address of the official to whom a request 
for administrative review of the forfeiture may be addressed.
    (iii) Except as provided in paragraphs (e)(3) (iv) and (v) of this 
section, notice shall be given within 45 days from the date the United 
States convicts, acquits, or declines to act against the person who 
exchanged the property.
    (iv) Notice may be delayed if it is determined that such action is 
likely to endanger the safety of a law enforcement official or 
compromise another ongoing criminal investigation conducted by OIG, the 
United States Secret Service, the United States Postal Inspection 
Service, or other authorized Federal law enforcement agency.
    (v) Notice need not be given to the general public.
    (4) Administrative review.
    (i) The actual or apparent owner(s) of or person(s) with possessory 
interests in the property shall have 30 days from the date of the 
delivery of the notice of forfeiture to make a request for an 
administrative review of the forfeiture.
    (ii) The request shall be made in writing to the Assistant Inspector 
General for Investigations, Office of Inspector General, USDA, or to 
his/her designee, hereinafter referred to as the reviewing official.
    (iii) A request for an administrative review of the forfeiture of 
property shall include the following:
    (A) A complete description of the property, including serial 
numbers, if any;
    (B) Proof of the person's property interest in the property; and,
    (C) The reason(s) the property should not be forfeited.
    (iv) The requestor may, at the time of his/her written request for 
administrative review, also request an oral hearing of the reasons the 
property should not be forfeited.
    (v) The burden of proof will rest upon the requestor, who shall be 
required to demonstrate, by a preponderance of the evidence, that the 
property should not be forfeited.
    (vi) Should the administrative determination be in their favor, the 
actual or apparent owner(s) of or person(s) with possessory interests in 
the property subject to forfeiture may request that forfeited items be 
returned or that compensation be made if the custodian has already 
disposed of the property.
    (vii) The reviewing official shall not remit or mitigate a 
forfeiture unless the requestor:
    (A) Establishes a valid, good faith property interest in the 
property as owner or otherwise; and
    (B) Establishes that the requestor at no time had any knowledge or 
reason to believe that the property was being

[[Page 547]]

or would be used in violation of the law; and
    (C) Establishes that the requestor at no time had any knowledge or 
reason to believe that the owner had any record or reputation for 
violating laws of the United States or of any State for related crimes.
    (viii) The reviewing official may postpone any decision until the 
conclusion of any related administrative, civil, or criminal proceeding.
    (ix) The decision of the reviewing official as to the disposition of 
the property shall be the final agency determination for purposes of 
judicial review.

[Amdt. 132, 43 FR 47882, Oct. 17, 1978, as amended by Amdt. 221, 47 FR 
35168, Aug. 13, 1982; Amdt. 269, 51 FR 10782, Mar. 28, 1986; Amdt. 334, 
57 FR 3911, Feb. 3, 1992; 59 FR 51354, Oct. 11, 1994]



Sec.  271.6  Complaint procedure.

    (a) State agency responsibility--(1) General scope. The State agency 
shall maintain a system of its choosing for handling program complaints 
filed by participants, potential participants, or other concerned 
individuals or groups. This shall not include complaints alleging 
discrimination on the basis of race, sex, age, religious creed, national 
origin, political beliefs or handicap; such complaints shall be handled 
in accordance with Sec.  272.6. This procedure also need not include 
complaints that can be pursued through a fair hearing. Complaints 
regarding such areas as processing standards and service to participants 
and potential participants would generally be handled under this 
complaint procedure.
    (2) Minimum requirements. The State agency shall follow up on 
complaints, resolve complaints and take corrective action where 
warranted, and respond to the complainant on the State agency's 
disposition of the complaint. The State agency shall make information on 
the complaint system and how to file a complaint available to 
participants, potential participants and other interested persons. The 
State agency may make the information available through written 
materials or posters at certification offices or other appropriate 
means.
    (3) Complaint analysis. The State agency shall maintain records of 
complaints received and their disposition, and shall review records at 
least annually to assess whether patterns of problems may be present in 
local offices, project areas, or throughout the State. The results of 
this review shall be provided to the Performance Reporting System 
coordinator for appropriate action, and for inclusion, if appropriate, 
in the State Corrective Action Plan in accordance with Sec.  275.16 of 
this chapter. The information provided to the Performance Reporting 
System Coordinator shall include the identification, if any, of 
potential or actual patterns of deficiencies in local offices, project 
areas, or throughout the State, and any identification of causes of 
these problems.
    (4) Monitoring. FNS shall monitor State compliance with these 
requirements through the Performance Reporting System.
    (b) Regional office responsibility. (1) Persons or agencies desiring 
program information or wishing to file a complaint may contact the 
appropriate FNS Regional Office.
    (i) For Delaware, the District of Columbia, Maryland, New Jersey, 
Pennsylvania, Puerto Rico, Virginia, the Virgin Islands of the United 
States, and West Virginia: Mid-Atlantic Regional Office, U.S. Department 
of Agriculture, Food and Nutrition Service, CN 02150, Trenton, NJ 08650.
    (ii) For Alabama, Florida, Georgia, Kentucky, Mississippi, North 
Carolina, South Carolina, and Tennessee: Southeast Regional Office, U.S. 
Department of Agriculture, Food and Nutrition Service, 77 Forsyth Street 
SW., suite 112, Atlanta, GA 30303-3427.
    (iii) For Illinois, Indiana, Michigan, Minnesota, Ohio and 
Wisconsin: Midwest Regional Office, U.S. Department of Agriculture, Food 
and Nutrition Service, 77 West Jackson Blvd., 20th Floor, Chicago, IL 
60604-3507.
    (iv) For Arkansas, Louisiana, New Mexico, Oklahoma, and Texas: 
Southwest Regional Office, U.S. Department of Agriculture, Food and 
Nutrition Service, 1100 Commerce Street, suite 5-C-30, Dallas, TX 75242.
    (v) For Alaska, Arizona, California, Guam, Hawaii, Idaho, Nevada, 
Oregon

[[Page 548]]

and Washington: Western Regional Office, U.S. Department of Agriculture, 
Food and Nutrition Service, 550 Kearny Street, room 400, San Francisco, 
CA 94108.
    (vi) For Connecticut, Maine, Massachusetts, New Hampshire, New York, 
Rhode Island, and Vermont: Northeast Regional Office, U.S. Department of 
Agriculture, Food and Nutrition Service, 10 Causeway St., Boston, MA 
02222-1069.
    (vii) For Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North 
Dakota, South Dakota, Utah, and Wyoming: Mountain Plains Regional 
Office, U.S. Department of Agriculture, Food and Nutrition Service, 1244 
Speer Blvd., suite 903, Denver, CO 80204-3581.
    (2) Complainants shall be advised of the appropriate State complaint 
handling and fair hearing procedures. Upon household request, other 
complaints shall be pursued by the Department rather than the State 
agency, unless the complaint is one upon which the complainant wishes to 
request a fair hearing.

[Amdt. 132, 43 FR 47882, Oct. 17, 1978, as amended at 45 FR 71350, Oct. 
28, 1980; Amdt. 187, 45 FR 85699, Dec. 30, 1980; Amdt. 211, 47 FR 53315, 
Nov. 26, 1982; Amdt. 237, 47 FR 57668, Dec. 28, 1982; Amdt. 250, 48 FR 
22130, May 17, 1983; Amdt. 269, 51 FR 10782, Mar. 28, 1986; Amdt. 356, 
59 FR 29713, June 9, 1994]



Sec.  271.7  Allotment reduction procedures.

    (a) General purpose. This section sets forth the procedures to be 
followed if the monthly food stamp allotments determined in accordance 
with the provisions of Sec.  273.10 must be reduced, suspended, or 
cancelled to comply with section 18 of the Food Stamp Act of 1977, as 
amended. The best available data pertaining to the number of people 
participating in the program and the amounts of benefits being issued 
shall be used in deciding whether such action is necessary.
    (b) Nature of reduction action. Action to comply with section 18 of 
the Food Stamp Act of 1977, as amended, may be a suspension or 
cancellation of allotments for one or more months, a reduction in 
allotment levels for one or more months or a combination of these three 
actions. If a reduction in allotments is deemed necessary, allotments 
shall be reduced by reducing maximum food stamp allotments amounts for 
each household size by the same percentage. This results in all 
households of a given size having their benefits reduced by the same 
dollar amount. The dollar reduction would be smallest for one-person 
households and greatest for the largest households. Since the dollar 
amount would be the same for all households of the same size, the rate 
of reduction would be lowest for zero net income households and greatest 
for the highest net income households. All one- and two-person 
households affected by a reduction action shall be guaranteed the 
minimum benefit unless the action is a cancellation of benefits, a 
suspension of benefits, or a reduction of benefits of 90 percent or more 
of the total amount of benefits projected to be issued in the affected 
month.
    (c) Reduction method. If a reduction in allotments is deemed 
necessary, the maximum food stamp allotments amounts for all household 
sizes shall be reduced by a percentage specified by FNS. For example, if 
it is determined that a 25 per cent reduction in the maximum food stamp 
allotments amount is to be made, the reduction for all four-person 
households would be calculated as follows: The maximum food stamp 
allotments amount for a four-person household ($209 in November 1980) 
would be reduced by 25% to $157. Then 30 percent of the household's net 
food stamp income would be deducted from the reduced maximum food stamp 
allotments amount. For example, 30 per cent of a net food stamp income 
of $200, $60, would be deducted from the reduced maximum food stamp 
allotments amount ($157), resulting in a reduced allotment of $97.
    (d) Implementation of allotment reductions--(1) Reductions. (i) If a 
decision is made to reduce monthly food stamp allotments, FNS shall 
notify State agencies of the date the reduction is to take effect and by 
what percentage maximum food stamp allotments amounts are to be reduced.
    (ii) Upon receiving notification that a reduction is to be made in 
an upcoming month's allotment, State agencies shall act immediately to 
implement

[[Page 549]]

the reduction. Such action could differ from State to State depending on 
the nature of the issuance system in use. Where there are computerized 
issuance systems, the program used for calculating allotments shall be 
altered to reflect the appropriate percentage reduction in the maximum 
food stamp allotments for each household size and the computer program 
shall be adjusted to allow for the minimum benefit for one- and two-
person households. The computer program shall also be adjusted to 
provide for the rounding of benefit levels of $1, $3 and $5 to $2, $4 
and $6, respectively. FNS will provide State agencies with revised 
issuance tables reflecting the percentage reductions to be made in the 
maximum food stamp allotments amounts and reduce maximum food stamp 
allotments levels. In States where manual issuance is used, State 
agencies shall reproduce the issuance tables provided by FNS and 
distribute them to issuance personnel. State agencies shall ensure that 
the revised issuance tables are distributed to issuance agents and 
personnel in time to allow benefit reductions during the month ordered 
by FNS. In an HIR card system State agencies have the option of enacting 
the reduction in benefits either by changing all HIR cards before 
issuance activity for the affected month begins or by adjusting 
allotments at the point of issuance as each household appears at the 
issuance office.
    (2) Suspensions and cancellations. (i) If a decision is made to 
suspend or cancel the distribution of food stamp benefits in a given 
month, FNS shall notify State agencies of the date the suspension or 
cancellation is to take effect. In the event of a suspension or 
cancellation of benefits, the provision for the minimum benefit for 
households with one or two members only shall be disregarded and all 
households shall have their benefits suspended or cancelled. Upon 
receiving notification that an upcoming month's issuance is to be 
suspended or cancelled, State agencies shall take immediate action to 
effect the suspension or cancellation. This action would involve making 
necessary computer adjustments, and notifying issuance agents and 
personnel.
    (ii) Upon being notified by FNS that a suspension of benefits is 
over, State agencies shall act immediately to resume issuing benefits to 
certified households and shall resume benefit issuance as soon as 
practicable.
    (3) Affected allotments. Whenever a reduction of allotments is 
ordered for a particular month, reduced benefits shall be calculated for 
all households for the designated month. However, any household with one 
or two members whose reduced benefits would be less than the minimum 
benefit shall receive the minimum benefit except as provided in Sec.  
273.10(e)(2). Allotments or portions of allotments representing restored 
or retroactive benefits for a prior unaffected month would not be 
reduced, suspended, or cancelled even though they are issued during an 
affected month.
    (4) Notification of eligible households. Reductions, suspensions and 
cancellations of allotments shall be considered to be Federal 
adjustments to allotments. As such, State agencies shall notify 
households of reductions, suspensions and cancellations of allotments in 
accordance with the notice provisions of Sec.  273.12(e)(1), except that 
State agencies shall not provide notices of adverse action to households 
affected by reductions, suspensions or cancellations of allotments.
    (5) Restoration of benefits. Households whose allotments are reduced 
or cancelled as a result of the enactment of these procedures are not 
entitled to the restoration of the lost benefits at a future date. 
However, if there is a surplus of funds as a result of the reduction or 
cancellation, FNS shall direct State agencies to provide affected 
households with restored benefits unless the Secretary determines that 
the amount of surplus funds is too small to make this practicable. The 
procedures implemented by State agencies for reducing and cancelling 
benefits shall be designed so that in the event FNS directs the 
restoration of benefits, such benefits are issued promptly.
    (e) Effects of reductions, suspensions and cancellations on the 
certification of eligible households. (1) Except as provided in 
paragraph (e)(2) of this section, determinations of the eligibility

[[Page 550]]

of applicant households shall not be affected by reductions, suspensions 
or cancellations of allotments. State agencies shall accept and process 
applications during a month(s) in which a reduction, suspension or 
cancellation is in effect in accordance with the requirements of part 
273. Determinations of eligibility shall also be made according to the 
provisions of part 273. If an applicant is found to be eligible for 
benefits and a reduction is in effect, the amount of benefits shall be 
calculated by reducing the maximum food stamp allotments amount by the 
appropriate percentage for the applicant's household size and then 
deducting 30 percent of the household's net food stamp income from the 
reduced maximum food stamp allotments amount. If an applicant is found 
to be eligible for benefits while a suspension or cancellation is in 
effect, no benefits shall be issued to the applicant until issuance is 
again authorized by FNS.
    (2) Expedited service. (i) Households eligible to receive expedited 
processing who apply for program benefits during months in which 
reductions or suspensions are in effect, shall have their cases 
processed in accordance with the expedited processing provisions of 
Sec.  273.2(i).
    (A) Those households that receive expedited service in months in 
which reductions are in effect and that are determined to be eligible 
shall be issued allotments that are reduced in accordance with the 
reduction in effect. These reduced allotments shall be made available to 
the households within the benefit delivery timeframe specified in Sec.  
273.2(i).
    (B) Those households that receive expedited service in months in 
which suspensions are in effect and that are determined to be eligible 
shall have benefits issued to them within the timeframe specified in 
Sec.  273.2(i). However, if the suspension is still in effect at the 
time issuance is to be made, the issuance shall be suspended until the 
suspension is ended.
    (ii) Households eligible to receive expedited processing who apply 
for Program benefits during months in which cancellations are in effect 
shall receive expedited service. However, the deadline for completing 
the processing of such cases shall be five calendar days or the end of 
the month of application, whichever date is later. All other rules 
pertaining to expedited service, contained in Sec.  273.2(i), shall be 
applicable to these cases.
    (3) The reduction, suspension or cancellation of allotments in a 
given month shall have no effect on the certification periods assigned 
to households. Those participating households whose certification 
periods expire during a month in which allotments have been reduced, 
suspended or cancelled shall be recertified according to the provisions 
of Sec.  273.14. Households found eligible to participate during a month 
in which allotments have been reduced, suspended or cancelled shall have 
certification periods assigned in accordance with the provisions of 
Sec.  273.10.
    (f) Fair hearings. Any household that has its allotment reduced, 
suspended or cancelled as a result of an order issued by FNS in 
accordance with these rules may request a fair hearing if it disagrees 
with the action, subject to the following conditions. State agencies 
shall not be required to hold fair hearings unless the request for a 
fair hearing is based on a household's belief that its benefit level was 
computed incorrectly under these rules or that the rules were misapplied 
or misinterpreted. State agencies shall be allowed to deny fair hearings 
to those households who are merely disputing the fact that a reduction, 
suspension or cancellation was ordered. Furthermore, since the 
reduction, suspension or cancellation would be necessary to avoid an 
expenditure of funds beyond those appropriated by Congress, households 
do not have a right to a continuation of benefits pending the fair 
hearing. A household may receive retroactive benefits in an appropriate 
amount if it is determined that its benefits were reduced by more than 
the amount by which the State agency was directed to reduce benefits.
    (g) Issuance services. State agencies must have issuance services 
available to serve housholds receiving restored or retroactive benefits 
for a prior, unaffected month.
    (h) Penalties. Notwithstanding any other provision of this 
subchapter, FNS may take one or more of the following

[[Page 551]]

actions against a State agency that fails to comply with a directive to 
reduce, suspend or cancel allotments in a particular month.
    (1) If FNS ascertains that a State agency does not plan to comply 
with a directive to reduce, suspend or cancel allotments for a 
particular month, a warning will be issued advising the State agency 
that if it does not comply, FNS may cancel 100 percent of the Federal 
share of the State agency's administrative costs for the affected 
month(s). If, after receiving such a warning, a State agency does not 
comply with a directive to reduce, suspend or cancel allotments, FNS may 
cancel 100 percent of the Federal share of the State agency's 
administrative costs for the affected month(s).
    (2) If FNS ascertains after warning a State agency as provided in 
paragraph (h)(1) of this section, that the State agency does not plan to 
comply with a directive to reduce, suspend or cancel allotments, a court 
injunction may be sought to compel compliance.
    (3) If a State agency fails to reduce, suspend or cancel allotments 
as directed, FNS will bill the State agency for all over issuances that 
result. If a State agency fails to remit the billed amount to FNS within 
a prescribed period of time the funds will be recovered through offsets 
against the Federal share of the State agency's administrative costs, or 
any other means available under law.

[Amdt. 146, 46 FR 1426, Jan. 6, 1981, as amended by Amdt. 207, 47 FR 
52333, Nov. 19, 1982; Amdt. 211, 47 FR 53315, Nov. 26, 1982; Amdt. 233, 
47 FR 53830, Nov. 30, 1982; Amdt. 269, 51 FR 10782, Mar. 28, 1986; 54 FR 
24154, June 6, 1989; 56 FR 63596, Dec. 4, 1991; Amdt. 356, 59 FR 29713, 
June 9, 1994]



Sec.  271.8  Information collection/recordkeeping--OMB assigned control numbers.

------------------------------------------------------------------------
                                                             Current OMB
       7 CFR section where requirements are described        control no.
------------------------------------------------------------------------
271.7 (d)..................................................    0584-0064
272.1 (d)..................................................    0584-0274
272.1 (f)..................................................    0584-0009
                                                               0584-0010
                                                               0584-0015
                                                               0584-0022
                                                               0584-0025
                                                               0584-0034
                                                               0584-0037
                                                               0584-0052
                                                               0584-0053
                                                               0584-0064
                                                               0584-0069
                                                               0584-0074
                                                               0584-0080
                                                               0584-0081
                                                               0584-0083
                                                               0584-0124
                                                               0584-0274
                                                               0584-0285
                                                               0584-0299
                                                               0584-0301
                                                               0584-0303
                                                               0584-0333
                                                               0584-0334
                                                               0584-0336
                                                               0584-0339
272.2 (a), (c), (d), (e), (f)..............................    0584-0083
272.5 (c)..................................................    0584-0083
272.3 (a), (b), (c)........................................    0584-0083
272.6 (g), (h).............................................    0584-0025
272.7 (f), (g), (h), (i), (j), (k), (m)....................    0584-0064
273.1 (f), (g).............................................    0584-0064
273.2 (b), (c), (f), (g), (h), (i), (j), (k)...............    0584-0064
273.4 (e)..................................................    0584-0274
273.5 (b)..................................................    0584-0064
273.6 (a), (b), (g)........................................    0584-0064
273.7 (a), (d), (e)........................................    0584-0339
273.7 (c)..................................................    0584-0064
                                                               0584-0083
                                                               0584-0339
273.7 (f)..................................................    0584-0064
273.7 (m)..................................................    0584-0285
273.8 (b), (c), (e), (g), (h), (i).........................    0584-0064
273.9 (d)..................................................    0584-0064
273.10 (a), (c), (e), (f), (g)(1)..........................    0584-0064
273.10 (g)(3)..............................................    0584-0124
273.11 (a), (b), (c), (d), (e), (f), (h)...................    0584-0064
273.11 (g).................................................    0584-0334
273.11 (i) (1)-(4).........................................    0584-0080
                                                               0584-0081
273.11 (i)(5)..............................................    0584-0009
                                                               0584-0081
273.11 (i)(6)..............................................    0584-0009
                                                               0584-0080
                                                               0584-0081
273.12 (a), (b), (c), (d), (e), (f)........................    0584-0064
273.13 (a).................................................    0584-0064
273.14 (a), (b), (c).......................................    0584-0064
273.15 (a), (c), (d), (f), (i), (k), (l), (m), (q).........    0584-0064
273.16 (a), (b), (d), (e), (f), (g), (h), (i)..............    0584-0064
273.17 (h).................................................    0584-0301
273.18 (a), (c), (d), (e), (f), (g), (k)...................    0584-0064
273.18 (h).................................................    0584-0069
273.18 (i).................................................    0584-0053
273.21 (a), (c), (e), (f), (g), (h), (i), (j), (m), (p),       0584-0064
 (q).......................................................
274.1 (c)..................................................   0584-0009.
274.3 (d)..................................................   0584-0009,
                                                              0584-0069,
                                                              0584-0080.
274.4 (a)..................................................   0584-0080.
274.4 (b)..................................................   0584-0009,
                                                              0584-0015,
                                                              0584-0080,
                                                              0584-0081.
274.4 (f)..................................................   0584-0009,
                                                              0584-0053.
274.6 (a), (b) and (e).....................................   0584-0080,
                                                              0584-0081.
274.7 (a)..................................................   0584-0009.
274.7 (c)..................................................   0584-0022.

[[Page 552]]

 
274.8 (a)-(c)..............................................   0584-0009.
274.8 (e)..................................................   0584-0053.
274.9 (a)-(d)..............................................   0584-0009.
274.11.....................................................   0584-0009.
275.2 (a)..................................................    0584-0010
                                                               0584-0303
275.4 (a)..................................................    0584-0010
                                                               0584-0303
275.4 (b)..................................................    0584-0010
275.4 (c)..................................................    0584-0034
                                                               0584-0074
                                                               0584-0299
275.5 (a), (b).............................................    0584-0010
275.6 (b)..................................................    0584-0010
275.8 (a)..................................................    0584-0010
275.9 (b), (g).............................................    0584-0010
275.10 (a).................................................    0584-0074
                                                               0584-0299
                                                               0584-0303
275.11 (a).................................................    0584-0303
275.12 (b), (c), (d), (e)..................................    0584-0074
275.12 (f), (g)............................................    0584-0299
275.13 (b), (d), (e).......................................    0584-0034
275.14 (c), (d)............................................    0584-0034
                                                               0584-0074
                                                               0584-0299
275.16 (b), (c), (d).......................................    0584-0010
275.17 (a), (b)............................................    0584-0010
275.18 (a), (b)............................................    0584-0010
275.19 (a), (b), (c).......................................    0584-0010
275.20 (a).................................................    0584-0010
275.21 (b).................................................    0584-0034
                                                               0584-0074
                                                               0584-0299
275.21 (c), (d), (e).......................................    0584-0034
275.22 (a), (b)............................................    0584-0010
275.23.....................................................    0584-0010
                                                               0584-0034
                                                               0584-0074
                                                               0584-0299
276.2 (b)..................................................   0584-0015.
277.12 (a).................................................    0584-0341
277.14 (b), (c), (d), (h), (i), (j), (k)...................    0584-0341
277.15 (c).................................................    0584-0064
277.17 (a), (b), (c), (d), (e), (f), (g)...................    0584-0341
277.18 (a), (c), (d), (e), (g), (h)........................    0584-0083
278.1 (a), (b), (l)........................................    0584-0008
278.1 (e), (f).............................................    0584-0064
278.4 (b), (c).............................................    0584-0085
278.5 (a)..................................................    0584-0085
                                                               0584-0314
278.5 (c), (d), (f)........................................    0584-0008
278.6 (b)..................................................    0584-0008
278.7 (b), (c).............................................    0584-0008
278.8 (a)..................................................    0584-0008
280.7 (c), (d), (g)........................................    0584-0336
280.9 (b)..................................................    0584-0009
                                                               0584-0037
280.10 (a).................................................    0584-0336
------------------------------------------------------------------------


[50 FR 2660, Jan. 18, 1985, as amended at 54 FR 7002, Feb. 15, 1989; 54 
FR 24527, June 7, 1989; 56 FR 55059, Oct. 24, 1991; 67 FR 41603, June 
19, 2002]



PART 272_REQUIREMENTS FOR PARTICIPATING STATE AGENCIES--Table of Contents




Sec.
272.1 General terms and conditions.
272.2 Plan of operation.
272.3 Operating guidelines and forms.
272.4 Program administration and personnel requirements.
272.5 Program informational activities.
272.6 Nondiscrimination compliance.
272.7 Procedures for program administration in Alaska.
272.8 State income and eligibility verification system.
272.9 Approval of homeless meal providers.
272.10 ADP/CIS Model Plan.
272.11 Systematic Alien Verification for Entitlements (SAVE) Program.

    Authority: 7 U.S.C. 2011-2036.

    Editorial Note: OMB control numbers relating to this part 272 are 
contained in Sec.  271.8.



Sec.  272.1  General terms and conditions.

    (a) Coupons do not reduce benefits. The coupon allotment provided 
any eligible household shall not be considered income or resources for 
any purpose under any Federal, State, or local laws including, but not 
limited to, laws on taxation, welfare, and public assistance programs. 
No participating State or political subdivision shall decrease any 
assistance otherwise provided an individual or individuals because of 
the receipt of a coupon allotment.
    (b) No sales taxes on food stamp purchases. (1) A State shall not 
participate in the Food Stamp Program if State or local sales taxes or 
other taxes or fees, including but not limited to excise taxes, are 
collected within the State on purchases made with food stamp coupons. 
``Purchases made with food coupons'' for purposes of this provision 
shall refer to purchases of ``eligible foods'' as defined in Sec.  
271.2. Where the total value of groceries being bought by the recipient 
is larger than the amount of coupons being presented by the recipient, 
only the portion of the sale made in exchange for food stamps must be 
exempt from taxation in order for a State to satisfy the requirements of 
this provision. Although a food stamp recipient may use a combination of 
cash and food stamps in making a food purchase, only the dollar amount 
represented by the food coupons needs to be exempt from taxation.
    (2) State and/or local law shall not permit the imposition of tax on 
food paid for with coupons. FNS may terminate the issuance of coupons 
and disallow administrative funds otherwise

[[Page 553]]

payable pursuant to part 277 in any State where such taxes are charged. 
Action to disallow administrative funds shall be taken in accordance 
with the procedures set forth in Sec.  276.4.
    (3) A State or local area which taxes some, but not all, eligible 
food items shall ensure that retail food stores in that locale sequence 
purchases of eligible foods paid for with a combination of coupons and 
cash so as to not directly or indirectly charge or assign a tax to food 
stamp recipients on eligible food items purchased with coupons. 
Prohibited methods include, but are not limited to, the allocation of 
coupons first to non-taxable eligible items, and the application of 
cash, rather than coupons, to taxable eligible food.
    (c) Disclosure. (1) Use or disclosure of information obtained from 
food stamp applicant or recipient households shall be restricted to:
    (i) Persons directly connected with the administration or 
enforcement of the provisions of the Food Stamp Act or regulations, 
other Federal assistance programs, federally-assisted State programs 
providing assistance on a means-tested basis to low income individuals, 
or general assistance programs which are subject to the joint processing 
requirements in Sec.  273.2(j)(2).
    (ii) Persons directly connected with the administration or 
enforcement of the programs which are required to participate in the 
State income and eligibility verification system (IEVS) as specified in 
Sec.  272.8(a)(2), to the extent the food stamp information is useful in 
establishing or verifying eligibility or benefit amounts under those 
programs;
    (iii) Persons directly connected with the verification of 
immigration status of aliens applying for food stamp benefits, through 
the Systematic Alien Verification for Entitlements (SAVE) Program, to 
the extent the information is necessary to identify the individual for 
verification purposes.
    (iv) Persons directly connected with the administration of the Child 
Support Program under part D, title IV of the Social Security Act in 
order to assist in the administration of that program, and employees of 
the Secretary of Health and Human Services as necessary to assist in 
establishing or verifying eligibility or benefits under titles II and 
XVI of the Social Security Act;
    (v) Employees of the Comptroller General's Office of the United 
States for audit examination authorized by any other provison of law; 
and
    (vi) Local, State, or Federal law enforcement officials, upon their 
written request, for the purpose of investigating an alleged violation 
of the Food Stamp Act or regulation. The written request shall include 
the identity of the individual requesting the information and his 
authority to do so, violation being investigated, and the identity of 
the person on whom the information is requested.
    (vii) Local, State or Federal law enforcement officers, upon written 
request, for the purpose of obtaining the address, social security 
number, and, if available, photograph of any household member, if the 
member is fleeing to avoid prosecution or custody for a crime, or an 
attempt to commit a crime, that would be classified as a felony (or in 
the State of New Jersey, a high misdemeanor), or is violating a 
condition of probation or parole imposed under a Federal or State law. 
The State agency shall not require a household to present photographic 
identification as a condition of eligibility and must accept any 
document that reasonably establishes the applicant's identity. The State 
agency shall also provide information regarding a household member, upon 
the written request of a law enforcement officer acting in his or her 
official capacity, where such member has information necessary for the 
apprehension or investigation of another member who is fleeing to avoid 
prosecution or custody for a felony, or has violated a condition of 
probation or parole. If a law enforcement officer provides documentation 
indicating that a household member is fleeing to avoid prosecution or 
custody for a felony, or has violated a condition of probation or 
parole, the State agency shall terminate the participation of the 
member. A request for information absent documentation would not be 
sufficient to terminate the member's participation. The State agency 
shall disclose only such information as is necessary to comply with a 
specific

[[Page 554]]

written request of a law enforcement agency authorized by this 
paragraph.
    (2) Recipients of information released under paragraph (c)(1) of 
this section must adequately protect the information against 
unauthorized disclosure to persons or for purposes not specified in this 
section. In addition, information received through the IEVS must be 
protected from unauthorized disclosure as required by regulations 
established by the information provider. Information released to the 
State agency pursuant to section 6103(l) of the Internal Revenue Code of 
1954 shall be subject to the safeguards established by the Secretary of 
the Treasury in section 6103(l) of the Internal Revenue Code and 
implemented by the Internal Revenue Service in its publication, Tax 
Information and Security Guidelines.
    (3) If there is a written request by a responsible member of the 
household, its currently authorized representative, or a person acting 
on its behalf to review material and information contained in its 
casefile, the material and information contained in the casefile shall 
be made available for inspection during normal business hours. However, 
the State agency may withhold confidential information, such as the 
names of individuals who have disclosed information about the household 
without the household's knowledge, or the nature or status of pending 
criminal prosecutions.
    (d) Information available to the public. (1) Federal regulations, 
Federal procedures embodied in FNS notices and policy memos, State Plans 
of Operation, and corrective action plans shall be available upon 
request for examination by members of the public during office hours at 
the State agency headquarters as well as at FNS regional and national 
offices. State agency handbooks shall be available for examination upon 
request at each local certification office within each project area as 
well as at the State agency headquarters and FNS Regional offices. State 
agencies, at their option, may require other offices within the State to 
maintain a copy of Federal regulations.
    (2) Copies of regulations, plans of operation, State manuals, State 
corrective action plans, and Federal procedures may be obtained from FNS 
in accordance with part 295 of this chapter.
    (e) Records and reports. Each State agency shall keep such records 
and submit such reports and other information as required by FNS.
    (f) Retention of records. Each State agency shall retain all program 
records in an orderly fashion, for audit and review purposes, for a 
period of 3 years from the month of origin of each record. The State 
agency shall retain fiscal records and accountable documents for 3 years 
from the date of fiscal or administrative closure. Fiscal closure means 
that obligations for or against the Federal government have been 
liquidated. Administrative closure means that the State agency has 
determined and documented that no further action to liquidate the 
obligation is appropriate. Fiscal records and accountable documents 
include, but are not limited to claims and documentation of lost 
benefits. Retention methods for ATP cards are provided in part 274.
    (g) Implementation. The implementation schedule for any amendment to 
the regulations shall be specified in the amendment.
    (1) Amendment 132. Program changes required by Amendment 132 to the 
food stamp regulations shall be implemented as follows:
    (i) State agencies shall eliminate the purchase requirement for all 
households on or before January 1, 1979. The State agency shall 
designate the month the purchase requirement is to be eliminated. If the 
month designated is other than January 1979, the State agency shall 
obtain prior approval of FNS. FNS shall approve the designation of 
months prior to January 1979, if the State agency demonstrates that an 
accounting procedure for the new issuance system will be in place. The 
submission dates for the forms FNS-250 and FNS-256, stipulated in Sec.  
274.8(a), shall be effective with the reports for the first month of 
issuance without a purchase requirement. For example, if EPR is 
implemented in January, the FNS-250 and FNS-256 for January would be due 
by March 17, 1979. The FNS-259 shall be submitted in accordance with 
Sec.  274.8(a)(3) starting with the quarter beginning January 1979.

[[Page 555]]

    (ii) State agencies may implement all eligibility rules contained in 
part 273 and all issuance rules contained in part 274 at the same time 
the purchase requirement is eliminated, but in no case shall eligibility 
and issuance rules be implemented prior to elimination of the purchase 
requirement. State agencies may also implement portions of part 273 and 
part 274 separately after the purchase requirement is eliminated, 
provided that the eligibility rules setting the income standards, the 
income deductions and the household allotment calculation are 
implemented at the same time, and all rules are implemented no later 
than 3 months after the purchase requirement is eliminated. However, if 
a State agency implements EPR after December 1, 1978, it shall implement 
the certification and other issuance regulations for all new 
applications and recertifications no later than March 1, 1979.
    (iii) State agencies shall have up to 4 months following the first 
day that applications are taken under the new rules, to convert the 
current caseload to the new program. Households coming due for 
recertification during this time will be converted to the new program at 
recertification. Remaining households shall be converted by a desk 
review during that 4-month period. The new income definition, 
deductions, and allotment calculation shall be completed for all 
households which are converted through a desk review. To the extent that 
the case file and other information available to the State agency 
permit, other eligibility criteria, such as work registration, 
resources, tax dependency, and alien status, shall be considered during 
the desk review. Otherwise, nonincome eligibility factors shall be 
deferred until the household's scheduled recertification. In no event 
shall a household's certification period be extended as a result of the 
desk review. Until recertified or converted by a desk review, a 
household shall continue to receive the bonus portion of the allotment, 
calculated in accordance with the income, deduction, and basis of 
issuance provisons of the Food Stamp Act of 1964. During the case file 
conversion period, some households may be participating on the basis of 
the old program rules and some on the new rules. Claims against 
households and restoration of benefits shall not be assessed provided 
that whichever program rules are in use for a particular case are 
correctly applied during the conversion period. However, errors caused 
by miscalculations based on the old or new program rules which result in 
an entitlement to restoration of lost benefits or an overissuance shall 
be assessed in accordance with Sec. Sec.  273.17 and 273.18 of these 
regulations. The procedures for calculating lost benefits or 
overissuances as specified in Sec. Sec.  273.17 and 273.18 shall be 
applied to any case found to be in error after the implementation of 
these procedures, even though the action which caused the error may have 
occurred prior to the date of implementation. Notwithstanding anything 
to the contrary in the preceding provisions of this paragraph, State 
agencies shall have up to four months following the first day that 
applications are taken under the new rules, to convert the current 
caseload to the new program. Households coming due for recertification 
during this time shall be converted to the new Program at 
recertification. However, if the State agency elects to schedule a desk 
review for these households earlier in the four-month period, conversion 
shall take place after the desk review. Further, State agencies may 
elect to do a point-in-time computer conversion in lieu of individual 
desk reviews. Such a computer conversion must cover entire categories of 
households, such as public assistance households, all households in a 
particular project area, all households currently in the computer files, 
etc., and the State agency may not elect to postpone the conversion of 
certain cases until recertification.
    (iv) State agencies shall implement Sec.  273.17 on the restoration 
of lost benefits on or before March 1, 1979. State agencies are 
encouraged to implement restoration of lost benefits concurrent with the 
elimination of the purchase requirement, especially as they relate to 
households which are entitled to lost benefits but which have been 
unable to receive them because the households are currently ineligible. 
State agencies shall notify currently

[[Page 556]]

ineligible households of the availability of their lost benefits by 
using one of the following procedures:
    (A) State agencies which can readily identify the ineligible 
households which are entitled to lost benefits shall notify these 
households and restore the lost benefits within 4 months of the date 
restoration of lost benefits is implemented.
    (B) Other State agencies shall issue a one-time-only press release 
notifying ineligible households that benefits can be restored. The press 
release shall advise households to contact the local food stamp office 
for more information. In addition, State agencies issuing the press 
release shall request the assistance of local Community Action Programs, 
general assistance agencies, legal services programs funded by the Legal 
Services Corporation, State employment service and unemployment 
compensation offices and other State and Federal governmental agencies 
providing services to low-income households, such as the Social Security 
Administration or the Community Services Administration. FNS shall 
provide the State agency with copies of the letter to be used to request 
assistance from outreach organizations and governmental agencies, and 
the fliers and posters which will be distributed upon request to such 
organizations and agencies. The language of the request for assistance, 
the notice to households and the poster is contained in the appendix to 
this rulemaking. State agencies shall mail the request for assistance 
and display posters in all local agency food stamp certification and 
issuance offices and welfare offices within 30 days of receipt from FNS. 
In project areas subject to the bilingual requirements of Sec.  
272.4(c), State agencies shall provide translations of the posters and 
fliers. Upon request, FNS shall provide Spanish posters and fliers. FNS 
shall reimburse State agencies for all costs of providing translations 
of the posters and fliers in languages other than Spanish. The State 
agency shall display the posters in its offices for six months. 
Households whose entitlement to benefits has been clearly established 
may apply for restoration of lost benefits under this paragraph for an 
indefinite period. Households whose entitlement to restoration of lost 
benefits was established more than three years prior to application for 
retroactive benefits under this paragraph shall be permitted to document 
entitlement if entitlement cannot be verified from State agency records. 
Such households shall sign an affidavit under penalty of perjury 
explaining their entitlement. In lieu of the requirements of this 
paragraph, State agencies may elect to provide notice pursuant to 
paragraph (g)(1)(iv)(A) of this section, in any or all project areas 
within the State.
    (v) State agencies shall assume the authority to settle or adjust 
recipient claims delegated under Sec.  271.4(b) on or before July 1, 
1979.
    (vi) State agencies without a currently approved utility standard 
required in Sec.  273.9(d)(5) shall develop and implement an FNS 
approved utility standard on or before October 1, 1979. The State agency 
shall notify households certified at the time the utility standard is 
implemented of the availability of the standard and the conditions for 
its use in lieu of actual expenses. Households qualified to use the 
standard and which elect to do so shall have the standard applied as any 
other change in circumstances. Otherwise, actual utility expenses shall 
continue to be used for households qualified for the standard until 
their next recertification.
    (vii) State agencies shall advise FNS of their determination of the 
need for bilingual services as required by Sec.  272.4(c) on or before 
December 1, 1978. If the State agency cannot determine, based on 
available information sources, whether or not bilingual services are 
required in particular project areas, it shall so advise FNS on or 
before December 1, 1978. The State agency shall then develop procedures 
to record the number of non-English-speaking low-income households which 
make contact with its offices in these project areas as required by 
Sec.  272.4(c)(6). These procedures shall be implemented on or before 
March 1, 1979, and shall continue for 6 months. The State agency shall 
submit to FNS its determination(s) of the need for bilingual services 
not later than 60 days following the end of the 6-

[[Page 557]]

month period. Bilingual outreach materials shall be available for 
distribution within 90 days of the State agency's determination that 
such materials are required. When the State agency determines that 
bilingual staff and certification materials are required, it shall also 
make a determination of whether volunteers or paid staff will be used. 
When volunteers are to be used, the State agency shall provide the 
materials and arrange for volunteers within 90 days. Paid staff and 
materials shall be provided within 180 days.
    (viii) Prior to the certification of households under these 
regulations, State agencies shall implement staff training for the 
transition as required in Sec.  272.4(e)(3), and training for outreach 
workers, receptionists, and others, as required in Sec.  272.4(e)(1) (v) 
and (vi). Beginning with these training sessions for the transition, 
State agencies shall implement the requirements for public participation 
at training sessions, as specified in Sec.  272.4(e)(1)(iv). State 
agencies shall designate a training coordinator and develop and 
implement the ongoing training program required by Sec.  272.4(e) on or 
before July 1, 1979.
    (ix) Elimination of the purchase requirement and the implementation 
of the basic financial and nonfinancial eligibility criteria and other 
coupon issuance criteria shall not be extended for any reason. FNS may 
grant extensions for other provisions contained in these rules, provided 
that the State agency presents compelling justification for a delay and 
establishes an acceptable alternative schedule in advance of the 
implementation deadline. In no event will FNS grant an extension in 
excess of 120 days from the specified implementation date. In those 
cases where extensions are granted, the relevant Department regulations 
under the Food Stamp Act of 1964 shall remain in effect until superseded 
by implementation of the new rules.
    (2) Amendment 137. Program changes required by Amendment 137 to the 
food stamp regulations shall be implemented for all households initially 
applying for food stamp benefits no later than 90 days following the 
publication of this amendment.
    (3) Amendment 146. The procedures contained in Amendment 146 shall 
be implemented by State agencies in time to be able to issue reduced 
food stamp allotments or to suspend or cancel allotments within 60 days 
after the date of publication of this amendment in the Federal Register.
    (4) Amendment 141. State agencies shall begin planning for and 
conducting ongoing consultations with the Indian tribal organizations of 
the reservations within their jurisdiction as soon as possible after the 
effective date of this amendment. Portions of the State Plan of 
Operation to be submitted for fiscal year 1980 shall be subject to ITO 
comment as required by Sec.  281.2(a). The funding authority in Sec.  
281.9 shall apply to budgets beginning with the fourth quarter of fiscal 
year 1979.
    (5) Amendment 211. State agencies shall implement the new Social 
Security Number (SSN) provisions for new applicants no later than 
February 1, 1983 and convert the current caseload at recertification or 
when the case is otherwise reviewed, whichever occurs first. The 
citizenship provisions must be implemented on or before April 1, 1983. 
All other provisions shall be implemented at State agency discretion.
    (6) Amendment 149. Changes to States' Quality Control systems as 
required by this amendment shall be implemented as follows:
    (i) All State agencies shall continue conducting modified QC reviews 
[in accordance with regulations published February 9, 1979 (43 FR 8548)] 
through August 31, 1979 and submit Form FNS-133 to FNS by September 15.
    (ii) State agencies shall implement the requirements in subpart C of 
part 275 for conducting QC reviews no later than October 1, 1979. A 
quality control sampling plan (as specified in Sec.  275.11(a) of these 
regulations) must be submitted by each State to the appropriate FNS 
Regional Office no later than September 1, 1979 (30 days prior to 
implementation). This will allow time necessary for approval of the 
plans prior to the October 1 implementation date.
    (iii) State agencies are encouraged to implement QC September 1, if 
possible. States opting to implement early would not be required to 
operate for

[[Page 558]]

this month under an approved sampling plan. These States must, however, 
submit sampling plans in accordance with paragraph (g)(6)(ii) of this 
section. The month of September (sampling month) would serve as a test 
phase. Therefore, data collected for the sample month would not be 
required to be submitted to FNS or used in determining a State's 
cumulative allotment error rate.
    (iv) Regulations published October 17, 1978 (43 FR 47846) which 
implement major aspects of the Food Stamp Act of 1977 provide for the 
conversion of cases via a desk review (Sec.  272.1(g)(1)(iii)). Desk 
converted cases would be converted to the new eligibility criteria for 
income and deductions but may not have been converted to the new 
criteria for resources, work registration, tax depend ency, etc. 
Therefore, States will have households participating in the program 
based on some of the eligibility criteria of the 1964 Food Stamp Act. 
Desk converted cases as provided in Sec.  272.1(g)(1)(iii) and cases 
which should have been converted via desk review (some cases may not 
undergo the conversion process as required), shall be subject to 
standard QC review procedures. When the QC reviewer detects a variance 
in one of these cases which results from an element of eligibility which 
was not converted and was not required to have been converted, the 
reviewer shall disregard the variance. When the reviewer detects a 
variance in a case when an element of eligibility was, or should have 
been converted, the reviewer shall handle the variance like any other QC 
variance as identified in Sec.  275.12 of these regulations. It is 
possible that desk converted cases may continue to show up in QC samples 
through February 1980.
    (v) State agencies shall submit reports of QC review activity (one 
copy to the appropriate FNS Regional Office and one copy to the Deputy 
Administrator for Family Nutrition Programs, Washington, DC) as follows:
    (A) Each State agency shall report the monthly progress of sample 
selection and completion on a form provided by FNS. This report shall be 
submitted to FNS so that it is received no later than 10 days after the 
end of each month, beginning December 10, 1979. Each report shall 
reflect sampling and review activity for the previous month.
    (B) Each State agency shall report the results of QC review activity 
on a form provided by FNS. This report shall be submitted to FNS so that 
it is received no later than 90 days from the end of the reporting 
period.
    (C) Corrections to information on the above reports requested by FNS 
must be submitted within 10 days of the request.
    (7) Amendment 151. (i) State agencies shall implement the program 
changes required by amendment for all new applications and 
recertifications no later than January 1, 1980. Currently eligible 
households shall be converted at recertification or when they request 
conversion to the new deduction system by responding to the notice 
required in paragraph (g)(7)(iii) of this section or by otherwise 
requesting recomputation.
    (ii) State agencies may but are not required to convert the current 
caseload to the shelter deduction system provided for in Sec.  
273.9(d)(5) through desk reviews or by computer search. State agencies 
are encouraged to convert eligible households to the new shelter 
deduction as soon as possible to allow these households to benefit 
during the winter months.
    (iii) Notices explaining the changes and their applicability shall 
be available at all food stamp certification offices and shall also be 
mailed or otherwise provided individually to all currently certified 
households at least once prior to implementation. At a minimum, these 
notices shall be distributed in the month prior to implementation either 
with the ATP card or separately but no later than the 15th of the month. 
The notice shall advise the household of the availability of the new 
deductions and the procedures for reporting medical and shelter 
expenses. If the State agency can identify those households to which 
this amendment would apply, only these households need to receive the 
notice.
    (iv) Fliers advising of the changes contained in this amendment 
shall be made available to public and general assistance offices, local 
Social Security

[[Page 559]]

offices, and any interested organizations, particularly those dealing 
with the elderly or disabled or those places where the elderly or 
disabled congregate, such as housing units. Also, posters explaining the 
changes shall be displayed in food stamp certification offices and shall 
be made available to public and general assistance offices, local Social 
Security offices and any other interested groups. State agencies shall 
notify all organizations on its outreach contact list of the changes and 
of the availability of posters and fliers. State agencies shall issue 
press releases to the news media advising of the impending program 
changes.
    (v) For the first two months of implementation, State agencies shall 
have up to 30 days to process changes in medical and shelter costs 
reported in conjunction with this amendment. The change shall be 
effective for the first issuance following that 30-day period with 
restoration of lost benefits to the point at which the change would 
normally become effective under Sec.  273.12. The State agency may 
request an extension of processing time of up to 60 days to act on these 
changes. The State agency shall submit appropriate documentation to FNS 
for the State or any part of the State for which such an extension is 
requested. After the first two months the State agency shall act on 
these changes in accordance with the normal processing standards in 
Sec.  273.12(c). For changes reported during a period of two months 
following a State agency's implementation of this amendment, 
verification of shelter and medical expenses required by Sec.  273.2(f) 
must be obtained prior to the issuance of the third normal monthly 
allotment after the change is reported. If the household does not 
provide verification, the household's benefits will revert to the 
original level. State agencies are encouraged to complete such 
verification and, if needed, conduct an interview prior to processing 
the change. After this initial period, State agencies will verify these 
expenses in accordance with the normal timeliness standards.
    (vi) Medical expenses shall be subject to the same rounding 
procedures used for shelter expenses in Sec.  273.10(e)(1)(ii). This 
procedure shall be in effect until implementation of amendments to Sec.  
273.10(e)(1)(ii).
    (vii) No household shall be entitled to restoration of lost benefits 
under this amendment for any period prior to the time the State agency 
has implemented its provisions. For the initial months after 
implementation, during which the longer processing time allowed under 
this amendment is in effect, a household shall be entitled to 
restoration of lost benefits back to the month the change would have 
become effective under the normal processing standards in Sec.  
273.12(c). After this initial period, no household shall be entitled to 
restoration of lost benefits unless the State agency does not act on 
reported changes in accordance with the timeliness standards in Sec.  
273.12(c) or the household is otherwise entitled under the provisions of 
Sec.  273.17.
    (viii) Implementation of these program changes falls in the last 
three months of the October 1979 to March 1980 reporting period for 
quality control. For the months of January, February and March 1980, all 
cases in which a household member is either 60 years of age or over, 
receives SSI, or disability benefits under title II of the Social 
Security Act will be subject to standard quality control review 
procedures, except that any varying information regarding medical 
deductions and/or shelter deductions in excess of the cap found in the 
review shall be disregarded in determining errors. Such information 
shall be noted on the Face Sheet of Form FNS-245 under part VII, 
Discrepancies and Other Information, and reported to the State agency 
for appropriate action on an individual case basis. Starting with the 
April-September 1980 reporting period, when the reviewer detects a 
variance in the medical deduction and/or the shelter deduction in excess 
of the cap, and these expenses were reported at application, 
recertification or during the certification period, the reviewer shall 
handle the variance like any other QC variance as identified in Sec.  
275.12 of the Performance Reporting System regulations.
    (8) Amendment 152. The rounding procedure set forth in Sec.  
273.10(e) shall be in effect for new applications and recertifications 
no later than July 1, 1980.

[[Page 560]]

The State agency shall have up to 12 months following the implementation 
date of final regulations to convert the current caseload to the 
rounding procedure that is chosen under Sec.  273.10(e)(1)(ii). The 
State agency shall have a choice of the following three options in 
converting households that are already participating at the time the new 
rounding procedure goes into effect:
    (i) Convert households at recertification; (ii) convert households 
by conducting a desk review; or (iii) convert all households, or all 
households in a certain category, at a point-in-time. For example, the 
State agency may convert all public assistance households or all 
households in a project area by computer. Point-in-time mass conversions 
shall be conducted no later than July 1, 1980. In any case, the State 
agency shall advise FNS regarding which rounding and caseload conversion 
procedures are chosen and when the conversion will be completed.
    (9) Amendment 154. State agencies shall implement the program 
changes required by Amendment 154 as follows:
    (i) State agencies shall begin requiring social security numbers for 
all new applications and recertifications no later than the first day of 
the first month which commences 120 days from the date of publication of 
final rules. Participating households shall be requested to provide or 
apply for social security numbers (SSN) for appropriate household 
members at recertification, or at the time of office contact for any 
other reason. The State agency shall provide advance notification of 
this requirement and the consequences of noncompliance by sending an 
individual notice to all participating households and by providing press 
releases for dissemination through the media. The individual notices may 
be sent as either a one-time notice prior to implementation and/or with 
the notices of expiration of a certification period.
    (ii) If any affected member(s) of a household does not have his or 
her SSN readily available at the time of application, recertification, 
or any office contact, he or she shall follow the procedures for 
furnishing an SSN in accordance with Sec.  273.6 as amended.
    (iii) State agencies shall implement the fraud claims procedures 
contained in Sec.  273.16 and Sec.  273.18. Implementation shall be no 
later than the first of the month following the 120th day from the date 
of publication of final rules. By implementation the State agency shall 
also have an approved system for handling claims, including a method for 
accounting for the fifty percent retention of the value of funds 
collected from fraud claims. Any collection action on fraud claims after 
implementation is subject to the fifty percent retention including 
claims established under the Food Stamp Act of 1964 as amended and under 
the Food Stamp Act of 1977, as amended. However, only individuals found 
guilty of fraud through an administrative fraud hearing or through a 
court of law under regulations promulgating the Food Stamp Act of 1977, 
as amended, are subject to the recovery provisions in Sec. Sec.  273.16 
and 273.18 retroactive to implementation of fraud claim provisions under 
the 1977 Act.
    (10) Amendment 207. State agencies shall implement the changes in 
the rules required by Amendment 207 no later than January 1, 1983. 
Disabled parents who requested and were denied separate household status 
on or after September 8, 1982, will be entitled to benefits retroactive 
to the dates of their applications for separate household status.
    (11) Amendment 160. State agencies shall implement the provisions of 
this amendment as follows:
    (i) State agencies shall submit the initial State corrective action 
plans so they are received by FNS within 90 days of publication of these 
regulations as required in Sec.  275.22(a) of this chapter. This initial 
plan shall contain all known deficiencies in the State which meet the 
criteria set forth in Sec.  275.16(b) of this chapter and shall 
identify, for each such deficiency, the items required in Sec.  
275.17(b) of this chapter. Project areas also shall prepare and submit 
to the State corrective action plans for all identified deficiencies. 
These plans shall be submitted within 60 days of identification of a 
deficiency and shall include any deficiencies known to the project area 
prior to publication of these regulations for which

[[Page 561]]

corrective action has not been completed. Ninety days after publication 
of these regulations, all provisions of Sec. Sec.  275.15, 275.16, 
275.17, 275.18, 275.19 and 275.22 of this chapter shall be implemented.
    (ii) State agencies shall have submitted management evaluation (ME) 
review schedules within 90 days of publication of these regulations as 
required by Sec.  275.20 of this chapter. These review schedules shall 
contain all information required by Sec.  275.20 of this chapter and 
shall be adhered to unless a change is necessary. If a modification to 
an ME review schedule is necessary at any time in the review period, the 
State shall notify the appropriate FNS Regional Office of the 
modification.
    (iii) State agencies shall implement ME reviews within 90 days of 
publication of these regulations, following the provisions of Sec. Sec.  
275.5, 275.6, 275.7, 275.8, and 275.9 of this chapter. Any waiver from 
the requirements of Sec.  275.7 or Sec.  275.9 must be requested 60 days 
prior to its implementation as identified in Sec.  275.5(c). Development 
or submission of requests for a deviation shall not delay implementation 
of the ME review sub-system past the required implementation date.
    (iv) All provisions of these regulations which are not addressed in 
paragraphs (g)(11) (i) and (ii) of this section shall be implemented 
within 90 days of publication of these regulations. While this includes 
the requirements for a Performance Reporting System Coordinator and 
designation of an organizational entity for effecting corrective action 
as identified in Sec.  275.2(a) of this chapter, this position and 
designation may be established on an interim basis; provided that the 
provisions of Sec.  275.2(a) of this chapter are fully implemented by 
October 1, 1980. During this interim period States shall ensure that all 
responsibilities of the coordinator or entity are adhered to.
    (12) [Reserved]
    (13) Amendment 162. Program changes required by Amendment 162 of the 
Food Stamp Program regulations shall be implemented as follows:
    (i) The fee agent system for conducting interviews is currently in 
use and its continuing use is approved.
    (ii) All other rules except paragraph (p) of Sec.  272.8 shall be 
implemented as soon as practical but no later than 90 days following the 
date of final rulemaking. A fee agent training plan must be submitted 
within 45 days of the date of final rulemaking. Paragraph (p) of Sec.  
272.8 concerning points and hours shall be implemented following the 
time standards contained therein.
    (14) Amendment 142. (i) State agencies shall restore lost benefits 
to households who had their eligibility or benefit levels adversely 
affected because Federal energy assistance payments were counted as 
income and/or resources. Entitlement to restoration of lost benefits 
shall be retroactive to October 1, 1979 for payments received under 
CSA's ECAP; to November 27, 1979 for payments received under DHEW's EAP; 
and to January 7, 1980 for the one-time-only energy assistance payments 
to SSI households in accordance with Pub. L. 96-126.
    (ii) State agencies shall use the following procedures for notifying 
households of entitlement to restoration of benefits under Amendment 
142:
    (A) State agencies which can readily identify those SSI households 
who received the one-time payment and those households who received 
payments under the Energy Crisis Assistance or Energy Allowance Programs 
which lost benefits because their energy assistance payment was counted 
as income and/or resources must notify such households of entitlement to 
restoration of lost benefits.
    (B) State agencies which cannot readily identify households entitled 
to restoration of lost benefits due to the circumstances described in 
Sec.  272.1(g)(14)(i) must issue a one-time-only press release to notify 
households which have participated since October 1, 1979 of possible 
entitlement to restoration of lost benefits. State agencies may, at 
their option, use additional means of notification such as posters.
    (15) Amendment 163. State agencies shall implement the provisions in 
this amendment no later than July 1, 1980.
    (16) Amendment 174. State agencies shall implement the program 
changes required by Amendment 174 as follows:

[[Page 562]]

    (i) State agencies shall implement the income/resource disregard 
provision for Federal, State, and local energy assistance payments 
(Sec. Sec.  273.8 and 273.9 of this subchapter) no later than October 1, 
1981.
    (ii) State agencies shall implement the new maximum resource limit 
and the exemption of vehicles for the physically disabled (Sec.  273.12 
of this subchapter) no later than October 1, 1981 for all new 
applicants. State agencies shall convert the current caseload to the new 
resource limit at the time of recertification, or at any other time the 
casefile is reviewed prior to recertification.
    (iii) State agencies shall implement the student participation 
provisions of this amendment (Sec. Sec.  273.1, 273.2, 273.5, 273.7 and 
273.11 of this subchapter) no later than October 1, 1981 for all new 
applicants. Current caseload shall be converted at the time of 
recertification or any time the casefile is reviewed prior to 
recertification.
    (17) Amendment 158. (i) The procedures contained in part 273 
regarding SSI food stamp joint application processing shall become 
effective on August 1, 1980 for all State agencies except that:
    (A) In those areas designated as SSI/Elderly Cash-out Demonstration 
Project Sites or Demonstration Proj ect Comparison Sites, implementation 
of these provisions will be delayed. In addition, Social Security office 
service areas which contain either demonstration projects sites or 
demonstration comparison sites will be temporarily exempted, in their 
entirety, from implementation of these provisions whether or not their 
boundaries are co-terminous with demonstration proj ect sites and/or 
demonstration comparison site boundaries. This temporary exemption 
removes the administrative problem of the same SSA office simultaneously 
operating under both joint processing and cash-out regulations. The 
procedures contained in this rulemaking shall become effective for these 
project areas on the first day of the month following the ninetieth day 
after the termination of the demonstration project.
    (B) State agencies in SSI cash-out States as defined in Sec.  273.20 
shall not implement the provisions of this rulemaking. In the event an 
SSI cash-out State loses that status, the State agency shall implement 
the provisions of this rulemaking on the first day of the month 
following the ninetieth day after the Secretary of Health and Human 
Services determines that the State no longer qualifies for cash-out 
status.
    (ii) State agencies shall distribute fliers advising of the changes 
contained in this amendment to public and general assistance offices, 
local Social Security offices, any interested organizations, 
particularly those dealing with the elderly or disabled, and those 
places where the elderly or disabled congregate, such as housing units 
senior citizens centers, and elderly feeding programs. Also, posters 
explaining the changes shall be displayed in food stamp certification 
offices and shall be made available to public and general assistance 
offices, local Social Security offices and any other interested groups. 
State agencies shall notify all organizations on their outreach contact 
lists of the changes and of the availability of posters and fliers. 
State agencies shall issue press releases to the news media advising of 
the impending program changes. FNS will supply State agencies with model 
language describing the changes which State agencies may use in their 
publications.
    (18) Amendment 168. The provisions of Amendment 168 shall be 
effective on the thirtieth day following their publication. Any claims 
filed against State agencies for incidents that occur after the 
publication of this amendment shall be filed in accordance with the 
provisions of this amendment. Any claims filed against State agencies 
for incidents that occurred prior to the publication of this amendment 
shall be filed in accordance with the rules in effect at the time they 
occurred. However, the administrative review procedures contained in 
this amendment shall be applicable to all claims that are filed after 
the effective date of this amendment.
    (19)-(20) [Reserved]
    (21) Amendment 178. State agencies shall implement the provisions of 
Sec.  273.8 and Sec.  273.9 of this amendment for all new applicants no 
later than February 1, 1981. States shall convert the

[[Page 563]]

current caseload to the new rules at recertification or at the time the 
case is otherwise reviewed, whichever comes first.
    (22) Amendment 179. State agencies shall implement those 
verification procedures mandated in Sec.  273.2 and Sec.  273.8 no later 
than the first of the month 120 days following publication of final 
regulations. State agencies may implement those provisions allowed at 
State agency option in Sec.  273.2 and Sec.  273.12, once the options 
have been approved by FNS and the State certification manuals have been 
revised to incorporate the options.
    (23) Amendment 171. (i) All States operating an ATP issuance system 
shall submit the first Form FNS-46, Food Stamp Reconciliation Report, in 
accordance with Amendment No. 171, for the month of February 1981. This 
report shall be submitted to the FNS Regional Office within 90 days from 
the end of the report month.
    (ii) All States shall submit the Form FNS-388, State Coupon Issuance 
and Particpation Estimates, for February 1981 and each month thereafter. 
Those States that have not submitted procedures for estimating program 
participation, shall submit them to the FNS Regional Office on or before 
February 9, 1981.
    (24) Amendment 186. The procedures of part 275 regarding SSA/food 
stamp joint processing and demonstration cases shall become effective on 
August 1, 1980 for all applicable State agencies. These procedures must 
be implemented by October 1, 1980.
    (25) Amendment 187. State agencies shall implement the complaint 
procedures required by Sec.  271.6(a) no later than 180 days following 
publication of final regulations.
    (26) Amendment 165. State welfare agencies and State employment 
agencies shall implement the provisions of Amendment 165 no later than 
the first of the month following 120 days from publication of amendment 
165 in the Federal Register as follows:
    (i) Both agencies shall begin immediately to develop the work 
registration plan and agreements discussed in Sec.  273.7(c) and (d) of 
Amendment 165. The plan and agreements must be approved and implemented 
within the 120 day timeframe established for implementation of all 
provisions of the final rule.
    (ii) The provisions of amendment 165 shall be applied to households 
at the time of initial application, recertification, or reregistration, 
beginning no later than the first of the month following 120 days from 
publication of the amendment.
    (27) Amendment 189. State agencies shall implement the provisions of 
Amendment No. 189 no later than July 1, 1982.
    (28) Amendment 156. State agencies shall implement the program 
changes required by Amendment 156 within 120 days after publication of 
these regulations, meeting the submittal deadlines outlined in Sec.  
272.2 and Sec.  272.3.
    (29) Amendment 190. State agencies shall implement these regulations 
no later than January 1, 1982. The rules are effective November 9, 1981.
    (30) Amendment 191. Areas subject to the photo ID card requirement 
must have issued photo ID cards (or cards annotated to indicate that the 
card is valid without a photograph, in accordance with Sec.  
273.10(g)(4)(ii)(C)) to all participating households, and shall require 
presentation of photo ID cards (or the annotated cards) at issuance 
points as a precondition of issuing coupons to households, no later than 
the first of the month that is 12 months after the publication of final 
regulations. Any areas that become subject to the photo ID card 
requirement at a later date shall also come into full compliance no 
later than the first of the month that occurs 12 months after FNS 
notifies the State agency that the area is subject to the requirement.
    (31) Amendment 169. The provisions of Amendment 169 shall be 
effective March 30, 1981. These provisions shall apply to the period 
beginning October 1, 1980, except that the provisions of Sec.  
277.4(b)(2) shall apply to the period October 1, 1978 through October 1, 
1980. No State shall be subject to sanctions based upon quality control 
error rates for any period prior to October 1, 1980. No State shall 
receive enhanced funding based upon quality control data for a period 
prior to the date upon which its quality control system was in 
operation.
    (32)-(33) [Reserved]

[[Page 564]]

    (34) Amendment 198. State agencies opting to match earnings data 
provided by applicants and participants with information maintained by 
the Social Security Administration shall first execute data exchange 
agreements with the Social Security Administration. After the effective 
date of this rule and after execution of this agreement, State agencies 
may implement wage match provisions at their discretion.
    (35) Amendment 202. State agencies shall implement the provisions of 
Amendment No. 202 as follows:
    (i) The rules shall be implemented no later than October 1, 1981, 
including the provisions for a medical deduction, separate dependent 
care deduction, and uncapped shelter expense deduction for the elderly 
and disabled in Puerto Rico, Guam, and the Virgin Islands. All 
households who apply October 1 or later and those households who are 
recertified October 1, 1981 or later shall be processed in accordance 
with these provisions. The proration of initial month benefits shall 
begin no later than October 1, 1981.
    (ii) Conversion of the current caseload to the new gross income test 
and earned income deduction amount shall be completed no later than 90 
days from October 1, 1981, or 90 days from the date of implementation 
approved through waiver requests in accordance with paragraph 
(g)(35)(vi) of this section.
    (iii) Conversion of the current caseload to the new household 
definition; ineligibility of strikers and boarders; and, in Puerto Rico, 
Guam, and the Virgin Islands, a medical deduction, separate dependent 
care deduction, and uncapped excess shelter expense deduction shall be 
completed at or before recertification. In no event shall the new 
medical, dependent care, and excess shelter provisions for Guam, Puerto 
Rico and the Virgin Islands be implemented prior to October 1, 1981.
    (iv) Notification to affected households of these changes shall be 
done, at a minimum, in the same manner required for mass changes in 
public assistance grants prescribed in Sec.  273.12(e)(2)(ii).
    (v) Beginning October 1,1981, outreach activities engaged in by 
State agencies shall be ineligible for Federal matching funds.
    (vi) FNS will consider requests for waivers to these timeframes, 
except for the timeframe in paragraph (g)(35)(v) of this section, on a 
state-by-state basis, if good cause can be established and justified, in 
writing, for the need for a longer timeframe.
    (36) Amendment 259. State agencies may implement this Monthly 
Reporting and Retrospective Budgeting rule at any time, but shall 
implement this rule no later than January 1, 1984. Prior to January 1, 
1984, this rule may be implemented Statewide, in only part of a State 
(such as in certain project areas), or for only certain reasonable 
classifications of households (such as for only households receiving 
Temporary Assistance for Needy Families) so long as the implementation 
is completed by January 1, 1984. State agencies shall have begun to send 
monthly reports to households so that they can report their January 1984 
circumstances in accordance with Sec.  273.21(h). However, the changes 
in the interim provisions made by this final rule need not be 
implemented on January 1, 1984. The changes made by this final rule 
shall be implemented no later than May 1, 1984. Unless otherwise 
specified in Sec.  273.21 of this chapter, all other food stamp 
regulations shall apply to State agencies and to applying or 
participating households.
    (37) Amendment 205. The procedures extending eligibility to 
otherwise eligible residents of shelters for battered women and children 
contained in Amendment 205 shall be implemented by State agencies no 
later than April 1, 1982.
    (38)-(39) [Reserved]
    (40) Amendment 213. All State agencies shall execute the appropriate 
data exchange agreements and implement the provisions of this amendment 
not later than January 1, 1983. State agencies may opt to match earnings 
data with information maintained by the Social Security Administration 
upon publication of final regulations provided they have executed data 
exchange agreements with the Social Security Administration. State 
agencies which are not prohibited by State law

[[Page 565]]

from wage matching with agencies administering unemployment compensation 
may do so upon publication of final regulations, provided they have 
executed the appropriate data exchange agreements.
    (41) State agencies shall implement the provisions of Amendment 215 
upon publication.
    (42) Amendment 217. The regulations concerning the optional workfare 
program contained in Amendment 217 shall be in effect November 8, 1982. 
Workfare programs may be implemented after this date provided FNS has 
approved the workfare plan.
    (43) Amendment 220. State agencies shall implement Amendment 220 on 
October 1, 1982.
    (44) Amendment 221. State agencies shall implement on a case by case 
basis the provisions of this rule, excluding the provision which revises 
the application form, beginning the first of the month 30 days from the 
date of publication. The provision requiring a notice of verification on 
the application form shall be implemented on or before the first day of 
the month beginning at least 90 days from the date of publication. If 
the State agency has not depleted its existing supply of application 
forms, the State agency may opt to implement this provision by providing 
an insert to the application form containing the notice of verification.
    (45) Amendment 222. This amendment shall be implemented by the first 
day of the month following the 30th day after publication. As of that 
date prior approval of forms, manuals, instructions, or any other type 
of operating guidelines will no longer be required and waivers will be 
granted or denied based on the new criteria contained herein. 
Additionally, as of that date State agencies shall inform FNS of 
changes, as they occur, in their organizational outline and agreements 
with other agencies. The submission requirement for the Budget 
Projection Statement, Form FNS-366A, as set forth in Sec.  272.2(e) 
shall become effective on August 15, 1983, for the 1984 Federal fiscal 
year beginning October 1, 1983 through September 30, 1984.
    (46) Amendment 225. The State agency shall obtain FNS approval for 
the exclusion of energy assistance provided under any State or local 
program, in accordance with the criteria set forth in Sec. Sec.  
273.8(e)(14) and 273.9(c)(11), within six months of the date of 
publication of the final rule. State or local energy assistance which is 
not approved during this six month period shall cease to be excluded at 
the end of the period. The new provisions concerning restoration of lost 
benefits in Sec.  273.17 (a) and (e) shall be implemented no later than 
120 days following publication of the final rule.
    (47) Amendment 227. (i) In accordance with Sec.  276.2(b)(3) (iii), 
FNS will hold State agencies strictly liable for losses by issuance 
agents where reconciliation shows noncompliance with photographic 
identification (photo ID) card requirements beginning with the fiscal 
quarter that begins January 1, 1983.
    (ii) State agencies shall include provisions establishing the 
liability to the State agency of an issuing agent for the issuance 
losses covered in Sec.  274.1(b)(6) in the next contract or agreement 
between the State agency and the issuing agent that is entered into or 
renewed after publication of this rule. Not later than one year 
following such publication, all contracts or agreements shall contain 
the required provision establishing the liability. However, failure of 
State agencies to include this language in contracts will not absolve 
the State agencies of the liability referred to in paragraph (g)(47)(i) 
of this section.
    (48) Amendment 228. FNS will consider requests for waivers to 
monthly reporting requirements beginning November 5, 1982.
    (49) Amendment 245. The mail issuance loss rates of 0.75 percent and 
$2,250 are effective January 1, 1983. The mail issuance loss rate of 0.5 
percent and $1,500 are effective October 1, 1983. For the second quarter 
of fiscal year 1983 only, FNS will look at Statewide loss rates and the 
loss rates of individual reporting units within the State. Where the 
loss rate for individual reporting units within the State is over the 
tolerance in that quarter and the Statewide loss rate is also over 
tolerance, FNS will assess liability for losses exceeding the tolerance 
reported for the second quarter of 1983. Where

[[Page 566]]

the loss rate for individual reporting units within a State are over 
tolerance for the second quarter, but the Statewide loss rate is under 
tolerance, State agencies shall have one additional quarter (the third 
Fiscal Year 1983 quarter) to bring such individual reporting units' loss 
rates into compliance with the tolerance levels. Thus for these 
reporting units, FNS will assess liability beginning with the fourth 
quarter of fiscal year 1983 and each quarter thereafter for losses which 
exceed the tolerance levels, regardless of Statewide loss rate. FNS will 
bill State agencies for losses on a semiannual basis.
    (50) Amendment 230. State agencies shall implement the provisions of 
Amendment 230 no later than January 1, 1983.
    (51)-(52) [Reserved]
    (53) Amendment 233. State agencies shall implement these regulations 
no later than February 1, 1983.
    (54) Amendment 234. The provisions of Amendment 234 shall apply to 
those sponsored aliens on behalf of whom the sponsor signed an affidavit 
of support or similar statement (as a condition of the alien's entry 
into the United States as a lawful permanent resident) on or after 
February 1, 1983.
    (55) Amendment 235. Except for the provisions which simply extend 
options to State agencies, State agencies shall implement the changes 
made by Amendment 235 no later than February 1, 1983. Elderly/disabled 
persons who requested and were denied separate household status or other 
considerations granted disabled persons on or after September 8, 1982, 
will be entitled to benefits retroactive to the dates of their 
applications for separate household status or other special 
considerations.
    (56) [Reserved]
    (57) Amendment 240. The provisions of Amendment 240 shall be 
effective on January 11, 1983. The enhanced funding, which the amendment 
implements, is available to political subdivisions retroactive to 
October 1, 1982. The enhanced funding is available to a political 
subdivision for a workfare participant who begins working on or after 
October 1, 1982.
    (58) Amendment 242. State agencies shall implement the 
disqualification penalties for intentional Program violation, and the 
improved recovery of overpayments provisions contained in Amendment 242 
no later than April 1, 1983.
    (i) The provision in Sec.  273.11(c) for handling the income and 
resources of an individual disqualified for intentional Program 
violation shall apply to any individual disqualified for such a 
violation since the implementation of the fraud disqualification 
provisions of the Food Stamp Act of 1977. The disqualification 
procedures for intentional Program violation in Sec.  273.16 shall apply 
to any individual alleged to have committed one or more acts of 
intentional Program violation since the implementation of the fraud 
disqualification provisions under the Food Stamp Act of 1977. However, 
the disqualification penalties in Sec.  273.16(b) shall apply only to 
individuals disqualified for acts of intentional Program violation which 
occur after implementation of this amendment. In addition, the 
disqualification penalties in Sec.  273.16(b) shall apply only to 
individuals disqualified for acts of intentional Program violation which 
occurred either during a certification period based on an application 
form containing these penalties or after receipt of written notification 
from the State agency of these penalties. Recurring acts of intentional 
Program violation which occur over a period of time prior to and after 
implementation of this final rule shall not be separated. Only one 
penalty can be imposed for such recurring violations and the household 
member shall be disqualified in accordance with the disqualification 
penalties specified in this amendment. The reporting requirements of 
Sec.  273.16(i) shall become effective upon implementation, however, the 
State agency shall have until October 1, 1983, to submit such reports on 
individuals disqualified under previous regulations implementing the 
Food Stamp Act of 1977.
    (ii) The recovery provisions for claims against households in Sec.  
273.18 shall apply to any overissuance caused by an action which 
occurred after implementation of regulations promulgating the Food Stamp 
Act of 1977, as

[[Page 567]]

amended. And, the procedures for calculating the amount of overissuances 
as specified in Sec.  273.18(c) shall apply to any month in which an 
overissuance occurred retroactive to March 1, 1979. However, State 
agency retention of 50 percent of the value of collected intentional 
Program violation claims and 25 percent of the value of collected 
inadvertent household error claims as provided in Sec.  273.18(h) shall 
apply to any collection action retroactive to January 1, 1982. The State 
agency shall have the option of reinstating any claim previously 
suspended, but not terminated, under the recovery provisions of 
regulations implementing the Food Stamp Act of 1977 and, once 
reinstated, such claims shall be subject to the recovery provisions 
contained in this amendment. However, the State agency shall not 
reinstate any amount of a claim compromised or any claim terminated 
under previous regulations implementing the Food Stamp Act of 1977, as 
amended. The submission requirements for the Form FNS-209, Status of 
Claims Against Households, as set forth in Sec.  273.18(h) shall become 
effective with the quarter ending March 31, 1983.
    (59) Amendment 243. (i) State agencies shall implement the 
provisions contained in Sec.  274.1(d) statewide no later than October 
1, 1983. FNS will consider requests for waivers to this timeframe on a 
State-by-State basis if the State agency establishes good cause through 
submission of written justification of the need for a longer timeframe 
and submits a plan that shows when the system will be implemented.
    (ii) State agencies shall implement the correction made to Sec.  
273.1(a)(1)(iv) retroactive to September 8, 1982.
    (iii) The Commonwealth of Puerto Rico shall implement the changes to 
part 285 on January 1, 1984, as published in the Federal Register for 
December 21, 1984.
    (60) Amendment 244. State agencies shall implement the provisions 
regarding joint food stamp/public assistance case processing at State 
agency discretion. The provisions regarding certification periods must 
be implemented at time of application or at recertification no later 
than July 1, 1983.
    (61) [Reserved]
    (62) Amendment 247. State agencies must implement the provisions 
relative to noncompliance with other programs no later than April 1, 
1985. The provisions relative to disclosure of information must be 
implemented no later than February 1, 1985.
    (63) Amendment 251. State agencies shall implement the program 
changes required by this amendment as follows:
    (i) State agencies shall apply the work registration, job search, 
and voluntary quit provisions of this rule, amending portions of Sec.  
273.7, to new applicants no later than January 2, 1985. The provisions 
shall apply to participating households at recertification or at the 
time of office contact for any other reason.
    (64) Amendment 252. (i) The sanction/incentive provisions of Sec.  
275.25 were effective October 1, 1982. The previous provisions of Sec.  
275.25 shall continue to apply to the review periods prior to October 
1982.
    (ii) The funding provisions of Sec.  277.4(b)(2) were effective on 
October 1, 1982, and shall apply to the October 1982, through September 
1983, review period and every review period thereafter.
    (iii) The revised funding provisions of Sec.  277.4(b)(7) shall 
apply to the 6-month review periods October 1, 1981 through March 1982 
and April through September 1982.
    (65) Amendment 253. The provisions of Sec.  274.8(a)(6) (i), (ii), 
and (iii) shall be implemented the first month beginning on or after the 
90th day following publication of this final rule. In that month, the 
FNS-388 report shall provide the actual second preceding month data. The 
initial semiannual coupon issuance and NA/PA household and person 
participation data shall be provided in September 1985 for the month of 
July 1985. State agencies will cease submission of the FNS-256 report as 
of July 1985.
    (66) Amendment 254. State agencies shall implement the provisions of 
Amendment 254 no later than October 19, 1983.
    (67) [Reserved]
    (68) Amendment 260. (i) The quality control review provisions 
contained in Amendment 260 are effective starting with the beginning of 
Fiscal Year 1984,

[[Page 568]]

except as provided in the following sentences. All cases sampled for the 
six months October 1983 through March 1984 shall be disposed of and 
reported within 95 days of March 31, 1984. Cases sampled for April 1984 
and for months thereafter shall be disposed of and reported according to 
Sec.  275.21. For example, 90 percent of April cases are due within 75 
days of April 30, and 100 percent are due within 95 days of that date. 
The structure of sample frames specified in Sec.  275.11(e) must be 
implemented no later than the sample month of October 1984.
    (ii) Starting with the October 1983 sample month, cases must be 
determined complete, not complete, or not subject to review according to 
Sec. Sec.  275.12(g) and 275.13(e). As of the beginning of Fiscal Year 
1984 the sample sizes stated in Sec.  275.11(b) and related sampling 
plan requirements are effective, and State agencies are required to meet 
the completion standard stated in Sec.  275.11(d). State agencies 
currently sampling at the levels provided in Sec.  275.11(b)(1)(iii) 
must submit to their respective FNS Regional Offices the reliability 
statement required by Sec.  275.11(a)(2) within 30 days of the 
publication of this rule, or no later than the second month after 
publication of this rule begin sampling at the levels specified in Sec.  
275.11(b)(1)(ii).
    (69) Amendment 261. State agencies shall implement this amendment 
establishing the Alaska urban and rural allotment levels and the new cap 
for Guam no later than August 1, 1984. Households in rural Alaska which 
request retroactive benefits by February 1, 1985 will be entitled to 
retroactive benefits for the period after September 8, 1982, during 
which they lived in rural Alaska and participated in the Food Stamp 
Program in that area. These retroacive benefits will be provided over a 
period of time not to exceed one year. The amount provided each month 
will be the higher of $50 or one-twelfth of the total amount due. 
Households in Guam which request retroactive benefits by February 1, 
1985 will be entitled to retroactive benefits for the period October 1, 
1982, through September 30, 1983, during which they lived in Guam, 
participated in the Food Stamp Program in that area, and were in 
household sizes two, five, or eight or more.
    (70) Amendment 264. These rules are effective on May 29, 1986. No 
later than that date State agencies are required to submit the 
attachment to their State Plan of Operation specified in Sec.  272.2 and 
in Sec.  272.8(i), documenting either full implementation of these rules 
or good faith efforts to implement them. The documentation of full 
implementation or of good faith efforts shall show either that the State 
agency is routinely requesting and using, or shall show the dates when 
it will begin routinely to request the use, information from the various 
data sources specified in Sec.  272.8(a) according to the frequencies 
for requests, timeframes and other requirements of Sec.  272.8(e), (f) 
and (g). Full implementation shall include requests for available 
information from the Social Security Administration for all recipients 
for which such information has not been previously requested. The 30-day 
timeframe specified in Sec.  272.8(g) is effective for applicant 
households which become recipients as discussed in Sec.  272.8(e)(1) as 
soon as a State agency begin receiving information from particular data 
sources.
    (i) A Plan describing good faith efforts shall at a minimum document 
that the State agency is currently in compliance with wage match 
criteria as specified in the final rulemaking of November 5, 1982 (47 FR 
50180), assure that such compliance will continue at current levels 
until such time as these provisions are implemented, and provide an 
implementation schedule that reflects full compliance in the minimum 
amount of additional time. Requests for delays of implementation beyond 
May 29, 1986 shall identify the applicable regulation part, the date for 
implementation, justification for the delay, and the implementation 
plan.
    (ii) The Secretary shall consult with the Secretary of the 
Department of Health and Human Services and with the Secretary of the 
Department of Labor prior to the approval of Plans of Operation 
documenting good faith efforts. In no event shall the Secretary approve 
a delay of the provisions of individual notification in Sec.  
273.2(f)(9) beyond the initial implementation date of any of these new 
provisions.

[[Page 569]]

    (iii) Implementation schedules beyond September 30, 1986 are not 
approvable, with the following exception: If on April 1, 1985 no SWICA 
exists in a particular State, the provisions of the rule as they relate 
to SWICAs shall be effective upon the designation of a SWICA. 
Implementation of a SWICA after April 1, 1985 shall take place as soon 
thereafter as possible but in no event later than September 30, 1988. 
All SWICAs with delayed implementation shall be in operation so that 
wage information is reported to them starting with the month of October 
1988.
    (71) Amendment No. 266. The provisions contained in Amendment No. 
266 shall be implemented by March 6, 1987.
    (i) All Fiscal Year 1987 review schedules shall continue in force 
despite the implementation of these provisions. However, a State agency 
may, at its option, seek a change in that schedule.
    (ii) Waivers shall remain in force until their expiration. If a 
State agency wishes to cancel a waiver it should contact its Regional 
Office and negotiate whatever change it needs.
    (iii) The first periodic Corrective Action Plan update required by 
this amendment shall be submitted by May 1, 1987.
    (72) Amendment 267. State agencies shall implement the eligibility 
requirements of this rulemaking as they apply to offsetting farm self-
employment losses and publicly operated community mental health centers 
not later than March 27, 1986. State agencies must begin taking 
applications from residents of publicly operated community mental health 
centers (as defined in Sec.  271.2) not later than March 27, 1986. FNS 
field offices may authorize these centers to act as retail food stores 
on February 25, 1986.
    (73) Amendment 269. The correction to Sec.  273.7(n)(1)(v) outlined 
in amendment 269 is effective retroactively to October 3, 1984. State 
agencies which may have implemented the voluntary quit error prior to 
receiving FNS notification not to effectuate the change, shall issue 
lost benefits to affected households, but not prior to November 2, 1984 
(the effective date of the October 3, 1984 final rule). State agencies 
shall implement the revisions to the rules outlined in amendment 269 for 
all new applicants no later than the first day of the month following 
June 26, 1986. Any conversion of the current caseload necessitated by 
this amendment shall be done at recertification or at the time the case 
is next reviewed, whichever occurs first.
    (74) Amendment 270. (i) State agencies shall implement the earned 
income and dependent care deduction amounts and the resource limit 
provisions of Amendment 270 on May 1, 1986. If, for any reason, a State 
agency fails to implement these provisions on that date, households 
shall be provided the lost benefits which they would have received if 
the State agency had implemented these provisions as required.
    (ii) The provisions of Sec.  272.1(b) regarding the prohibiton of 
State or local sales taxes on foods purchased with food stamp coupons 
shall be implemented on October 1 of the calender year during which the 
first regular session of each State's Legislature is convened following 
enactment of Pub. L. 99-198 (enacted December 23, 1985). A ``regular 
session'' means a scheduled session of a State's legislature convened to 
address the usual range of statutory and budgetary issues. A 
``budgetary'' session of a legislature shall be considered a ``regular 
session'' if State rules allow for statutory issues to be introduced at 
these ``budgetary'' sessions even if rules governing these special 
procedures are stringent.
    (A) FNS may approve a delay in the above implementation date if a 
State provides FNS a request documenting that such date would either:
    (1) Have an adverse and disruptive effect on the administration of 
the Food Stamp Program in such State; or
    (2) would provide inadequate time for retail stores to implement 
required changes in sales tax policy.
    (B) FNS has no authority to approve any State implementation 
schedule with an effective date later than October 1, 1987.
    (75) Amendment 273. The State agency shall implement this amendment 
establishing Alaska urban, Rural I, and Rural II allotment levels by 
April 1, 1986.
    (76) Amendment 274. (i) The provisions of this amendment at 
Sec. Sec.  271.2, 273.2, 273.5, 273.9, 273.10(d)(6), and 273.21(b)

[[Page 570]]

shall be implemented for all new applications and the current caseload 
no later than August 1, 1986. If, for any reason, a State agency fails 
to implement these provisions on this date, households shall be provided 
lost benefits which they would have received if the State agency had 
implemented these provisions as required.
    (ii) The provisions of this amendment at Sec.  273.18 and part 285 
shall be implemented June 20, 1986.
    (iii) The provisions of this amendment at Sec.  273.21(a)(4)(i)(A) 
and the second sentence in Sec.  273.10(f)(7) are effective retroactive 
to August 31, 1981. Section Sec.  273.21(a)(4)(ii)(A) and the first two 
sentences of Sec.  273.21(a)(4)(ii)(B) described in this amendment are 
retroactive to September 8, 1982. The provisions of this amendment at 
Sec. Sec.  272.3, 273.21(a), 273.21(a)(3), 273.21(a)(4)(i)(B), the third 
sentence at Sec.  273.10(f)(7), and the last two sentences of Sec.  
273.21(a)(4)(ii)(B) are effective retroactive to December 2, 1983. The 
provision of this amendment at Sec.  276.7(j) is effective retroactive 
to December 23, 1985.
    (77) Amendment 275. The program change in Sec.  273.2(l) of 
Amendment 275 shall be effective October 1, 1986.
    (78) Amendment 276. (i) This rule is effective retroactively to 
December 23, 1985. Any household that applied and was denied benefits 
from that date until implementation of this rule is entitled to restored 
benefits if it:
    (A) Was categorically eligible as defined in this rule;
    (B) Is otherwise entitled to benefits; and
    (C) Requests a review of its case or if the State agency otherwise 
becomes aware that a review is needed.

Restored benefits for these households shall be made available, if 
appropriate, in accordance with Sec.  273.17 back to the date of the 
food stamp application or December 23, 1985, whichever is later. The 
State agency shall implement the changes in this rule immediately upon 
publication and any eligibility determination or issuance made on or 
after that date shall be made in accordance with this rule.
    (ii) For quality control (QC) purposes only, QC reviewers shall not 
identify variances resulting solely from either implementation or 
nonimplementation of this rule in cases with review dates between 
December 23, 1985 and October 31, 1986, inclusive.
    (79) Amendment 277. State agencies shall implement the provisions of 
Amendment 277 on August 22, 1986. If, for any reason, a State agency 
fails to implement the provisions, affected households shall be entitled 
to restored benefits but not prior to August 22, 1986.
    (80) [Reserved]
    (81) Amendment 279. (i) For State agencies which elected to 
implement a $160 dependent care deduction limit for all households prior 
to October 18, 1986, the dependent care deduction provision of Amendment 
No. 279 is effective retroactive to May 1, 1986 in accordance with 
section 638 of Pub. L. 99-500. In such States, for QC purposes only, QC 
reviewers shall not include in the error determination variances which 
resulted from early implementation by these States of the deduction 
limit provided the implementation occurred during the period beginning 
May 1, 1986 through October 1986.
    (ii) For all other State agencies, the $160 dependent care deduction 
provision of Amendment No. 279 shall be implemented for elderly and 
disabled applicant and participating households on December 1, 1986. 
State agencies shall implement the provision as a mass change in 
accordance with Sec.  273.12(e), except that affected households in 
Alaska, Hawaii and Guam shall be issued an individual notice which, at a 
minimum, informs the households of the general nature of the mass 
change, the effect of the deduction limit on the household's allotment, 
and the month the change will take effect. If for any reason the State 
agency fails to implement the provision on the required date, affected 
households shall be provided restored benefits, back to December 1, 
1986. For QC purposes only in such States, QC reviewers shall not 
include in the error determination variances which resulted solely from 
a State agency's implementation or nonimplementation of the deduction 
limit between December 1, 1986 and January 1, 1987.

[[Page 571]]

    (82) Amendment 281. State agencies shall implement the provisions of 
this amendment no later than April 1, 1987.
    (83) Amendment 282. The changes to Sec.  273.2(i)(3)(i) contained in 
Amendment No. 282 are effective January 12, 1987 and shall be 
implemented no later than February 11, 1987.
    (84) Amendment 285. (i) The provisions of Amendment No. 285 at 
Sec. Sec.  273.9(d)(6)(i), 273.9(d)(6)(ii), 273.9(d)(6)(v)(B), 
273.10(d)(1)(i) and 273.10(d)(6) are retroactively effective to October 
1, 1986. The State agency shall implement the provisions immediately 
upon publication and any eligibility determination made on or after that 
date shall be made in accordance with this rule. The State agency shall 
review a case to determine if the household was denied benefits under 
these amendments whenever the household requests a review or the State 
agency becomes aware that such a denial may have occurred. Any household 
that was denied benefits as a result of an eligibility or benefit 
calculation (e.g., processed change report) made on or after October 1, 
1986 is entitled to restored benefits. Restored benefits for these 
households shall be made available, if approporiate, in accordance with 
Sec.  273.17 back to: (A) October 1, 1986 or the date of application 
whichever is later for new applications; or (B) October 1, 1986 or the 
first month in which the application of these amendments would have 
affected the household's benefits, whichever is later, for certified 
households.
    (ii) For quality control (QC) purposes only, a variance resulting 
solely from either the implementation or non-implementation of this rule 
shall not be identified between October 1, 1986 and April 1, 1987.
    (85) Amendment No. 286. (i) The provisions of Amendment No. 286 
which permit homeless meal providers to apply for authorization to 
accept food stamps were effective March 11, 1987.
    (ii) All other provisions of this amendment were effective April 1, 
1987.
    (86) Amendment No. 287. The provisions of this amendment are 
effective April 7, 1987.
    (87) Amendment No. 288. The removal of the word ``funded'' from the 
last sentence in Sec.  273.11(e)(1), the amendments to the first and 
fourth sentences in Sec.  278.1(e), and the revision of paragraph 
(a)(2)(iii) in Sec.  273.11 are effective February 25, 1986 and shall be 
implemented not later than March 27, 1986.
    (88) Amendment No. 292. (i) The effective date of the provisions of 
this amendment is retroactive to November 6, 1986.
    (ii) The actual dates upon which aliens may become eligible under 
Sec.  273.4(a) (8), (9), (10), and (11) are specified in those 
paragraphs. State agencies must inform their staff of the respective 
dates as they pertain to the eligibility or ineligibility of applicant 
aliens.
    (89) Amendment No. 293. The provisions of Amendment No. 293 are 
effective retroactively to October 17, 1986 and shall be implemented as 
follows:
    (i) State agencies shall implement the provisions of this amendment 
for new applicant households which apply for program benefits on or 
after June 1, 1987.
    (ii) State agencies shall convert their affected current caseload to 
the provisions of this amendment at household request, at 
recertification, or when the case is next reviewed, whichever occurs 
first and provide restored benefits, if appropriate, back to the date of 
application of October 17, 1986, whichever occurred later.
    (iii) Any affected household that applied for Program benefits from 
October 17, 1986 until implementation of this rule and was denied 
benefits is entitled to restored benefits back to the date of 
application or October 17, 1986, whichever occurred later, if the 
household:
    (A) Is otherwise entitled to benefits, and
    (B) Requests a review of its case or the State agency otherwise 
becomes aware that review is needed.
    (iv) For quality control (QC) purposes only, QC shall not identify 
variances resulting solely from either implementation or 
nonimplementation of the provisions of this amendment for cases with 
review dates between October 17, 1986 (the date of enactment of Pub. L. 
99-498) and August 31, 1987.
    (90) Amendment No. 294. State agencies shall implement the Title IV-
D

[[Page 572]]

child support income exclusion provision of Amendment No. 294 at its own 
option, provided it has procedures in place, at the time of 
implementation, for applying the provision to all affected households 
and for calculating and reimbursing FNS as required under the provision. 
State agencies shall implement the remaining provisions of Amendment No. 
294 retroactively to April 1, 1987. State agencies shall provide 
restored benefits, if appropriate, back to the date of application or 
April 1, 1987, whichever occurred later. Any affected household that 
applied for Program benefits from April 1, 1987 until implementation of 
this rule and was denied benefits is entitled to restored benefits back 
to the date of application or April 1, 1987, whichever occurred later, 
if the household is otherwise entitled to benefits and requests a review 
of its case or the State agency otherwise becomes aware that a review is 
needed. The provision at 7 CFR 273.17, limiting restored benefits to 12 
months, shall not apply to households entitled to resorted benefits 
under the provisions of Amendment No. 294. For QC purposes, 
implementation variances shall not be identified unless a case meets all 
four of the following conditions: the case's review date is after August 
31, 1987; the State agency certified or recertified the case (or was 
required to recertify the case) after August 31, 1987; the certification 
or recertification was effective for the review date (or the required 
recertification should have been effective for the review date); and in 
a retrospective budget system, the household's budget month was 
September 1987 or later or in a prospective budget system, the 
household's issuance month was September 1987 or later. For the purpose 
of this amendment, State agencies shall not establish a claim against 
any household which received overissued benefits resulting solely from 
retroactive implementation of the JTPA income provision in Sec.  
273.9(b)(1)(v).
    (91) Amendment No. 295--(i) Automated Federal information exchange 
systems. States' QC liability exemption for errors resulting from proper 
use of a Federal automatic information exchange system is effective 
beginning with the Fiscal Year 1986 reporting period.
    (ii) FNS timeframes. The timeframes for notifying States of their 
payment error rates and payment error rate liabilities, if any, and the 
timeframe by which FNS must initiate collection action on claims for 
such liabilities are effective beginning with the Fiscal Year 1986 
reporting period.
    (92) Amendment No. 284. State agencies shall submit their ADP/CIS 
plans to FNS for approval no later than October 1, 1987. Portions of 
ADP/CIS plans may be submitted no later than January 1, 1988. Plans must 
be approvable within 60 days of State agency receipt of FNS comments but 
no later than March 1, 1988. State agencies must begin to implement 
provisions contained in their approved plans by October 1, 1988.
    (93) Amendment No. 298. The provisions of Amendment No. 298 are 
effective, and shall be implemented, as follows:
    (i) The provision in Sec.  271.2 of this amendment which defines 
``General assistance'' and the provisions contained in Sec.  
273.9(b)(2)(i), Sec.  273.9(c)(1)(ii)(A), (c)(1)(ii)(B), and 
(c)(1)(ii)(C), regarding exclusion of certain PA/GA vendor payments are 
effective retroactively to April 1, 1987. The provision in Sec.  
273.9(c)(1)(iv)(B), exclusion of emergency/special PA/GA vendor 
payments, is also effective retroactive to April 1, 1987, however, this 
provision reflects current policy and requires no implementation efforts 
by State agencies. State agencies shall immediately implement the other 
provisions listed above. Affected households shall be entitled to 
restored benefits back to the date of application or April 1, 1987, 
whichever occured later.
    (ii) The technical amendment to part 277 is effective September 29, 
1987, and does not require implementation efforts by State agencies. The 
remaining provisions of Amendment No. 298 are effective, and must be 
implemented, as follows:
    (A) Section 271.2, definition of ``Homeless individual,'' effective 
July 22, 1987. State agencies shall immediately inform caseworkers of 
the new definition. No other implementation efforts are required to the 
State agencies.

[[Page 573]]

    (B) Section 273.9(c)(1)(ii)(D), the income exclusion of certain PA/
GA vendor payments, is effective and shall be implemented for new 
applicant households which apply for benefits during the period 
beginning October 20, 1987 and ending September 30, 1989. This provision 
does not apply to allotments issued to any household for any month 
beginning before the effective period of the provision. State agencies 
shall convert their affected current caseload to this provision, if 
otherwise eligible, at recertification, when the household requests a 
review of its case, or when the State agency otherwise becomes aware 
that a review is needed but not prior to October 20, 1987.
    (C) Section 272.5, the financial reimbursement for Program 
informational activities for the homeless, is effective July 22, 1987.
    (D) Section 273.1(a)(2)(i)(C), Sec.  273.1(a)(2)(i)(D), Sec.  
273.10(f)(2), the exception to certain household composition 
requirements, and the rule regarding recertification of households 
subject to the exception, are effective and must be implemented on 
October 1, 1987. Households which apply for benefits on or after October 
1, 1987 may be granted separate household status under this provision. 
Current participants which may be eligible for separate household status 
under this provision, may be granted separate status, but not prior to 
October 1, 1987, if the household requests separate status and the State 
agency determines that the household meets the requirements of this 
provision.
    (E) Section 273.2(i), the expansion of expedited service, is 
effective, and must be implemented, for affected households applying for 
Program benefits on or after December 1, 1987.
    (F) Section 273.9(a)(3), regarding the date of making the annual 
adjustment to the income standards, is effective with the 1988 annual 
adjustment. The July 1, 1987 income limits will remain in effect until 
October 1, 1988.
    (G) The first three sentences of Sec.  273.9(d)(8)(i), the raising 
of the shelter deduction limit for the 48 States and DC., Alaska, 
Hawaii, Guam and Virgin Islands, are effective October 1, 1987. State 
agencies shall implement the higher deduction limits appearing in the 
first sentence of Sec.  273.9(d)(8)(i) on October 1, 1987 only for 
households whose certification periods begin on or after October 1, 
1987. State agencies shall implement the lower deduction limits 
appearing in the second sentence of Sec.  273.9(d)(8)(i) on October 1, 
1987 only for households whose certification periods begin before 
October 1, 1987. The State agency shall implement the higher deduction 
limits for households whose certification periods begin before October 
1, 1987 beginning with the month in which such household is recertified 
after October 1, 1987.
    (H) Section 273.9(d)(7)(i), the change in the standard deduction 
methodology, is effective October 1, 1987.
    (I) The last sentence of Sec.  273.9(d)(8)(i), the change in the 
excess shelter deduction methodology, is effective, October 1, 1988.
    (J) Section 273.18(c)(2)(ii), the earned income deduction penalty, 
is effective on September 5, 1987. State agencies which issue on a 
calendar month basis, shall apply this provision to allotments issued 
for October 1987 and all allotments for subsequent months. State 
agencies which issue on other than a calendar month basis shall apply 
the provision to the issuance for the first issuance month beginning 
after September 5, 1987.
    (iii) State agencies must implement the provisions as outlined in 
paragraph (g)(93)(ii) of this section on the specific dates required for 
each provision. If, for any reason, the State agency fails to implement 
the provisions on the required date, affected households, if 
appropriate, shall be entitled to restored benefits back to the date of 
application or the effective date of the provision involved, whichever 
occurred later.
    (iv) Quality control variance exclusion.
    (A) For QC purposes only, QC reviewers shall not identify variances 
resulting solely from implementation or nonimplementation of the 
following provisions in cases with review dates during the periods 
indicated:
    (1) Sections 273.9(b)(2)(i), 273.9(c)(1) (ii)(A), 
273.9(c)(1)(ii)(B), 273.9(c)(1)(ii)(C) and 273.9(c)(1)(iv)(B), 
concerning PA/GA vendor payments, from April 1, 1987 to December 31, 
1987;

[[Page 574]]

    (2) Section 271.2, concerning the definition of ``Homeless 
individual'', from July 22, 1987 to December 31, 1987;
    (3) Section 273.9(c)(1)(ii)(D), concerning PA/GA vendor payments for 
certain housing assistance provided on behalf of households residing in 
temporary housing, from October 20, 1987 to December 31, 1987;
    (4) Sections 273.1(a)(2)(i) (C) and (D), concerning household 
composition, from October 1, 1987 to December 31, 1987;
    (5) Section 273.2(i), concerning entitlement to expedited service, 
from December 1, 1987 to December 31, 1987;
    (6) Section 273.9(d)(8)(i), the first three sentences only, 
concerning the shelter deduction limit, from October 1, 1987 to December 
31, 1987.
    (B) State agencies may choose to exclude these variances in Federal 
subsample reviews; State agencies are not required to do so. To exclude 
the variances, they shall provide FNS with the following information by 
April 1, 1994: The review number of each affected Federal subsample 
review, the sample month, the reason and justification for excluding the 
variance, and the revised finding.
    (94) Amendment No. 299. The changes to Sec.  273.2(i)(3)(ii) are 
effective January 12, 1987 and shall be implemented no later than 
February 11, 1987.
    (95) Amendment No. 268. The QC arbitration provisions shall be 
implemented by State agencies on February 22, 1988, for all cases for 
which the regional case findings or the regional arbitrator's decision 
are received on or after February 22, 1988.
    (96) Amendment 301. This rule pertains to the Income and Eligibility 
Verification System (IEVS). It is effective March 18, 1988, except for 
paragraphs 272.8(i) (3) and (4) and 272.8(j)(1) which will be effective 
upon publication in the Federal Register of the approval of the 
information collection burden by the Office of Management and Budget 
(OMB).
    (97) Amendment No. 278. State agencies shall implement the 
provisions of this amendment no later than October 18, 1988.
    (98) Amendment No. 303. The income exclusion provision Sec.  
273.9(c) of Amendment No. 303 shall be implemented immediately upon 
publication of the Amendment as follows:
    (i) State agencies must apply the provision of this amendment for 
any eligibility or benefit calculation made on or after February 1, 
1988.
    (ii) Affected households which were denied benefits because the 
household's eligibility or benefit calculation during the second Federal 
fiscal year quarter of 1988 (but not prior to February 1, 1988) did not 
include the income exclusion provision of this amendment shall be 
entitled to restored benefits at the time of recertification, whenever 
the household requests a review of its case, or when the State agency 
otherwise becomes aware that a review of a particular case is needed.
    (iii) Benefits shall be restored back to February 1, 1988 or the 
date of the food stamp application, whichever occured later. Restoration 
shall be made in accordance with Sec.  273.17 except that the twelve-
month limit for restoring benefits shall not apply.
    (iv) For Quality Control (QC) purposes only, QC reviewers shall not 
identify variances resulting solely from implementation or 
nonimplementation of Amendment No. 303 for cases with review dates 
between February 1, 1988 and August 31, 1988. For retrospectively 
budgeted cases, QC reviewers shall begin identifying variances when 
September becomes the budget month. Variances shall not be identified in 
cases where Amendment No. 303 was not implemented prior to the QC review 
when the State agency correctly followed the implementation provisions 
of this section.
    (99) [Reserved]
    (100) Amendment 289.
    (i) This rule is effective August 11, 1988.
    (ii) State agency Work Plans setting forth proposals for conducting 
Simplified Application/Standardized Benefit Projects must be postmarked 
no later than November 9, 1988. Local agency Work Plans must be 
postmarked no later than December 9, 1988.
    (101) Amendment No. 291. The provisions of Amendment No. 291 are 
effective September 19, 1988.
    (102) Amendment No. 307. The provisions of this amendment are 
effective

[[Page 575]]

immediately and shall be implemented as follows:
    (i) No later than October 1, 1988, for all new applicants, and no 
later than the first recertification on or after October 1, 1988, for 
the participating caseload, State agencies shall implement the 
provisions of Sec.  272.2(b) relating to the alien/citizenship statement 
and notification of verification with INS; the provisions of Sec.  
273.1(b) relating to nonhousehold members; the provisions of Sec.  
273.2(f)(1)(ii) relating to the mandatory verification of alien status; 
the provisions of Sec.  273.2(h)(3) relating to delays in application 
processing; and the provisions of Sec.  272.11(c) relating to the 
treatment of income and resources of nonhousehold members; and
    (ii) Unless a waiver has been approved by FNS by October 1, 1988, 
State agencies shall implement all other provisions of this rule no 
later than October 1, 1988. Implementation by October 1, 1988 shall be 
accomplished either by obtaining FNS approval to a Plan of Operation as 
required in the rule at Sec.  272.11(e) or by submitting to FNS a 
substantially approvable Plan of Operation as described in material 
which FNS Regional Offices provided State agencies on or about September 
2, 1988. That material provided points for State agencies to consider 
relative to requesting waivers. State agencies should contact FNS 
Regional Offices if they need further guidance on waivers.
    (103) Amendment No. 308. The quality control changes to Sec.  
275.12(d)(2) shall be implemented for the quality control review period 
beginning October 1, 1988.
    (104) Amendment No. 300. State agencies shall implement the 
requirements of this rulemaking no later than May 1, 1989.
    (105) Amendment No. 271. This rule becomes effective April 1, 1989, 
and the State agencies shall implement all provisions on that date, with 
the exception of the following provisions: the new provisions on 
replacement issuances shall be implemented by October 1, 1989; the new 
liabilities for State agencies using authorization document issuance 
systems shall be implemented on October 1, 1989; the new mail issuance 
reporting and liability assessments shall be implemented on October 1, 
1989; State agencies wanting to change their current unit-level of mail 
issuance loss reporting must submit their initial plans by May 15, 1989; 
the new provision on quality control case reviews shall be implemented 
for federal Fiscal Year 1990; State agencies shall begin to use the 
revised Form FNS-46, Issuance Reconciliation Report, to report figures 
for the month of October 1989; and, provisions pertaining to staggered 
issuance contained in any currently-approved waivers will automatically 
be cancelled April 1, 1989.
    (106) Amendment No. 310. (i) The provisions of this amendment which 
adopt, as final, interim provisions published July 17, 1987 and those 
which redesignate or otherwise slightly modify the July 17 interim 
provisions for clarity only are effective retroactively to April 1, 
1987. The conforming amendment at Sec.  273.11(e)(7) is effective 
retroactively to February 25, 1986. The remaining technical amendments 
contained in this amendment at Sec.  273.2(e)(2), Sec.  
273.7(b)(1)(vii), Sec.  273.9(b)(1)(iii), Sec.  276.2(d) and Sec.  
278.1(e) are effective April 24, 1989. These provisions do not alter or 
change current policy or procedures under which State agency are 
operating or do not require special implementation efforts by State 
agencies.
    (ii) The provision in Sec.  273.9(b)(1)(v) which limits application 
of the provision to on-the-job training programs under section 204(5), 
Title II, of the Job Training Partnership Act is effective retroactively 
to April 1, 1987 and shall be implemented as follows:
    (A) State agencies shall implement the provision for all new 
applicant households no later than June 1, 1989. Affected applicant 
households which applied for Program benefits during the period April 1, 
1987 and the date the State agency implemented this change and were 
denied benefits shall be provided restored benefits, if applicable, back 
to April 1, 1987 or the date of the food stamp application, whichever 
occurs later, if the household is otherwise entitled to benefits and 
requests a review of its case or the State agency otherwise becomes 
aware that a review is needed.
    (B) All other households shall be converted to the provision at 
household request, at recertification, or when the

[[Page 576]]

case is next reviewed, whichever occurs first. Restored benefits shall 
be provided, if applicable, for such households back to April 1, 1987 or 
the date of the food stamp application, whichever occurs later.
    (C) The provision at 7 CFR 273.17, limiting restored benefits to 12 
months, does not apply for households entitled to restored benefits 
under Amendment No. 310.
    (107) Amendment No. 313. The performance-based funding provisions 
for Employment and Training programs shall be effective October 1, 1989.
    (108) Amendment No. 314. (i) The provision of Amendment No. 314 
which adds five sentences to Sec.  273.2(j)(1)(iv) and the provisions 
which add a new paragraph Sec.  273.2(j)(2)(iii)(B) and amend Sec. Sec.  
273.17 and 273.18 are effective July 7, 1989 and shall be implemented no 
later than September 1, 1989.
    (ii) All remaining provisions of Amendment No. 314, which adopt the 
interim provisions of August 5, 1986 as final without change or modify 
the interim provisions for clarity only, are effective retroactively to 
December 23, 1985 (the effective date of the interim rulemaking). These 
provision do not reflect a change in intended policy and, therefore, do 
not require special implementation efforts by State agencies.
    (109) Amendment No. 315. Program changes required by Amendment No. 
315 to the food stamp regulations shall be implemented as follows:
    (i) The provisions relating to migrant and seasonal farmworkers (7 
CFR 273.9(c)(1)(ii)(E) and 273.10(a)(1)(ii)) are effective September 1, 
1988 for all households applying or certified subsequent to August 31, 
1988. Changes affecting currently participating households are to be 
implemented at recertification or when it is necessary to implement 
other changes affecting the household.
    (ii) State agencies were required to implement the provision of this 
rule regarding a technical correction concerning energy assistance 
payments (7 CFR 273.9(c)(11)) on September 19, 1988.
    (iii) State agencies were required to implement revised food stamp 
allotments on October 1, 1988 (7 CFR 271.2, 271.7, 273.10(e)(2), 
273.10(e)(4)(ii), and 273.12(e)). Revised allotments were implemented as 
mass changes in accordance with 7 CFR 273.12(e).
    (iv) State agencies were required to implement the provision 
relating to the dependent care deduction, 7 CFR 273.9(d)(4), 
273.10(d)(1)(i), and 273.10(e)(1)(i)(E), and monthly reporting and 
retrospective budgeting, 7 CFR 273.21(a) and (b), on October 1, 1988. 
These provisions were immediately effective for all households certified 
subsequent to September 30, 1988. Changes affecting currently 
participating households were to be implemented upon recertification, at 
the household's request, or when it was necessary to implement other 
changes affecting the household. (For example, a change reported by a 
nonmonthly reporting retrospectively budgeted household was to be 
implemented in accordance with 7 CFR 273.12.) The Department was not 
requiring State agencies to conduct a casefile review to implement 
monthly reporting and retrospective budgeting changes for currently 
participating households. Monthly reports submitted by households which 
became exempt from MRRB as a result of the Hunger Prevention Act, such 
as non-migrant seasonal farmworkers or the homeless, were to be treated 
as change reports and processed prospectively in accordance with 7 CFR 
273.12(c).
    (v) State agencies were required to implement the provisions of this 
rule concerning the exclusion of advance payment of earned income tax 
credits, 7 CFR 273.8(c)(1) and 273.9(c)(14), on January 1, 1989. 
Households applying subsequent to December 31, 1988 should have had this 
provision applied to them as of their date of application. Changes 
affecting households participating as of December 31, 1988 were to be 
implemented upon recertification, at the household's request, or when it 
was necessary to implement other changes affecting the household.
    (vi) All other provisions of this rule, relating to technical 
corrections concerning the urban Alaska TFP (7 CFR 272.7(c)), Alaska 
proration (7 CFR 272.7(f)(3)(iii)), and the dependent care deduction (7 
CFR 273.11(c)(2)(iii) and 273.12(e)(1)(i)(C)), are to be implemented 
August 1, 1989.
    (vii) Quality control errors made as a result of this rule's changes 
to Sec. Sec.  273.9,

[[Page 577]]

273.10, and 273.21 during the required implementation time frame 
established by this rulemaking shall be handled in accordance with 
interim regulations published at 53 FR 44171, dated November 2, 1988. 
Food stamp allotment changes are not covered by the interim regulation 
because this is a mass change.
    (viii) State agencies which failed to implement any of these 
provisions by the required dates shall provide affected households with 
the lost benefits they would have received if the State agency had 
implemented these provisions as required.
    (110) Amendment No. 316. State welfare agencies shall implement the 
provisions of Amendment No. 316 as follows:
    (i) The provisions contained in Sec.  274.2(b) of Amendment No. 316 
are effective retroactively to January 1, 1989 and shall be implemented 
by State welfare agencies no later than January 1, 1990 for all 
households which newly apply for Program benefits or apply for 
recertification on or after that date.
    (ii) The remaining provisions are effective July 1, 1989 and must be 
implemented on that date for all households which newly apply for 
Program benefits or apply for recertification on or after that date. The 
current caseload shall be converted to these provisions at household 
request, at the time of recertification, or when the case is next 
reviewed, whichever occurs first and restored benefits shall be 
provided, if appropriate, back to July 1, 1989 or the date of the 
application, whichever is later. Additionally, households which applied 
for Program benefits between July 1, 1989 and the date the State agency 
implemented these provisions, and were denied benefits, shall be 
entitled to restored benefits back to July 1, 1989 or the date of the 
application, whichever occurred later, if the household:
    (A) Is otherwise entitled to benefits, and
    (B) Requests a review of its case or the State agency otherwise 
becomes aware that a review is needed.
    (111) Amendment No. 296. The provisions of Amendment 296 are 
effective July 5, 1989.
    (112) Amendment No. 309. (i) The State agency shall have until June 
18, 1990, to request regional arbitration of regional office case 
findings which the State received before February 22, 1988.
    (ii) The State agency shall have until June 18, 1990, to request 
national office arbitration of regional arbitration decisions which the 
State agency received before February 22, 1988.
    (113) Amendment (320). (i) The provisions of this rule are effective 
April 2, 1990.
    (ii) The provisions relating to the Expanded Food and Nutrition 
Education Program (Sec.  272.5(b)(1)(iv)), the collection of fraud 
claims Sec.  273.18, the monitoring of claims against households (Sec.  
273.18(k)(5)), adverse action notice on claim demand letters (Sec.  
273.18(d)(3)), notices of fair hearings (Sec.  273.18(d)(3)), and the 
results of geographic error prone profiles (Sec.  275.15(g)) shall be 
implemented no later than July 2, 1990. The provision relating to fraud 
detection units (Sec.  272.4(h)) shall be implemented no later than 
September 4, 1990. State agencies shall complete the first review of 
food stamp office hours (Sec.  272.4(g)) during Federal Fiscal Year 
1990.
    (iii) State agencies may submit attachments to their Plans of 
Operation pertaining to the intercept of unemployment compensation 
benefits to repay intentional Program violations claims as specified in 
Sec.  272.2 (a) and (d) and Sec.  272.12(a) of this amendment as of 
February 22, 1990.
    (114) Amendment No. 322. The changes contained in this amendment are 
effective October 15, 1990 and shall be implemented no later than that 
date. The changes to 7 CFR 273.11 contained in this amendment will apply 
only to disqualifications imposed after the effective date of this 
rulemaking.
    (115) Amendment No. 324. The quality control changes to Sec.  275.12 
that are made by Amendment No. 324 shall be implemented for the quality 
control review period beginning January 1, 1991.
    (116) Amendment No. 330. The provisions of Amendment No. 330 are 
effective and must be implemented on August 1, 1991. Any variance 
resulting from implementation of the provisions of this amendment shall 
be excluded from error analysis for 90 days from this required 
implementation date in accordance with 7 CFR 275.12(d)(2)(vii).

[[Page 578]]

The provisions must be implemented for all households that newly apply 
for Program benefits on or after the required implementation date. The 
current caseload shall be converted to these provisions at household 
request, at the time of recertification, or when the case is next 
reviewed, whichever occurs first, and the State agency must provide 
restored benefits back to the required implemention date. If for any 
reason a State agency fails to implement on the required implementation 
date, restored benefits shall be provided, if appropriate, back to the 
required implementation date or the date of application, whichever is 
later.
    (117) Amendment No. 332. The provision of Amendment No. 332 
regarding the resource exemption for PA and SSI recipients is effective 
and must be implemented no later than February 1, 1992. Any variances 
resulting from implementation of the provisions of this amendment shall 
be excluded from error analysis for 90 days from this required 
implementation date, in accordance with 7 CFR 275.12(d)(2)(vii). The 
provision must be implemented for all households that newly applied for 
Program benefits on or after the required implementation date. The 
current caseload shall be converted to these provisions at household 
request, at the time of recertification, or when the case is next 
reviewed, whichever occurs first, and the State agency must provide 
restored benefits back to the required implementation date. If for any 
reason a State agency fails to implement on the required implementation 
date, restored benefits shall be provided, if appropriate, back to the 
required implementation date or the date of application whichever is 
later.
    (118) Amendment No. 321. (i) The provisions contained in Sec.  
273.7(d)(1)(ii)(A) and 273.9(c)(5)(i) (A) and (F) of Amendment No. 321, 
which implement section 404(c) of the Hunger Prevention Act of 1988, are 
effective and must be implemented retroactively to July 1, 1989.
    (ii) The remaining provisions of Amendment No. 321 are effective 
October 1, 1988 and must be implemented no later than March 1, 1992. 
State agencies may implement the conciliation procedure provisions 
contained in Sec.  273.7(g)(1)(ii) immediately upon publication of 
Amendment No. 321. However, in no case shall the conciliation procedures 
be implemented any later than March 1, 1992. By implemented, the 
Department means that the State agency shall begin to use conciliation 
procedures in all cases where the State agency has determined on or 
after the above implementation date that an individual has refused or 
failed to comply with an E&T requirement under Sec.  273.7(f).
    (119) Amendment No. 328. (i) The requirements for State agencies to 
begin implementation or corrective action for deficiencies which are the 
cause for non-entitlement to enhanced funding for the Fiscal Year 1986 
review period, and review periods thereafter were effective as of 
October 1, 1985, pursuant to section 604 of Public Law 100-435.
    (ii) The requirements for State agencies to begin the implementation 
of corrective action for deficiencies which result in underissuances, 
improper denials or improper terminations of benefits to eligible 
households where such errors are caused by State agency rules, practices 
or procedures were effective July 1, 1989, pursuant to section 320 of 
Public Law 100-435. The corrective action must address all such 
deficiencies which occurred on or after July 1, 1989.
    (iii) The State agency shall have until December 27, 1991, to 
implement changes in the development of quality control sampling plans, 
such that only those State agencies proposing non-proportional 
integrated, or other alternative sampling plan designs must:
    (A) Demonstrate that the alternative design provides payment error 
rate estimates with equal-or-better predicted precision than would be 
obtained had the State agency reviewed simple random samples of the 
sizes specified in Sec.  275.11(b)(1) of the regulations,
    (B) Describe all weighting, and estimation procedures if the sample 
design is non-self-weighted, or uses a sampling technique other than 
systematic sampling,
    (C) Demonstrate that self-weighting is actually achieved in sample 
designs claimed to be self-weighting.

[[Page 579]]

    (iv) The State agency shall have until January 27, 1992, to request 
regional arbitration of any federally subsampled underissuance cases for 
which the State agency received FNS regional office QC findings on or 
after February 22, 1988.
    (v) The State agency shall have until January 27, 1992, to request 
national arbitration of any regional arbitration decisions involving 
underissuance cases for which the State agency received FNS regional 
arbitration findings on or after February 22, 1988.
    (120) Amendment No. 335. The provisions contained in Amendment No. 
335 are effective and shall be implemented as follows:
    (i) The provisions contained in Sec. Sec.  271.2, 271.7, 
273.1(e)(1)(iii), 273.2(k)(1)(i)(H), 273.2(m), 273.10, 273.18 and 278.1 
of Amendment No. 335 are effective on February 1, 1992 and shall be 
implemented on that date as follows:
    (A) The Guam and Virgin Islands State agencies shall communicate the 
two new group home provisions (Sec. Sec.  271.2, 273.1(e)(1)(iii) and 
278.1) to group homes in their areas by this date so that they can apply 
for the appropriate certification and residents can apply for food 
stamps without delay. All State agencies shall implement the expanded 
group home provisions for applicants newly applying for program benefits 
on or after February 1, 1992 for approved group homes.
    (B) No special implementation efforts are required with regard to 
the provisions in Sec. Sec.  273.2(k)(1)(i)(H) and 273.2(m) about 
informing SSI applicants about the Food Stamp Program and the 
availability of an application at the social security office.
    (C) State agencies are not required to adjust their computers or 
train their caseworkers immediately in order to implement the provisions 
in Sec. Sec.  271.2, 271.7, 273.10 and 273.18 relative to the minimum 
benefit for one- and two-person households because the methodology for 
annually adjusting the minimum benefit will not result in an increase in 
the minimum benefit for some time. However, State agencies are expected 
to have the capability of implementing a change in the minimum benefit 
in a timely manner when such a change in announced and, therefore, shall 
not wait until an actual change in the minimum benefit to adjust 
computers and train caseworkers.
    (ii) The remaining provisions of Amendment No. 335 are effective 
February 1, 1992. The provisions which reflect that a joint application 
is no longer required for SSI applicants Sec. Sec.  273.2 (c)(1), 
273.2(i)(3)(i), and 273.2(k)(1)(i)(D) do not require implementation 
efforts by State agencies. The remaining provisions (Sec. Sec.  273.4, 
273.9(b) and 273.9(c)) also do not require special implementation 
efforts by State agencies as the provisions reflect current policy.
    (iii) Any variance resulting from implementation of the provisions 
of this amendment shall be excluded from quality control error analysis 
for 90 days from the required implementation date which shall be handled 
in accordance with 7 CFR 275.12(d)(2)(vii).
    (121) Amendment No. 336. The provisions of Amendment No. 336 are 
effective and must be implemented as follows:
    (i) The provision that gives State agencies the option of using 
retrospective budgeting for nonmonthly reporting households other than 
those exempt from monthly reports (7 CFR 273.21(b) introductory text) 
was effective as of November 28, 1990, the date of enactment of the 
Leland Act.
    (ii) The delegation of the responsibility for design of the monthly 
report form (Sec.  273.21(h)(3) and Sec.  273.21(j)(1)(ii) of this 
chapter) must be implemented by February 1, 1992.
    (iii) The remaining provisions are effective January 3, 1992 and 
must be implemented by July 1, 1992.
    (iv) Any variances resulting from implementation of the provisions 
of this amendment shall be excluded from error analysis for 90 days from 
the required implementation dates in accordance with 7 CFR 
275.12(d)(2)(vii).
    (122) Amendment No. 337. The provisions of Amendment No. 337 are 
effective and must be implemented as follows:
    (i) State agencies shall implement the provisions of Amendment No. 
337 on February 1, 1992, except as provided in paragraph (g)(122)(ii) of 
this section.
    (ii) The amendments to revise the introductory text of Sec.  
273.2(j) and

[[Page 580]]

Sec.  273.2(j)(3) as they relate to categorical eligibility and the 
amendment adding Sec.  273.2(j)(4) are effective and must be implemented 
February 1, 1992 for recipients of GA from a State program. They are 
effective and must be implemented August 1, 1992 for recipients of GA 
from a local program.
    (iii) Any variance resulting from implementation of the provisions 
of this amendment shall be excluded from error analysis in accordance 
with 7 CFR 275.12(d)(2)(vii) for 90 days from the required 
implementation date. The provisions must be implemented for all 
households that newly apply for Program benefits on or after the 
required implementation date. If for any reason a State agency fails to 
implement on the required implementation date, restored benefits shall 
be provided, if appropriate, back to the required implementation date, 
the date of the food stamp application or the date the household was 
determined categorically eligible in accordance with Sec.  273.2(j)(4), 
whichever is later.
    (iv) The current caseload shall be converted to these provisions at 
household request, at the time of recertification, or when the case is 
next reviewed, whichever occurs first. The State agency must provide 
restored benefits back to the required implementation date.
    (123) Amendment No. 338. The provisions of Amendment No. 338 are 
effective and must be implemented on February 1, 1992. The provisions 
must be implemented for all households that newly apply for Program 
benefits on or after the required implementation date of February 1, 
1992. The current caseload shall be converted to these provisions at 
household request, at the time of recertification, or when the case is 
next reviewed, whichever occurs first. If, for any reason, a State 
agency fails to implement by the required implementation date, restored 
benefits shall be provided, if appropriate, back to the required 
implementation date or the date of the food stamp application, whichever 
is later. Any variances resulting from implementation of the provisions 
of this amendment shall be excluded from error analysis for 90 days from 
this required implementation date in accordance with 7 CFR 
275.12(d)(2)(vii).
    (124) Amendment No. 325. The quality control changes to Sec.  275.23 
that are made by Amendment No. 325 shall be implemented effective 
January 24, 1992.
    (125) Amendment No. 345. The provisions of Amendment No. 345 are 
effective on April 1, 1992, and shall be implemented as follows:
    (i) Currently operating demonstration projects shall submit to FNS 
for approval a plan no later than June 30, 1992, to satisfy the 
requirements of this regulation. The plan shall address the areas in 
which the State EBT demonstration project does not comply with the 
provisions of this rule and how the State agency plans to bring its 
system into compliance. The State agency shall submit a schedule of any 
actions it proposes to take and when they are to be completed. 
Compliance with the provisions of this final regulation shall occur 
within two years from the effective date unless approved by FNS to 
continue operations under the authority of section 17 of the Act (7 
U.S.C. 2026) as a demonstration project. In seeking FNS approval to 
continue under Section 17 authority, the State agency shall state what 
research value would be obtained in continuing the demonstration.
    (ii) For State agencies that have proposals or planning documents 
currently under review by the Department, the State agencies and the 
Department shall establish at what point the State agency is in the 
planning process and how the State agency will fit into the approval 
process of these rules. All such State agencies will be expected to 
comply with the standards of these rules.
    (iii) A State agency that wishes to obtain approval for an EBT 
system shall submit a Planning Advanced Planning Document for FNS 
approval as prescribed herein.
    (126) Amendment No. 327. (i) The statutory provision reflected in 
Sec.  275.23(e)(6)(v) of Amendment No. 327 was effective October 1, 1985 
pursuant to Public Law 100-435.
    (ii) The remaining provisions are effective October 28, 1992.
    (127) Amendment No. 340. (i) The provisions at Sec.  
273.7(d)(1)(i)(A) and Sec.  273.7(d)(1)(i)(B) are effective retroactive 
to October 1, 1991.

[[Page 581]]

    (ii) The provision at Sec.  273.7(c)(4)(viii) is effective and must 
be implemented by August 15, 1993, the date E&T plans must be submitted 
to FNS.
    (iii) The provision at Sec.  273.10(d)(1)(i) is effective January 
19, 1993 and must be implemented by March 1, 1993.
    (iv) The remaining provisions of Amendment No. 340 are effective and 
must be implemented retroactively to February 1, 1992.
    (v) Any variances resulting from implementation of the provision at 
Sec.  273.10(d)(1)(i) shall be excluded from error analysis for 90 days 
from the required implementation date in accordance with 7 CFR 
273.12(d)(2)(vii).
    (128) Amendment No. 326. The provisions of this amendment are 
effective and must be implemented no later than December 1, 1993. Any 
variance resulting from implementation of the provisions of this 
amendment shall be excluded from quality control error analysis for 60 
days from the required implementation date which shall be handled in 
accordance with 7 CFR 275.12(d)(2)(vii).
    (129) Amendment No. 349. The provisions of Amendment No. 349 are 
effective, and shall be implemented, as follows:
    (i) Sec.  273.1(a)(2)(i)(C), Sec.  273.1(a)(2)(i)(D) and Sec.  
273.10(f)(2) are effective as of October 1, 1987; Sec.  273.2(i)(1) 
(iii) and (iv) are effective as of December 1, 1987; the new Sec.  
273.9(c)(1)(ii)(G) is effective as of April 1, 1987. However, 
application of Sec.  273.9(c)(1)(ii)G) in conjunction with the 
provisions at Sec.  273.9 (c)(1)(ii) (A) through (F) and (c)(5)(i)(F) is 
effective as of the date the individual provisions at 7 CFR 273.9 
(c)(1)(ii) (A) through (F) and (c)(5)(i)(F) became effective. Those 
dates are: Sec.  273.9(c)(1)(ii) (A), (B), and (C), April 1, 1987; Sec.  
273.9(c)(1)(ii)(D), October 20, 1987; Sec.  273.9(c)(1)(ii)(E), 
September 1, 1988, and Sec.  273.9(c)(1)(ii)(F), August 1, 1991. The 
amendment to the first sentence of Sec.  273.9(c)(1)(iv)(B) to include a 
regulatory reference to 7 CFR 273.9(c)(5)(i)(F) is effective as of 
August 1, 1991 (the date the individual provision at 7 CFR 
273.9(c)(5)(i)(F) became effective), and Sec.  273.18(c)(2)(ii) is 
effective as of September 5, 1987. To the extent that these provisions 
represent new or different policy from that under which the State agency 
is currently operating, the State agency shall implement the provisions 
not later than April 1, 1994 for households newly applying for Program 
benefits on or after such implementation date. State agencies shall 
convert their affected current caseload to these provisions (except for 
Sec.  273.18(c)(2)(ii)) at recertification, when the household requests 
a review of its case, or when the State agency otherwise becomes aware 
that a review is needed, whichever occurs first. To the extent that the 
provisions will result in restored benefits for affected households, 
such benefits shall be provided back to the effective date of the 
provision or the date of the household's first initial application, 
whichever occurs later;
    (ii) The remaining provisions of Amendment No. 349 adopt as final, 
without change, interim provisions published September 29, 1987 and are 
effective as of the date the corresponding interim provision became 
effective as established at 7 CFR 272.1(g)(93). These provisions and the 
effective dates are: Sec.  271.2, definition of ``Homeless individual,'' 
July 22, 1987; Sec.  272.5, July 22, 1987; Sec.  273.9(a)(3), October 1, 
1988; Sec.  271.2, definition of ``General assistance,'' April 1, 1987; 
Sec.  273.9(b)(2)(i), April 1, 1987; Sec.  273.9(c)(1) (ii)(A), (ii)(B) 
and (ii)(C), April 1, 1987; Sec.  273.9(d)(7)(i), October 1, 1987; Sec.  
273.9(d)(8)(i), October 1, 1987 (except for the last sentence, which is 
effective October 1, 1988). The provisions do not change policy or 
procedures under which State agencies are currently operating and, 
therefore, do not require specific implementation efforts by State 
agencies.
    (130) Amendment No. 342. The provision relating to household 
election of repayment method for IPV claims at Sec.  273.18(d)(4)(ii) is 
effective retroactive to November 28, 1990. The provision relating to 
household election of repayment method for IHE claims at Sec.  
273.18(d)(4)(i) is effective December 13, 1991. The provisions for State 
agency retention rates on claim collections at Sec.  273.18(h)(2) and 
(i) are effective retroactive to October 1, 1990. The provisions at 
Sec.  277.18 which reduce the enhanced funding level for ADP is 
effective October 1, 1991, for costs incurred on that date and 
thereafter and does

[[Page 582]]

not apply to ADP funding approved prior to November 28, 1990.
    (131) Amendment No. 347. The provisions of this amendment are 
effective as specified in paragraphs (g)(131)(ii) (A), (B), and (C) of 
this section. State agencies are not required to do file searches for 
cases relating to PASS households unless the question on an income 
exclusion for PASS had been raised with the State agency prior to 
December 13, 1991.
    (i) The provisions at Sec.  271.2, Sec.  273.1, and Sec.  273.11 
were effective and had to be implemented no later than February 1, 1992.
    (ii) The provision at Sec.  273.9(c)(17) is effective the earlier 
of:
    (A) December 13, 1991, the date of enactment of Pub. L. 102-237;
    (B) October 1, 1990, for food stamp households for which the State 
agency knew, or had notice, that a household member had a PASS; or
    (C) Beginning on the date that a fair hearing was requested 
contesting the denial of an income exclusion for amounts provided for a 
PASS.
    (132) Amendment No. 316. The provisions of this final rule that 
amend 7 CFR 273.2(b)(3), 273.2(c)(5), 273.2(f)(8)(i)(A) and (ii), and 
paragraph (11) of the ``Elderly or disabled member'' definition in 7 CFR 
271.2 are effective as of May 6, 1994. The State agency shall implement 
the provisions not later than September 5, 1994 for all households newly 
applying for Program benefits on or after such implementation date. The 
current caseload shall be converted to these provisions at household 
request, at the time of recertification, or when the case is next 
reviewed, whichever occurs first, and the State agency must provide 
restored benefits back to the required implementation date. If for any 
reason a State agency fails to implement on the required implementation 
date, restored benefits shall be provided, if appropriate, back to the 
required implementation date or the date of application whichever is 
later. Any variances resulting from implementation of the provisions of 
this amendment shall be excluded from error analysis for 90 days from 
this required implementation date in accordance with 7 CFR 
275.12(d)(2)(vii).
    (133) Amendment No. 352. The provisions of this amendment are 
effective April 11, 1994.
    (134) Amendment No. 355. The provisions of Amendment No. 355 are 
effective and must be implemented on August 1, 1994. Any variance 
resulting from implementation of the provisions of this amendment shall 
be excluded from error analysis for 120 days from this required 
implementation date in accordance with 7 CFR 275.12(d)(2)(vii) as 
modified by section 13951(c)(2) of Pub. L. 103-66. The provisions must 
be implemented for all households that newly apply for Program benefits 
on or after the required implementation date. The current caseload shall 
be converted to these provisions at household request, at the time of 
recertification, or when the case is next reviewed, whichever occurs 
first, and the State agency must provide restored benefits back to the 
required implementation date. If for any reason a State agency fails to 
implement on the required implementation date, restored benefits shall 
be provided, if appropriate, back to the required implementation date or 
the date of application, whichever is later.
    (135) Amendment No. 348. The provisions of Amendment No. 348 are 
effective August 5, 1994 and must be implemented for all QC billing 
actions beginning with Fiscal Year 1986.
    (136) Amendment No. 346. The provision of Amendment No. 346 
regarding an income exclusion for homeless households living in 
transitional housing is effective and must be implemented no later than 
September 1, 1994. Any variances resulting from implementation of the 
provisions of this amendment shall be excluded from error analysis for 
120 days from this required implementation date in accordance with 7 CFR 
275.12(d)(2)(vii). The provision must be implemented for all households 
that newly apply for Program benefits on or after the required 
implementation date. The current caseload shall be converted to these 
provisions at the household's request, at the time of recertification, 
or when the case is next reviewed, whichever occurs first. The State 
agency must provide restored benefits to such

[[Page 583]]

households back to the required implementation date or the date of 
application whichever is later. If for any reason a State agency fails 
to implement on the required implementation date, restored benefits 
shall be provided, if appropriate, back to the required implementation 
date or the date of application, whichever is later.
    (137) Amendment No. 350. The provisions of Amendment No. 350 are 
effective and must be implemented as follows:
    (i) The provision at Sec.  273.8(e)(12)(i) of this chapter is 
effective and must be implemented according to statute retroactive to 
January 1, 1991.
    (ii) The provision at Sec.  273.8(e)(12)(ii) of this chapter will be 
effective and must be implemented on September 1, 1994.
    (iii) The provision at Sec.  273.21(b) of this chapter against 
establishing new monthly reporting requirements for households residing 
on Indian reservations if no monthly reporting system was in place on 
March 25, 1994 is effective and must be implemented according to statute 
retroactive to March 25, 1994.
    (iv) The provision in Sec.  273.2(j) of this chapter concerning 
categorical eligibility for GA recipients is effective and must be 
implemented according to statute retroactive to February 1, 1992.
    (v) The remaining provisions are effective and must be implemented 
October 28, 1994.
    (138) Amendment No. 359. The provision of Amendment No. 359 
regarding the medical expense deduction is effective and must be 
implemented no later than October 1, 1994. Any variances resulting from 
implementation of the provisions of this amendment shall be excluded 
from error analysis for 120 days from this required implementation date 
in accordance with 275.12(d)(2)(vii) of this chapter. The provision must 
be implemented for all households that newly apply for Program benefits 
on or after the required implementation date. State agencies must notify 
households eligible for the deduction of the change in medical deduction 
reporting requirements and the right of the household to be converted to 
those new procedures immediately. The current caseload shall be 
converted to these provisions at the household's request, at the time of 
recertification, or when the case is next reviewed, whichever occurs 
first.
    (139) Amendment No. 351. The provisions of Amendment No. 351 to 
amend 7 CFR 273.7(d) are effective October 1, 1993. State agencies are 
not required to take any action to implement these provisions.
    (140) Amendment No. 333. The provisions of Amendment No. 333 are 
effective and must be implemented as follows:
    (i) The provisions relating to aggregated (combined) allotments to 
households applying after the 15th of the month and mail issuance in 
rural areas where households experience transportation difficulties in 
obtaining benefits are effective and must be implemented by statute 
retroactive to February 1, 1992.
    (ii) The provision relating to staggered issuance on Indian 
reservations was in place on March 25, 1994, is effective and must be 
implemented according to statute retroactive to March 25, 1994.
    (iii) The remaining provisions are effective and must be implemented 
September 1, 1995.
    (141) Amendment No. 360. This provision is effective September 20, 
1995, and must be implemented no later than the first day of the first 
month beginning December 19, 1995.
    (142) Amendment No. 357. The provisions of Amendment No. 357 are 
effective and must be implemented as follows:
    (i) The provision relating to the increased penalties at 7 CFR 
273.16(b) is effective and must be implemented retroactive to September 
1, 1994. This includes providing notification of the increased penalties 
on the application form.
    (ii) The remaining provisions are effective and must be implemented 
October 23, 1995.
    (143) Amendment 367. The provisions of Amendment 367 must be 
implemented no later than October 2, 1995 except that State agencies 
currently participating in the Federal Income Tax Refund Offset Program 
(FTROP) must implement section 272.2(d)(1)(xii), which relates to the 
submission of the Plan of Operations, within November 30, 1995.

[[Page 584]]

    (144) Amendment No. (370). The provisions of Amendment No. (370) are 
effective and must be implemented as follows:
    (i) Sections 273.5(b)(1), (b)(4), and (b)(9) are effective February 
1, 1992. The introductory paragraph of 273.5(b)(6) is effective February 
1, 1992. The introductory paragraph of 273.5(b)(10) is effective 
February 1, 1992. Sections 273.5(b)(11)(ii), (b)(11)(iii), and 
(b)(11)(iv) are effective February 1, 1992.
    (ii) Sections 273.5(b)(6)(i) and (b)(6)(ii) and sections 
273.5(b)(10)(i) and (b)(10)(ii) and the remaining provisions of this 
regulation are effective November 1, 1995 and shall be implemented no 
later than February 1, 1996.
    (iii) The current caseload shall be converted to these provisions at 
the household's request, at the time of recertification, or when the 
case is next reviewed, whichever occurs first. The State agency shall 
provide restored benefits back to the effective date.
    (iv) Any variance resulting from implementation of a provision in 
this rule shall be excluded from error analysis for 120 days from the 
required implementation date of that provision.
    (145) Amendment No. 369. The provisions of Amendment No. 369 are 
effective May 31, 1996. State agencies must implement no later than 
November 27, 1996. The provisions of this amendment are applicable for 
determinations of intentional failure to comply made on or after the 
effective date of the amendment.
    (146) Amendment No. 368. The provisions of Amendment No. 368 are 
effective on July 29, 1996.
    (147) Amendment No. 364. Except for the provisions of Sec.  
273.14(b)(2), the provisions of Amendment No. 364 are effective November 
18, 1996 and must be implemented no later than May 1, 1997. The 
effective date and implementation date of the provisions of Sec.  
273.14(b)(2) will be announced in a document in the Federal Register. 
The provisions must be implemented for all households that newly apply 
for Program benefits on or after either the required implementation date 
or the date the State agency implements the provision prior to the 
required implementation date. The current caseload shall be converted to 
these provisions following implementation at the household's request, at 
the time of recertification, or when the case is next reviewed, 
whichever occurs first. The State agency must provide restored benefits 
to required implementation date or the date the State agency implemented 
the provision prior to the required implementation date. If for any 
reason a State agency fails to implement by the required implementation 
date, restored benefits shall be provided, if appropriate, back to the 
required implementation date or the date of application whichever is 
later, but for no more than 12 months in accordance with Sec.  273.17(a) 
of this chapter. Any variances resulting from implementation of the 
provisions of this amendment shall be excluded from error analysis for 
120 days from this required implementation date in accordance with Sec.  
275.12(d)(2)(vii) of this chapter and 7 U.S.C. 2025(c)(3)(A).
    (148) Amendment No. 362. The provision of section 13921 of Public 
Law 103-66 establishing a child support deduction was effective 
September 1, 1994, and was required to be implemented no later than 
October 1, 1995. The provisions of Amendment No. 362 are effective 
December 16, 1996 and must be implemented no later than May 1, 1997. 
State agencies shall implement the provisions no later than the required 
implementation date. The provisions must be implemented for all 
households that newly apply for Program benefits on or after either the 
required implementation date or the date the State agency implemented 
the provision prior to the required implementation date, whichever is 
earlier. State agencies are required to adjust the cases of 
participating households at the next recertification, at household 
request, or when the case is next reviewed, whichever comes first. State 
agencies which fail to implement or adjust cases by the required 
implementation date shall provide restored benefits as appropriate. For 
quality control purposes, any variances resulting from implementation of 
the provisions are excluded from error analysis for 120 days from the 
required implementation date, in accordance with 7 CFR 275.12(d)(2)(vii) 
and 7 U.S.C.

[[Page 585]]

2025(c)(3)(A). State agencies which implement prior to the required 
implementation date must notify the appropriate regional office prior to 
implementation that they wish the variance exclusion period to begin 
with actual implementation, as provided in 7 CFR 275.12(d)(2)(vii)(A). 
Absent such notification, the exclusionary period will begin with the 
required implementation date.
    (149) Amendment No. 374. The Higher Education Act Amendments of 
1986, as amended in 1987, were effective and required to be implemented 
for the 1988-89 school year; the Perkins Act was effective and required 
to be implemented on July 1, 1991; the Mickey Leland Act (as amended by 
the 1991 Technical Amendments to the Food Stamp Act) was effective and 
required to be implemented on February 1, 1992, and the exclusions 
contained in the Higher Education Act Amendments of 1992 for the Tribal 
Development Student Assistance Revolving Loan Program were effective and 
required to be implemented on October 1, 1992, and for Title IV and BIA 
student assistance on July 1, 1993. The provisions of Amendment No. 374 
are effective December 16, 1996 and must be implemented by March 1, 
1997. The current caseload shall be converted to these provisions at the 
household's request, at the time of recertification, or when the case is 
next reviewed, whichever occurs first. If implementation of the acts 
referenced in this paragraph or this amendment is delayed, benefits 
shall be restored, as appropriate, in accordance with the Food Stamp 
Act. Any variance resulting from implementation of this amendment shall 
be excluded from error analysis for 120 days from March 1, 1997.
    (150) Amendment No. 365. This provision is effective December 16, 
1996 and must be implemented no later than March 1, 1997. Any variances 
resulting from implementation of the provisions of this amendment shall 
be excluded from error analysis for 120 days from this required 
implementation date in accordance with Sec.  275.12(d)(2)(vii) of this 
chapter.
    (151) Amendment No. 375. Public Law 103-66, the Mickey Leland 
Childhood Hunger Relief Act, was effective and required to be 
implemented on September 1, 1994. The provisions of Amendment No. 375 
are effective December 16, 1996, and must be implemented by March 1, 
1997. The State agency shall implement the provisions of this amendment 
no later than the appropriate required implementation date for all 
households newly applying for Program benefits on or after such 
implementation date. The current caseload shall be converted to these 
provisions at household request, at the time of recertification, or when 
the case is next reviewed, whichever occurs first, and the State agency 
must provide restored benefits, as may be appropriate under the Food 
Stamp Act, back to the appropriate required implementation date. If for 
any reason a State agency fails to implement on the appropriate 
implementation date, restored benefits shall be provided, if 
appropriate, back to the appropriate required implementation date or the 
date of application, whichever is later. Any variances resulting from 
implementation of this amendment shall be excluded from quality control 
error analysis for 120 days from March 1, 1997.
    (152) Amendment No. 361 The provisions of Amendment No. 361 are 
effective December 26, 1996, and must be implemented May 27, 1997. Any 
variances resulting from implementation of the provisions of this 
amendment shall be excluded from error analysis for 120 days from this 
required implementation date in accordance with 7 CFR 275.12(d)(2)(vii). 
The provision must be implemented for all households that newly apply 
for Program benefits on or after the required implementation date. The 
current caseload shall be converted to these provisions at the 
household's request, at the time of recertification, or when the case is 
next reviewed, whichever occurs first. The State agency must provide 
restored benefits to such households back to the required implementation 
date or the date of application whichever is later.
    If for any reason a State agency fails to implement on the required 
implementation date, restored benefits shall be provided, if 
appropriate, back to the required implementation date or the date of 
application whichever is later,

[[Page 586]]

but for no more than 12 months in accordance with Sec.  273.17(a) of 
this chapter.
    (153) Amendment No. 366. (i) With the exception of the changes to 
Sec.  275.3(c)(4) [Arbitration], Sec.  275.23(e)(5) [State agencies' 
liabilities for payment error-Fiscal Year 1992 and beyond], Sec.  
275.23(e)(7) [Good Cause], and Sec.  275.23(e)(9) [timeframes], all 
quality control changes that are made by Amendment No. 366 shall be 
implemented July 2, 1997.
    (ii) The quality control changes to Sec.  275.3(c)(4) [Arbitration], 
Sec.  275.23(e)(5) [State agencies' liabilities for payment error-Fiscal 
Year 1992 and beyond], Sec.  275.23(e)(7) [Good Cause], and Sec.  
275.23(e)(9) [Timeframes], shall be implemented after approval of the 
provisions at Sec.  275.3(c)(4) [Arbitration], and Sec.  275.23(e)(7) 
[Good Cause] by the Office of Management and Budget under the Paperwork 
Reduction Act of 1995. FNS will publish a notice in the Federal Register 
announcing the implementation date. It shall be a date occurring after 
the publication date of the notice.
    (154) Amendment No. 386. The provisions of Amendment No.386 are 
effective August 4, 2000. State agencies may begin implementing the rule 
August 4, 2000 but not later than January 2, 2001. State agencies that 
have already implemented EBT shall have one year in which to grandfather 
adjustment disclosure into their training materials according to 7 CFR 
274.12(f)(10)(viii).
    (155) Amendment No. 373. The provision at Sec.  275.23(e)(5)(iii) is 
effective and is to be implemented on July 16, 1999. The following 
provisions are effective on October 1, 1999 and are to be implemented on 
October 1, 2000, with the start of the Fiscal Year 2001 quality control 
review period: Sec.  271.2; Sec.  275.3(c)(3)(ii); Sec.  275.10(a); 
Sec.  275.11(c)(1); Sec.  275.11(e)(2); Sec.  275.11(f)(2); Sec.  
275.13(a); Sec.  275.13(b); Sec.  275.13(c)(1); Sec.  275.13(c)(2); 
Sec.  275.13(f)(2) and Sec.  275.23(c)(4). The remaining provisions of 
this rule are effective and are to be implemented October 1, 1999, with 
the start of the Fiscal Year 2000 quality control review period, which 
begins with the October 1999 sample month.
    (156) Amendment No. 379. The provision of Amendment No. 379 
regarding the 15-percent exemption and additional funding for E&T is 
effective and must be implemented no later than November 2, 1999. Any 
variances resulting from implementation of the provisions of this 
amendment shall be excluded from error analysis for 120 days from this 
required implementation date in accordance with Sec.  275.12(d)(2)(vii) 
of this chapter.
    (157) Amendment No. 381. The provisions of Amendment 381 are 
implemented as follows:
    (i) The definition of ``Homeless individual'' in Sec.  271.2, and 
the amendments to Sec.  273.1(b)(1)(ii), Sec.  273.2(i)(3)(i) and 
(i)(3)(ii) were to be implemented August 22, 1996;
    (ii) The amendments to Sec.  273.8(f)(1) and Sec.  273.10(e)(4)(ii) 
were to be implemented October 1, 1996;
    (iii) The amendment to Sec.  273.9(d)(8) was to be implemented 
January 1, 1997;
    (iv) The amendments to Sec.  273.1(b)(1)(iii) and Sec.  
273.8(e)(3)(i)(A) must be implemented no later than March 1, 2001; and
    (v) All remaining amendments must be implemented no later than 
January 1, 2001.
    (158) Amendment No. 382. The provisions of Amendment No.379 are 
effective and must be implemented March 30, 2000.
    (159) Amendment (385). The provisions in Sec.  277.11(d) regarding 
time limits for State agencies to file claims to amend a prior 
expenditure report to request retroactive funding for costs previously 
incurred are effective October 1, 2000. The conforming amendments to 
Food Stamp Program regulations in Sec. Sec.  272.1(g), 272.2(c)(3), 
272.11(d) and (e), 274.12(k), 277.4(b) and (g), 277.9(b), 277.18(b), 
(d), (e), (g) and (p)(5), and Appendix A to Part 277 and the removal of 
Sec. Sec.  277.15 and 277.19 are effective June 23, 2000.
    (160) Amendment 389. The Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, Pub. L. 104-193, (PRWORA) set 
the date of enactment, August 1, 2000, as the effective date for the 
provisions of the law relating to recipient claims. These non-
discretionary provisions of this rule are at Sec.  273.18(c)(1)(ii)(B), 
Sec.  273.18(f) and Sec.  273.18(g) and are effective retroactive to 
August 1, 2000. The remaining amendments of this rule are effective

[[Page 587]]

and must be implemented no later than August 1, 2000.
    (161) Amendment No. 388 The provisions of Amendment No. 388 are 
implemented as follows:
    (i) State agencies may implement the following amendments at their 
discretion at any time on or after the effective date: Sec.  272.8; 
Sec.  272.11(a); Sec.  273.2(f)(9)(i); Sec.  273.2(f)(10); Sec.  
273.2(j)(2)(ii); Sec.  273.9(d)(6)(i); Sec.  273.9(d)(6)(iii)(E); Sec.  
273.11(a)(3)(v); Sec.  273.12(a)(1)(vii); Sec.  273.25; and Sec.  
277.4(b).
    (ii) State agencies may implement the following amendment at their 
discretion at any time after the effective date established by OMB 
approval of the associated information collection burden: Sec.  
273.12(f)(4).
    (iii) State agencies must implement the following amendments no 
later than 180 days after the effective date established by OMB approval 
of the associated information collection burden for all households newly 
applying for Program benefits: Sec.  273.2(c)(2)(i), Sec.  273.2(e)(1), 
Sec.  273.2(e)(2)(i), Sec.  273.2(e)(2)(ii), Sec.  273.2(e)(3), Sec.  
273.4(c)(3)(iv); and Sec.  273.12(c)(3). State agencies must convert 
current caseloads no later than the next recertification following the 
implementation date.
    (iv) State agencies must implement the amendment to Sec.  
273.2(b)(4)(iv) no later than August 1, 2001, for all households newly 
applying for Program benefits.
    (v) State agencies must implement all remaining amendments no later 
than June 1, 2001, for all households newly applying for Program 
benefits. State agencies must convert current caseloads no later than 
the next recertification following the implementation date.
    (vi) Acting under policy guidance the Department issued previous to 
the publication of this final rule, several State agencies that have 
identified programs to confer categorical eligibility for food stamps 
that do not meet the criteria established at Sec. Sec.  
273.2(j)(2)(i)(B), 273.2(j)(2)(i)(C), 273.2(j)(2)(ii)(A), or 
273.2(j)(2)(ii)(B) of this chapter. Any such State agency may continue 
to use these programs to confer categorical eligibility for food stamp 
purposes until September 30, 2001.
    (vii) A State agency which first implements option 1 under 7 CFR 
273.11(c)(3)(ii), and then decides at a later date to implement option 2 
under that same paragraph is entitled to a second variance exclusion 
period under 7 CFR 275.12(d)(2)(vii).
    (162) Amendment No. 384. The provisions of Amendment No. 384 are 
effective September 14, 2000, and must be implemented as follows:
    (i) Any new contract executed after October 16, 2000, must have 
provisions for interoperability and portability which include an 
implementation date for this functionality no later than October 1, 
2002, except under the following circumstances:
    (A) State agencies with contracts entered into before October 16, 
2000, are not required to re-negotiate their EBT services contract to 
include interoperability and portability, even if the contract expires 
after the October 1, 2002 deadline; such State agencies are exempt from 
the interoperability requirement until they re-negotiate or re-procure 
their EBT contract.
    (B) Smart Card systems are not required to be interoperable with 
other State EBT systems until such time that the Department determines a 
practicable technological method is available for interoperability with 
on-line EBT systems.
    (ii) Enhanced funding is available for interoperability costs 
incurred after February 11, 2000, and before October 1, 2002, for State 
agencies which have implemented standards of interoperability and 
portability adopted by a majority of State agencies, and for such costs 
incurred after September 1, 2002, for State agencies that have adopted 
standards for interoperability and portability in accordance with this 
regulation at 7 CFR 274.12.
    (163) [Reserved]
    (164) Amendment No. 390. The provisions of Amendment No. 390 are 
effective November 3, 2000. State agencies may implement the provisions 
anytime after the effective date. However, Electronic Benefit Transfer 
(EBT) systems must be in place statewide no later than October 1, 2002, 
as required by the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

[[Page 588]]

    (165) Amendment No. 387--This rule is effective no later than 
{insert the first day of the month 60 days after publication of the 
final rule, except for the amendment to 7 CFR 272.2(d)(1)(xiii) which is 
effective August 1, 2001. State agencies must implement the provisions 
in this final rule no later than August 1, 2001.
    (166) Amendment No. 393. The provisions of Amendment No. 393, 
regarding the Work Provisions of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 are effective August 19, 2002.
    (167) Amendment No. 376. The provisions of Amendment No. 376 are 
effective May 29, 2003 and must be implemented no later than November 1, 
2003. The provisions must be implemented for all households that newly 
apply for Program benefits on or after either the required 
implementation date or the date the State agency implements the 
provision prior to the required implementation date. The current change 
reporting caseload shall be converted to these provisions no later than 
the required implementation date in accordance with procedures 
established by the State agency. However, for households subject to the 
reporting requirements at Sec.  273.12(a)(1)(i)(C)(1) or (2) of this 
chapter, the State agency has until January 1, 2004 to convert 
households to 6 month certification periods. Monthly reporting 
households shall be converted in accordance with Sec.  273.21(r) of this 
chapter. For quality control purposes, any variances resulting from the 
implementation of this rule shall be excluded from error analysis for 
120 days from the required implementation date, in accordance with Sec.  
275.12(d)(2)(vii) of this chapter.
    (168) [Reserved]
    (169) Amendment No. 395. The provisions of Amendment 395 are 
effective December 15, 2003.

[Amdt. 132, 43 FR 47884, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
272.1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  272.2  Plan of operation.

    (a) General purpose and content--(1) Purpose. State agencies shall 
periodically plan and budget program operations and establish 
objectives. When planning and budgeting for program operations for the 
next year, State agencies shall consider major corrective action 
objectives, existing program strengths and deficiencies, and other 
factors anticipated to impact on the operation of the State's Food Stamp 
Program and on projected expenditures.
    (2) Content. The basic components of the State Plan of Operation are 
the Federal/State Agreement, the Budget Projection Statement, and the 
Program Activity Statement. In addition, certain attachments to the Plan 
are specified in this section and in Sec.  272.3. The requirements for 
the basic components and attachments are specified in Sec.  272.2(c) and 
Sec.  272.2(d) respectively. The Federal/State Agreement is the legal 
agreement between the State and the Department of Agriculture. This 
Agreement is the means by which the State elects to operate the Food 
Stamp Program and to administer the program in accordance with the Food 
Stamp Act of 1977, as amended, regulations issued pursuant to the Act 
and the FNS-approved State Plan of Operation. The Budget Projection 
Statement and Program Activity Statement provide information on the 
number of actions and amounts budgeted for various functional areas such 
as certification and issuance. The Plan's attachments include the 
Quality Control Sample Plan, the Disaster Plan (currently reserved), the 
Employment and Training Plan, the optional Nutrition Education Plan, the 
optional plan for Program informational activities directed to low-
income households, the optional plan for intercepting Unemployment 
Compensation (UC) benefits for collecting claims for intentional Program 
violations, the Systematic Alien Verification for Entitlements (SAVE) 
Plan, and the plan for the State Income and Eligibility Verification 
System. The State agency shall either include the Workfare Plan in its 
State Plan of Operation or append the Workfare Plan to the State Plan of 
Operation, as appropriate, in accordance with Sec.  273.22(b)(3) of this 
chapter. The Workfare Plan shall be submitted separately, in accordance

[[Page 589]]

with Sec.  273.22(b)(1) of this chapter. The ADP/CIS Plan is considered 
part of the State Plan of Operation but is submitted separately as 
prescribed under Sec.  272.2(e)(8). State agencies and/or political 
subdivisions selected to operate a Simplified Application/Standardized 
Benefit Project shall include that Project's Work Plan in the State Plan 
of Operation. The Plan's attachments shall also include the Mail 
Issuance Loss Reporting Level Plan.
    (b) Federal/State Agreement. (1) The wording of the pre-printed 
Federal/State Agreement is as follows:

    The State of ------ and the Food and Nutrition Service (FNS), U.S. 
Department of Agriculture (USDA), hereby agree to act in accordance with 
the provisions of the Food Stamp Act of 1977, as amended, implementing 
regulations and the FNS-approved State Plan of Operation. The State and 
FNS (USDA) further agree to fully comply with any changes in Federal law 
and regulations. This agreement may be modified with the mutual written 
consent of both parties.

                               Provisions

    The State agrees to: 1. Administer the program in accordance with 
the provisions contained in the Food Stamp Act of 1977, as amended, and 
in the manner prescribed by regulations issued pursuant to the Act; and 
to implement the FNS-approved State Plan of Operation.
    2. Comply with Title VI of the Civil Rights Act of 1964 (Pub. L. 88-
352), section 11(c) of the Food Stamp Act of 1977, as amended, the Age 
Discrimination Act of 1975 (Pub. L. 94-135) and the Rehabilitation Act 
of 1973 (Pub. L. 93-112, sec. 504) and all requirements imposed by the 
regulations issued pursuant to these Acts by the Department of 
Agriculture to the effect that, no person in the United States shall, on 
the grounds of sex, race, color, age, political belief, religion, 
handicap, or national origin, be excluded from participation in, be 
denied the benefits of, or be otherwise subject to discrimination under 
the Food Stamp Program.
    3. (For States with Indian Reservations only). Implement the Program 
in a manner that is responsive to the special needs of American Indians 
on reservations and consult in good faith with tribal organizations 
about that portion of the State's Plan of Operation pertaining to the 
implementation of the Program for members of the tribe on reservations.
    FNS agrees to: 1. Pay administrative costs in accordance with the 
Food Stamp Act, implementing regulations, and an approved Cost 
Allocation Plan.
    2. Carry-out any other responsibilities delegated by the Secretary 
in the Food Stamp Act of 1977, as amended.

Date____________________________________________________________________

Signature_______________________________________________________________
(Governor or Authorized Designee)

Date____________________________________________________________________

Signature_______________________________________________________________
(Regional Administrator, FNS)

    (2) The State agency may propose alternative language to any or all 
the provisions listed in paragraph (b)(1) of this section. The 
alternative language is subject to approval by both parties before 
signature.
    (c) Budget Projection Statement and Program Activity Statement. (1) 
The State agency shall submit to FNS for approval a Budget Projection 
Statement and Program Activity Statement in accordance with the 
submittal dates in Sec.  272.2(e).
    (i) The Budget Projection Statement solicits projections of the 
total costs for major areas of program operations. The Budget Projection 
Statement shall be submitted annually and updated as necessary through 
the year. The Budget Projection Statement shall contain projections for 
each quarter of the next Federal fiscal year. The State agency shall 
submit with the Budget Projection Statement a narrative justification 
documenting and explaining the assumptions used to arrive at the 
projections. The narrative shall cover such subjects as: The number and 
salary level of employees; other factors affecting personnel costs 
including anticipated increases in pay rates or benefits, and 
reallocations of staff among units or functions, insofar as these might 
result in cost increases or decreases; costs for purchasing, leasing, 
and maintaining equipment and space, especially as concerns any 
upcoming, one-time-only purchases of new capital assets such as ADP 
equipment, renegotiation of leases, changes in depreciation rates or 
procedures, relocation of offices, maintenance and renovation work, and 
inflation; issuance system costs, including renegotiation of issuing 
agent fees and plans to change issuance systems; changes in caseload and 
factors contributing to increases or decreases in the number of 
participants; recertifications, including the

[[Page 590]]

anticipated impact of economic conditions (and in particular 
unemployment) and seasonality; cost implications of corrective action 
plans; anticipated changes in program regulations and operating 
guidelines and instructions; training needs; travel costs; and 
adjustments in insurance premiums. The narrative should cover as many of 
the items listed above, and any other items deemed relevant by the State 
agency, that will have a significant impact on costs. The State agency 
is not required to discuss every item in the list in every submission of 
a Budget Projection Statement. The narrative should concentrate on items 
that account for increases or decreases in costs from the preceding 
submissions.
    (ii) The Program Activity Statement, to be submitted annually, 
solicits a summary of program activity for the State agency's operations 
during the preceding fiscal year.
    (2) The organizational outline submitted in 1982 as an attachment to 
the Program Activity Statement shall be considered the basic outline. 
Henceforth, changes to this outline shall be provided to FNS as they 
occur. The outline contains the following information:
    (i) The position of the head of the State agency responsible for 
administering the Food Stamp Program in relation to the overall State 
organizational structure, i.e., the Program Director in relation to the 
Commissioner of Welfare;
    (ii) A description of the organizational structure through which the 
State agency will administer and operate the Food Stamp Program, 
including whether the Program is State, county, locally, or regionally-
administered; whether the workers have single Food Stamp Program or 
multi-program functions; and the title and position of the individual or 
panel designated as the hearing authority and whether officials conduct 
both fair and fraud hearings.
    (iii) A description of the funding arrangement by which State, 
county, and local jurisdictions will contribute to the State agency 
portion of administrative costs;
    (iv) The position within the State organizational structure of the 
Performance Reporting System (PRS) coordinator, including whether the 
PRS coordinator is full or part-time, and is responsible for direct 
supervision over Quality Control or Management Evaluation or if these 
functions are handled separately, and whether quality control reviewers 
have single Food Stamp Program or multi-program review responsibilities;
    (v) The position of the training coordinator and whether this is a 
full or part-time position; and
    (vi) The organizational entity responsible for corrective action.
    (3) Additional attachments. Attached for informational purposes (not 
subject to approval as part of the plan submission procedures) to the 
Program Activity Statement and submitted as required in paragraph (e)(3) 
of this section shall be the agreements between the State agency and the 
United States Postal Service for coupon issuance, and between the State 
agency and the Social Security Administration for supplemental income/
food stamp joint application processing and for routine user status.
    (d) Planning documents. (1) The following planning documents shall 
be submitted:
    (i) Quality Control Sampling Plan as required by Sec.  275.11(a)(4);
    (ii) Disaster Plan as required by Sec.  280.6 (currently reserved), 
or certification that a previously submitted Disaster Plan has been 
reviewed and remains current;
    (iii) Nutrition Education Plan if the State agency elects to request 
Federal Food Stamp Program administrative matching funds to conduct 
nutrition education programs as discussed in paragraph (d)(2) of this 
section.
    (iv) A plan for the State Income and Eligibility Verification System 
required by Sec.  272.8.
    (v) Employment and Training Plan as required in Sec. 273.7 (c)(6).
    (vi) ADP/CIS Plan as required by Sec.  272.10.
    (vii) A plan for the Systematic Alien Verification for Entitlements 
(SAVE) Program as required by Sec.  272.11(e).
    (viii) Mail Issuance Loss Reporting Level Plan required by Sec.  
276.2(b)(4), for the State agency using mail issuance,

[[Page 591]]

shall contain the unit level of reporting mail issuance losses for the 
upcoming fiscal year as elected by the State agency. If a State agency 
does not revise its Plan by August 15 in any given year, FNS shall 
continue to require reporting and to assess liabilities for the next 
fiscal year at the level last indicated by the State agency. If the 
agency has selected the unit provided for in Sec.  276.2(b)(4)(ii), a 
listing of the issuance sites or counties comprising each administrative 
unit within the State agency shall also be included in the Plan.
    (ix) A plan for Program informational activities as specified in 
Sec.  272.5(c).
    (x) A plan for intercepting UC benefits for collecting claims for 
intentional program violations as specified in Sec.  272.12 if the State 
agency elects to use that procedure.
    (xi)-(xii) [Reserved]
    (xiii) If the State agency chooses to implement the optional 
provisions specified in (273.11(k), (l), (o), (p), and (q) of this 
chapter, it must include in the Plan's attachment the options it 
selected, the guidelines it will use, and any good cause criteria under 
paragraph (o). For Sec.  273.11(k) of this chapter, the State agency 
must identify which sanctions in the other programs this provision 
applies to. The State agency must also include in the plan a description 
of the safeguards it will use to restrict the use of information it 
collects in implementing the optional provision contained in Sec.  
273.11(p) of this chapter.
    (xiv) The State agency's disqualification plan, in accordance with 
Sec.  273.7(f)(3) of this chapter.
    (xv) If the State agency chooses to implement the provisions for a 
work supplementation or support program, the work supplementation or 
support program plan, in accordance with Sec.  273.7(l)(1) of this 
chapter.
    (2) Nutrition Education Plan. If submitted, the Nutrition Education 
Plan shall contain:
    (i) The number and positions of staff that will be conducting 
nutrition education;
    (ii) Description of activities in the nutrition education program; 
and
    (iii) Assurance that nutrition education programs for which USDA 
provides Food Stamp Program administrative matching funds are conducted 
exclusively for the benefit of Food Stamp Program applicants and 
participants and do not duplicate USDA's Expanded Food and Nutrition 
Education Program's efforts in the State.
    (e) Submittal requirements. States shall submit to the appropriate 
FNS Regional Office for approval each of the components of the Plan of 
Operation for approval within the timeframes established by this 
paragraph. Approval or denial of the document may be withheld pending 
review by FNS. However, if FNS fails to either approve, deny, or request 
additional information within 30 days, the document is approved. If 
additional information is requested, the State agency shall provide this 
as soon as possible, and FNS shall approve or deny the Plan within 30 
days after receiving the information.
    (1) The Federal/State agreement shall be signed by the Governor of 
the State or authorized designee and shall be submitted to FNS within 
120 days after publication of these regulations in final form and shall 
remain in effect until terminated.
    (2) The Budget Projection Statement and Program Activity Statement 
shall be signed by the head of the State agency or its chief financial 
officer and submitted as follows:
    (i) The Budget Projection Statement shall be submitted annually, no 
later than August 15 of each year.
    (ii) The Program Activity Statement shall be submitted annually, not 
later than 45 days after the end of the State agency's fiscal year. The 
first report is due 45 days after the end of the State's 1981 fiscal 
year. The first report is not required to contain information that is 
not currently captured by the State agency's information system. State 
agencies shall amend their data gathering systems so that all items can 
be completed on the second report, due for the 1982 fiscal year.
    (3) Changes to the organizational outline required by Sec.  
272.2(c)(2) and the agreements with other agencies outlined in Sec.  
272.2(c)(3)(ii) shall be provided

[[Page 592]]

to FNS as changes occur. The attachments outlined in Sec.  
272.2(c)(3)(i) shall be submitted annually with the Program Activity 
Statement.
    (4) The Quality Control Sampling Plan shall be signed by the head of 
the State agency and submitted to FNS prior to implementation as 
follows:
    (i) According to the timeframes specified in paragraph (e)(4)(ii) of 
this section, prior to each annual review period each State agency shall 
submit any changes in their sampling plan for FNS approval or submit a 
statement that there are no such changes. These submittals shall include 
the statement required by Sec.  275.11(a)(2), if appropriate. The 
Quality Control Sampling Plan in effect for each State agency as of the 
beginning of Fiscal Year 1984 shall be considered submitted and approved 
for purposes of this section, provided that the State agency has 
obtained prior FNS approval of its sampling plan.
    (ii) Initial submissions of and major changes to sampling plans and 
changes in sampling plans resulting from general changes in procedure 
shall be submitted to FNS for approval at least 60 days prior to 
implementation. Minor changes to approved sampling plans shall be 
submitted at least 30 days prior to implementation.
    (5) Disaster Plan. [Reserved]
    (6) The Nutrition Education Plan shall be signed by the head of the 
State agency and submitted prior to funding of nutrition education 
activities when the State agency elects to request Federal 
administrative matching funds to conduct Nutrition Education Programs. 
The plan shall then be submitted annually no later than August 15. The 
initial submission may be for a period of less than or more than a year 
in order to meet the August 15 deadline.
    (7) Where applicable, State agencies shall consult (on an ongoing 
basis) with the tribal organization of an Indian reservation about those 
portions of the State Plan of Operation pertaining to the special needs 
of the members of the tribe.
    (8) ADP/CIS Plan. The ADP/CIS Plan shall be signed by the head of 
the State agency and submitted to FNS by October 1, 1987. State agencies 
which require additional time to complete their ADP/CIS plan may submit 
their plan in two phases as described in Sec.  272.10(a)(2), with the 
first part of the plan being submitted October 1, 1987. State agencies 
requiring additional time shall submit the second part of their plans by 
January 1, 1988. If FNS requests additional information to be provided 
in the State agency ADP/CIS Plan or if FNS requests that changes be made 
in the State agency ADP/CIS Plan, State agencies must comply with FNS 
comments and submit an approvable ADP/CIS Plan within 60 days of their 
receipt of the FNS comments but in no event later than March 1, 1988. 
Requirements for the ADP/CIS plan are specified in Sec.  272.10.
    (9) The Employment and Training Plan shall be submitted as specified 
under Sec.  273.7(c)(7).
    (f) Revisions. Revisions to any of the planning documents or the 
Program and Budget Summary Statement shall be prepared and submitted for 
approval to the appropriate FNS Regional Office in the same manner as 
the original document. However, revisions to the budget portion of the 
Budget Projection Statement and Program Activity Statement shall be 
submitted as follows:
    (1) Program funds. (i) For program funds, State agencies shall 
request prior approvals promptly from FNS for budget revisions whenever:
    (A) The revision indicates the need for additional Federal funding;
    (B) The program budget exceeds $100,000, and the cumulative amount 
of transfers among program functions exceeds or is expected to exceed 
five percent of the program budget. The same criteria apply to the 
cumulative amount of transfers among functions and activities when 
budgeted separately for program funds provided to a sub agency, except 
that FNS shall permit no transfer which would cause any Federal 
appropriation, or part thereof, to be used for purposes other than those 
intended;
    (C) The revisions involve the transfer of amounts budgeted for 
indirect costs to absorb increases in direct costs; or
    (D) The revisions pertain to the addition of items requiring prior 
approval by FNS in accordance with the provisions of the applicable cost 
principles

[[Page 593]]

specified in part 277 appendix A of the regulations.
    (ii) No other changes to the Program fund budget require approval 
from FNS. Examples of changes which do not require Federal approval are: 
The use of State agency funds to accomplish program objectives over and 
above the State agency minimum share included in the approved Program 
budget; and the transfer of amounts budgeted for direct costs to absorb 
authorized increases in indirect costs.
    (iii) The requirements of paragraph (f)(1)(i)(B) of this section may 
be waived by FNS provided that:
    (A) No different limitation or approval requirement may be imposed; 
and,
    (B) FNS shall not permit a transfer which would cause any Federal 
appropriation, or part, thereof, to be used for purpose other than those 
intended.
    (2) Authorized funds exceeding State agency needs. When it becomes 
apparent that the funds authorized by the Letter of Credit will exceed 
the needs of the State agency, FNS will make appropriate adjustments in 
the Letter of Credit in accordance with part 277.
    (3) Method of requesting approvals. When requesting approval for 
budget revisions, State agencies shall use the same format as the Budget 
Projection Statement used in the previous submission. However, State 
agencies may request by letter the approvals required by paragraph 
(f)(1)(i)(D) of this section.
    (4) Notification of approval or disapproval. Within 30 days from the 
date of receipt of the request for budget revisions, FNS shall review 
the request and notify the State agency whether or not the budget 
revisions have been approved. If the revision is still under 
consideration at the end of 30 days, FNS shall inform the State agency 
in writing as to when the decision will be made.

[Amdt. 156, 46 FR 6315, Jan. 21, 1981]

    Editorial Note: For Federal Register citations affecting Sec.  
272.2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  272.3  Operating guidelines and forms.

    (a) Coverage of operating guidelines. State agencies shall prepare 
and provide to staff responsible for administering the Program written 
operating procedures. In those States which have State regulations that 
outline these Operating Procedures, these are equivalent to Operating 
Guidelines. Other examples of Operating Guidelines are manuals, 
instructions, directives or transmittal memos. The following categories 
shall be included in the Operating Guidelines:
    (1) Certification of households, including but not limited to:
    (i) Application processing;
    (ii) Nonfinancial eligibility standards;
    (iii) Financial criteria and the eligibility determination;
    (iv) Actions resulting from eligibility determinations;
    (v) Determining eligibility of special situation households as 
specified in Sec.  273.11;
    (vi) Additional certification functions such as processing changes 
during certification periods and reporting requirements for households;
    (vii) Lost benefits/claims against households;
    (viii) Fair/fraud hearings;
    (ix) A list of Federal and State energy assistance programs that 
qualify for the resource and income exclusions discussed in Sec.  
273.8(e)(14) and Sec.  273.9(c)(11) and how these payments are 
identified as being eligible for the exemption;
    (x) Work registration and employment and training requirements.
    (2) Issuance, accountability, and reconciliation;
    (3) The Performance Reporting System, including instructions or di 
rectives for conducting quality control and management evaluation 
reviews and the quality control sample plan;
    (4) A description of the training program, including a listing of 
the organizational component which conducts training, to whom and how 
often training is provided;
    (5) The fair/fraud hearing procedures if not included in the 
Certification Handbook.

[[Page 594]]

    (6) The consultation process (where applicable) with the tribal 
organization of an Indian reservation about the State Plan of Operation 
and Operating Guidelines in terms of the special needs of members of the 
tribe and the method to be used for incorporating the comments from the 
tribal organization into the State Plan of Operations and Operating 
Guidelines.
    (b) Submittal of operating guidelines and forms. (1) State agencies 
shall develop the necessary forms, except the Application for Food 
Stamps, and other operating guidelines to implement the provisions of 
the Food Stamp Act and regulations. In accordance with Sec.  273.2(b) 
and Sec.  273.12(b)(1) State agencies shall use the FNS-designed 
Application for Food Stamps or an FNS-approved deviation.
    (2) State agencies shall submit their operating guidelines and forms 
and amendments to these materials to FNS for review and audit purposes 
simultaneous with distribution within the States.
    (3) State agencies may request that FNS review and provide comments 
on their operating guidelines, forms and any amendments to these 
materials prior to distribution of the materials within the State.
    (4) If deficiencies are discovered in a State agency's materials, 
FNS shall provide the State agency with written notification.
    (c) Waivers. (1) The Administrator of the Food and Nutrition Service 
or Deputy Administrator for Family Nutrition Programs may authorize 
waivers to deviate from specific regulatory provisions. Requests for 
waivers may be approved only in the following situations:
    (i) The specific regulatory provision cannot be implemented due to 
extraordinary temporary situations such as a sudden increase in the 
caseload due to the loss of SSI cash-out status;
    (ii) FNS determines that the waiver would result in a more effective 
and efficient administration of the program; or
    (iii) Unique geographic or climatic conditions within a State 
preclude effective implementation of the specific regulatory provision 
and require an alternate procedure; for example, the use of fee agents 
in Alaska to perform many of the duties involved in the certification of 
households including conducting the interviews.
    (2) FNS shall not approve requests for waivers when:
    (i) The waiver would be inconsistent with the provisions of the Act; 
or
    (ii) The waiver would result in material impairment of any statutory 
or regulatory rights of participants or potential participants.
    (3) FNS shall approve waivers for a period not to exceed one year 
unless the waiver is for an on-going situation. If the waiver is 
requested for longer than a year, appropriate justification shall be 
required and FNS will determine if a longer period is warranted and if 
so, the duration of the waiver. Extensions may be granted provided that 
States submit appropriate justification as part of the State Plan of 
Operation.
    (4) When submitting requests for waivers, State agencies shall 
provide compelling justification for the waiver in terms of how the 
waiver will improve the efficiency and effectiveness of the 
administration of the Program. At a minimum, requests for waivers shall 
include but not necessarily be limited to:
    (i) Reasons why the waiver is needed;
    (ii) The portion of caseload or potential caseload which would be 
affected and the characteristics of the affected caseload such as 
geographic, urban, or rural concentration;
    (iii) Anticipated impact on service to participants or potential 
participants who would be affected;
    (iv) Anticipated time period for which the waiver is needed; and
    (v) Thorough explanation of the proposed alternative provision to be 
used in lieu of the waived regulatory provision.
    (5) Notwithstanding the preceding paragraphs, waivers of the 
certification period timeframes as described in Sec.  273.10(f) may be 
granted by the Administrator of the Food and Nutrition Service or the 
Deputy Administrator for Family Nutrition Programs as provided in 
section 3(c) of the Act. Waivers authorized by this paragraph are not 
subject to the public comment provisions of Sec.  272.3(d).

[[Page 595]]

    (6) Notwithstanding the preceding paragraphs, waivers may be granted 
by the Administrator of the Food and Nutrition Service or the Deputy 
Administrator for Family Nutrition Programs as provided in section 5(f) 
of the Act. Waivers authorized by this paragraph are not subject to the 
public comment provisions of Sec.  272.3(d).
    (7) Notwithstanding the preceding paragraphs, waivers may be granted 
by the Administrator of the Food and Nutrition Service or the Deputy 
Administrator for Family Nutrition Programs as provided in section 6(c) 
of the Act. Waivers authorized by this paragraph are not subject to the 
public comment provisions of Sec.  272.3(d).
    (d) Public comment. State agencies shall solicit public input and 
comment on overall Program operations as State laws require or as the 
individual State agency believes would be useful.

[Amdt. 156, 46 FR 6315, Jan. 21, 1981]

    Editorial Note: For Federal Register citations affecting Sec.  
272.3, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  272.4  Program administration and personnel requirements.

    (a) Merit personnel. (1) State agency personnel used in the 
certification process shall be employed in accordance with the current 
standards for a merit system of personnel administration or any 
standards later prescribed by the U.S. Civil Service Commission under 
section 208 of the Intergovernmental Personnel Act of 1970.
    (2) State agency employees meeting the standards outlined in 
paragraph (a)(1) of this section shall perform the interviews required 
in Sec.  273.2(e). Volunteers and other non-State agency employees shall 
not conduct certification interviews or certify food stamp applicants. 
Exceptions to the use of State merit system personnel in the interview 
and certification process are specified in Sec.  273.2(k) for SSI 
households, Sec.  272.7(d) for households residing in rural Alaska, and 
part 280 for disaster victims. State agencies are encouraged to use 
volunteers in activities such as outreach, prescreening, assisting 
applicants in the application and certification process, and in securing 
needed verification. Individuals and organizations who are parties to a 
strike or lockout, and their facilities, may not be used in the 
certification process except as a source of verification for information 
supplied by the applicant. Only authorized employees of the State 
agency, coupon issuers, coupon bulk storage points, and Federal 
employees involved in administration of the program shall be permitted 
access to food coupons, ATP's, or other issuance documents.
    (b) Bilingual requirements. (1) Based on the estimated total number 
of low-income households in a project area which speak the same non-
English language (a single-language minority), the State agency shall 
provide bilingual program information and certification materials, and 
staff or interpreters as specified in paragraphs (b) (2) and (3) of this 
section. Single-language minority refers to households which speak the 
same non-English language and which do not contain adult(s) fluent in 
English as a second language;
    (2) The State agency shall provide materials used in Program 
informational activities in the appropriate language(s) as follows:
    (i) In project areas with less than 2,000 low-income households, if 
approximately 100 or more of those households are of a single-language 
minority;
    (ii) In project areas with 2,000 or more low-income households, if 
approximately 5 percent or more of those households are of a single-
language minority; and
    (iii) In project areas with a certification office that provides 
bilingual service as required in paragraph (b)(3) of this section.
    (3) The State agency shall provide both certification materials in 
the appropriate language(s) and bilingual staff or interpreters as 
follows:
    (i) In each individual certification office that provides service to 
an area containing approximately 100 single-language minority low-income 
households; and
    (ii) In each project area with a total of less than 100 low-income 
households if a majority of those households are of a single-language 
minority.
    (A) Certification materials shall include the food stamp application 
form,

[[Page 596]]

change report form and notices to households.
    (B) If notices are required in only one language other than English, 
notices may be printed in English on one side and in the other language 
on the reverse side. If the certification office is required to use 
several languages, the notice may be printed in English and may contain 
statements in other languages summarizing the purpose of the notice and 
the telephone number (toll-free number or a number where collect calls 
will be accepted for households outside the local calling area) which 
the household may call to receive additional information. For example, a 
notice of eligibility could in the appropriate language(s) state:

    Your application for food stamps has been approved in the amount 
stated above. If you need more information telephone ----------.

    (4) In project areas with a seasonal influx of non-English-speaking 
households, the State agency shall provide bilingual materials and staff 
or interpreters, if during the seasonal influx the number of single-
language minority low-income households which move into the area meets 
or exceeds the requirements in paragraphs (b) (2) and (3) of this 
section.
    (5) The State agency shall insure that certification offices subject 
to the requirements of paragraph (b) (3) or (4) of this section provide 
sufficient bilingual staff or interpreters for the timely processing of 
non-English-speaking applicants.
    (6) The State agency shall develop estimates of the number of low-
income single-language minority households, both participating and not 
participating in the program, for each project area and certification 
office by using census data (including the Census Bureau's Current 
Population Report: Population Estimates and Projections, Series P-25, 
No. 627) and knowledge of project areas and areas serviced by 
certification offices. Local Bureau of Census offices, Community 
Services Administration offices, community action agencies, planning 
agencies, migrant service organizations, and school officials may be 
important sources of information in determining the need for bilingual 
service. If these information sources do not provide sufficient 
information for the State agency to determine if there is a need for 
bilingual staff or interpreters, each certification office shall, for a 
6-month period, record the total number of single-language minority 
households that visit the office to make inquiries about the program, 
file a new application for benefits, or be recertified. Those 
certification offices that are contacted by a total of over 100 single-
language minority households in the 6-month period shall be required to 
provide bilingual staff or interpreters. State agencies shall also 
combine the figures collected in each certification office to determine 
the need for bilingual outreach materials in each proj ect area.
    (c) Internal controls--(1) Requirements. In order to safeguard 
certification and issuance records from unauthorized creation or 
tampering, the State agency shall establish an organizational structure 
which divides the responsibility for eligibility determinations and 
coupon issuance among certification, data management, and issuance 
units. The certification unit shall be responsible for the determination 
of household eligibility and the creation of records and documents to 
authorize the issuance of coupons to eligible households. The data 
management unit, in response to input from the certification unit, shall 
create and maintain the household issuance record (HIR) master file on 
cards, computer discs, tapes, or similar memory devices. The issuance 
unit shall provide certified households with the authorized allotments. 
In cases where personnel are periodically, or on a part-time basis, 
shifted from one unit to another, supervisory controls should be 
sufficient to assure that the unauthorized creation or modification of 
case records is not possible.
    (2) Exceptions. With prior written FNS approval, a project area may 
combine unit responsibilities if the controls specified in paragraph 
(c)(1) of this section have been found to be administratively 
infeasible.
    (i) To receive approval of combined operations, the State agency 
shall establish special review requirements which at a minimum include:
    (A) Biweekly reconciliation and verification of transactions; and

[[Page 597]]

    (B) Semiannual comparison of HIR cards and case records as required 
by Sec.  274.6(d) and, at least once every other month, second-party 
review of certification actions.
    (ii) The State agency shall annually determine whether each combined 
operation continues to be justified and shall so advise FNS in writing.
    (d) Court suit reporting. (1) State agency responsibility. (i) In 
the event that a State agency is sued by any person(s) in a State or 
Federal Court in any matter which involves the State agency's 
administration of the Food Stamp Program, the State agency shall 
immediately notify FNS that suit has been brought and shall furnish FNS 
with copies of the original pleadings. State agencies involved in suits 
shall, upon request of FNS, take such action as is necessary to join the 
United States and/or appropriate officials of the Federal Government, 
such as the Secretary of USDA or the Administrator of FNS, as parties to 
the suit. FNS may request to join the following types of suits:
    (A) Class action suits;
    (B) A suit in which an adverse decision could have a national 
impact;
    (C) A suit challenging Federal policy such as a provision of the Act 
or regulations or an interpretation of the regulations; or,
    (D) A suit based on an empirical situation that is likely to recur.
    (ii) FNS may advise a State agency to seek a settlement agreement of 
a court suit if the State agency is being sued because it misapplied 
Federal policy in administering the Program.
    (iii) State agencies shall notify FNS when court cases have been 
dismissed or otherwise settled. State agencies shall also provide FNS 
with information that is requested regarding the State agency's 
compliance with the requirements of court orders or settlement 
agreements.
    (2) FNS shall notify all State agencies of any suits brought in 
Federal court that involve FNS' administration of the Program and which 
have the potential of affecting many State agencies' Progam operations. 
(State agencies need not be notified of suits brought in Federal Court 
involving FNS' administration of the Program which may only affect 
Program operations in one or two States.) The notification provided to 
State agencies shall contain a description of the Federal policy that is 
involved in the litigation.
    (e) State monitoring of duplicate participation. (1) Each State 
agency shall establish a system to assure that no individual 
participates more than once in a month, in more than one jurisdiction, 
or in more than one household within the State in the Food Stamp 
Program. To identify such individuals, the system shall use names and 
social security numbers at a minimum, and other identifiers such as 
birth dates or addresses as appropriate.
    (i) If the State agency detects a large number of duplicates, it 
shall implement other measures, such as more frequent checks or 
increased emphasis on prevention.
    (ii) If the State agency provides cash assistance in lieu of coupons 
for SSI recipients or for households participating in cash-out 
demonstration projects, the State agency shall check to assure that no 
individual receives both coupons and other benefits provided in lieu of 
coupons. Checks to detect individuals receiving both food coupons and 
cash-out benefits, or any other form of duplicate benefits, shall be 
made at the time of certification, recertification, and whenever a new 
member is added to an existing household. However, if the State agency 
can show that these time frames are incompatible with its system, the 
State agency shall check for duplicate benefits when necessary, but no 
less often than annually.
    (2) Processing standards for duplicate participation checks at 
certification and recertification shall not delay the issuance of 
benefits.
    (i) If the State agency chooses to check at the time of 
certification and recertification, the check for duplicates shall not 
delay processing of the application and provision of benefits beyond the 
normal processing standards in Sec.  273.2(g).
    (ii) If a duplicate is found in making such a check, the duplication 
needs to be resolved in accordance with Sec.  273.2(f)(4)(iv) before the 
application can be processed and benefits provided.

[[Page 598]]

Delays in processing caused by this resolution shall be handled in 
accordance with Sec.  273.2(h).
    (3) State agencies shall develop follow-up procedures and corrective 
action requirements, including time frames within which action must be 
taken, to be applied to data obtained from matching for duplicate 
participation. Follow-up actions shall include, but not be limited to, 
the adjustment of benefits and eligibility, filing of claims, 
disqualification hearings, and referrals for prosecution, as 
appropriate.
    (4) FNS reserves the right to review State agencies' use of data 
obtained from matching for duplicate participation and may require State 
agencies to take additional specific action to ensure that such data is 
being used to protect Program integrity.
    (f) Hours of operation. State agencies are responsible for setting 
the hours of operation for their food stamp offices. In doing so, State 
agencies must take into account the special needs of the populations 
they serve including households containing a working person.
    (g) Fraud detection units. State agencies shall establish and 
operate fraud detection units in all project areas in which 5,000 or 
more households participate in the Program. The fraud detection unit 
shall be responsible for detecting, investigating and assisting in the 
prosecution of Program fraud and need not be physically located in each 
5,000 household ``catchment area''. The workers fulfilling this function 
need not work full-time in fraud detection nor work exclusively on the 
Program. A written State agency procedure which systematically 
identifies and refers potential fraud cases to Investigators shall be 
considered a ``detection'' activity meeting the requirements of this 
section. The fraud detection function may be performed by persons not 
employed by the State agency.

[Amdt. 132, 43 FR 47884, Oct. 17, 1978, as amended by Amdt. 221, 47 FR 
35168, Aug. 13, 1982; Amdt. 211, 47 FR 53315, Nov. 26, 1982; Amdt. 237, 
47 FR 57668, 57669, Dec. 28, 1982; Amdt. 262, 49 FR 50597, Dec. 31, 
1984; 54 FR 7003, Feb. 15, 1989; 54 FR 24527, June 7, 1989; Amdt. 320, 
55 FR 6238, Feb. 22, 1990; Amdt. 371, 61 FR 60010, Nov. 26, 1996; Amdt. 
388, 65 FR 70192, Nov. 21, 2000]



Sec.  272.5  Program informational activities.

    (a) Definition. ``Program informational activities'' are those 
activities that convey information about the Program, including 
household rights and responsibilities, through means such as 
publications, telephone hotlines, and face-to-face contacts.
    (b) Minimum requirements. State agencies shall comply with the 
following minimum information requirements for applicants and 
recipients.
    (1) Nutrition information. FNS must encourage State agencies to 
develop Nutrition Education Plans as specified at Sec.  272.2(d)(2) to 
inform applicant and participant households about the importance of a 
nutritious diet and the relationship between diet and health.
    (2) State agencies shall encourage program participants to 
participate in the Expanded Food and Nutrition Education Program (EFNEP) 
and, wherever practicable, allow EFNEP personnel to come into food stamp 
offices to distribute informational materials and speak with food stamp 
recipients.
    (3) Rights and responsibilities. State agencies shall inform 
participant and applicant households of their Program rights and 
responsibilities. This information may be provided through whatever 
means the State agencies deem appropriate.
    (4) All Program informational material shall be available in 
languages other than English as required in Sec.  272.4(b) and shall 
include a statement that the Program is available to all without regard 
to race, color, sex, age, handicap, religious creed, national origin or 
political belief.
    (c) Program informational activities for low-income households. At 
their option State agencies may carry out and claim associated costs for 
Program informational activities designed to inform low-income 
households about the availablity, eligibility requirements, application 
procedures, and benefits of the Food Stamp Program. Program 
informational materials used in such activities shall be subject to 
Sec.  272.4(b), which pertains to bilingual requirements. Before FNS 
considers costs for such activities eligible for reimbursement at the 
fifty percent rate under part 277, State agencies shall obtain

[[Page 599]]

FNS approval for the attachment to their Plans of Operation as specified 
in Sec.  272.2(d)(1)(ix). In such attachments, State agencies shall 
describe the subject activities with respect to the socio-economic and 
demographic characteristics of the target population, types of media 
used, geographic areas warranting attention, and outside organizations 
which would be involved. State agencies shall update this attachment to 
their Plans of Operation when significant changes occur and report 
projected costs for this Program activity in accordance with Sec.  272.2 
(c), (e), and (f).

[Amdt. 207, 47 FR 52334, Nov. 19, 1982. Redesignated by Amdt. 211, 47 FR 
53316, Nov. 26, 1982; Amdt. 262, 49 FR 50597, Dec. 31, 1984; 52 FR 
36398, Sept. 29, 1987; 54 FR 24527, June 7, 1989; Amdt. 320, 55 FR 6239, 
Feb. 22, 1990]



Sec.  272.6  Nondiscrimination compliance.

    (a) Requirement. State agencies shall not discriminate against any 
applicant or participant in any aspect of program administration, 
including, but not limited to, the certification of households, the 
issuance of coupons, the conduct of fair hearings, or the conduct of any 
other program service for reasons of age, race, color, sex, handicap, 
religious creed, national origin, or political beliefs. Discrimination 
in any aspect of program administration is prohibited by these 
regulations, the Food Stamp Act, the Age Discrimination Act of 1975 
(Pub. L. 94-135), the Rehabilitation Act of 1973 (Pub. L. 93-112, 
section 504), and title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d). Enforcement action may be brought under any applicable Federal 
law. Title VI complaints shall be processed in accord with 7 CFR part 
15.
    (b) Right to file a complaint. Individuals who believe that they 
have been subject to discrimination as specified in paragraph (a) of 
this section may file a written complaint with the Secretary or the 
Administrator, FNS, Washington, DC 20250, and/or with the State agency, 
if the State agency has a system for processing discrimination 
complaints. The State agency shall explain both the FNS and, if 
applicable, the State agency complaint system to each individual who 
expresses an interest in filing a discrimination complaint and shall 
advise the individual of the right to file a complaint in either or both 
systems.
    (c) FNS complaint requirements. (1) Complaints shall contain the 
following information to facilitate investigations:
    (i) The name, address, and telephone number or other means of 
contacting the person alleging discrimination.
    (ii) The location and name of the organization or office which is 
accused of discriminatory practices.
    (iii) The nature of the incident or action or the aspect of program 
administration that led the person to allege discrimination.
    (iv) The reason for the alleged discrimination (age, race, color, 
sex, handicap, religious creed, national origin, or political belief).
    (v) The names, titles (if appropriate), and addresses of persons who 
may have knowledge of the alleged discriminatory acts.
    (vi) The date or dates on which the alleged discriminatory actions 
occurred.
    (2) If a complainant makes allegations verbally and is unable or is 
reluctant to put the allegations in writing, the FNS employee to whom 
the allegations are made shall document the complaint in writing. Every 
effort shall be made by the individual accepting the complaint to have 
the complainant provide the information specified in paragraph (c)(1) of 
this section.
    (3) Complaints will be accepted by the Secretary or the 
Administrator, FNS, even if the information specified in paragraph 
(c)(1) of this section is not complete. However, investigations will be 
conducted only if information concerning paragraphs (c)(1) (ii), (iii) 
or (iv) of this section is provided.
    (4) A complaint must be filed no later than 180 days from the date 
of the alleged discrimination. However, the time for filing may be 
extended by the Secretary.
    (d) State agency complaint requirements. (1) The State agency may 
develop and use a State agency complaint system.
    (2) The State agency shall submit to FNS a report on each 
discrimination complaint processed at the State level.

[[Page 600]]

The report shall contain as much information in paragraph (c)(1) of this 
section as is available to the State agency, the findings of the 
investigation, and, if appropriate, the corrective action planned or 
taken.
    (e) Reviews. [Reserved]
    (f) Public notification. The State agency shall: (1) Publicize the 
procedures described in paragraphs (b) and (c) of this section, and, if 
applicable, the State agency's complaint procedures; (2) insure that all 
offices involved in administering the program and that also serve the 
public display the nondiscrimination poster provided by FNS; and (3) 
insure that participants and other low-income households have access to 
information regarding nondiscrimination statutes and policies, complaint 
procedures, and the rights of participants, within 10 days of the date 
of a request.
    (g) Data collection. The State agency shall obtain data on 
households by racial/ethnic category. The racial/ethnic categories are: 
American Indian or Alaskan Native, Asian or Pacific Islander, black (not 
of Hispanic origin), Hispanic, and white (not of Hispanic origin). The 
State agency may request applicants to identify voluntarily their race 
or ethnicity on the application form. The application form in these 
States shall clearly indicate that the information is voluntary, that it 
will not affect eligibility or the level of benefits, and that the 
reason for the information is to assure that program benefits are 
distributed without regard to race, color, or national origin. The State 
agency shall develop alternative means of providing the racial and 
ethnic data on households, such as by observation during the interview, 
when the information is not voluntarily provided by the household on the 
application form.
    (h) Reports. As required by FNS, the State agency shall report the 
racial/ethnic data on participating households on forms provided by FNS.

[Amdt. 132, 43 FR 47884, Oct. 17, 1979. Redesignated by Amdt. 211, 47 FR 
53315, Nov. 26, 1982, as amended by Amdt. 356, 59 FR 29713, June 9, 
1994]



Sec.  272.7  Procedures for program administration in Alaska.

    (a) Purpose. To achieve the efficient and effective administration 
of the Food Stamp Program in rural areas of Alaska, FNS has determined 
that it is necessary to develop additional regulations which are 
specifically designed to accommodate the unique demographic and climatic 
characteristics which exist in these rural areas. The regulations 
established in this section, except for paragraph (f) of this section, 
shall apply only in those areas of Alaska designated as ``rural'' in 
paragraph (b) of this section. All regulations not specifically modified 
by this section shall remain in effect.
    (b) Area Designations. (1) Rural I Alaska TFP refers to a Thrifty 
Food Plan (TFP) that is the higher of the TFP that was in effect in each 
area on October 1, 1985, or 28.52 percent higher than the Anchorage TFP, 
as calculated by FNS, with rounding and other reductions that are 
appropriate. It is to be used in the following areas: In all places in 
Kodiak Island Borough with the exception of Kodiak; in all places in the 
Kenai Peninsula Borough that are west of Cook Inlet (including Tyonek, 
Kustatan, Kalgin Island, Iliamna, Chenik, and Augustine Island) and 
Chugach Island, English Bay, Port Graham, Portlock, Pt. Gore, Pye 
Island, and Seldovia. In the Yukon-Koyukuk Census Area, the city of 
Nenana; and Skwentna in the Matanuska-Susitna Borough. In the Valdez-
Cordova Census Area, all places except Dayville and Valdez; and in the 
Southeast Fairbanks Census Area all places except Big Delta, Delta 
Junction, and Fort Greely. In the Skagway-Yakutat-Angoon Census Area, 
all places except Skagway; in Sitka Borough all places except Sitka; in 
the Wrangell-Petersburg Census Area, all places except Wrangell and 
Petersburg; in the Ketchikan Gateway Borough, all places except 
Ketchikan, Saxman, and Ward Cove; in the Prince of Wales-Outer Ketchikan 
Census Area, all places except Craig, Hyder, and Metlakatla.
    (2) Rural II Alaska TFP refers to a TFP that is 56.42 percent higher 
than the Anchorage TFP, as calculated by

[[Page 601]]

FNS, with rounding and other reductions that are appropriate. It is to 
be used in the following areas: North Slope Borough; Kobuk Census Area; 
Nome Census Area; Yukon-Koyukuk Census Area except for the city of 
Nenana; Wade Hampton Census Area; Bethel Census Area; Denali in the 
Matanuska-Susitna Borough; Dillingham-Bristol Bay Borough; and in all 
places in the Aleutian Islands except for Cold Bay and Adak.
    (3) Urban Alaska TFP refers to a TFP that is the higher of the TFP 
that was in effect in each area on October 1, 1985, or .79 percent 
higher than the Anchorage TFP, as calculated by FNS, with rounding and 
other reductions that are appropriate. It is to be used in the following 
areas: Cold Bay and Adak in the Aleutian Islands; Kodiak in Kodiak 
Island Borough; Valdez and Dayville in the Valdez-Cordova Census Area; 
all places in Kenai Peninsula Borough that are on the Kenai Peninsula 
except for those specifically designated as Rural I; the entire 
Anchorage Borough; the entire Matanuska-Susitna Borough except for 
Denali and Skwentna; the entire Fairbanks-North Star Borough; the entire 
Juneau Borough; the entire Haines Borough; Sitka in the Sitka Borough; 
Skagway in the Skagway-Yakutat-Angoon Census Area; Wrangell and 
Petersburg in the Wrangell-Petersburg Census Area; Ketchikan, Saxman, 
and Ward Cove in the Ketchikan-Gateway Borough; Craig, Hyder, and 
Metlakatla in the Prince of Wales-Outer Ketchikan Census Area; and Big 
Delta, Delta Junction, and Fort Greely in the Southeast-Fairbanks Census 
Area.
    (4) The State agency may, in consultation with FNS, change the 
designation of any Alaska subdivision contained in the Plan of Operation 
to reflect changes in demographics or the cost of food within the 
subdivision.
    (c) Fee agents. ``Fee agent'' means a paid agent who, on behalf of 
the State, is authorized to make applications available to low-income 
households, assist in the completion of applications, conduct required 
interviews, secure required verification, forward completed applications 
and supporting documentation to the State agency, and provide other 
services as required by the State agency. Such services shall not 
include making final decisions on household eligibility or benefit 
levels.
    (d) Application processing. The State agency may modify the 
application processing requirements in Sec.  273.2 of this chapter as 
necessary to insure prompt delivery of services to eligible households. 
The following restrictions apply:
    (1) Fee agent processing. If the signed application is first 
submitted by a household to a fee agent, the fee agent shall mail the 
application to the State agency within 5 days of receipt. The fee agent 
shall give the household the maximum amount of time to provide needed 
verification as long as the five-day processing period is met.
    (2) Application filing date. An application is considered filed for 
purposes of timely processing when it is received by an office of the 
State agency.
    (3) Application processing timeframes. Eligible households must be 
provided an opportunity to participate as soon as possible but no later 
than 30 days after the application is received by an office of the State 
agency.
    (4) Expedited service. (i) If the signed application is first 
submitted by a household to a fee agent, the fee agent shall mail the 
application to the State agency within 5 days of receipt. If the 
household is eligible for expedited service, the State agency will mail 
the coupons no later than the close of business of the second working 
day following the date the application was received by the State agency.
    (ii) If the signed application is submitted directly to the State 
agency in person by a rural resident or its authorized representative or 
by mail, the State agency shall process the application and issue 
coupons to households eligible for expedited service in accordance with 
the time standards contained in Sec.  273.2(i)(3) of this chapter.
    (iii) If an incomplete application is submitted directly to the 
State agency by mail, the State agency shall conduct the interview by 
the first working day following the date the application was received if 
the fee agent can contact the household or the household can be reached 
by telephone or radio-

[[Page 602]]

phone and does not object to this method of interviewing on grounds of 
privacy. Based on information obtained during the interview, the State 
agency shall complete the application and process the case. Because of 
the mailing time in rural areas, the State agency shall not return the 
completed application to the household for signature. The processing 
standard shall be calculated from the date the application was filed.
    (5) SSI Joint Processing. SSA workers shall mail all jointly 
processed applications to the appropriate State agency office within 5 
days of receipt of the application. A jointly processed application 
shall be considered filed for purposes of timely processing when it is 
received by an office of the State agency. The household, if determined 
eligible, shall receive benefits retroactive to the first day of the 
month in which the jointly processed application was received by the SSA 
worker.
    (6) Interviews. The State agency shall interview applicant 
households in the most efficient manner possible, either by face-to-face 
contact, telephone, radiophone, or other means of correspondence 
including written correspondence. In instances in which an interview 
cannot be conducted, the State agency may postpone the interview until 
after the household is certified.
    (e) Determining household eligibility and benefit level. If a 
household submits its application to a fee agent, it shall, if eligible, 
receive benefits retroactive to the date the application is received by 
the fee agent. If a household submits its application directly to a 
State agency office, it shall, if determined eligible, receive benefits 
retroactive to the date the application is received by the State agency.
    (f) Vehicles. In areas of the State where there are no licensing 
requirements, snowmobiles and boats used by the household for basic 
transportation shall be evaluated in accordance with Sec.  273.8(h) of 
this chapter even though they are unlicensed. Vehicles necessary for 
subsistence hunting and fishing shall not be counted as a household 
resource.
    (g) Reporting changes. The State agency shall allow the household to 
choose to report changes either directly to the State agency or to the 
fee agent. If the household reports the change to the fee agent, the fee 
agent will mail the change report to the State agency office within two 
working days of the date of receipt. The household's obligation to 
report the change will have been met if it submits the change to the fee 
agent within 10 days of the date the change becomes known to the 
household. However, for purposes of State agency action for increasing 
or decreasing benefits, the change will be considered to have been 
reported when it is received by a State agency office.
    (h) Fair hearings, fraud hearings, and agency conferences. The State 
agency shall conduct fair hearings, administrative fraud hearings, and 
agency conferences with households that wish to contest denial of 
expedited service in the most efficient manner possible, either by face-
to-face contact, telephone, radiophone, or other means of correspondence 
including written correspondence, in order to meet the respective time 
standards contained in Sec.  273.15 and Sec.  273.16 of this chapter.
    (i) Issuance services. With the approval of FNS, coupons may be 
mailed on a quarterly or semiannual basis to certain rural areas of 
Alaska when provisions are not available on a monthly basis. The 
decision to allow the distribution of coupons in this manner will be 
made on an annual basis. These areas shall be listed in the State's Plan 
of Operation. The State agency shall advise households that live in 
rural areas where quarterly or semiannual allotments are authorized. If, 
as the result of the issuance of quarterly or semiannual allotments, 
food coupons are overissued or underissued, the State agency shall 
process claim determinations and restore lost benefits.

[Amdt. 162, 45 FR 73003, Nov. 4, 1980, as amended by Amdt. 202, 46 FR 
44722, Sept. 4, 1981; Amdt. 215, 47 FR 20741, May 14, 1982. Redesignated 
and amended by Amdt. 211, 47 FR 53315, 53316, Nov. 26, 1982]

    Editorial Note: For other Federal Register citations affecting Sec.  
272.7, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.

[[Page 603]]



Sec.  272.8  State income and eligibility verification system.

    (a) General. (1) State agencies may maintain and use an income and 
eligibility verification system (IEVS), as specified in this section. By 
means of the IEVS, State agencies may request wage and benefit 
information from the agencies identified in this paragraph (a)(1) and 
use that information in verifying eligibility for and the amount of food 
stamp benefits due to eligible households. Such information may be 
requested and used with respect to all household members, including any 
considered excluded household members as specified in Sec.  273.11(c) of 
this chapter whenever the SSNs of such excluded household members are 
available to the State agency. If not otherwise documented, State 
agencies must obtain written agreements from these information provider 
agencies affirming that they must not record any information about 
individual food stamp households and that staff in those agencies are 
subject to the disclosure restrictions of the information provider 
agencies and Sec.  272.1(c). The information provider agencies, at a 
minimum, are:
    (i) The State Wage Information Collection Agency (SWICA) which 
maintains wage information;
    (ii) The Social Security Administration (SSA) which maintains 
information about net earnings from self-employment, wages, and payments 
of retirement income, which is available pursuant to section 
6103(1)(7)(A) of the Internal Revenue Service (IRS) Code; and 
information which is available from SSA regarding Federal retirement, 
and survivors, disability, SSI and related benefits;
    (iii) The IRS from which unearned income information is available 
pursuant to section 6103(1)(7)(B) of the IRS Code; and
    (iv) The agency administering Unemployment Insurance Benefits (UIB) 
which maintains claim information and any information in addition to 
information about wages and UIB available from the agency which is 
useful for verifying eligibility and benefits, subject to the provisions 
and limitations of section 303(d) of the Social Security Act.
    (2) State agencies may exchange with State agencies administering 
certain other programs in the IEVS information about food stamp 
households' circumstances which may be of use in establishing or 
verifying eligibility or benefit amounts under the Food Stamp Program 
and those programs. State agencies may exchange such information with 
these agencies in other States when they determine that the same 
objectives are likely to be met. These programs are:
    (i) Temporary Assistance for Needy Families;
    (ii) Medicaid;
    (iii) Unemployment Compensation (UC);
    (iv) Food Stamps; and
    (v) Any State program administered under a plan approved under title 
I, X, or XIV (the adult categories), or title XVI of the Social Security 
Act.
    (3) State agencies must provide information to those administering 
the Child Support Program (title IV-D of the Social Security Act) and 
titles II (Federal Old Age, Survivors, and Disability Insurance 
Benefits) and XVI (Supplemental Security Income for the Aged, Blind, and 
Disabled) of the Social Security Act.
    (4) Prior to requesting or exchanging information with other 
agencies, State agencies must execute data exchange agreements with 
those agencies. The agreements must specify the information to be 
exchanged and the procedures which will be used in the exchange of 
information. These agreements are not part of the State agency's Plan of 
Operation.
    (b) Alternate data sources. A State agency may continue to use 
income information from an alternate source or sources to meet any 
requirement under paragraph (a) of this section.
    (c) Actions on recipient households. (1) State agency action on 
information items about recipient households shall include:
    (i) Review of the information and comparison of it to case record 
information;
    (ii) For all new or previously unverified information received, 
contact with the households and/or collateral contacts to resolve 
discrepancies

[[Page 604]]

as specified in Sec. Sec.  273.2(f)(4)(iv) and 273.2 (f)(9)(iii) and 
(f)(9)(iv); and
    (iii) If discrepancies warrant reducing benefits or terminating 
eligibility, notices of adverse action.
    (2) State agencies must initiate and pursue the actions on recipient 
households specified in paragraph (c)(1) of this section so that the 
actions are completed within 45 days of receipt of the information 
items. Actions may be completed later than 45 days from the receipt of 
information if:
    (i) The only reason that the actions cannot be completed is the 
nonreceipt of verification requested from collateral contacts; and
    (ii) The actions are completed as specified in Sec.  273.12 of this 
chapter when verification from a collateral contact is received or in 
conjunction with the next case action when such verification is not 
received, whichever is earlier.
    (3) When the actions specified in paragraph (c)(1) of this section 
substantiate an overissuance, State agencies must establish and take 
actions on claims as specified in Sec.  273.18 of this chapter.
    (4) State agencies must use appropriate procedures to monitor the 
timeliness requirements in paragraph (c)(2) of this section.
    (5) Except for the claims actions specified in paragraph (c)(3) of 
this section, State agencies may exclude from the actions required in 
paragraph (c) of this section information items pertaining to household 
members who are participating in one of the other programs listed in 
paragraph (a)(2) of this section.
    (d) IEVS information and quality control. The requirements of this 
section do not relieve the State agency of its responsibility for 
determining erroneous payments and/or its liability for such payments as 
specified in part 275 of this chapter (which pertains to quality 
control) and in guidelines on quality control established under that 
part.
    (e) Documentation. The State agency must document, as required by 
Sec.  273.2(f)(6) of this chapter, information obtained through the IEVS 
both when an adverse action is and is not instituted.

[65 FR 70192, Nov. 21, 2000]



Sec.  272.9  Approval of homeless meal providers.

    The State food stamp agency, or another appropriate State or local 
governmental agency identified by the State food stamp agency, shall 
approve establishments serving the homeless upon sufficient evidence, as 
determined by the agency, that the establishment does in fact serve 
meals to homeless persons. Where the State food stamp agency identifies 
another appropriate State or local agency for the purpose of approving 
establishments serving the homeless, the State food stamp agency will 
remain responsible for insuring that the provisions of the preceding 
sentence are effectively carried out. The State food stamp agency, or 
another appropriate State or local governmental agency identified by the 
State food stamp agency or private nonprofit organization under contract 
with the State food stamp agency shall execute contracts with 
restaurants wishing to sell meals in exchange for food stamp benefits to 
homeless food stamp households. Such contracts shall specify that such 
meals are to be sold at ``concessional'' (low or reduced) prices and 
shall also specify the approximate prices which will be charged, or the 
amount and type of price reduction.

[56 FR 54777, Oct. 23, 1991; 61 FR 53600, Oct. 15, 1996]



Sec.  272.10  ADP/CIS Model Plan.

    (a) General purpose and content--(1) Purpose. All State agencies are 
required to sufficiently automate their food stamp program operations 
and computerize their systems for obtaining, maintaining, utilizing and 
transmitting information concerning the food stamp program. Sufficient 
automation levels are those which result in effective programs or in 
cost effective reductions in errors and improvements in management 
efficiency, such as decreases in program administrative costs. Thus, for 
those State agencies which operate exceptionally efficient and effective 
programs, a lesser degree of automation may be considered sufficient 
than in other State agencies. In order to determine a sufficient level 
of automation in each State, each State

[[Page 605]]

agency shall develop an ADP/CIS plan. FNS may withhold State agency 
funds under Sec.  276.4(a) for failure to submit an ADP/CIS plan in 
accordance with the deadlines for submission, for failure to make 
appropriate changes in their ADP/CIS plan within 60 days of their 
receipt of FNS comments, or for failure to implement the approved ADP/
CIS plan in accordance with the dates specified therein, unless 
extensions of time or deviations from the plan or schedules have been 
approved by FNS.
    (2) Content. In developing their ADP/CIS plans, State agencies shall 
use one of the following three formats:
    (i) State agencies which are sufficiently automated in each area 
specified in Sec.  272.10(b) may provide a single certification 
statement that they are sufficiently automated in each area.
    (ii) State agencies which are sufficiently automated in some, but 
not all, areas specified in Sec.  272.10(b) shall submit an ADP/CIS plan 
which consists of two parts. The first part would be the State agency's 
certification as to the areas in which they are sufficiently automated. 
The second part would describe the areas of Sec.  272.10(b) which the 
State agency has not automated or, in its opinion, has not automated 
sufficiently and include the State agency's plans for sufficiently 
automating these areas. State agencies shall include a description of 
how they intend to automate each area and a timetable for each planned 
activity, including a consideration of transfers as discussed in 
paragraph (a)(3) of this section. State agencies which are not planning 
to automate each of the areas specified Sec.  272.10(b) or which are not 
already automated in these areas shall provide justification. Any such 
justification shall include a cost-effectiveness analysis.
    (iii) State agencies which are not sufficiently automated in any of 
the areas specified in Sec.  272.10(b) shall submit an ADP/CIS plan 
which describes their plans for sufficiently automating each area, 
including a timetable for each planned activity, and including a 
consideration of transfers as discussed in paragraph (a)(3) of this 
section. State agencies which are not planning to automate each of the 
areas specified in Sec.  272.10(b) or which are not, in their opinion, 
sufficiently automated in these areas shall provide justification. Any 
such justification shall include a cost-effectiveness analysis.
    (3) Transfers. (i) State agencies planning additional automation 
shall consult with other State agencies and with the appropriate 
Regional Office to determine whether a transfer or modification of an 
existing system from another jurisdiction would be more efficient and 
cost effective than the development of a new system. In assessing the 
practicability of a transfer, State agencies should consult with other 
State agencies that have similar characteristics such as whether they 
are urban or rural, whether they are county or State administered, the 
geographic size of the States and the size of the caseload.
    (ii) State agencies that plan to automate operations using any 
method other than transfers will need to be able to justify why they are 
not using transfers. The justification will need to include the results 
of the consultations with other State agencies, the relative costs of 
transfer and the system the State agency plans to develop, and the 
reasons for not using a transfer. Common reasons for not using transfers 
include: The State agency is required to use a central data processing 
facility and the (otherwise) transferable system is incompatible with 
it; the State agency's data base management software is incompatible 
with the transferable system; the State agency's ADP experts are not 
familiar with the software/hardware used by the transferable system and 
acquiring new expertise would be expensive; the transferable system is 
interactive or uses ``generic'' caseworkers, the receiving State agency 
does not and it would be expensive to modify the existing system and/or 
procedures; and transfer would provoke disputes with the State agency's 
personnel union. State agencies that cite any of these reasons shall not 
automatically receive approval to develop non-transferred systems. State 
agencies shall show what efforts were considered to overcome the 
problems and that those efforts are cost ineffective. This justification 
will need to be included as part of the Advance Planning Document that 
the State agency must

[[Page 606]]

submit for approval of its proposed system.
    (iii) FNS will assist State agencies that request assistance in 
determining what other States have systems that should be considered as 
possible transfers.
    (b) Model Plan. In order to meet the requirements of the Act and 
ensure the efficient and effective administration of the program, a food 
stamp system, at a minimum, shall be automated in each of the following 
program areas in paragraphs (b)(1), Certification, and (b)(2), Issuance 
Reconciliation and Reporting of this section. The food stamp system must 
further meet all the requirements in paragraph (b)(3), General, of this 
section.
    (1) Certification. (i) Determine eligibility and calculate benefits 
or validate the eligibility worker's calculations by processing and 
storing all casefile information necessary for the eligibility 
determination and benefit computation (including but not limited to all 
household members' names, addresses, dates of birth, social security 
numbers, individual household members' earned and unearned income by 
source, deductions, resources and household size). Redetermine or 
revalidate eligibility and benefits based on notices of change in 
households' circumstances;
    (ii) Identify other elements that affect the eligibility of 
household members such as alien status, presence of an elderly person in 
the household, status of periodic work registration, disqualification 
actions, categorical eligibility, and employment and training status;
    (iii) Provide for an automatic cutoff of participation for 
households which have not been recertified at the end of their 
certification period;
    (iv) Notify the certification unit (or generate notices to 
households) of cases requiring Notices of:
    (A) Case Disposition,
    (B) Adverse Action and Mass Change, and
    (C) Expiration;
    (v) Prior to certification, crosscheck for duplicate cases for all 
household members by means of a comparison with food stamp records 
within the relevant jurisdiction;
    (vi) Meet the requirements of the IEVS system of Sec.  272.8. 
Generate information, as appropriate, to other programs.
    (vii) Provide the capability to effect mass changes: Those initiated 
at the State level, as well as those resulting from changes at the 
Federal level (eligibility standards, allotments, deductions, utility 
standards, SSI, TANF, SAA benefits);
    (viii) Identify cases where action is pending or follow-up must be 
pursued, for example, households and verification pending or households 
containing disqualified individuals or a striker;
    (ix) Calculate or validate benefits based on restored benefits or 
claims collection, and maintain a record of the changes made;
    (x) Store information concerning characteristics of all household 
members;
    (xi) Provide for appropriate Social Security enumeration for all 
required household members; and
    (xii) Provide for monthly reporting and retrospective budgeting as 
required.
    (2) Issuance, reconciliation and reporting. (i) Generate 
authorizations for benefits in issuance systems employing ATP's, direct 
mail, or online issuance and store all Household Issuance Record (HIR) 
information including: name and address of household, household size, 
period of certification, amount of allotment, case type (PA or NA), name 
and address of authorized representative, and racial/ethnic data;
    (ii) Prevent a duplicate HIR from being established for presently 
participating or disqualified households;
    (iii) Allow for authorized under- or over-issuance due to claims 
collection or restored benefits;
    (iv) Provide for reconciliation of all transacted authorization 
documents to the HIR masterfile. This process must incorporate any 
manually-issued authorization documents, account for any replacement or 
supplemental authorization documents issued to a household, and identify 
cases of unauthorized and duplicate participation;
    (v) Provide a mechanism allowing for a household's redemption of 
more than

[[Page 607]]

one valid authorization document in a given month;
    (vi) Generate data necessary to meet Federal issuance and 
reconciliation reporting requirements, and provide for the eventual 
capability of directly transmitting data to FNS including:
    (A) Issuance:
    (1) FNS-259--Summary of mail issuance and replacement;
    (2) FNS-250--Reconciliation of redeemed ATPs with reported 
authorized coupon issuance.
    (B) Reconciliation: FNS-46--ATP Reconciliation Report.
    (vii) Generate data necessary to meet other reporting requirements 
and provide for the eventual capability of directly transmitting data to 
FNS, including:
    (A) FNS-101--Program participation by race;
    (B) FNS-209--Status of claims against households; and
    (C) FNS-388--Coupon issuance and participation estimates.
    (viii) Allow for sample selection for quality control reviews of 
casefiles, and for management evaluation reviews;
    (ix) Provide for program-wide reduction or suspension of benefits 
and restoration of benefits if funds later become available and store 
information concerning the benefit amounts actually issued;
    (x) Provide for expedited issuance of benefits within prescribed 
timeframes;
    (xi) Produce and store a participation history covering three (3) 
year(s) for each household receiving benefits.
    (xii) Provide for cutoff of benefits for households which have not 
been recertified timely; and
    (xiii) Provide for the tracking, aging, and collection of recipient 
claims and preparation of the FNS-209, Status of Claims Against 
Households report.
    (3) General. The following functions shall be part of an overall 
State agency system but need not necessarily be automated:
    (i) All activities necessary to meet the various timeliness and data 
quality requirements established by FNS;
    (ii) All activities necessary to coordinate with other appropriate 
Federal and State programs, such as TANF or SSI;
    (iii) All activities necessary to maintain the appropriate level of 
confidentiality of information obtained from applicant and recipient 
households;
    (iv) All activities necessary to maintain the security of automated 
systems to operate the Food Stamp Program;
    (v) Implement regulatory and other changes including a testing phase 
to meet implementation deadlines, generally within 90 days;
    (vi) Generate whatever data is necessary to provide management 
information for the State agency's own use, such as caseload, 
participation and actions data;
    (vii) Provide support as necessary for the State agency's management 
of Federal funds relative to Food Stamp Program administration, generate 
information necessary to meet Federal financial reporting requirements;
    (viii) Routine purging of case files and file maintenance, and
    (ix) Provide for the eventual direct transmission of data necessary 
to meet Federal financial reporting requirements.

[Amdt. 284, 52 FR 35226, Sept. 18, 1987, as amended by Amdt. 356, 59 FR 
29713, June 9, 1994]



Sec.  272.11  Systematic Alien Verification for Entitlements (SAVE) Program.

    (a) General. A State agency may participate in the SAVE Program 
established by the Immigration and Naturalization Service (INS), in 
order to verify the validity of documents provided by aliens applying 
for food stamp benefits with the central data files maintained by INS.
    (b) Agreements. (1) Prior to implementing the SAVE Program, the 
State agency shall execute an agreement with INS. The agreement shall 
specify the information to be exchanged and the procedures which will be 
used in the exchange of information.
    (2) The agreement shall cover at least the following areas:
    (i) Identification of positions of all agency officials with 
authority to request immigration status information;
    (ii) Identification and location of all SAVE access points covered 
by the agreement;
    (iii) For automated SAVE verification through access to the

[[Page 608]]

Alien Status Verification Index (ASVI), a description of the access 
method and procedures;
    (iv) For secondary verification as described in paragraph (d) of 
this section, the locations of INS District Offices to which 
verification requests will be directed;
    (v) The safeguards limiting release or redisclosure as required by 
State or Federal law or regulation as discussed in Sec.  272.1(c) and as 
may be required by other guidelines published by the Secretary; and
    (vi) Reimbursement or billing agreements for ongoing SAVE 
operational costs, as well as any developmental costs associated with 
establishing access to the ASVI database.
    (c) Use of data. The State agency shall use information obtained 
through the SAVE Program only for the purposes of:
    (1) Verifying the validity of documentation of alien status 
presented by an applicant;
    (2) Verifying an individual's eligibility for benefits;
    (3) Investigating whether participating households received benefits 
to which they were not entitled, if an individual was previously 
certified to receive benefits on the basis of eligible alien status; and
    (4) Assisting in or conducting administrative disqualification 
hearings, or criminal or civil prosecutions based on receipt of food 
stamp benefits to which participating households were not entitled.
    (d) Method of verification. The State agency may verify the 
documentation presented by an alien applicant by completing INS Form G-
845 and submitting photocopies of such documentation to the INS for 
verification as described in Sec.  273.2(f)(10) of this chapter. In 
States that participate in SAVE, the State agency must use this 
secondary verification procedure whenever the applicant-individual's 
documented alien status has not been verified through automated access 
to the ASVI or significant discrepancies exist between the data on the 
ASVI and the information provided by the alien applicant.
    (e) Plan of operation. The requirements for participation in the 
SAVE Program shall be included in an attachment to the State agency's 
Plan of Operation as required in Sec.  272.2(d). This document shall 
include a description of procedures used, method of access and the 
agreement specified in paragraph (b) of this section, including steps 
taken to meet requirements of limiting disclosure and safeguarding of 
information obtained from food stamp households as specified in Sec.  
272.1.

[53 FR 39440, Oct. 7, 1988, as amended at 65 FR 33439, May 24, 2000; 
Amdt. 388, 65 FR 70193, Nov. 21, 2000]



PART 273_CERTIFICATION OF ELIGIBLE HOUSEHOLDS--Table of Contents




Sec.
273.1 Household concept.
273.2 Office operations and application processing.
273.3 Residency.
273.4 Citizenship and alien status.
273.5 Students.
273.6 Social security numbers.
273.7 Work provisions.
273.8 Resource eligibility standards.
273.9 Income and deductions.
273.10 Determining household eligibility and benefit levels.
273.11 Action on households with special circumstances.
273.12 Requirements for change reporting households.
273.13 Notice of adverse action.
273.14 Recertification.
273.15 Fair hearings.
273.16 Disqualification for intentional Program violation.
273.17 Restoration of lost benefits.
273.18 Claims against households.
273.19 [Reserved]
273.20 SSI cash-out.
273.21 Monthly Reporting and Retrospective Budgeting (MRRB).
273.22 [Reserved]
273.23 Simplified application and standardized benefit projects.
273.24 Time limit for able-bodied adults.
273.25 Simplified Food Stamp Program.

    Authority: 7 U.S.C. 2011-2036.

    Editorial Note: OMB control numbers relating to this part 273 are 
contained in Sec.  271.8.



Sec.  273.1  Household concept.

    (a) General household definition. A household is composed of one of 
the following individuals or groups of individuals, unless otherwise 
specified in paragraph (b) of this section:
    (1) An individual living alone;

[[Page 609]]

    (2) An individual living with others, but customarily purchasing 
food and preparing meals for home consumption separate and apart from 
others; or
    (3) A group of individuals who live together and customarily 
purchase food and prepare meals together for home consumption.
    (b) Special household requirements.--(1) Required household 
combinations. The following individuals who live with others must be 
considered as customarily purchasing food and preparing meals with the 
others, even if they do not do so, and thus must be included in the same 
household, unless otherwise specified.
    (i) Spouses;
    (ii) A person under 22 years of age who is living with his or her 
natural or adoptive parent(s) or step-parent(s); and
    (iii) A child (other than a foster child) under 18 years of age who 
lives with and is under the parental control of a household member other 
than his or her parent. A child must be considered to be under parental 
control for purposes of this provision if he or she is financially or 
otherwise dependent on a member of the household, unless State law 
defines such a person as an adult.
    (2) Elderly and disabled persons. Notwithstanding the provisions of 
paragraph (a) of this section, an otherwise eligible member of a 
household who is 60 years of age or older and is unable to purchase and 
prepare meals because he or she suffers from a disability considered 
permanent under the Social Security Act or a non disease-related, 
severe, permanent disability may be considered, together with his or her 
spouse (if living there), a separate household from the others with whom 
the individual lives. Separate household status under this provision 
must not be granted when the income of the others with whom the elderly 
disabled individual resides (excluding the income of the elderly and 
disabled individual and his or her spouse) exceeds 165 percent of the 
poverty line.
    (3) Boarders. (i) Residents of a commercial boarding house, 
regardless of the number of residents, are not eligible to participate 
in the Program. A commercial boarding house is an establishment licensed 
to offer meals and lodging for compensation. It does not include any of 
the entities listed in paragraph (b)(7)(vii) of this section. In project 
areas without licensing requirements, a commercial boarding house is a 
commercial establishment that offers meals and lodging for compensation 
with the intent of making a profit.
    (ii) All other individuals or groups of individuals paying a 
reasonable amount for meals or meals and lodging must be considered 
boarders and are not eligible to participate in the Program 
independently of the household providing the board. Such individuals or 
groups of individuals may participate, along with a spouse or children 
living with them, as members of the household providing the boarder 
services, only at the request of the household providing the boarder 
services. An individual paying less than a reasonable amount for board 
must not be considered a boarder but must be considered, along with a 
spouse or children living with him or her, as a member of the household 
providing the board.
    (A) For individuals whose board arrangement is for more than two 
meals per day, ``reasonable compensation'' must be an amount that equals 
or exceeds the maximum food stamp allotment for the appropriate size of 
the boarder household.
    (B) For individuals whose board arrangement is for two meals or less 
per day, ``reasonable compensation'' must be an amount that equals or 
exceeds two-thirds of the maximum food stamp allotment for the 
appropriate size of the boarder household.
    (iii) Boarders must not be considered to be residents of an 
institution as outlined in paragraph (b)(7)(vii) of this section.
    (4) Foster care individuals. Individuals placed in the home of 
relatives or other individuals or families by a Federal, State, or local 
governmental foster care program must be considered to be boarders. They 
cannot participate in the Program independently of the household 
providing the foster care services. Such foster care individuals may 
participate, along with a spouse or children living with them, as 
members of the household providing the foster care services, only at the 
request of the household providing the foster care.

[[Page 610]]

    (5) Roomers. Individuals to whom a household furnishes lodging for 
compensation, but not meals, may participate as separate households. 
Persons described in paragraph (b)(1) of this section must not be 
considered roomers.
    (6) Live-in attendants. A live-in attendant may participate as a 
separate household. Persons described in paragraph (b)(1) of this 
section must not be considered live-in attendants.
    (7) Ineligible household members. The following persons are not 
eligible to participate as separate households or as a member of any 
household:
    (i) Ineligible aliens and students as specified in Sec.  273.4 and 
Sec.  273.5, respectively;
    (ii) SSI recipients in ``cash-out'' States as specified in Sec.  
273.20;
    (iii) Individuals disqualified for noncompliance with the work 
requirements of Sec.  273.7;
    (iv) Individuals disqualified for failure to provide an SSN as 
specified in Sec.  273.6;
    (v) Individuals disqualified for an intentional Program violation as 
specified in Sec.  273.16; and
    (vi) Residents of an institution, with some exceptions. Individuals 
must be considered residents of an institution when the institution 
provides them with the majority of their meals (over 50 percent of three 
meals daily) as part of the institution's normal services. Exceptions to 
this requirement include only the individuals listed in paragraphs 
(b)(7)(vii)(A) through (b)(7)(vii)(E) of this section. The individuals 
listed in paragraphs (b)(7)(vii)(A) through (b)(7)(vii)(E) can 
participate in the Program and must be treated as separate households 
from the others with whom they reside, subject to the mandatory 
household combination requirements of paragraph (b)(1) of this section, 
unless otherwise stated:
    (A) Individuals who are residents of federally subsidized housing 
for the elderly;
    (B) Individuals who are narcotic addicts or alcoholics and reside at 
a facility or treatment center for the purpose of regular participation 
in a drug or alcohol treatment and rehabilitation program. This includes 
the children but not the spouses of such persons who live with them at 
the treatment center or facility;
    (C) Individuals who are disabled or blind and are residents of group 
living arrangements;
    (D) Individual women or women with their children who are 
temporarily residing in a shelter for battered women and children; and
    (E) Individuals who are residents of public or private nonprofit 
shelters for homeless persons.
    (vii) Individuals who are ineligible under Sec.  273.11(m) because 
of a drug-related felony conviction.
    (viii) At State agency option, individuals who are disqualified in 
another assistance program in accordance with Sec.  273.11(k).
    (ix) Individuals who are fleeing to avoid prosecution or custody for 
a crime, or an attempt to commit a crime, or who are violating a 
condition of probation or parole who are ineligible under Sec.  
273.11(n).
    (x) Individuals disqualified for failure to cooperate with child 
support enforcement agencies in accordance with Sec.  273.11(o) or (p), 
or for being delinquent in any court-ordered child support obligation in 
accordance with Sec.  273.11(q).
    (xi) Persons ineligible under Sec.  273.24, the time limit for able-
bodied adults.
    (c) Unregulated situations. For situations that are not clearly 
addressed by the provisions of paragraphs (a) and (b) of this section, 
the State agency may apply its own policy for determining when an 
individual is a separate household or a member of another household if 
the policy is applied fairly, equitably and consistently throughout the 
State.
    (d) Head of household. (1) A State agency shall not use the head of 
household designation to impose special requirements on the household, 
such as requiring that the head of household, rather than another 
responsible member of the household, appear at the certification office 
to make application for benefits. When designating the head of 
household, the State agency shall allow the household to select an adult 
parent of children (of any age) living in the household, or an adult who 
has parental control over children (under 18 years of age) living in the 
household, as the head of household provided that all

[[Page 611]]

adult household members agree to the selection. The State agency shall 
permit such households to select their head at each certification action 
or whenever there is a change in household composition. The State agency 
shall provide written notice to all households at the time of 
application and as otherwise appropriate that specifies the household's 
right to select its head of household in accordance with this paragraph. 
The written notice shall identify which households have the option to 
select their head of household, the circumstances under which a 
household may change its designation of head of household, and how such 
changes must be reported to the State agency. If all adult household 
members do not agree to the selection or decline to select an adult 
parent as the head of household, the State agency may designate the head 
of household or permit the household to make another selection. In no 
event shall the household's failure to select an adult parent of 
children or an adult who has parental control over children as the head 
of household delay the certification or result in the denial of benefits 
of an otherwise eligible household. For households that do not consist 
of adult parents and children or adults who have parental control of 
children living in the household, the State agency shall designate the 
head of household or permit the household to do so.
    (2) For purposes of failure to comply with the work requirements of 
Sec.  273.7, the head of household shall be the principal wage earner 
unless the household has selected an adult parent of children as 
specified in paragraph (d)(1) of this section. The principal wage earner 
shall be the household member (including excluded members) who is the 
greatest source of earned income in the two months prior to the month of 
the violation. This provision applies only if the employment involves 20 
hours or more per week or provides weekly earnings at least equivalent 
to the Federal minimum wage multiplied by 20 hours. No person of any age 
living with a parent or person fulfilling the role of a parent who is 
registered for work or exempt from work registration requirements 
because such parent or person fulfilling the role of a parent is subject 
to and participating in any work requirement under title IV of the 
Social Security Act, or in receipt of unemployment compensation (or has 
registered for work as part of the application for or receipt of 
unemployment compensation), or is employed or self-employed and working 
a minimum of 30 hours weekly or receiving weekly earnings equal to the 
Federal minimum wage multiplied by 30 hours shall be considered the head 
of household unless the person is an adult parent of children as 
specified in Sec.  273.1(d)(1) and the household elects to designate the 
adult parent as its head of household. If there is no principal source 
of earned income in the household, the household member, documented in 
the casefile as the head of the household at the time of the violation, 
shall be considered the head of household. The designation of head of 
household through the circumstances of this paragraph shall take 
precedence over a previous designation of head of household at least 
until the period of ineligibility is ended.
    (e) Strikers. Households with a striking member are not eligible to 
participate in the Program, unless the household was eligible for 
benefits the day before the strike and is otherwise eligible at the time 
of application. A striker must be anyone involved in a strike or 
concerted stoppage of work by employees (including a stoppage by reason 
of the expiration of a collective-bargaining agreement) and any 
concerted slowdown or other concerted interruption of operations by 
employees. Any employee affected by a lockout, however, must not be 
deemed to be a striker. Further, an individual who goes on strike but is 
exempt from work registration under Sec.  273.7(b) the day before the 
strike, other than those exempt solely on the grounds that they are 
employed, must not be deemed to be a striker. Also, persons such as 
truck drivers who cannot do their jobs because the strike has left them 
with nothing to deliver, and employees who are not part of the 
bargaining unit and do not want to cross the picket line for fear of 
personal injury or death, must not be deemed to be strikers.
    (1) Pre-strike eligibility must be determined by considering the day 
prior

[[Page 612]]

to the strike as the day of application and assuming the strike did not 
occur.
    (2) Eligibility at the time of application must be determined by 
comparing the striking member's income before the strike to the 
striker's current income and adding the higher of the two to the current 
income of non-striking members during the month of application. If the 
household is eligible, the higher income figure must also be used in 
determining the household's benefits.

[Amdt. 132, 43 FR 47889, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
273.1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  273.2  Office operations and application processing.

    (a) Operation of food stamp offices and processing of applications--
(1) Office operations. State agencies must establish procedures 
governing the operation of food stamp offices that the State agency 
determines best serve households in the State, including households with 
special needs, such as, but not limited to, households with elderly or 
disabled members, households in rural areas with low-income members, 
homeless individuals, households residing on reservations, households 
with adult members who are not proficient in English, and households 
with earned income (working households). The State agency must provide 
timely, accurate, and fair service to applicants for, and participants 
in, the Food Stamp Program. The State agency cannot, as a condition of 
eligibility, impose additional application or application processing 
requirements. The State agency must have a procedure for informing 
persons who wish to apply for food stamps about the application process 
and their rights and responsibilities. The State agency must base food 
stamp eligibility solely on the criteria contained in the Act and this 
part.
    (2) Application processing. The application process includes filing 
and completing an application form, being interviewed, and having 
certain information verified. The State agency must act promptly on all 
applications and provide food stamp benefits retroactive to the month of 
application to those households that have completed the application 
process and have been determined eligible. The State agency must make 
expedited service available to households in immediate need. Specific 
responsibilities of households and State agencies in the application 
process are detailed below.
    (b) Food Stamp application form.--(1) Content. Each application form 
shall contain:
    (i) In prominent and boldface lettering and understandable terms a 
statement that the information provided by the applicant in connection 
with the application for food stamp benefits will be subject to 
verification by Federal, State and local officials to determine if such 
information is factual; that if any information is incorrect, food 
stamps may be denied to the applicant; and that the applicant may be 
subject to criminal prosecution for knowingly providing incorrect 
information;
    (ii) In prominent and boldface lettering and understandable terms a 
description of the civil and criminal provisions and penalties for 
violations of the Food Stamp Act;
    (iii) A statement to be signed by one adult household member which 
certifies, under penalty of perjury, the truth of the information 
contained in the application, including the information concerning 
citizenship and alien status of the members applying for benefits;
    (iv) A place on the front page of the application where the 
applicant can write his/her name, address, and signature.
    (v) In plain and prominent language on or near the front page of the 
application, notification of the household's right to immediately file 
the application as long as it contains the applicant's name and address 
and the signature of a responsible household member or the household's 
authorized representative. Regardless of the type of system the State 
agency uses (paper or electronic), it must provide a means for 
households to immediately begin the application process with name, 
address and signature;

[[Page 613]]

    (vi) In plain and prominent language on or near the front page of 
the application, a description of the expedited service provisions 
described in paragraph (i) of this section;
    (vii) In plain and prominent language on or near the front page of 
the application, notification that benefits are provided from the date 
of application; and
    (viii) The following nondiscrimination statement on the application 
itself even if the State agency uses a joint application form:

    ``In accordance with Federal law and U.S. Department of Agriculture 
policy, this institution is prohibited from discriminating on the basis 
of race, color, national origin, sex, age, religion, political beliefs, 
or disability.
    ``To file a complaint of discrimination, write USDA, Director, 
Office of Civil Rights, Room 326-W, Whitten Building, 1400 Independence 
Avenue, S.W., Washington, D.C. 20250-9410 or call (202) 720-5964 (voice 
and TDD). USDA is an equal opportunity provider and employer.''; and

    (ix) For multi-program applications, contain language which clearly 
affords applicants the option of answering only those questions relevant 
to the program or programs for which they are applying.
    (2) Income and eligibility verification system (IEVS). If the State 
agency chooses to use IEVS in accordance with paragraph (f)(9) of this 
section, it must notify all applicants for food stamp benefits at the 
time of application and at each recertification through a written 
statement on or provided with the application form that information 
available through IEVS will be requested, used and may be verified 
through collateral contact when discrepancies are found by the State 
agency, and that such information may affect the household's eligibility 
and level of benefits. The regulations at Sec.  273.2(f)(4)(ii) govern 
the use of collateral contacts. The State agency must also notify all 
applicants on the application form that the alien status of applicant 
household members may be subject to verification by INS through the 
submission of information from the application to INS, and that the 
submitted information received from INS may affect the household's 
eligibility and level of benefits.
    (3) Jointly processed cases. If a State agency has a procedure that 
allows applicants to apply for the food stamp program and another 
program at the same time, the State agency shall notify applicants that 
they may file a joint application for more than one program or they may 
file a separate application for food stamps independent of their 
application for benefits from any other program. All food stamp 
applications, regardless of whether they are joint applications or 
separate applications, must be processed for food stamp purposes in 
accordance with food stamp procedural, timeliness, notice, and fair 
hearing requirements. No household shall have its food stamp benefits 
denied solely on the basis that its application to participate in 
another program has been denied or its benefits under another program 
have been terminated without a separate determination by the State 
agency that the household failed to satisfy a food stamp eligibility 
requirement. Households that file a joint application for food stamps 
and another program and are denied benefits for the other program shall 
not be required to resubmit the joint application or to file another 
application for food stamps but shall have its food stamp eligibility 
determined based on the joint application in accordance with the food 
stamp processing time frames from the date the joint application was 
initially accepted by the State agency.
    (4) Privacy Act statement. As a State agency, you must notify all 
households applying and being recertified for food stamp benefits of the 
following:
    (i) The collection of this information, including the social 
security number (SSN) of each household member, is authorized under the 
Food Stamp Act of 1977, as amended, 7 U.S.C. 2011-2036. The information 
will be used to determine whether your household is eligible or 
continues to be eligible to participate in the Food Stamp Program. We 
will verify this information through computer matching programs. This 
information will also be used to monitor compliance with program 
regulations and for program management.
    (ii) This information may be disclosed to other Federal and State 
agencies for official examination, and to

[[Page 614]]

law enforcement officials for the purpose of apprehending persons 
fleeing to avoid the law.
    (iii) If a food stamp claim arises against your household, the 
information on this application, including all SSNs, may be referred to 
Federal and State agencies, as well as private claims collection 
agencies, for claims collection action.
    (iv) Providing the requested information, including the SSN of each 
household member, is voluntary. However, failure to provide an SSN will 
result in the denial of food stamp benefits to each individual failing 
to provide an SSN. Any SSNs provided will be used and disclosed in the 
same manner as SSNs of eligible household members.
    (c) Filing an application--(1) Household's right to file. Households 
must file food stamp applications by submitting the forms to the food 
stamp office either in person, through an authorized representative, by 
fax or other electronic transmission, by mail, or by completing an on-
line electronic application. The State agency must provide households 
that complete an on-line electronic application in person at the food 
stamp office the opportunity to review the information that has been 
recorded electronically and must provide them with a copy of that 
information for their records. Applications signed through the use of 
electronic signature techniques or applications containing a handwritten 
signature and then transmitted by fax or other electronic transmission 
are acceptable. State agencies must document the date the application 
was filed by recording the date of receipt at the food stamp office. 
When a resident of an institution is jointly applying for SSI and food 
stamps prior to leaving the institution, the filing date of the 
application that the State agency must record is the date of release of 
the applicant from the institution. The length of time a State agency 
has to deliver benefits is calculated from the date the application is 
filed in the food stamp office designated by the State agency to accept 
the household's application, except when a resident of a public 
institution is jointly applying for SSI and food stamps prior to his/her 
release from an institution in accordance with Sec.  273.1(e)(2). 
Residents of public institutions who apply for foods stamps prior to 
their release from the institution shall be certified in accordance with 
Sec.  273.2(g)(1) or Sec.  273.2(i)(3)(i), as appropriate. Each 
household has the right to file an application form on the same day it 
contacts the food stamp office during office hours. The household shall 
be advised that it does not have to be interviewed before filing the 
application and may file an incomplete application form as long as the 
form contains the applicant's name and address, and is signed by a 
responsible member of the household or the household's authorized 
representative. State agencies shall document the date the application 
was filed by recording on the application the date it was received by 
the food stamp office. When a resident of an institution is jointly 
applying for SSI and food stamps prior to leaving the institution, the 
filing date of the application to be recorded by the State agency on the 
food stamp application is the date of release of the applicant from the 
institution.
    (2) Contacting the food stamp office. (i) State agencies shall 
encourage households to file an application form the same day the 
household or its representative contacts the food stamp office in person 
or by telephone and expresses interest in obtaining food stamp 
assistance or expresses concerns which indicate food insecurity. If the 
State agency attempts to discourage households from applying for cash 
assistance, it shall make clear that the disadvantages and requirements 
of applying for cash assistance do not apply to food stamps. In 
addition, it shall encourage applicants to continue with their 
application for food stamps. The State agency shall inform households 
that receiving food stamps will have no bearing on any other program's 
time limits that may apply to the household. If a household contacting 
the food stamp office by telephone does not wish to come to the 
appropriate office to file the application that same day and instead 
prefers receiving an application through the mail, the State agency 
shall mail an application form to the household on the same day the 
telephone request is received. An application shall also be mailed on 
the same

[[Page 615]]

day a written request for food assistance is received.
    (ii) Where a project area has designated certification offices to 
serve specific geographic areas, households may contact an office other 
than the one designated to service the area in which they reside. When a 
household contacts the wrong certification office within a project area 
in person or by telephone, the certification office shall, in addition 
to meeting other requirements in paragraph (c)(2)(i) of this section, 
give the household the address and telephone number of the appropriate 
office. The certification office shall also offer to forward the 
household's application to the appropriate office that same day if the 
household has completed enough information on the application to file or 
forward it the next day by any means that ensures the application 
arrives at the application office the day it is forwarded. The household 
shall be informed that its application will not be considered filed and 
the processing standards shall not begin until the application is 
received by the appropriate office. If the household has mailed its 
application to the wrong office within a project area, the certification 
office shall mail the application to the appropriate office on the same 
day, or forward it the next day by any means that ensures the 
application arrives at the application office the day it is forwarded.
    (iii) In State agencies that elect to have Statewide residency, as 
provided in Sec.  273.3, the application processing timeframes begin 
when the application is filed in any food stamp office in the State.
    (3) Availability of the application form. The State agency shall 
make application forms readily accessible to potentially eligible 
households. The State agency shall also provide an application form to 
anyone who requests the form. Regardless of the type of system the State 
agency uses (paper or electronic), the State agency must provide a means 
for applicants to immediately begin the application process with name, 
address and signature.
    (4) Notice of right to file. The State agency shall post signs in 
the certification office which explain the application processing 
standards and the right to file an application on the day of initial 
contact. The State agency shall include similar information about same 
day filing on the application form.
    (5) Notice of Required Verification. The State agency shall provide 
each household at the time of application for certification and 
recertification with a notice that informs the household of the 
verification requirements the household must meet as part of the 
application process. The notice shall also inform the household of the 
State agency's responsibility to assist the household in obtaining 
required verification provided the household is cooperating with the 
State agency as specified in (d)(1) of this section. The notice shall be 
written in clear and simple language and shall meet the bilingual 
requirements designated in Sec.  272.4(b) of this chapter. At a minimum, 
the notice shall contain examples of the types of documents the 
household should provide and explain the period of time the documents 
should cover.
    (6) Withdrawing application. The household may voluntarily withdraw 
its application at any time prior to the determination of eligibility. 
The State agency shall document in the case file the reason for 
withdrawal, if any was stated by the household, and that contact was 
made with the household to confirm the withdrawal. The household shall 
be advised of its right to reapply at any time subsequent to a 
withdrawal.
    (d) Household cooperation. (1) To determine eligibility, the 
application form must be completed and signed, the household or its 
authorized representative must be interviewed, and certain information 
on the application must be verified. If the household refuses to 
cooperate with the State agency in completing this process, the 
application shall be denied at the time of refusal. For a determination 
of refusal to be made, the household must be able to cooperate, but 
clearly demonstrate that it will not take actions that it can take and 
that are required to complete the application process. For example, to 
be denied for refusal to cooperate, a household must refuse to be 
interviewed not merely failing to appear for the interview. If there is 
any question

[[Page 616]]

as to whether the household has merely failed to cooperate, as opposed 
to refused to cooperate, the household shall not be denied, and the 
agency shall provide assistance required by paragraph (c)(5) of this 
section. The household shall also be determined ineligible if it refuses 
to cooperate in any subsequent review of its eligibility, including 
reviews generated by reported changes and applications for 
recertification. Once denied or terminated for refusal to cooperate, the 
household may reapply but shall not be determined eligible until it 
cooperates with the State agency. The State agency shall not determine 
the household to be ineligible when a person outside of the household 
fails to cooperate with a request for verification. The State agency 
shall not consider individuals identified as nonhousehold members under 
Sec.  273.1(b)(2) as individuals outside the household.
    (2) Cooperation with QC Reviewer. In addition, the household shall 
be determined ineligible if it refuses to cooperate in any subsequent 
review of its eligibility as a part of a quality control review. If a 
household is terminated for refusal to cooperate with a quality control 
reviewer, in accordance with Sec.  275.3(c)(5) or Sec.  
275.12(g)(1)(ii), the household may reapply, but shall not be determined 
eligible until it cooperates with the quality control reviewer. If a 
household terminated for refusal to cooperate with a State quality 
control reviewer reapplies after 95 days from the end of the annual 
review period, the household shall not be determined ineligible for its 
refusal to cooperate with a State quality control reviewer during the 
completed review period, but must provide verification in accordance 
with Sec.  273.2(f)(1)(ix). If a household terminated for refusal to 
cooperate with a Federal quality control reviewer reapplies after seven 
months from the end of the annual review period, the household shall not 
be determined ineligible for its refusal to cooperate with a Federal 
quality control reviewer during the completed review period, but must 
provide verification in accordance with Sec.  273.2(f)(1)(ix).
    (e) Interviews. (1) Except for households certified for longer than 
12 months, and except as provided in paragraph (e)(2) of this section, 
households must have a face-to-face interview with an eligibility worker 
at initial certification and at least once every 12 months thereafter. 
State agencies may not require households to report for an in-office 
interview during their certification period, though they may request 
households to do so. For example, State agencies may not require 
households to report en masse for an in-office interview during their 
certification periods simply to review their case files, or for any 
other reason. Interviews may be conducted at the food stamp office or 
other mutually acceptable location, including a household's residence. 
If the interview will be conducted at the household's residence, it must 
be scheduled in advance with the household. If a household in which all 
adult members are elderly or disabled is certified for 24 months in 
accordance with Sec.  273.10(f)(1), or a household residing on a 
reservation is required to submit monthly reports and is certified for 
24 months in accordance with Sec.  273.10(f)(2), a face-to-face 
interview is not required during the certification period. The 
individual interviewed may be the head of household, spouse, any other 
responsible member of the household, or an authorized representative. 
The applicant may bring any person he or she chooses to the interview. 
The interviewer must not simply review the information that appears on 
the application, but must explore and resolve with the household unclear 
and incomplete information. The interviewer must advise households of 
their rights and responsibilities during the interview, including the 
appropriate application processing standard and the households' 
responsibility to report changes. The interviewer must advise households 
that are also applying for or receiving PA benefits that time limits and 
other requirements that apply to the receipt of PA benefits do not apply 
to the receipt of food stamp benefits, and that households which cease 
receiving PA benefits because they have reached a time limit, have begun 
working, or for other reasons, may still qualify for food stamp 
benefits. The interviewer must conduct the interview as an official and 
confidential discussion of household

[[Page 617]]

circumstances. The State agency must protect the applicant's right to 
privacy during the interview. Facilities must be adequate to preserve 
the privacy and confidentiality of the interview.
    (2) The State agency must notify the applicant that it will waive 
the face-to-face interview required in paragraph (e)(1) of this section 
in favor of a telephone interview on a case-by-case basis because of 
household hardship situations as determined by the State agency. These 
hardship conditions include, but are not limited to: Illness, 
transportation difficulties, care of a household member, hardships due 
to residency in a rural area, prolonged severe weather, or work or 
training hours which prevent the household from participating in an in-
office interview. The State agency must document the case file to show 
when a waiver was granted because of a hardship. The State agency may 
opt to waive the face-to-face interview in favor of a telephone 
interview for all households which have no earned income and all members 
of the household are elderly or disabled. Regardless of any approved 
waivers, the State agency must grant a face-to-face interview to any 
household which requests one. The State agency has the option of 
conducting a telephone interview or a home visit that is scheduled in 
advance with the household if the office interview is waived.
    (i) Waiver of the face-to-face interview does not exempt the 
household from the verification requirements, although special 
procedures may be used to permit the household to provide verification 
and thus obtain its benefits in a timely manner, such as substituting a 
collateral contact in cases where documentary verification would 
normally be provided.
    (ii) Waiver of the face-to-face interview may not affect the length 
of the household's certification period.
    (3) The State agency must schedule an interview for all applicant 
households who are not interviewed on the day they submit their 
applications. To the extent practicable, the State agency must schedule 
the interview to accommodate the needs of groups with special 
circumstances, including working households. The State agency must 
schedule all interviews as promptly as possible to insure eligible 
households receive an opportunity to participate within 30 days after 
the application is filed. The State agency must notify each household 
that misses its interview appointment that it missed the scheduled 
interview and that the household is responsible for rescheduling a 
missed interview. If the household contacts the State agency within the 
30 day application processing period, the State agency must schedule a 
second interview. The State agency may not deny a household's 
application prior to the 30th day after application if the household 
fails to appear for the first scheduled interview. If the household 
requests a second interview during the 30-day application processing 
period and is determined eligible, the State agency must issue prorated 
benefits from the date of application.
    (f) Verification. Verification is the use of documentation or a 
contact with a third party to confirm the accuracy of statements or 
information. The State agency must give households at least 10 days to 
provide required verification. Paragraph (i)(4) of this section contains 
verification procedures for expedited service cases.
    (1) Mandatory verification. State agencies shall verify the 
following information prior to certification for households initially 
applying:
    (i) Gross nonexempt income. Gross nonexempt income shall be verified 
for all households prior to certification. However, where all attempts 
to verify the income have been unsuccessful because the person or 
organization providing the income has failed to cooperate with the 
household and the State agency, and all other sources of verification 
are unavailable, the eligibility worker shall determine an amount to be 
used for certification purposes based on the best available information.
    (ii) Alien eligibility. (A) The State agency must verify the 
eligible status of applicant aliens. If an alien does not wish the State 
agency to contact INS to verify his or her immigration status, the State 
agency must give the household the option of withdrawing its application 
or participating without that member. The Department of Justice (DOJ) 
Interim Guidance On Verification of Citizenship, Qualified

[[Page 618]]

Alien Status and Eligibility Under Title IV of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (Interim 
Guidance) (62 FR 61344, November 17, 1997) contains information on 
acceptable documents and INS codes. State agencies should use the 
Interim Guidance until DOJ publishes a final rule on this issue. 
Thereafter, State agencies should consult both the Interim Guidance and 
the DOJ final rule. Where the Interim Guidance and the DOJ final rule 
conflict, the latter should control the verification of alien 
eligibility. As provided in Sec.  273.4, the following information may 
also be relevant to the eligibility of some aliens: date of admission or 
date status was granted; military connection; battered status; if the 
alien was lawfully residing in the United States on August 22, 1996; 
membership in certain Indian tribes; if the person was age 65 or older 
on August 22, 1996; if a lawful permanent resident can be credited with 
40 qualifying quarters of covered work and if any Federal means-tested 
public benefits were received in any quarter after December 31, 1996; or 
if the alien was a member of certain Hmong or Highland Laotian tribes 
during a certain period of time or is the spouse or unmarried dependent 
of such a person. The State agency must also verify these factors, if 
applicable to the alien's eligibility. The SSA Quarters of Coverage 
History System (QCHS) is available for purposes of verifying whether a 
lawful permanent resident has earned or can receive credit for a total 
of 40 qualifying quarters. However, the QCHS may not show all qualifying 
quarters. For instance, SSA records do not show current year earnings 
and in some cases the last year's earnings, depending on the time of 
request. Also, in some cases, an applicant may have work from uncovered 
employment that is not documented by SSA, but is countable toward the 40 
quarters test. In both these cases, the individual, rather than SSA, 
would need to provide the evidence needed to verify the quarters.
    (B) An alien is ineligible until acceptable documentation is 
provided unless:
    (1) The State agency has submitted a copy of a document provided by 
the household to INS for verification. Pending such verification, the 
State agency cannot delay, deny, reduce or terminate the individual's 
eligibility for benefits on the basis of the individual's immigration 
status; or
    (2) The applicant or the State agency has submitted a request to SSA 
for information regarding the number of quarters of work that can be 
credited to the individual, SSA has responded that the individual has 
fewer than 40 quarters, and the individual provides documentation from 
SSA that SSA is conducting an investigation to determine if more 
quarters can be credited. If SSA indicates that the number of qualifying 
quarters that can be credited is under investigation, the State agency 
must certify the individual pending the results of the investigation for 
up to 6 months from the date of the original determination of 
insufficient quarters; or
    (3) The applicant or the State agency has submitted a request to a 
Federal agency for verification of information which bears on the 
individual's eligible alien status. The State agency must certify the 
individual pending the results of the investigation for up to 6 months 
from the date of the original request for verification.
    (C) The State agency must provide alien applicants with a reasonable 
opportunity to submit acceptable documentation of their eligible alien 
status as of the 30th day following the date of application. A 
reasonable opportunity must be at least 10 days from the date of the 
State agency's request for an acceptable document. When the State agency 
fails to provide an alien applicant with a reasonable opportunity as of 
the 30th day following the date of application, the State agency must 
provide the household with benefits no later than 30 days following the 
date of application, provided the household is otherwise eligible.
    (iii) Utility expenses. The State agency shall verify a household's 
utility expenses if the household wishes to claim expenses in excess of 
the State agency's utility standard and the expense would actually 
result in a deduction. If the household's actual utility expenses cannot 
be verified before the 30 days allowed to process the application 
expire,

[[Page 619]]

the State agency shall use the standard utility allowance, provided the 
household is entitled to use the standard as specified in Sec.  
273.9(d). If the household wishes to claim expenses for an unoccupied 
home, the State agency shall verify the household's actual utility 
expenses for the unoccupied home in every case and shall not use the 
standard utility allowance.
    (iv) Medical expenses. The amount of any medical expenses (including 
the amount of reimbursements) deductible under Sec.  273.9(d)(3) shall 
be verified prior to initial certification. Verification of other 
factors, such as the allowability of services provided or the 
eligibility of the person incurring the cost, shall be required if 
questionable.
    (v) Social security numbers. The State agency shall verify the 
social security number(s) (SSN) reported by the household by submitting 
them to the Social Security Administration (SSA) for verification 
according to procedures established by SSA. The State agency shall not 
delay the certification for or issuance of benefits to an otherwise 
eligible household solely to verify the SSN of a household member. Once 
an SSN has been verified, the State agency shall make a permanent 
annotation to its file to prevent the unnecessary reverification of the 
SSN in the future. The State agency shall accept as verified an SSN 
which has been verified by another program participating in the IEVS 
described in Sec.  272.8. If an individual is unable to provide an SSN 
or does not have an SSN, the State agency shall require the individual 
to submit Form SS-5, Application for a Social Security Number, to the 
SSA in accordance with procedures in Sec.  273.6. A completed SSA Form 
2853 shall be considered proof of application for an SSN for a newborn 
infant.
    (vi) Residency. The residency requirements of Sec.  273.3 shall be 
verified except in unusual cases (such as homeless households, some 
migrant farmworker households, or households newly arrived in a project 
area) where verification of residency cannot reasonably be accomplished. 
Verification of residency should be accomplished to the extent possible 
in conjunction with the verification of other information such as, but 
not limited to, rent and mortgage payments, utility expenses, and 
identity. If verification cannot be accomplished in conjunction with the 
verification of other information, then the State agency shall use a 
collateral contact or other readily available documentary evidence. 
Documents used to verify other factors of eligibility should normally 
suffice to verify residency as well. Any documents or collateral contact 
which reasonably establish the applicant's residency must be accepted 
and no requirement for a specific type of verification may be imposed. 
No durational residency requirement shall be established.
    (vii) Identity. The identity of the person making application shall 
be verified. Where an authorized representative applies on behalf of a 
household, the identity of both the authorized representative and the 
head of household shall be verified. Identity may be verified through 
readily available documentary evidence, or if this is unavailable, 
through a collateral contact. Examples of acceptable documentary 
evidence which the applicant may provide include, but are not limited 
to, a driver's license, a work or school ID, an ID for health benefits 
or for another assistance or social services program, a voter 
registration card, wage stubs, or a birth certificate. Any documents 
which reasonably establish the applicant's identity must be accepted, 
and no requirement for a specific type of document, such as a birth 
certificate, may be imposed.
    (viii) Disability. (A) The State agency shall verify disability as 
defined in Sec.  271.2 as follows:
    (1) For individuals to be considered disabled under paragraphs (2), 
(3) and (4) of the definition, the household shall provide proof that 
the disabled individual is receiving benefits under titles I, II, X, XIV 
or XVI of the Social Security Act.
    (2) For individuals to be considered disabled under paragraph (6) of 
the definition, the household must present a statement from the Veterans 
Administration (VA) which clearly indicates that the disabled individual 
is receiving VA disability benefits for a service-connected or non-
service-connected disability and that the disability is

[[Page 620]]

rated as total or paid at the total rate by VA.
    (3) For individuals to be considered disabled under paragraphs (7) 
and (8) of the definition, proof by the household that the disabled 
individual is receiving VA disability benefits is sufficient 
verification of disability.
    (4) For individuals to be considered disabled under paragraphs (5) 
and (9) of the definition, the State agency shall use the Social 
Security Administration's (SSA) most current list of disabilities 
considered permanent under the Social Security Act for verifying 
disability. If it is obvious to the caseworker that the individual has 
one of the listed disabilities, the household shall be considered to 
have verified disability. If disability is not obvious to the 
caseworker, the household shall provide a statement from a physician or 
licensed or certified psychologist certifying that the individual has 
one of the nonobvious disabilities listed as the means for verifying 
disability under paragraphs (5) and (9) of the definition.
    (5) For individuals to be considered disabled under paragraph (10) 
of the definition, the household shall provide proof that the individual 
receives a Railroad Retirement disability annuity from the Railroad 
Retirement Board and has been determined to qualify for Medicare.
    (6) For individuals to be considered disabled under paragraph (11) 
of the definition, the household shall provide proof that the individual 
receives interim assistance benefits pending the receipt of Supplemental 
Security Income; or disability-related medical assistance under title 
XIX of the SSA; or disability-based State general assistance benefits. 
The State agency shall verify that the eligibility to receive these 
benefits is based upon disability or blindness criteria which are at 
least as stringent as those used under title XVI of the Social Security 
Act.
    (B) For disability determinations which must be made relevant to the 
provisions of Sec.  273.1(a)(2)(ii), the State agency shall use the 
SSA's most current list of disabilities as the initial step for 
verifying if an individual has a disability considered permanent under 
the Social Security Act. However, only those individuals who suffer from 
one of the disabilities mentioned in the SSA list who are unable to 
purchase and prepare meals because of such disability shall be 
considered disabled for the purpose of this provision. If it is obvious 
to the caseworker that the individual is unable to purchase and prepare 
meals because he/she suffers from a severe physical or mental 
disability, the individual shall be considered disabled for the purpose 
of the provision even if the disability is not specifically mentioned on 
the SSA list. If the disability is not obvious to the caseworker, he/she 
shall verify the disability by requiring a statement from a physician or 
licensed or certified psychologist certifying that the individual (in 
the physician's/psychologist's opinion) is unable to purchase and 
prepare meals because he/she suffers from one of the nonobvious 
disabilities mentioned in the SSA list or is unable to purchase meals 
because he/she suffers from some other severe, permanent physical or 
mental disease or nondisease-related disability. The elderly and 
disabled individual (or his/her authorized representative) shall be 
responsible for obtaining the cooperation of the individuals with whom 
he/she resides in providing the necessary income information about the 
others to the State agency for purposes of this provision.
    (ix) State agencies shall verify all factors of eligibility for 
households who have been terminated for refusal to cooperate with a 
State quality control reviewer, and reapply after 95 days from the end 
of the annual review period. State agencies shall verify all factors of 
eligibility for households who have been terminated for refusal to 
cooperate with a Federal quality control reviewer and reapply after 
seven months from the end of the annual review period.
    (x) Household composition. State agencies shall verify factors 
affecting the composition of a household, if questionable. Individuals 
who claim to be a separate household from those with whom they reside 
shall be responsible for proving that they are a separate household to 
the satisfaction of the State agency. Individuals who claim to be a 
separate household from those

[[Page 621]]

with whom they reside based on the various age and disability factors 
for determining separateness shall be responsible for proving a claim of 
separateness (at the State agency's request) in accordance with the 
provisions of Sec.  273.2(f)(1)(viii).
    (xi) Students. If a person claims to be physically or mentally unfit 
for purposes of the student exemption contained in Sec.  273.5(b)(2) and 
the unfitness is not evident to the State agency, verification may be 
required. Appropriate verification may consist of receipt of temporary 
or permanent disability benefits issued by governmental or private 
sources, or of a statement from a physician or licensed or certified 
psychologist.
    (xii) Legal obligation and actual child support payments. The State 
agency shall obtain verification of the household's legal obligation to 
pay child support, the amount of the obligation, and the monthly amount 
of child support the household actually pays. Documents that are 
accepted as verification of the household's legal obligation to pay 
child support shall not be accepted as verification of the household's 
actual monthly child support payments. State agencies may and are 
strongly encouraged to obtain information regarding a household member's 
child support obligation and payments from Child Support Enforcement 
(CSE) automated data files. The State agency shall give the household an 
opportunity to resolve any discrepancy between household verification 
and CSE records in accordance with paragraph (f)(9) of this section.
    (xiii) [Reserved]
    (xiv) Additional verification for able-bodied adults subject to the 
time limit.
    (A) Hours worked. For individuals subject to the food stamp time 
limit of Sec.  273.24 who are satisfying the work requirement by 
working, by combining work and participation in a work program, or by 
participating in a work or workfare program that is not operated or 
supervised by the State agency, the individuals' work hours shall be 
verified.
    (B) Countable months in another state. For individuals subject to 
the food stamp time limit of Sec.  273.24, the State agency must verify 
the number of countable months (as defined in Sec.  273.24(b)(1)) an 
individual has used in another State if there is an indication that the 
individual participated in that State. The normal processing standards 
of 7 CFR 273.2(g) apply. The State agency may accept another State 
agency's assertion as to the number of countable months an individual 
has used in another State.
    (2) Verification of questionable information. (i) The State agency 
shall verify, prior to certification of the household, all other factors 
of eligibility which the State agency determines are questionable and 
affect the household's eligibility and benefit level. The State agency 
shall establish guidelines to be followed in determining what shall be 
considered questionable information. These guidelines shall not 
prescribe verification based on race, religion, ethnic background, or 
national origin. These guidelines shall not target groups such as 
migrant farmworkers or American Indians for more intensive verification 
under this provision.
    (ii) If a member's citizenship or status as a non-citizen national 
is questionable, the State agency must verify the member's citizenship 
or non-citizen national status in accordance with attachment 4 of the 
DOJ Interim Guidance. After DOJ issues final rules, State agencies 
should consult both the Interim Guidance and the final rule. Where the 
Interim Guidance and the DOJ final rule conflict, the latter should 
control the eligibility determination. The State agency must accept 
participation in another program as acceptable verification if 
verification of citizenship or non-citizen national status was obtained 
for that program. If the household cannot obtain the forms of 
verification suggested in attachment 4 of the DOJ Interim Guidance and 
the household can provide a reasonable explanation as to why 
verification is not available, the State agency must accept a signed 
statement, under penalty of perjury, from a third party indicating a 
reasonable basis for personal knowledge that the member in question is a 
U.S. citizen or non-citizen national. The signed statement must contain 
a warning of the penalties for helping someone commit fraud. Absent 
verification or third

[[Page 622]]

party attestation of U.S. citizenship or non-citizen national status, 
the member whose citizenship or non-citizen national status is in 
question is ineligible to participate until the issue is resolved. The 
member whose citizenship or non-citizen national status is in question 
will have his or her income and resources considered available to any 
remaining household members as set forth in Sec.  273.11(c).
    (iii) Homeless households claiming shelter expenses may provide 
verification of their shelter expenses to qualify for the homeless 
shelter deduction if the State agency has such a deduction. If a 
homeless household has difficulty in obtaining traditional types of 
verification of shelter costs, the caseworker shall use prudent judgment 
in determining if the verification obtained is adequate. For example, if 
a homeless individual claims to have incurred shelter costs for several 
nights and the costs are comparable to costs typically incurred by 
homeless people, for shelter, the caseworker may decide to accept this 
information as adequate information and not require further 
verification.
    (3) State agency options. In addition to the verification required 
in paragraphs (f)(1) and (f)(2) of this section, the State agency may 
elect to mandate verification of any other factor which affects 
household eligibility or allotment level, including household size where 
not questionable. Such verification may be required Statewide or 
throughout a project area, but shall not be imposed on a selective, 
case-by-case basis on particular households.
    (i) The State agency may establish its own standards for the use of 
verification, provided that, at a minimum, all questionable factors are 
verified in accordance with paragraph (f)(2) of this section and that 
such standards do not allow for inadvertent discrimination. For example, 
no standard may be applied which prescribes variances in verification 
based on race, religion, ethnic background or national origin, nor may a 
State standard target groups such as migrant farmworkers or American 
Indians for more intensive verification than other households. The 
options specified in this paragraph, shall not apply in those offices of 
the Social Security Administration (SSA) which, in accordance with 
paragraph (k) of this section, provide for the food stamp certification 
of households containing recipients of Supplemental Security Income 
(SSI) and social security benefits. The State agency, however, may 
negotiate with those SSA offices with regard to mandating verification 
of these options.
    (ii) If a State agency opts to verify a deductible expense and 
obtaining the verification may delay the household's certification, the 
State agency shall advise the household that its eligibility and benefit 
level may be determined without providing a deduction for the claimed 
but unverified expense. This provision also applies to the allowance of 
medical expenses as specified in paragraph (f)(1)(iv) of this section. 
Shelter costs would be computed without including the unverified 
components. The standard utility allowance shall be used if the 
household is entitled to claim it and has not verified higher actual 
costs. If the expense cannot be verified within 30 days of the date of 
application, the State agency shall determine the household's 
eligibility and benefit level without providing a deduction of the 
unverified expense. If the household subsequently provides the missing 
verification, the State agency shall redetermine the household's 
benefits, and provide increased benefits, if any, in accordance with the 
timeliness standards in Sec.  273.12 on reported changes. If the expense 
could not be verified within the 30-day processing standard because the 
State agency failed to allow the household sufficient time, as defined 
in paragraph (h)(1) of this section, to verify the expense, the 
household shall be entitled to the restoration of benefits retroactive 
to the month of application, provided that the missing verification is 
supplied in accordance with paragraph (h)(3) of this section. If the 
household would be ineligible unless the expense is allowed, the 
household's application shall be handled as provided in paragraph (h) of 
this section.
    (4) Sources of verification--(i) Documentary evidence. State 
agencies shall use documentary evidence as the primary source of 
verification for all items except residency and household

[[Page 623]]

size. These items may be verified either through readily available 
documentary evidence or through a collateral contact, without a 
requirement being imposed that documentary evidence must be the primary 
source of verification. Documentary evidence consists of a written 
confirmation of a household's circumstances. Examples of documentary 
evidence include wage stubs, rent receipts, and utility bills. Although 
documentary evidence shall be the primary source of verification, 
acceptable verification shall not be limited to any single type of 
document and may be obtained through the household or other source. 
Whenever documentary evidence cannot be obtained or is insufficient to 
make a firm determination of eligibility or benefit level, the 
eligibility worker may require collateral contacts or home visits. For 
example, documentary evidence may be considered insufficient when the 
household presents pay stubs which do not represent an accurate picture 
of the household's income (such as out-dated pay stubs) or 
identification papers that appear to be falsified.
    (ii) Collateral contacts. A collateral contact is an oral 
confirmation of a household's circumstances by a person outside of the 
household. The collateral contact may be made either in person or over 
the telephone. The State agency may select a collateral contact if the 
household fails to designate one or designates one which is unacceptable 
to the State agency. Examples of acceptable collateral contacts may 
include employers, landlords, social service agencies, migrant service 
agencies, and neighbors of the household who can be expected to provide 
accurate third-party verification. When talking with collateral 
contacts, State agencies should disclose only the information that is 
absolutely necessary to get the information being sought. State agencies 
should avoid disclosing that the household has applied for food stamps, 
nor should they disclose any information supplied by the household, 
especially information that is protected by Sec.  273.1(c), or suggest 
that the household is suspected of any wrong doing.
    (iii) Home visits. Home visits may be used as verification only when 
documentary evidence is insufficient to make a firm determination of 
eligibility or benefit level, or cannot be obtained, and the home visit 
is scheduled in advance with the household. Home visits are to be used 
on a case-by-case basis where the supplied documentation is 
insufficient. Simply because a household fits a profile of an error-
prone household does not constitute lack of verification. State agencies 
shall assist households in obtaining sufficient verification in 
accordance with paragraph (c)(5) of this section.
    (iv) Discrepancies. Where unverified information from a source other 
than the household contradicts statements made by the household, the 
household shall be afforded a reasonable opportunity to resolve the 
discrepancy prior to a determination of eligibility or benefits. The 
State agency may, if it chooses, verify the information directly and 
contact the household only if such direct verification efforts are 
unsuccessful. If the unverified information is received through the 
IEVS, as specified in Sec.  272.8, the State agency may obtain 
verification from a third party as specified in paragraph (f)(9)(v) of 
this section.
    (5) Responsibility of obtaining verification. (i) The household has 
primary responsibility for providing documentary evidence to support 
statements on the application and to resolve any questionable 
information. The State agency must assist the household in obtaining 
this verification provided the household is cooperating with the State 
agency as specified under paragraph (d)(1) of this section. Households 
may supply documentary evidence in person, through the mail, by 
facsimile or other electronic device, or through an authorized 
representative. The State agency must not require the household to 
present verification in person at the food stamp office. The State 
agency must accept any reasonable documentary evidence provided by the 
household and must be primarily concerned with how adequately the 
verification proves the statements on the application.
    (ii) Whenever documentary evidence is insufficient to make a firm 
determination of eligibility or benefit level,

[[Page 624]]

or cannot be obtained, the State agency may require a collateral contact 
or a home visit in accordance with paragraph (f)(4) of this section. The 
State agency, generally, shall rely on the household to provide the name 
of any collateral contact. The household may request assistance in 
designating a collateral contact. The State agency is not required to 
use a collateral contact designated by the household if the collateral 
contact cannot be expected to provide an accurate third-party 
verification. When the collateral contact designated by the household is 
unacceptable, the State agency shall either designate another collateral 
contact, ask the household to designate another collateral contact or to 
provide an alternative form of verification, or substitute a home visit. 
The State agency is responsible for obtaining verification from 
acceptable collateral contacts.
    (6) Documentation. Case files must be documented to support 
eligibility, ineligibility, and benefit level determinations. 
Documentation shall be in sufficient detail to permit a reviewer to 
determine the reasonableness and accuracy of the determination.
    (7) State Data Exchange and Beneficiary Data Exchange. The State 
agency may verify SSI benefits through the State Data Exchange (SDX), 
and Social Security benefit information through the Beneficiary Data 
Exchange (BENDEX), or through verification provided by the household. 
The State agency may use SDX and BENDEX data to verify other food stamp 
eligibility criteria. The State agency may access SDX and BENDEX data 
without release statements from households, provided the State agency 
makes the appropriate data request to SSA and executes the necessary 
data exchange agreements with SSA. The household shall be given an 
opportunity to verify the information from another source if the SDX or 
BENDEX information is contradictory to the information provided by the 
household or is unavailable. Determination of the household's 
eligibility and benefit level shall not be delayed past the application 
processing time standards of paragraph (g) of this section if SDX or 
BENDEX data is unavailable.
    (8) Verification subsequent to initial certification. (i) 
Recertification--(A) At recertification the State agency shall verify a 
change in income if the source has changed or the amount has changed by 
more than $50. Previously unreported medical expenses, actual utility 
expenses and total recurring medical expenses which have changed by more 
than $25 shall also be verified at recertification. The State agency 
shall not verify income if the source has not changed and if the amount 
is unchanged or has changed by $50 or less, unless the information is 
incomplete, inaccurate, inconsistent or outdated. The State agency shall 
also not verify total medical expenses, or actual utility expenses 
claimed by households which are unchanged or have changed by $25 or 
less, unless the information is incomplete, inaccurate, inconsistent or 
outdated. The State agency shall require a household eligible for the 
child support deduction to verify any changes in the legal obligation to 
pay child support, the obligated amount, and the amount of legally 
obligated child support a household member pays to a nonhousehold 
member. The State agency shall verify reportedly unchanged child support 
information only if the information is incomplete, inaccurate, 
inconsistent or outdated.
    (B) Newly obtained social security numbers shall be verified at 
recertification in accordance with verification procedures outlined in 
Sec.  273.2(f)(1)(v).
    (C) For individuals subject to the food stamp time limit of Sec.  
273.24 who are satisfying the work requirement by working, by combining 
work and participation in a work program, or by participating in a work 
program that is not operated or supervised by the State agency, the 
individuals' work hours shall be verified.
    (D) Other information which has changed may be verified at 
recertification. Unchanged information shall not be verified unless the 
information is incomplete, inaccurate, inconsistent or outdated. 
Verification under this paragraph shall be subject to the same 
verification procedures as apply during initial verification.
    (ii) Changes. Changes reported during the certification period shall 
be subject to the same verification procedures as

[[Page 625]]

apply at initial certification, except that the State agency shall not 
verify changes in income if the source has not changed and if the amount 
has changed by $50 or less, unless the information is incomplete, 
inaccurate, inconsistent or outdated. The State agency shall also not 
verify total medical expenses or actual utility expenses which are 
unchanged or have changed by $25 or less, unless the information is 
incomplete, inaccurate, inconsistent or outdated.
    (9) Optional use of IEVS. (i) The State agency may obtain 
information through IEVS in accordance with procedures specified in 
Sec.  272.8 of this chapter and use it to verify the eligibility and 
benefit levels of applicants and participating households.
    (ii) The State agency may access data through the IEVS provided the 
disclosure safeguards and data exchange agreements required by part 272 
are satisfied.
    (iii) The State agency shall take action, including proper notices 
to households, to terminate, deny, or reduce benefits based on 
information obtain through the IEVS which is considered verified upon 
receipt. This information is social security and SSI benefit information 
obtained from SSA, and TANF benefit information and UIB information 
obtained from the agencies administering those programs. If the State 
agency has information that the IEVS-obtained information about a 
particular household is questionable, this information shall be 
considered unverified upon receipt and the State agency shall take 
action as specified in paragraph (f)(9)(iv) of this section.
    (iv) Except as noted in this paragraph, prior to taking action to 
terminate, deny, or reduce benefits based on information obtained 
through the IEVS which is considered unverified upon receipt, State 
agencies shall independently verify the information. Such unverified 
information is unearned income information from IRS, wage information 
from SSA and SWICAs, and questionable IEVS information discussed in 
paragraph (f)(9)(iii) of this section. Independent verification shall 
include verification of the amount of the asset or income involved, 
whether the household actually has or had access to such asset or income 
such that it would be countable income or resources for food stamp 
purposes, and the period during which such access occurred. Except with 
respect to unearned income information from IRS, if a State agency has 
information which indicates that independent verification is not needed, 
such verification is not required.
    (v) The State agency shall obtain independent verification of 
unverified information obtained from IEVS by means of contacting the 
household and/or the appropriate income, resource or benefit source. If 
the State agency chooses to contact the household, it must do so in 
writing, informing the household of the information which it has 
received, and requesting that the household respond within 10 days. If 
the household fails to respond in a timely manner, the State agency 
shall send it a notice of adverse action as specified in Sec.  273.13. 
The State agency may contact the appropriate source by the means best 
suited to the situation. When the household or appropriate source 
provides the independent verification, the State agency shall properly 
notify the household of the action it intends to take and provide the 
household with an opportunity to request a fair hearing prior to any 
adverse action.
    (10) Optional use of SAVE. Households are required to submit 
documents to verify the immigration status of applicant aliens. State 
agencies that verify the validity of such documents through the INS SAVE 
system in accordance with Sec.  272.11 of this chapter must use the 
following procedures:
    (i) The State agency shall provide an applicant alien with a 
reasonable opportunity to submit acceptable documentation of their 
eligible alien status prior to the 30th day following the date of 
application. A reasonable opportunity shall be at least 10 days from the 
date of the State agency's request for an acceptable document. An alien 
who has been given a reasonable opportunity to submit acceptable 
documentation and has not done so as of the 30th day following the date 
of application shall not be certified for benefits until acceptable 
documentation has been submitted. However, if the 10-

[[Page 626]]

day reasonable opportunity period provided by the State agency does not 
lapse before the 30th day following the date of application, the State 
agency shall provide the household with benefits no later than 30 days 
following the date of application Provided the household is otherwise 
eligible.
    (ii) The written consent of the alien applicant shall not be 
required as a condition for the State agency to contact INS to verify 
the validity of documentation.
    (iii) State agencies which access the ASVI database through an 
automated access shall also submit INS Form G-845, with an attached 
photocopy of the alien's document, to INS whenever the initial automated 
access does not confirm the validity of the alien's documentation or a 
significant discrepancy exists between the data provided by the ASVI and 
the information provided by the applicant. Pending such responses from 
either the ASVI or INS Form G-845, the State agency shall not delay, 
deny, reduce, or terminate the alien's eligibility for benefits on the 
basis of the individual's alien status.
    (iv) If the State agency determines, after complying with the 
requirements of this section, that the alien is not in an eligible alien 
status, the State agency shall take action, including proper notices to 
the household, to terminate, deny or reduce benefits. The State agency 
shall provide households the opportunity to request a fair hearing under 
Sec.  273.15 prior to any adverse action.
    (v) The use of SAVE shall be documented in the casefile or other 
agency records. When the State agency is waiting for a response from 
SAVE, agency records shall contain either a notation showing the date of 
the State agency's transmission or a copy of the INS Form G-845 sent to 
INS. Once the SAVE response is received, agency records shall show 
documentation of the ASVI Query Verification Number or contain a copy of 
the INS-annotated Form G-845. Whenever the response from automated 
access to the ASVI directs the eligibility worker to initiate secondary 
verification, agency records shall show documentation of the ASVI Query 
Verification Number and contain a copy of the INS Form G-845.
    (g) Normal processing standard--(1) Thirty-day processing. The State 
agency shall provide eligible households that complete the initial 
application process an opportunity to participate (as defined in Sec.  
274.2(b)) as soon as possible, but no later than 30 calendar days 
following the date the application was filed, except for residents of 
public institutions who apply jointly for SSI and food stamp benefits 
prior to release from the institution in accordance with Sec.  
273.1(e)(2). An application is filed the day the appropriate food stamp 
office receives an application containing the applicant's name and 
address, which is signed by either a responsible member of the household 
or the household's authorized representative. Households entitled to 
expedited processing are specified in paragraph (i) of this section. For 
residents of public institutions who apply for food stamps prior to 
their release from the institution in accordance with Sec.  273.1(e)(2), 
the State agency shall provide an opportunity to participate as soon as 
possible, but not later than 30 calendar days from the date of release 
of the applicant from the institution.
    (2) Combined allotments. Households which apply for initial month 
benefits (as described in Sec.  273.10(a)) after the 15th of the month, 
are processed under normal processing timeframes, have completed the 
application process within 30 days of the date of application, and have 
been determined eligible to receive benefits for the initial month of 
application and the next subsequent month, may be issued a combined 
allotment at State agency option which includes prorated benefits for 
the month of application and benefits for the first full month of 
participation. The benefits shall be issued in accordance with Sec.  
274.2(c) of this chapter.
    (3) Denying the application. Households that are found to be 
ineligible shall be sent a notice of denial as soon as possible but not 
later than 30 days following the date the application was filed. If the 
household has failed to appear for a scheduled interviewand has made no 
subsequent contact with the State agency to express interest in pursuing 
the application, the State agency shall send the household a notice of 
denial on the 30th day following the date

[[Page 627]]

of application. The household must file a new application if it wishes 
to participate in the program. In cases where the State agency was able 
to conduct an interview and request all of the necessary verification on 
the same day the application was filed, and no subsequent requests for 
verification have been made, the State agency may also deny the 
application on the 30th day if the State agency provided assistance to 
the household in obtaining verification as specified in paragraph (f)(5) 
of this section, but the household failed to provide the requested 
verification.
    (h) Delays in processing. If the State agency does not determine a 
household's eligibility and provide an opportunity to participate within 
30 days following the date the application was filed, the State agency 
shall take the following action:
    (1) Determining cause. The State agency shall first determine the 
cause of the delay using the following criteria:
    (i) A delay shall be considered the fault of the household if the 
household has failed to complete the application process even though the 
State agency has taken all the action it is required to take to assist 
the household. The State agency must have taken the following actions 
before a delay can be considered the fault of the household:
    (A) For households that have failed to complete the application 
form, the State agency must have offered, or attempted to offer, 
assistance in its completion.
    (B) If one or more members of the household have failed to register 
for work, as required in Sec.  273.7, the State agency must have 
informed the household of the need to register for work, determined if 
the household members are exempt from work registration, and given the 
household at least 10 days from the date of notification to register 
these members.
    (C) In cases where verification is incomplete, the State agency must 
have provided the household with a statement of required verification 
and offered to assist the household in obtaining required verification 
and allowed the household sufficient time to provide the missing 
verification. Sufficient time shall be at least 10 days from the date of 
the State agency's initial request for the particular verification that 
was missing.
    (D) For households that have failed to appear for an interview, the 
State agency must notify the household that it missed the scheduled 
interview and that the household is responsible for rescheduling a 
missed interview. If the household contacts the State agency within the 
30 day processing period, the State agency must schedule a second 
interview. If the household fails to schedule a second interview, or the 
subsequent interview is postponed at the household's request or cannot 
otherwise be rescheduled until after the 20th day but before the 30th 
day following the date the application was filed, the household must 
appear for the interview, bring verification, and register members for 
work by the 30th day; otherwise, the delay shall be the fault of the 
household. If the household has failed to appear for the first 
interview, fails to schedule a second interview, and/or the subsequent 
interview is postponed at the household's request until after the 30th 
day following the date the application was filed, the delay shall be the 
fault of the household. If the household has missed both scheduled 
interviews and requests another interview, any delay shall be the fault 
of the household.
    (ii) Delays that are the fault of the State agency include, but are 
not limited to, those cases where the State agency failed to take the 
actions described in paragraphs (h)(1)(i) (A) through (D) of this 
section.
    (2) Delays caused by the household. (i) If by the 30th day the State 
agency cannot take any further action on the application due to the 
fault of the household, the household shall lose its entitlement to 
benefits for the month of application. However, the State agency shall 
give the household an additional 30 days to take the required action, 
except that, if verification is lacking, the State agency has the option 
of holding the application pending for only 30 days following the date 
of the initial request for the particular verification that was missing.
    (A) The State agency has the option of sending the household either 
a notice of denial or a notice of pending

[[Page 628]]

status on the 30th day. The option chosen may vary from one project area 
to another, provided the same procedures apply to all households within 
a project area. However, if a notice of denial is sent and the household 
takes the required action within 60 days following the date the 
application was filed, the State agency shall reopen the case without 
requiring a new application. No further action by the State agency is 
required after the notice of denial or pending status is sent if the 
household failed to take the required action within 60 days following 
the date the application was filed, or if the State agency chooses the 
option of holding the application pending for only 30 days following the 
date of the initial request for the particular verification that was 
missing, and the household fails to provide the necessary verification 
by this 30th day.
    (B) State agencies may include in the notice a request that the 
household report all changes in circumstances since it filed its 
application. The information that must be contained on the notice of 
denial or pending status is explained in Sec.  273.10(g)(1) (ii) and 
(iii).
    (ii) If the household was at fault for the delay in the first 30-day 
period, but is found to be eligible during the second 30-day period, the 
State agency shall provide benefits only from the month following the 
month of application. The household is not entitled to benefits for the 
month of application when the delay was the fault of the household.
    (3) Delays caused by the State agency. (i) Whenever a delay in the 
initial 30-day period is the fault of the State agency, the State agency 
shall take immediate corrective action. Except as specified in 
Sec. Sec.  273.2(f)(1)(ii)(F) and 273.2(f)(10)(i), the State agency 
shall not deny the application if it caused the delay, but shall instead 
notify the household by the 30th day following the date the application 
was filed that its application is being held pending. The State agency 
shall also notify the household of any action it must take to complete 
the application process. If verification is lacking the State agency has 
the option of holding the application pending for only 30 days following 
the date of the initial request for the particular verification that was 
missing.
    (ii) If the household is found to be eligible during the second 30-
day period, the household shall be entitled to benefits retroactive to 
the month of application. If, however, the household is found to be 
ineligible, the State agency shall deny the application.
    (4) Delays beyond 60 days. (i) If the State agency is at fault for 
not completing the application process by the end of the second 30-day 
period, and the case file is otherwise complete, the State agency shall 
continue to process the original application until an eligibility 
determination is reached. If the household is determined eligible, and 
the State agency was at fault for the delay in the initial 30 days, the 
household shall receive benefits retroactive to the month of 
application. However, if the initial delay was the household's fault, 
the household shall receive benefits retroactive only to the month 
following the month of application. The State agency may use the 
original application to determine the household's eligibility in the 
months following the 60-day period, or it may require the household to 
file a new application.
    (ii) If the State agency is at fault for not completing the 
application process by the end of the second 30-day period, but the case 
file is not complete enough to reach an eligibility determination, the 
State agency may continue to process the original application, or deny 
the case and notify the household to file a new application. If the case 
is denied, the household shall also be advised of its possible 
entitlement to benefits lost as a result of State agency caused delays 
in accordance with Sec.  273.17. If the State agency was also at fault 
for the delay in the initial 30 days, the amount of benefits lost would 
be calculated from the month of application. If, however, the household 
was at fault for the initial delay, the amount of benefits lost would be 
calculated from the month following the month of application.
    (iii) If the household is at fault for not completing the 
application process by the end of the second 30-day period, the State 
agency shall deny the application and require the household to file

[[Page 629]]

a new application if it wishes to participate. If however, the State 
agency has chosen the option of holding the application pending only 
until 30 days following the date of the initial request for the 
particular verification that was missing, and verification is not 
received by that 30th day, the State agency may immediately close the 
application. A notice of denial need not be sent if the notice of 
pending status informed the household that it would have to file a new 
application if verification was not received within 30 days of the 
initial request. The household shall not be entitled to any lost 
benefits, even if the delay in the initial 30 days was the fault of the 
State agency.
    (i) Expedited service--(1) Entitlement to expedited service. The 
following households are entitled to expedited service:
    (i) Households with less than $150 in monthly gross income, as 
computed in Sec.  273.10 provided their liquid resources (i.e., cash on 
hand, checking or savings accounts, savings certificates, and lump sum 
payments as specified in Sec.  273.9(c)(8)) do not exceed $100;
    (ii) Migrant or seasonal farmworker households who are destitute as 
defined in Sec.  273.10(e)(3) provided their liquid resources (i.e., 
cash on hand, checking or savings accounts, savings certificates, and 
lump sum payments as specified in Sec.  273.9(c)(8)) do not exceed $100;
    (iii) Households whose combined monthly gross income and liquid 
resources are less than the household's monthly rent or mortgage, and 
utilities (including entitlement to a SUA, as appropriate, in accordance 
with Sec.  273.9(d)).
    (2) Identifying households needing expedited service. The State 
agency's application procedures shall be designed to identify households 
eligible for expedited service at the time the household requests 
assistance. For example, a receptionist, volunteer, or other employee 
shall be responsible for screening applications as they are filed or as 
individuals come in to apply.
    (3) Processing standards. All households receiving expedited 
service, except those receiving it during months in which allotments are 
suspended or cancelled, shall have their cases processed in accordance 
with the following provisions. Those households receiving expedited 
service during suspensions or cancellations shall have their cases 
processed in accordance with the provisions of Sec.  271.7(e)(2).
    (i) General. For households entitled to expedited service, the State 
agency shall make available to the recipient coupons or an ATP card not 
later than the seventh calendar day following the date an application 
was filed. For a resident of a public institution who applies for 
benefits prior to his/her release from the institution in accordance 
with Sec.  273.1(e)(2) and who is entitled to expedited service, the 
date of filing of his/her food stamp application is the date of release 
of the applicant from the institution. Whatever system a State agency 
uses to ensure meeting this delivery standard shall be designed to allow 
a reasonable opportunity for redemption of ATPs no later than the 
seventh calendar day following the day the application was filed.
    (ii) Drug addicts and alcoholics, group living arrangement 
facilities. For residents of drug addiction or alcoholic treatment and 
rehabilitation centers and residents of group living arrangements who 
are entitled to expedited service, the State agency shall make available 
to the recipient coupons or an ATP card not later than the 7 calendar 
days following the date an application was filed.
    (iii) Out-of-office interviews. If a household is entitled to 
expedited service and is also entitled to a waiver of the office 
interview, the State agency shall conduct the interview (unless the 
household cannot be reached) and complete the application process within 
the expedited service standards. The first day of this count is the 
calendar day following application filing. If the State agency conducts 
a telephone interview and must mail the application to the household for 
signature, the mailing time involved will not be calculated in the 
expedited service standards. Mailing time shall only include the days 
the application is in the mail to and from the household and the days 
the application is in the household's possession pending signature and 
mailing.
    (iv) Late determinations. If the prescreening required in paragraph

[[Page 630]]

(i)(2) of this section fails to identify a household as being entitled 
to expedited service and the State agency subsequently discovers that 
the household is entitled to expedited service, the State agency shall 
provide expedited service to households within the processing standards 
described in paragraphs (i)(3) (i) and (ii) of this section, except that 
the processing standard shall be calculated from the date the State 
agency discovers the household is entitled to expedited service.
    (v) Residents of shelters for battered women and children. Residents 
of shelters for battered women and children who are otherwise entitled 
to expedited service shall be handled in accordance with the time limits 
in paragraph (i)(3)(i) of this section.
    (4) Special procedures for expediting service. The State agency 
shall use the following procedures when expediting certification and 
issuance:
    (i) In order to expedite the certification process, the State agency 
shall use the following procedures:
    (A) In all cases, the applicant's identity (i.e., the identity of 
the person making the application) shall be verified through a 
collateral contact or readily available documentary evidence as 
specified in paragraph (f)(1) of this section.
    (B) All reasonable efforts shall be made to verify within the 
expedited processing standards, the household's residency in accordance 
with Sec.  273.2(f)(1)(vi), income statement (including a statement that 
the household has no income), liquid resources and all other factors 
required by Sec.  273.2(f), through collateral contacts or readily 
available documentary evidence. However, benefits shall not be delayed 
beyond the delivery standards prescribed in paragraph (i)(3) of this 
section, solely because these eligibility factors have not been 
verified.

State agencies also may verify factors other than identity, residency, 
and income provided that verification can be accomplished within 
expedited processing standards. State agencies should attempt to obtain 
as much additional verification as possible during the interview, but 
should not delay the certification of households entitled to expedited 
service for the full timeframes specified in paragraph (i)(3) of this 
section when the State agency has determined it is unlikely that other 
verification can be obtained within these timeframes. Households 
entitled to expedited service will be asked to furnish a social security 
number for each person applying for benefts or apply for one for each 
person applying for benefits before the second full month of 
participation. Those household members unable to provide the required 
SSN's or who do not have one prior to the second full month of 
participation shall be allowed to continue to participate only if they 
satisfy the good cause requirements with respect to SSN's specified in 
Sec.  273.6(d), except that households with a newborn may have up to 6 
months following the month the baby was born to supply an SSN or proof 
of an application for an SSN for the newborn in accordance with Sec.  
273.6(b)(4). The State agency may attempt to register other household 
members but shall postpone the registration of other household members 
if it cannot be accomplished within the expedited service timeframes. 
With regard to the work registration requirements specified in Sec.  
273.7, the State agency shall, at a minimum, require the applicant to 
register (unless exempt or unless the household has designated an 
authorized representative to apply on its behalf in accordance with 
Sec.  273.1(f)). The State agency may attempt registration of other 
household members by requesting that the applicant complete the work 
registration forms for other household members to the best of his or her 
ability. The State agency may also attempt to accomplish work 
registration for other household members in a timely manner through 
other means, such as calling the household. The State agency may attempt 
to verify questionable work registration exemptions, but such 
verification shall be postponed if the expedited service timeframes 
cannot be met.
    (ii) Once an acceptable collateral contact has been designated, the 
State agency shall promptly contact the collateral contact, in 
accordance with the provisions of paragraph (f)(4)(ii) of this section. 
Although the household has

[[Page 631]]

the primary responsibility for providing other types of verification, 
the State agency shall assist the household in promptly obtaining the 
necessary verification.
    (iii) Households that are certified on an expedited basis and have 
provided all necessary verification required in paragraph (f) of this 
section prior to certification shall be assigned normal certification 
periods. If verification was postponed, the State agency may certify 
these households for the month of application (the month of application 
and the subsequent month for those households applying after the 15th of 
the month) or, at the State agency's option, may assign normal 
certification periods to those households whose circumstances would 
otherwise warrant longer certification periods. State agencies, at their 
option, may request any household eligible for expedited service which 
applies after the 15th of the month and is certified for the month of 
application and the subsequent month only to submit a second application 
(at the time of the initial certification) if the household's 
verification is postponed.
    (A) For households applying on or before the 15th of the month, the 
State agency may assign a one-month certification period or assign a 
normal certification period. Satisfaction of the verification 
requirements may be postponed until the second month of participation. 
If a one-month certification period is assigned, the notice of 
eligibility may be combined with the notice of expiration or a separate 
notice may be sent. The notice of eligibility must explain that the 
household has to satisfy all verification requirements that were 
postponed. For subsequent months, the household must reapply and satisfy 
all verification requirements which were postponed or be certified under 
normal processing standards. If the household does not satisfy the 
postponed verification requirements and does not appear for the 
interview, the State agency does not need to contact the household 
again.
    (B) For households applying after the 15th of the month, the State 
agency may assign a 2-month certification period or a normal 
certification period of no more than 12 months. Verification may be 
postponed until the third month of participation, if necessary, to meet 
the expedited timeframe. If a two-month certification period is 
assigned, the notice of eligibility may be combined with the notice of 
expiration or a separate notice may be sent. The notice of eligibility 
must explain that the household is obligated to satisfy the verification 
requirements that were postponed. For subsequent months, the household 
must reapply and satisfy the verification requirements which were 
postponed or be certified under normal processing standards. If the 
household does not satisfy the postponed verification requirements and 
does not attend the interview, the State agency does not need to contact 
the household again. When a certification period of longer than 2 months 
is assigned and verification is postponed, households must be sent a 
notice of eligibility advising that no benefits for the third month will 
be issued until the postponed verification requirements are satisfied. 
The notice must also advise the household that if the verification 
process results in changes in the household's eligibility or level of 
benefits, the State agency will act on those changes without advance 
notice of adverse action.
    (C) Households which apply for initial benefits (as described in 
Sec.  273.10(a)) after the 15th of the month, are entitled to expedited 
service, have completed the application process, and have been 
determined eligible to receive benefits for the initial month and the 
next subsequent month, shall receive a combined allotment consisting of 
prorated benefits for the initial month of application and benefits for 
the first full month of participation within the expedited service 
timeframe. If necessary, verification shall be postponed to meet the 
expedited timeframe. The benefits shall be issued in accordance with 
Sec.  274.2(c) of this chapter.
    (D) The provisions of paragraph (i)(4)(iii)(C) of this section do 
not apply to households which have been determined ineligible to receive 
benefits for the month of application or the following month, or to 
households which have not satisfied the postponed verification 
requirements. However,

[[Page 632]]

households eligible for expedited service may receive benefits for the 
initial month and next subsequent month under the verification standards 
of paragraph (i)(4) of this section.
    (E) If the State agency chooses to exercise the option to require a 
second application in accordance with paragraph (i)(4)(iii) of this 
section and receives the application before the third month, it shall 
not deny the application but hold it pending until the third month. The 
State agency will issue the third month's benefits within 5 working days 
from receipt of the necessary verification information but not before 
the first day of the month. If the postponed verification requirements 
are not completed before the end of the third month, the State agency 
shall terminate the household's participation and shall issue no further 
benefits.
    (iv) There is no limit to the number of times a household can be 
certified under expedited procedures, as long as prior to each expedited 
certification, the household either completes the verification 
requirements that were postponed at the last expedited certification or 
was certified under normal processing standards since the last expedited 
certification. The provisions of this section shall not apply at 
recertification if a household reapplies before the end of its current 
certification period.
    (v) Households requesting, but not entitled to, expedited service 
shall have their applications processed according to normal standards.
    (j) PA, GA and categorically eligible households. The State agency 
must notify households applying for public assistance (PA) of their 
right to apply for food stamp benefits at the same time and must allow 
them to apply for food stamp benefits at the same time they apply for PA 
benefits. The State agency must also notify such households that time 
limits or other requirements that apply to the receipt of PA benefits do 
not apply to the receipt of food stamp benefits, and that households 
which cease receiving PA benefits because they have reached a time 
limit, have begun working, or for other reasons, may still qualify for 
food stamp benefits. If the State agency attempts to discourage 
households from applying for cash assistance, it shall make clear that 
the disadvantages and requirements of applying for cash assistance do 
not apply to food stamps. In addition, it shall encourage applicants to 
continue with their application for food stamps. The State agency shall 
inform households that receiving food stamps will have no bearing on any 
other program's time limits that may apply to the household. The State 
agency may process the applications of such households in accordance 
with the requirements of paragraph (j)(1) of this section, and the State 
agency must base their eligibility solely on food stamp eligibility 
criteria unless the household is categorically eligible, as provided in 
paragraph (j)(2) of this section. If a State has a single Statewide GA 
application form, households in which all members are included in a 
State or local GA grant may have their application for food stamps 
included in the GA application form. State agencies may use the joint 
application processing procedures described in paragraph (j)(1) of this 
section for GA recipients in accordance with paragraph (j)(3) of this 
section. The State agency must base eligibility of jointly processed GA 
households solely on food stamp eligibility criteria unless the 
household is categorically eligible as provided in paragraph (j)(4) of 
this section. The State agency must base the benefit levels of all 
households solely on food stamp criteria. The State agency must certify 
jointly processed and categorically eligible households in accordance 
with food stamp procedural, timeliness, and notice requirements, 
including the 7-day expedited service provisions of paragraph (i) of 
this section and normal 30-day application processing standards of 
paragraph (g) of this section. Individuals authorized to receive PA, 
SSI, or GA benefits but who have not yet received payment are considered 
recipients of benefits from those programs. In addition, individuals are 
considered recipients of PA, SSI, or GA if their PA, SSI, or GA benefits 
are suspended or recouped. Individuals entitled to PA, SSI, or GA 
benefits but who are not paid such benefits because the grant is less 
than a minimum benefit are also considered recipients. The State agency 
may not

[[Page 633]]

consider as recipients those individuals not receiving GA, PA, or SSI 
benefits who are entitled to Medicaid only.
    (1) Applicant PA households. (i) If a joint PA/food stamp 
application is used, the application may contain all the information 
necessary to determine a household's food stamp eligibility and level of 
benefits. Information relevant only to food stamp eligibility must be 
contained in the PA form or must be an attachment to it. The joint PA/
food stamp application must clearly indicate that the household is 
providing information for both programs, is subject to the criminal 
penalties of both programs for making false statements, and waives the 
notice of adverse action as specified in paragraph (j)(1)(iv) of this 
section.
    (ii) The State agency may conduct a single interview at initial 
application for both public assistance and food stamp purposes. A 
household's eligibility for food stamp out-of-office interview 
provisions in paragraph (e)(2) of this section does not relieve the 
household of any responsibility for a face-to-face interview to be 
certified for PA.
    (iii) For households applying for both PA and food stamps, the State 
agency must follow the verification procedures described in paragraphs 
(f)(1) through (f)(8) of this section for those factors of eligibility 
which are needed solely for purposes of determining the household's 
eligibility for food stamps. For those factors of eligibility which are 
needed to determine both PA eligibility and food stamp eligibility, the 
State agency may use the PA verification rules. However, if the 
household has provided the State agency sufficient verification to meet 
the verification requirements of paragraphs (f)(1) through (f)(8) of 
this section, but has failed to provide sufficient verification to meet 
the PA verification rules, the State agency may not use such failure as 
a basis for denying the household's food stamp application or failing to 
comply with processing requirements of paragraph (g) of this section. 
Under these circumstances, the State agency must process the household's 
food stamp application and determine eligibility based on its compliance 
with the requirements of paragraphs (f)(1) through (f)(8) of this 
section.
    (iv) In order to determine if a household will be eligible due to 
its status as a recipient PA/SSI household, the State agency may 
temporarily postpone, within the 30-day processing standard, the food 
stamp eligibility determination if the household is not entitled to 
expedited service and appears to be categorically eligible. However, the 
State agency shall postpone denying a potentially categorically eligible 
household until the 30th day in case the household is determined 
eligible to receive PA benefits. Once the PA application is approved, 
the household is to be considered categorically eligible if it meets all 
the criteria concerning categorical eligibility in Sec.  273.2(j)(2). If 
the State agency can anticipate the amount and the date of receipt of 
the initial PA payment, but the payment will not be received until a 
subsequent month, the State agency shall vary the household's food stamp 
benefit level according to the anticipated receipt of the payment and 
notify the household. Portions of initial PA payments intended to 
retroactively cover a previous month shall be disregarded as lump sum 
payments under Sec.  273.9(c)(8). If the amount or date of receipt of 
the initial PA payment cannot be reasonably anticipated at the time of 
the food stamp eligibility determination, the PA payments shall be 
handled as a change in circumstances. However, the State agency is not 
required to send a notice of adverse action if the receipt of the PA 
grant reduces, suspends or terminates the household's food stamp 
benefits, provided the household is notified in advance that its 
benefits may be reduced, suspended, or terminated when the grant is 
received. The case may be terminated if the household is not 
categorically eligible in accordance with Sec.  273.12(c). The State 
agency shall ensure that the denied application of a potentially 
categorically eligible household is easily retrievable. For a household 
filing a joint application for food stamps and PA benefits or a 
household that has a PA application pending and is denied food stamps 
but is later determined eligible to receive PA benefits and is otherwise 
categorically eligible, the State agency shall

[[Page 634]]

provide benefits using the original application and any other pertinent 
information occurring subsequent to that application. Except for 
residents of public institutions who apply jointly for SSI and food 
stamp benefits prior to their release from a public institution in 
accordance with Sec.  273.1(e)(2), benefits shall be paid from the 
beginning of the period for which PA or SSI benefits are paid, the 
original food stamp application date, or December 23, 1985 whichever is 
later. Residents of public institutions who apply jointly for SSI and 
food stamp benefits prior to their release from the institution shall be 
paid benefits from the date of their release from the institution. In 
situations where the State agency must update and reevaluate the 
original application of a denied case, the State agency shall not 
reinterview the household, but shall use any available information to 
update the application. The State agency shall then contact the 
household by phone or mail to explain and confirm changes made by the 
State agency and to determine if other changes in household 
circumstances have occurred. If any information obtained from the 
household differs from that which the State agency obtained from 
available information or the household provided additional changes in 
information, the State agency shall arrange for the household or it 
authorized representative to initial all changes, re-sign and date the 
updated application and provide necessary verification. In no event can 
benefits be provided prior to the date of the original food stamp 
application filed on or after December 23, 1985. Any household that is 
determined to be eligible to receive PA benefits for a period of time 
within the 30-day food stamp processing time, shall be provided food 
stamp benefits back to the date of the food stamp application. However, 
in no event shall food stamp benefits be paid for a month for which such 
household is ineligible for receipt of any PA benefits for the month, 
unless the household is eligible for food stamp benefits and an NPA 
case. Benefits shall be prorated in accordance with Sec.  
273.10(a)(1)(ii) and (e)(2)(ii)(B). Household that file joint 
applications that are found categorically eligible after being denied 
NPA food stamps shall have their benefits for the initial month prorated 
from the date from which the PA benefits are payable, or the date of the 
original food stamp application, whichever is later. The State agency 
shall act on reevaluating the original application either at the 
household's request or when it becomes otherwise aware of the 
household's PA and/or SSI eligibility. The household shall be informed 
on the notice of denial required by Sec.  273.10(g)(1)(ii) to notify the 
State agency if its PA or SSI benefits are approved.
    (v) The State agency may not require households which file a joint 
PA/food stamp application and whose PA applications are denied to file 
new food stamp applications. Rather, the State agency must determine or 
continue their food stamp eligibility on the basis of the original 
applications filed jointly for PA and food stamp purposes. In addition, 
the State agency must use any other documented information obtained 
subsequent to the application which may have been used in the PA 
determination and which is relevant to food stamp eligibility or level 
of benefits.
    (2) Categorically eligible PA and SSI households. (i) The following 
households are categorically eligible for food stamps unless the entire 
household is institutionalized as defined in Sec.  273.1(e) or 
disqualified for any reason from receiving food stamps.
    (A) Any household (except those listed in paragraph (j)(2)(vii) of 
this section) in which all members receive or are authorized to receive 
cash through a PA program funded in full or in part with Federal money 
under Title IV-A or with State money counted for maintenance of effort 
(MOE) purposes under Title IV-A;
    (B) Any household (except those listed in paragraph (j)(2)(vii) of 
this section) in which all members receive or are authorized to receive 
non-cash or in-kind benefits or services from a program that is more 
than 50 percent funded with State money counted for MOE purposes under 
Title IV-A or Federal money under Title IV-A and that is designed to 
forward purposes one and two of the TANF block grant, as set forth in 
Section 401 of P.L. 104-193.

[[Page 635]]

    (C) Any household (except those listed in paragraph (j)(2)(vii) of 
this section) in which all members receive or are authorized to receive 
non-cash or in-kind benefits or services from a program that is more 
than 50 percent funded with State money counted for MOE purposes under 
Title IV-A or Federal money under Title IV-A and that is designed to 
further purposes three and four of the TANF block grant, as set forth in 
Section 401 of P.L. 104-193, and requires participants to have a gross 
monthly income at or below 200 percent of the Federal poverty level.
    (D) Any household in which all members receive or are authorized to 
receive SSI benefits, except that residents of public institutions who 
apply jointly for SSI and food stamp benefits prior to their release 
from the institution in accordance with Sec.  273.1(e)(2), are not 
categorically eligible upon a finding by SSA of potential SSI 
eligibility prior to such release. The State agency must consider the 
individuals categorically eligible at such time as SSA makes a final SSI 
eligibility and the institution has released the individual.
    (E) Any household in which all members receive or are authorized to 
receive PA and/or SSI benefits in accordance with paragraphs 
(j)(2)(i)(A) through (j)(2)(i)(D) of this section.
    (ii) The State agency, at its option, may extend categorical 
eligibility to the following households only if doing so will further 
the purposes of the Food Stamp Act:
    (A) Any household (except those listed in paragraph (j)(2)(vii) of 
this section) in which all members receive or are authorized to receive 
non-cash or in-kind services from a program that is less than 50 percent 
funded with State money counted for MOE purposes under Title IV-A or 
Federal money under Title IV-A and that is designed to further purposes 
one and two of the TANF block grant, as set forth in Section 401 of P.L. 
104-193. States must inform FNS of the TANF services under this 
paragraph that they are determining to confer categorical eligibility.
    (B) Subject to FNS approval, any household (except those listed in 
paragraph (j)(2)(vii) of this section) in which all members receive or 
are authorized to receive non-cash or in-kind services from a program 
that is less than 50 percent funded with State money counted for MOE 
purposes under Title IV-A or Federal money under Title IV-A and that is 
designed to further purposes three and four of the TANF block grant, as 
set forth in Section 401 of P.L 104-193, and requires participants to 
have a gross monthly income at or below 200 percent of the Federal 
poverty level.
    (iii) Any household in which one member receives or is authorized to 
receive benefits according to paragraphs (j)(2)(i)(B), (j)(2)(i)(C), 
(j)(2)(ii)(A) and (j)(2)(ii)(B), of this section and the State agency 
determines that the whole household benefits.
    (iv) For purposes of paragraphs (j)(2)(i), (j)(2)(ii),and 
(j)(2)(iii) of this section, ``authorized to receive'' means that an 
individual has been determined eligible for benefits and has been 
notified of this determination, even if the benefits have been 
authorized but not received, authorized but not accessed, suspended or 
recouped, or not paid because they are less than a minimum amount.
    (v) The eligibility factors which are deemed for food stamp 
eligibility without the verification required in paragraph (f) of this 
section because of PA/SSI status are the resource, gross and net income 
limits; social security number information, sponsored alien information, 
and residency. However, the State agency must collect and verify factors 
relating to benefit determination that are not collected and verified by 
the other program if these factors are required to be verified under 
paragraph (f) of this section. If any of the following factors are 
questionable, the State agency must verify, in accordance with paragraph 
(f) of this section, that the household which is considered 
categorically eligible:
    (A) Contains only members that are PA or SSI recipients as defined 
in the introductory paragraph (j) of this section;
    (B) Meets the household definition in Sec.  273.1(a);
    (C) Includes all persons who purchase and prepare food together in 
one food stamp household regardless of whether

[[Page 636]]

or not they are separate units for PA or SSI purposes; and
    (D) Includes no persons who have been disqualified as provided for 
in paragraph (j)(2)(vi) of this section.
    (vi) Households subject to retrospective budgeting that have been 
suspended for PA purposes as provided for in Temporary Assistance for 
Needy Families (TANF) regulations, or that receive zero benefits shall 
continue to be considered as authorized to receive benefits from the 
appropriate agency. Categorical eligibility shall be assumed at 
recertification in the absence of a timely PA redetermination. If a 
recertified household is subsequently terminated from PA benefits, the 
procedures in Sec.  273.12(f)(3), (4), and (5) shall be followed, as 
appropriate.
    (vii) Under no circumstances shall any household be considered 
categorically eligible if:
    (A) Any member of that household is disqualified for an intentional 
Program violation in accordance with Sec.  273.16 or for failure to 
comply with monthly reporting requirements in accordance with Sec.  
273.21;
    (B) The entire household is disqualified because one or more of its 
members failed to comply with workfare in accordance with Sec.  273.22; 
or
    (C) The head of the household is disqualified for failure to comply 
with the work requirements in accordance with Sec.  273.7.
    (D) Any member of that household is ineligible under Sec.  273.11(m) 
by virtue of a conviction for a drug-related felony.
    (viii) These households are subject to all food stamp eligibility 
and benefits provisions (including the provisions of Sec.  273.11(c)) 
and cannot be reinstated in the Program on the basis of categorical 
eligibility provisions.
    (ix) No person shall be included as a member in any household which 
is otherwise categorically eligible if that person is:
    (A) An ineligible alien as defined in Sec.  273.4;
    (B) Ineligible under the student provisions in Sec.  273.5;
    (C) An SSI recipient in a cash-out State as defined in Sec.  273.20; 
or
    (D) Institutionalized in a nonexempt facility as defined in Sec.  
273.1(e).
    (E) Ineligible because of failure to comply with a work requirement 
of Sec.  273.7.
    (x) For the purposes of work registration, the exemptions in Sec.  
273.7(b) shall be applied to individuals in categorically eligible 
households. Any such individual who is not exempt from work registration 
is subject to the other work requirements in Sec.  273.7.
    (xi) When determining eligibility for a categorically eligible 
household all provisions of this subchapter except for those listed 
below shall apply:
    (A) Section 273.8 except for the last sentence of paragraph (a).
    (B) Section 273.9(a) except for the fourth sentence in the 
introductory paragraph.
    (C) Section 273.10(a)(1)(i).
    (D) Section 273.10(b).
    (E) Section 273.10(c) for the purposes of eligibility.
    (3) Applicant GA households. (i) State agencies may use the joint 
application processing procedures in paragraph (j)(1) of this section 
for GA households, except for the effective date of categorical 
eligibility, when the criteria in paragraphs (j)(3)(i) (A) and (B) of 
this section are met. Benefits for GA households that are categorically 
eligible, as provided in paragraph (j)(4) of this section, shall be 
provided from the date of the original food stamp application, the 
beginning of the period for which GA benefits are authorized, or the 
effective date of State GA categorical eligibility (February 1, 1991) or 
local GA categorical eligibility (August 1, 1992), whichever is later:
    (A) The State agency administers a GA program which uses formalized 
application procedures and eligibility criteria that test levels of 
income and resources; and,
    (B) Administration of the GA program is integrated with the 
administration of the PA or food stamp programs, in that the same 
eligibility workers process applications for GA benefits and PA or food 
stamp benefits.
    (ii) State agencies in which different eligibility workers process 
applications for GA benefits and PA or food stamp benefits, but 
procedures otherwise meet the criteria in paragraph (j)(3)(i) of this 
section may, with FNS approval, jointly process GA and food

[[Page 637]]

stamp applications. If approved, State agencies shall adhere to the 
joint application processing procedures in paragraph (j)(1) of this 
section, except for the effective date of categorical eligibility for GA 
households. Benefits shall be provided GA households that are 
categorically eligible, as provided in paragraph (j)(4) of this section, 
from the date of the original food stamp application, the beginning of 
the period for which GA benefits are authorized, or the effective date 
of State GA categorical eligibility (February 1, 1992) or local GA 
categorical eligibility (August 1, 1992), whichever is later.
    (4) Categorically eligible GA households. Households in which each 
member receives benefits from a State or local GA program which meets 
the criteria for conferring categorical eligibility in paragraph 
(j)(4)(i) of this section shall be categorically eligible for food 
stamps unless the individual or household is ineligible as specified in 
paragraph (j)(4)(iv) and (j)(4)(v) of this section.
    (i) Certification of qualifying programs. Recipients of benefits 
from programs that meet the criteria in paragraphs (j)(4)(i)(A) through 
(j)(4(i)(C) of this section shall be considered categorically eligible 
to receive benefits from the Food Stamp Program. If a program does not 
meet all of these criteria, the State agency may submit a program 
description to the appropriate FNS regional office for a determination. 
The description should contain, at a minimum, the type of assistance 
provided, the income eligibility standard, and the period for which the 
assistance is provided.
    (A) The program must have income standards which do not exceed the 
gross income eligibility standard in Sec.  273.9(a)(1). The rules of the 
GA program apply in determining countable income.
    (B) The program must provide GA benefits as defined in Sec.  271.2 
of this part.
    (C) The program must provide benefits which are not limited to one-
time emergency assistance.
    (ii) Verification requirements. In determining whether a household 
is categorically eligible, the State agency shall verify that each 
member receives PA benefits, SSI, or GA from a program that meets the 
criteria in paragraph (j)(4)(i) section or that has been certified by 
FNS as an appropriate program and that it includes no individuals who 
have been disqualified as provided in paragraph (j)(4)(iv) or (j)(2)(v) 
of this section. The State agency shall also verify household 
composition if it is questionable, in accordance with Sec.  273.2(f), in 
order to determine that the household meets the definition of a 
household in Sec.  273.1(a).
    (iii) Deemed eligibility factors. When determining eligibility for a 
categorically eligible household, all Food Stamp Program requirements 
apply except the following:
    (A) Resources. None of the provisions of Sec.  273.8 apply to 
categorically eligible households except the second sentence of Sec.  
273.8(a) pertaining to categorical eligibility and Sec.  273.8(i) 
concerning transfer of resources. The provision in Sec.  273.10(b) 
regarding resources available the time of the interview does not apply 
to categorically eligible households.
    (B) Gross and net income limits. None of the provisions in Sec.  
273.9(a) relating to income eligibility standards apply to categorically 
eligible households, except the fourth sentence pertaining to 
categorical eligibility. The provisions in Sec. Sec.  273.10(a)(1)(i) 
and 273.10(c) relating to the income eligibility determination also do 
not apply to categorically eligible households.
    (C) Zero benefit households. All eligible households of one or two 
persons must be provided the minimum benefit, as required by Sec.  
273.10(e)(2)(ii)(C).
    (D) Residency.
    (E) Sponsored alien information.
    (iv) Ineligible household members. No person shall be included as a 
member of an otherwise categorically eligible household if that person 
is:
    (A) An ineligible alien, as defined in Sec.  273.4;
    (B) An ineligible student, as defined in Sec.  273.5;
    (C) Disqualified for failure to provide or apply for an SSN, as 
required by Sec.  273.6;
    (D) A household member, not the head of household, disqualified for 
failure to comply with a work requirement of Sec.  273.7;

[[Page 638]]

    (E) Disqualified for intentional program violation, as required by 
Sec.  273.16;
    (F) An SSI recipient in a cash-out State, as defined in Sec.  
273.20; or
    (G) An individual who is institutionalized in a nonexempt facility, 
as defined in Sec.  273.1(e).
    (v) Ineligible households. A household shall not be considered 
categorically eligible if:
    (A) It refuses to cooperate in providing information to the State 
agency that is necessary for making a determination of its eligibility 
or for completing any subsequent review of its eligibility, as described 
in Sec.  273.2(d) and Sec.  273.21(m)(1)(ii);
    (B) The household is disqualified because the head of household 
fails to comply with a work requirement of Sec.  273.7;
    (C) The household is ineligible under the striker provisions of 
Sec.  273.1(g); or
    (D) The household is ineligible because it knowingly transferred 
resources for the purpose of qualifying or attempting to qualify for the 
Program, as provided in Sec.  273.8(i).
    (vi) Combination households. Households consisting entirely of 
recipients of PA, SSI and/or GA from a program that meets the 
requirements of Sec.  273.2(j)(4)(i) shall be categorically eligible in 
accordance with the provisions for paragraphs (j)(2)(iii) and (j)(2)(v) 
of this section for members receiving PA and SSI or provisions of 
paragraphs (j)(4) (iv) and (v) of this section for members receiving GA.
    (5) Households with some PA or GA recipients. State agencies that 
use the joint application processing procedures in paragraphs (j)(1) and 
(j)(3) of this section may apply these procedures to a food stamp 
applicant household in which some, but not all, members are in the PA/GA 
filing unit, except for procedures concerning categorical eligibility. 
If the State agency decides not to use the joint application procedures 
for these households, the households shall file separate applications 
for PA/GA and food stamp benefits. This decision shall not be made on a 
case-by-case basis, but shall be applied uniformly to all households of 
this type in a project area.
    (k) SSI households. For purposes of this paragraph, SSI is defined 
as Federal SSI payments made under title XVI of the Social Security Act, 
federally administered optional supplementary payments under section 
1616 of that Act, or federally administered mandatory supplementary 
payments made under section 212(a) of Pub. L. 93-66. Except in cashout 
States (Sec.  273.20), households which have not applied for food stamps 
in the thirty preceding days, and which do not have applications 
pending, may apply and be certified for food stamp benefits in 
accordance with the procedures described in Sec.  273.2(k)(1)(i) or 
Sec.  273.2(k)(1)(ii) and with the notice, procedural and timeliness 
requirements of the Food Stamp Act of 1977 and its implementing 
regulations. Households applying simultaneously for SSI and food stamps 
shall be subject to food stamp eligibility criteria, and benefit levels 
shall be based solely on food stamp eligibility criteria until the 
household is considered categorically eligible. However, households in 
which all members are either PA or SSI recipients or authorized to 
receive PA or SSI benefits (as discussed in Sec.  273.2(j)) shall be 
food stamp eligible based on their PA/SSI status as provided for in 
Sec.  273.2(j)(1)(iv) and (j)(2). Households denied NPA food stamps that 
have an SSI application pending shall be informed on the notice of 
denial of the possibility of categorical eligibility if they become SSI 
recipients. The State agency shall make an eligibility determination 
based on information provided by SSA or by the household.
    (1) Initial application and eligibility determination. At each SSA 
office, the State agency shall either arrange for SSA to complete and 
forward food stamp applications, or the State agency shall outstation 
State food stamp eligibility workers at the SSA Offices with SSA's 
concurrence, based upon an agreement negotiated between the State agency 
and the SSA.
    (i) If the State agency arranges with the SSA to complete and 
forward food stamp applications the following actions shall be taken:
    (A) Whenever a member of a household consisting only of SSI 
applicants or recipients transacts business at an SSA office, the SSA 
shall inform the household of:

[[Page 639]]

    (1) Its right to apply for food stamps at the SSA office without 
going to the food stamp office; and
    (2) Its right to apply at a food stamp office if it chooses to do 
so.
    (B) The SSA will accept and complete food stamp applications 
received at the SSA Office from SSI households and forward them, within 
one working day after receipt of a signed application, to a designated 
office of the State agency. SSA shall also forward to the State agency a 
transmittal form which will be approved by SSA and FNS. The SSA will use 
the national food stamp application form for joint processing. State 
agencies may substitute a State food stamp application, provided that 
prior approval is received from both FNS and SSA. SSA shall approve, 
deny, or comment upon FNS-approved State food stamp applications within 
thirty days of their submission to SSA.
    (C) SSA will accept and complete food stamp applications from SSI 
households received by SSA staff in contact stations. SSA will forward 
all food stamp applications from SSI households to the designated food 
stamp office.
    (D) The SSA staff shall complete joint SSI and food stamp 
applications for residents of public institutions in accordance with 
Sec.  273.1(e)(2).
    (E) The State agency shall designate an address for the SSA to 
forward food stamp applications and accompanying information to the 
State agency for eligibility determination. Applications and 
accompanying information must be forwarded to the agreed upon address in 
accordance with the time standards contained in Sec.  273.2(k)(1)(i)(B).
    (F) Except for applications taken in accordance with paragraph 
(k)(1)(i)(D) of this section, the State agency shall make an eligibility 
determination and issue food stamp benefits to eligible SSI households 
within 30 days following the date the application was received by the 
SSA. Applications shall be considered filed for normal processing 
purposes when the signed application is received by SSA. The expedited 
processing time standards shall begin on the date the State agency 
receives a food stamp application. The State agency shall make an 
eligibility determination and issue food stamp benefits to a resident of 
a public institution who applies jointly for SSI and food stamps within 
30 days following the date of the applicant's release from the 
institution. Expedited processing time standards for an applicant who 
has applied for food stamps and SSI prior to release shall also begin on 
the date of the applicant's release from the institution in accordance 
with Sec.  273.2 (i)(3)(i). SSA shall notify the State agency of the 
date of release of the applicant from the institution. If, for any 
reason, the State agency is not notified on a timely basis of the 
applicant's release date, the State agency shall restore benefits in 
accordance with Sec.  273.17 to such applicant back to the date of 
release. Food stamp applications and supporting documentation sent to an 
incorrect food stamp office shall be sent to the correct office, by the 
State agency, within one working day of their receipt in accordance with 
Sec.  273.2(c)(2)(ii).
    (G) Households in which all members are applying for or 
participating in SSI will not be required to see a State eligibility 
worker, or otherwise be subjected to an additional State interview. The 
food stamp application will be processed by the State agency. The State 
agency shall not contact the household further in order to obtain 
information for certification for food stamp benefits unless: the 
application is improperly completed; mandatory verification required by 
Sec.  273.2(f)(1) is missing; or, the State agency determines that 
certain information on the application is questionable. In no event 
would the applicant be required to appear at the food stamp office to 
finalize the eligibility determination. Further contact made in 
accordance with this paragraph shall not constitute a second food stamp 
certification interview.
    (H) SSA shall refer non-SSI households to the correct food stamp 
office. The State agencies shall process those applications in 
accordance with the procedures noted in Sec.  273.2. Applications from 
such households shall be considered filed on the date the signed 
application is taken at the correct State agency office, and the normal 
and expedited processing time standards shall begin on that date.

[[Page 640]]

    (I) The SSA shall prescreen all applications for entitlement to 
expedited services on the day the application is received at the SSA 
office and shall mark ``Expedited Processing'' on the first page of all 
households' applications that appear to be entitled to such processing. 
The SSA will inform households which appear to meet the criteria for 
expedited service that benfits may be issued a few days sooner if the 
household applies directly at the food stamp office. The household may 
take the application from SSA to the food stamp office for screening, an 
interview, and processing of the application. This provision does not 
apply to applications described in paragraph (k)(1)(i)(D) of this 
section.
    (J) The State agency shall prescreen all applications received from 
the SSA for entitlement to expedited service on the day the application 
is received at the correct food stamp office. All SSI households 
entitled to expedited service shall be certified in accordance with 
Sec.  273.2(i) except that the expedited processing time standard shall 
begin on the date the application is received at the correct State 
agency office, unless the applicant is a resident of a public 
institution as described in Sec.  273.1(e)(2).
    (K) The State agency shall develop and implement a method to 
determine if members of SSI households whose applications are forwarded 
by the SSA are already participating in the Food Stamp Program directly 
through the State agency.
    (L) If SSA takes an SSI application or redetermination on the 
telephone from a member of a pure SSI household, a food stamp 
application shall also be completed during the telephone interview. In 
these cases, the food stamp application shall be mailed to the claimant 
for signature for return to the SSA office or to the State agency. SSA 
shall then forward any food stamp applications it receives to the State 
agency. The State agency may not require the household to be interviewed 
again in the food stamp office. The State agency shall not contact the 
household further in order to obtain information for certification for 
food stamp benefits except in accordance with Sec.  273.2(k)(1)(i)(F).
    (M) To SSI recipients redetermined for SSI by mail, the SSA shall 
send a stuffer informing them of their right to file a food stamp 
application at the SSA office (if they are members of a pure SSI 
household) or at their local food stamp office, and their right to an 
out-of-office food stamp interview to be performed by the State agency 
if the household is unable to appoint an authorized representative.
    (N) Section 272.4 bilingual requirements shall not apply to the 
Social Security Administration.
    (O) State agencies shall provide and SSA shall distribute an 
information sheet or brochure to all households processed under this 
paragraph. This material shall inform the household of the following: 
The address and telephone number of the household's correct food stamp 
office, the remaining actions to be taken in the application process, 
and a statement that a household should be notified of the food stamp 
determinations within thirty days and can contact the food stamp office 
if it receives no notification within thirty days, or has other 
questions or problems. It shall also include the client's rights and 
responsibilities (including fair hearings, authorized representatives, 
out-of-office interviews, reporting changes and timely reapplication), 
information on how and where to obtain coupons, and how to use coupons 
(including the commodities clients may purchase with coupons).
    (P) As part of the SSA-State agency joint food stamp processing 
agreement, States may negotiate, on behalf of project areas, to have SSA 
provide initial eligibility and payment data where the local area is 
unable to access accurate and timely data through the State's SDX. 
However, in negotiating such agreements, SSA may challenge a State's 
determination that it does not have the computer capability to use SDX 
data. If SSA, FNS, and the State are unable to resolve this matter, and 
SSA determines that a State does have the capability to provide accurate 
and timely SDX data to the food stamp project area, SSA is not required 
to provide alternate means of transmitting initial SSI eligibility and 
payment data.

[[Page 641]]

    (ii) If the State agency chooses to outstation eligibility workers 
at SSA offices, with SSA's concurrence, the following actions shall be 
completed.
    (A) SSA will provide adequate space for State food stamp eligibility 
workers in SSA offices.
    (B) The State agency shall have at least one outstationed worker on 
duty at all time periods during which households will be referred for 
food stamp application processing. In most cases this would require the 
availability of an outstationed worker throughout normal SSA business 
hours.
    (C) The following households shall be entitled to file food stamp 
applications with, and be interviewed by an outstationed eligibility 
worker:
    (1) Households containing an applicant for or recipient of SSI;
    (2) Households which do not have an applicant for or recipient of 
SSI, but which contain an applicant for or recipient of benefits under 
title II of the Social Security Act, if the State agency and SSA have an 
agreement to allow the processing of such households at SSA offices.
    (D) Households shall be interviewed for food stamps on the day of 
application unless there is insufficient time to conduct an interview. 
The State agency shall arrange for the outstationed worker to interview 
applicants as soon as possible.
    (E) The State agency shall not refuse to provide service to persons 
served by the SSA office because they do not reside in the county or 
project area in which the SSA office is located, provided, however, that 
they reside within the jurisdictions served by the SSA office and the 
State agency. The State agency is not required to process the 
applications of persons who are not residing within the SSA office 
jurisdiction but who do reside within the State agency's jurisdiction, 
other than to forward the forms to the correct food stamp offices.
    (F) The State agency may permit the eligibility worker outstationed 
at the SSA to determine the eligibility of households, or may require 
that completed applications be forwarded elsewhere for the eligibility 
determination.
    (G) Applications from households entitled to joint processing 
through an outstationed eligibility worker shall be considered filed on 
the date they are submitted to that worker. Both the normal and 
expedited service time standards shall begin on that date.
    (H) Households not entitled to joint processing shall be entitled to 
obtain and submit applications at the SSA office. The outstationed 
eligibility worker need not process these applications except to forward 
them to the correct food stamp office where they shall be considered 
filed upon receipt (any activities beyond acceptance and referral of the 
application would require SSA concurrence). Both the normal and 
expedited service time standards shall begin on that date.
    (iii) Regardless of whether the State agency or SSA conducts the 
food stamp interview, the following actions shall be taken:
    (A) Verification. (1) The State agency shall ensure that information 
required by Sec.  273.2(f) is verified prior to certification for 
households initially applying. Households entitled to expedited 
certification services shall be processed in accordance with Sec.  
273.2(i).
    (2) The State agency has the option of verifying SSI benefit 
payments through the State Data Exchange (SDX), the Beneficiary Data 
Exchange (BENDEX) and/or through verification provided by the household.
    (3) State agencies may verify other information through SDX and 
BENDEX but only to the extent permitted by data exchange agreements with 
SSA. Information verified through SDX or BENDEX shall not be reverified 
unless it is questionable. Households shall be given the opportunity to 
provide verification from another source if all necessary information is 
not available on the SDX or the BENDEX, or if the SDX/BENDEX information 
is contradictory to other household information.
    (B) Certification period. (1) State agencies shall certify 
households under these procedures for up to twelve months, according to 
the standards in Sec.  273.10(f), except for State agencies which must 
assign the initial certification period to coincide with adjustments to 
the SSI benefit amount as designated in Sec.  273.10(f)(3)(iii).

[[Page 642]]

    (2) In cases jointly processed in which the SSI determination 
results in denial, and the State agency believes that food stamp 
eligibility or benefit levels may be affected, the State agency shall 
send the household a notice of expiration advising that the 
certification period will expire the end of the month following the 
month in which the notice is sent and that it must reapply if it wishes 
to continue to participate. The notice shall also explain that its 
certification period is expiring because of changes in circumstances 
which may affect food stamp eligibility or benefit levels and that the 
household may be entitled to an out-of-office interview, in accordance 
with Sec.  273.2(e)(2).
    (C) Changes in circumstances. (1) Households shall report changes in 
accordance with the requirements in Sec.  273.12. The State agency shall 
process changes in accordance with Sec.  273.12.
    (2) Within ten days of learning of the determination of the 
application for SSI through SDX, the household, advisement from SSA 
where SSA agrees to do so for households processed under Sec.  
273.2(k)(1)(i), or from any other source, the State agency shall take 
required action in accordance with Sec.  273.12. State agencies are 
encouraged to monitor the results of the SSI determination through SDX 
and BENDEX to the extent practical.
    (3) The State agency shall process adjustments to SSI cases 
resulting from mass changes, in accordance with provisions of Sec.  
273.12(e).
    (D) SSI households applying at the food stamp office. The State 
agency shall allow SSI households to submit food stamp applications to 
local food stamp offices rather than through the SSA if the household 
chooses. In such cases all verification, including that pertaining to 
SSI program benefits, shall be provided by the household, by SDX or 
BENDEX, or obtained by the State agency rather than being provided by 
the SSA.
    (E) Restoration of lost benefits. The State agency shall restore to 
the household benefits which were lost whenever the loss was caused by 
an error by the State agency or by the Social Security Administration 
through joint processing. Such an error shall include, but not be 
limited to, the loss of an applicant's food stamp application after it 
has been filed with SSA or with a State agency's outstationed worker. 
Lost benefits shall be restored in accordance with Sec.  273.17.
    (2) Recertification. (i) The State agency shall complete the 
application process and approve or deny timely applications for 
recertification in accordance with Sec.  273.14 of the food stamp 
regulations. A face-to-face interview shall be waived if requested by a 
household consisting entirely of SSI participants unable to appoint an 
authorized representative. The State agency shall provide SSI households 
with a notice of expiration in accordance with Sec.  273.14(b), except 
that such notification shall inform households consisting entirely of 
SSI recipients that they are entitled to a waiver of a face-to-face 
interview if the household is unable to appoint an authorized 
representative.
    (ii) Households shall be entitled to make a timely application (in 
accordance with Sec.  273.14(b)(3)) for food stamp recertification at an 
SSA office under the following conditions.
    (A) In SSA offices where Sec.  273.2(k)(1)(i) is in effect, SSA 
shall accept the application of a pure SSI household and forward the 
completed application, transmittal form and any available verification 
to the designated food stamp office. Where SSA accepts and refers the 
application in such situations, the household shall not be required to 
appear at a second office interview, although the State agency may 
conduct an out-of-office interview, if necessary.
    (B) In SSA offices where Sec.  273.2(k)(1)(ii) is in effect, the 
outstationed worker shall accept the application and interview the 
recipient and the State agency shall process the application according 
to Sec.  273.14.
    (l) Households applying for or receiving social security benefits. 
An applicant for or recipient of social security benefits under title II 
of the Social Security Act shall be informed at the SSA office of the 
availability of benefits under the Food Stamp Program and the 
availability of a Food Stamp Program application at the SSA office. The 
SSA office is not required to accept applications and conduct interviews 
for title

[[Page 643]]

II applicants/recipients in the manner prescribed in Sec.  273.2(k) for 
SSI applicants/recipients unless the State agency has chosen to 
outstation eligibility workers at the SSA office and has an agreement 
with SSA to allow the processing of such households at SSA offices. In 
these cases, processing shall be in accordance with Sec.  
273.2(k)(1)(ii).
    (m) Households where not all members are applying for or receiving 
SSI. An applicant for or recipient of SSI shall be informed at the SSA 
office of the availability of benefits under the Food Stamp Program and 
the availability of a food stamp application at the SSA office. The SSA 
office is not required to accept applications or to conduct interviews 
for SSI applicants or recipients who are not members of households in 
which all are SSI applicants or recipients unless the State agency has 
chosen to outstation eligibility workers at the SSA office. In this 
case, processing shall be in accordance with Sec.  273.2(k)(1)(ii).
    (n) Authorized representatives. Representatives may be authorized to 
act on behalf of a household in the application process, in obtaining 
food stamp benefits, and in using food stamp benefits.
    (1) Application processing and reporting. The State agency shall 
inform applicants and prospective applicants that indicate that they may 
have difficulty completing the application process, that a nonhousehold 
member may be designated as the authorized representative for 
application processing purposes. The household member or the authorized 
representative may complete work registration forms for those household 
members required to register for work. The authorized representative 
designated for application processing purposes may also carry out 
household responsibilities during the certification period, such as 
reporting changes in the household's income or other household 
circumstances in accordance with Sec.  273.12(a) and Sec.  273.21. 
Except for those situations in which a drug and alcohol treatment center 
or other group living arrangement acts as the authorized representative, 
the State agency must inform the household that the household will be 
held liable for any overissuance that results from erroneous information 
given by the authorized representative.
    (i) A nonhousehold member may be designated as an authorized 
representative for the application process provided that the person is 
an adult who is sufficiently aware of relevant household circumstances 
and the authorized representative designation has been made in writing 
by the head of the household, the spouse, or another responsible member 
of the household. Paragraph (n)(4) of this section contains further 
restrictions on who can be designated an authorized representative.
    (ii) Residents of drug or alcohol treatment centers must apply and 
be certified through the use of authorized representatives in accordance 
with Sec.  273.11(e). Residents of group living arrangements have the 
option to apply and be certified through the use of authorized 
representatives in accordance with Sec.  273.11(f).
    (2) Obtaining food stamp benefits. An authorized representative may 
be designated to obtain benefits. Even if the household is able to 
obtain benefits, it should be encouraged to name an authorized 
representative for obtaining benefits in case of illness or other 
circumstances which might result in an inability to obtain benefits. The 
name of the authorized representative must be recorded in the 
household's case record and on the food stamp identification (ID) card, 
as provided in Sec.  274.10(a)(1) of this chapter. The authorized 
representative for obtaining benefits may or may not be the same 
individual designated as an authorized representative for the 
application process or for meeting reporting requirements during the 
certification period. The State agency must develop a system by which a 
household may designate an emergency authorized representative in 
accordance with Sec.  274.10(c) of this chapter to obtain the 
household's benefits for a particular month.
    (3) Using benefits. A household may allow any household member or 
nonmember to use its ID card and benefits to purchase food or meals, if 
authorized, for the household. Drug or alcohol

[[Page 644]]

treatment centers and group living arrangements which act as authorized 
representatives for residents of the facilities must use food stamp 
benefits for food prepared and served to those residents participating 
in the Food Stamp Program (except when residents leave the facility as 
provided in Sec.  273.11(e) and (f)).
    (4) Restrictions on designations of authorized representatives. (i) 
The State agency must restrict the use of authorized representatives for 
purposes of application processing and obtaining food stamp benefits as 
follows:
    (A) State agency employees who are involved in the certification or 
issuance processes and retailers who are authorized to accept food stamp 
benefits may not act as authorized representatives without the specific 
written approval of a designated State agency official and only if that 
official determines that no one else is available to serve as an 
authorized representative.
    (B) An individual disqualified for an intentional Program violation 
cannot act as an authorized representative during the disqualification 
period, unless the State agency has determined that no one else is 
available to serve as an authorized representative. The State agency 
must separately determine whether the individual is needed to apply on 
behalf of the household, or to obtain benefits on behalf of the 
household.
    (C) If a State agency has determined that an authorized 
representative has knowingly provided false information about household 
circumstances or has made improper use of coupons, it may disqualify 
that person from being an authorized representative for up to one year. 
The State agency must send written notification to the affected 
household(s) and the authorized representative 30 days prior to the date 
of disqualification. The notification must specify the reason for the 
proposed action and the household's right to request a fair hearing. 
This provision is not applicable in the case of drug and alcoholic 
treatment centers and those group homes which act as authorized 
representatives for their residents. However, drug and alcohol treatment 
centers and the heads of group living arrangements that act as 
authorized representatives for their residents, and which intentionally 
misrepresent households circumstances, may be prosecuted under 
applicable Federal and State statutes for their acts.
    (D) Homeless meal providers, as defined in Sec.  271.2 of this 
chapter, may not act as authorized representatives for homeless food 
stamp recipients.
    (ii) In order to prevent abuse of the program, the State agency may 
set a limit on the number of households an authorized representative may 
represent.
    (iii) In the event employers, such as those that employ migrant or 
seasonal farmworkers, are designated as authorized representatives or 
that a single authorized representative has access to a large number of 
authorization documents or coupons, the State agency should exercise 
caution to assure that each household has freely requested the 
assistance of the authorized representative, the household's 
circumstances are correctly represented, the household is receiving the 
correct amount of benefits and that the authorized representative is 
properly using the benefits.

[Amdt. 132, 43 FR 47889, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
273.2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  273.3  Residency.

    (a) A household shall live in the State in which it files an 
application for participation. The State agency may also require a 
household to file an application for participation in a specified 
project area (as defined in Sec.  271.2 of this chapter) or office 
within the State. No individual may participate as a member of more than 
one household or in more than one project area, in any month, unless an 
individual is a resident of a shelter for battered women and children as 
defined in Sec.  271.2 and was a member of a household containing the 
person who had abused him or her. Residents of shelters for battered 
women and children shall be handled in accordance with Sec.  273.11(g). 
The State agency shall not impose any durational residency requirements. 
The

[[Page 645]]

State agency shall not require an otherwise eligible household to reside 
in a permanent dwelling or have a fixed mailing address as a condition 
of eligibility. Nor shall residency require an intent to reside 
permanently in the State or project area. Persons in a project area 
solely for vacation purposes shall not be considered residents.
    (b) When a household moves within the State, the State agency may 
require the household to reapply in the new project area or it may 
transfer the household's casefile to the new project area and continue 
the household's certification without reapplication. If the State agency 
chooses to transfer the case, it shall act on changes in household 
circumstances resulting from the move in accordance with Sec.  273.12(c) 
or Sec.  273.21. It shall also ensure that duplicate participation does 
not occur in accordance with Sec.  272.4(f) of this chapter, and that 
the transfer of a household's case shall not adversely affect the 
household.

[46 FR 60166, Dec. 8, 1981, as amended by Amdt. 211, 47 FR 53317, Nov. 
26, 1982; Amdt. 269, 51 FR 10785, Mar. 28, 1986; Amdt. 274, 51 FR 18750, 
May 21, 1986; Amdt. 364, 61 FR 54317, Oct. 17, 1996]



Sec.  273.4  Citizenship and alien status.

    (a) Household members meeting citizenship or alien status 
requirements. No person is eligible to participate in the Program unless 
that person is:
    (1) A U.S. citizen \1\;
---------------------------------------------------------------------------

    \1\ For guidance, see the DOJ Interim Guidance published November 
17, 1997 (62 FR 61344).
---------------------------------------------------------------------------

    (2) A U.S. non-citizen national \1\
    (3) An individual who is:
    (i) An American Indian born in Canada who possesses at least 50 per 
centum of blood of the American Indian race to whom the provisions of 
section 289 of the Immigration and Nationality Act (INA) (8 U.S.C. 1359) 
apply; or
    (ii) A member of an Indian tribe as defined in section 4(e) of the 
Indian Self-Determination and Education Assistance Act (25 U.S.C. 
450b(e)) which is recognized as eligible for the special programs and 
services provided by the U.S. to Indians because of their status as 
Indians;
    (4) An individual who is:
    (i) Lawfully residing in the U.S. and was a member of a Hmong or 
Highland Laotian tribe at the time that the tribe rendered assistance to 
U.S. personnel by taking part in a military or rescue operation during 
the Vietnam era beginning August 5, 1964, and ending May 7, 1975;
    (ii) The spouse, or surviving spouse of such Hmong or Highland 
Laotian who is deceased, or
    (iii) An unmarried dependent child of such Hmong or Highland Laotian 
who is under the age of 18 or if a full-time student under the age of 
22; an unmarried child under the age of 18 or if a full time student 
under the age of 22 of such a deceased Hmong or Highland Laotian 
provided the child was dependent upon him or her at the time of his or 
her death; or an unmarried disabled child age 18 or older if the child 
was disabled and dependent on the person prior to the child's 18th 
birthday. For purposes of this paragraph (a)(4)(iii), child means the 
legally adopted or biological child of the person described in paragraph 
(a)(4)(i) of this section, or
    (5) An individual who is both a qualified alien as defined in 
paragraph (a)(5)(i) of this section and an eligible alien as defined in 
paragraph (a)(5)(ii) of this section.
    (i) A qualified alien is:
    (A) An alien who is lawfully admitted for permanent residence under 
the INA;
    (B) An alien who is granted asylum under section 208 of the INA;
    (C) A refugee who is admitted to the United States under section 207 
of the INA;
    (D) An alien who is paroled into the U.S. under section 212(d)(5) of 
the INA for a period of at least 1 year;
    (E) An alien whose deportation is being withheld under section 
243(h) of the INA as in effect prior to April 1, 1997, or whose removal 
is withheld under section 241(b)(3) of the INA;
    (F) an alien who is granted conditional entry pursuant to section 
203(a)(7) of the INA as in effect prior to April 1, 1980;
    (G) an alien who has been battered or subjected to extreme cruelty 
in the U.S. by a spouse or a parent or by a member of the spouse or 
parent's family residing in the same household as the alien at the time 
of the abuse, an

[[Page 646]]

alien whose child has been battered or subjected to battery or cruelty, 
or an alien child whose parent has been battered \2\; or
    (H) an alien who is a Cuban or Haitian entrant, as defined in 
section 501(e) of the Refugee Education Assistance Act of 1980.
    (ii) A qualified alien, as defined in paragraph (a)(5)(i) of this 
section, must also be at least one of the following to be eligible to 
receive food stamps:
---------------------------------------------------------------------------

    \2\ For guidance, see Exhibit B to Attachment 5 of the DOJ Interim 
Guidance published on November 17, 1997 (62 FR 61344).
---------------------------------------------------------------------------

    (A) An alien lawfully admitted for permanent residence under the INA 
who has 40 qualifying quarters as determined under title II of the 
Social Security Act, including qualifying quarters of work not covered 
by Title II of the Social Security Act, based on the sum of: quarters 
the alien worked; quarters credited from the work of a parent of the 
alien before the alien became 18 (including quarters worked before the 
alien was born or adopted); and quarters credited from the work of a 
spouse of the alien during their marriage if they are still married or 
the spouse is deceased.
    (1) A spouse may not get credit for quarters of a spouse when the 
couple divorces prior to a determination of food stamp eligibility. 
However, if the State agency determines eligibility of an alien based on 
the quarters of coverage of the spouse, and then the couple divorces, 
the alien's eligibility continues until the next recertification. At 
that time, the State agency must determine the alien's eligibility 
without crediting the alien with the former spouse's quarters of 
coverage.
    (2) After December 31, 1996, a quarter in which the alien actually 
received any Federal means-tested public benefit, as defined by the 
agency providing the benefit, or actually received food stamps is not 
creditable toward the 40-quarter total. Likewise, a parent's or spouse's 
quarter is not creditable if the parent or spouse actually received any 
Federal means-tested public benefit or actually received food stamps in 
that quarter. The State agency must evaluate quarters of coverage and 
receipt of Federal means-tested public benefits on a calendar year 
basis. The State agency must first determine the number of quarters 
creditable in a calendar year, then identify those quarters in which the 
alien (or the parent(s) or spouse of the alien) received Federal means-
tested public benefits and then remove those quarters from the number of 
quarters of coverage earned or credited to the alien in that calendar 
year. However, if the alien earns the 40th quarter of coverage prior to 
applying for food stamps or any other Federal means-tested public 
benefit in that same quarter, the State agency must allow that quarter 
toward the 40 qualifying quarters total.
    (B) An alien admitted as a refugee under section 207 of the INA. 
Eligibility is limited to 7 years from the date of the alien's entry 
into the U.S.
    (C) An alien granted asylum under section 208 of the INA. 
Eligibility is limited to 7 years from the date asylum was granted.
    (D) An alien whose deportation is withheld under section 243(h) of 
the INA as in effect prior to April 1, 1997, or whose removal is 
withheld under section 241(b)(3) or the INA. Eligibility is limited to 7 
years from the date deportation or removal was withheld.
    (E) An alien granted status as a Cuban or Haitian entrant (as 
defined in section 501(e) of the Refugee Education Assistance Act of 
1980). Eligibility is limited to 7 years from the date the status as a 
Cuban or Haitian entrant was granted.
    (F) An Amerasian admitted pursuant to section 584 of Public Law 100-
202, as amended by Public Law 100-461. Eligibility is limited to 7 years 
from the date admitted as an Amerasian.
    (G) An alien with one of the following military connections:
    (1) A veteran who was honorably discharged for reasons other than 
alien status, who fulfills the minimum active-duty service requirements 
of 38 U.S.C. 5303A(d), including an individual who died in active 
military, naval or air service. The definition of veteran includes an 
individual who served before July 1, 1946, in the organized military 
forces of the Government of the Commonwealth of the Philippines while 
such forces were in the service of the Armed Forces of the U.S. or in 
the

[[Page 647]]

Philippine Scouts, as described in 38 U.S.C. 107;
    (2) An individual on active duty in the Armed Forces of the U.S. 
(other than for training); or
    (3) The spouse and unmarried dependent children of a person 
described in paragraphs (a)(5)(ii)(G)(1) or (G)(2) of this section, 
including the spouse of a deceased veteran, provided the marriage 
fulfilled the requirements of 38 U.S.C. 1304, and the spouse has not 
remarried. An unmarried dependent child for purposes of this paragraph 
(a)(5)(ii)(G)(3) is: a child who is under the age of 18 or, if a full-
time student, under the age of 22; such unmarried dependent child of a 
deceased veteran provided such child was dependent upon the veteran at 
the time of the veteran's death; or an unmarried disabled child age 18 
or older if the child was disabled and dependent on the veteran prior to 
the child's 18th birthday. For purposes of this paragraph 
(a)(5)(ii)(G)(3), child means the legally adopted or biological child of 
the person described in paragraph (a)(5)(ii)(G)(1) or (G)(2) of this 
section.
    (H) An individual who on August 22, 1996, was lawfully residing in 
the U.S., and is now receiving benefits or assistance for blindness or 
disability (as specified in Sec.  271.2 of this chapter).
    (I) An individual who on August 22, 1996, was lawfully residing in 
the U.S., and was born on or before August 22, 1931; or
    (J) An individual who on August 22, 1996, was lawfully residing in 
the U.S. and is now under 18 years of age.
    (iii) Each category of eligible alien status stands alone for 
purposes of determining eligibility. Subsequent adjustment to a more 
limited status does not override eligibility based on an earlier less 
rigorous status. Likewise, if eligibility expires under one eligible 
status, the State agency must determine if eligibility exists under 
another status.
    (6) For purposes of determining eligible alien status in accordance 
with paragraphs (a)(4) and (a)(5)(ii)(H) through (a)(5)(ii)(J) of this 
section ``lawfully residing in the U.S.'' means that the alien is 
lawfully present as defined at 8 CFR 103.12(a).
    (b) Reporting illegal aliens. (1) The State agency must inform the 
local INS office immediately whenever personnel responsible for the 
certification or recertification of households determine that any member 
of a household is ineligible to receive food stamps because the member 
is present in the U.S. in violation of the INA. The State agency may 
meet this requirement by conforming with the Interagency Notice 
providing guidance for compliance with PRWORA section 404 published on 
September 28, 2000 (65 FR 58301).
    (2) When a household indicates inability or unwillingness to provide 
documentation of alien status for any household member, the State agency 
must classify that member as an ineligible alien. When a person 
indicates inability or unwillingness to provide documentation of alien 
status, the State agency must classify that person as an ineligible 
alien. In such cases the State agency must not continue efforts to 
obtain that documentation.
    (c) Households containing sponsored alien members--(1) Definition. A 
sponsored alien is an alien for whom a person (the sponsor) has executed 
an affidavit of support (INS Form I-864 or I-864A) on behalf of the 
alien pursuant to section 213A of the INA.
    (2) Deeming of sponsor's income and resources. For purposes of this 
paragraph (c)(2), only in the event a sponsored alien is an eligible 
alien in accordance with paragraph (a) of this section will the State 
agency consider available to the household the income and resources of 
the sponsor and spouse. For purposes of determining the eligibility and 
benefit level of a household of which an eligible sponsored alien is a 
member, the State agency must deem the income and resources of sponsor 
and the sponsor's spouse, if he or she has executed INS Form I-864 or I-
864A, as the unearned income and resources of the sponsored alien. The 
State agency must deem the sponsor's income and resources until the 
alien gains U. S. citizenship, has worked or can receive credit for 40 
qualifying quarters of work as described in paragraph (a)(5)(ii)(A) of 
this section, or the sponsor dies.
    (i) The monthly income of the sponsor and sponsor's spouse (if he or 
she

[[Page 648]]

has executed INS Form I-864 or I-864A) deemed as that of the eligible 
sponsored alien must be the total monthly earned and unearned income, as 
defined in Sec.  273.9(b) with the exclusions provided in Sec.  273.9(c) 
of the sponsor and sponsor's spouse at the time the household containing 
the sponsored alien member applies or is recertified for participation, 
reduced by:
    (A) A 20 percent earned income amount for that portion of the income 
determined as earned income of the sponsor and the sponsor's spouse; and
    (B) An amount equal to the Program's monthly gross income 
eligibility limit for a household equal in size to the sponsor, the 
sponsor's spouse, and any other person who is claimed or could be 
claimed by the sponsor or the sponsor's spouse as a dependent for 
Federal income tax purposes.
    (ii) If the alien has already reported gross income information on 
his or her sponsor in compliance with the sponsored alien rules of 
another State agency administered assistance program, the State agency 
may use that income amount for Food Stamp Program deeming purposes. 
However, the State agency must limit allowable reductions to the total 
gross income of the sponsor and the sponsor's spouse prior to 
attributing an income amount to the alien to amounts specified in 
paragraphs (c)(2)(i)(A) and (c)(2)(i)(B) of this section.
    (iii) The State agency must consider as income to the alien any 
money the sponsor or the sponsor's spouse pays to the eligible sponsored 
alien, but only to the extent that the money exceeds the amount deemed 
to the eligible sponsored alien in accordance with paragraph (c)(2)(i) 
of this section.
    (iv) The State agency must deem as available to the eligible 
sponsored alien the total amount of the resources of the sponsor and 
sponsor's spouse as determined in accordance with Sec.  273.8, reduced 
by $1,500.
    (v) If a sponsored alien can demonstrate to the State agency's 
satisfaction that his or her sponsor is the sponsor of other aliens, the 
State agency must divide the income and resources deemed under the 
provisions of paragraphs (c)(2)(i) and (c)(2)(iii) of this section by 
the number of such sponsored aliens.
    (3) Exempt aliens. The provisions of paragraph (c)(2) of this 
section do not apply to:
    (i) An alien who is a member of his or her sponsor's food stamp 
household;
    (ii) An alien who is sponsored by an organization or group as 
opposed to an individual;
    (iii) An alien who is not required to have a sponsor under the 
Immigration and Nationality Act, such as a refugee, a parolee, an 
asylee, or a Cuban or Haitian entrant;
    (iv) An indigent alien that the State agency has determined is 
unable to obtain food and shelter taking into account the alien's own 
income plus any cash, food, housing, or other assistance provided by 
other individuals, including the sponsor(s). For purposes of this 
paragraph (c)(3)(iv), the phrase ``is unable to obtain food and 
shelter'' means that the sum of the eligible sponsored alien's 
household's own income, the cash contributions of the sponsor and 
others, and the value of any in-kind assistance the sponsor and others 
provide, does not exceed 130 percent of the poverty income guideline for 
the household's size. The State agency must determine the amount of 
income and other assistance provided in the month of application. If the 
alien is indigent, the only amount that the State agency must deem to 
such an alien will be the amount actually provided for a period 
beginning on the date of such determination and ending 12 months after 
such date. Each indigence determination is renewable for additional 12-
month periods. The State agency must notify the Attorney General of each 
such determination, including the names of the sponsor and the sponsored 
alien involved;
    (v) A battered alien spouse, alien parent of a battered child, or 
child of a battered alien, for 12 months after the State agency 
determines that the battering is substantially connected to the need for 
benefits, and the battered individual does not live with the 
batterer.\3\ After 12 months, the State agency

[[Page 649]]

must not deem the batterer's income and resources if the battery is 
recognized by a court or the INS and has a substantial connection to the 
need for benefits, and the alien does not live with the batterer.
---------------------------------------------------------------------------

    \3\ For guidance, see Exhibit B to Attachment 5 of the DOJ Interim 
Guidance published November 17, 1997 (62 FR 61344).
---------------------------------------------------------------------------

    (4) Eligible sponsored alien's responsibilities. During the period 
the alien is subject to deeming, the eligible sponsored alien is 
responsible for obtaining the cooperation of the sponsor and for 
providing the State agency at the time of application and at the time of 
recertification with the information and documentation necessary to 
calculate deemed income and resources in accordance with paragraphs 
(c)(2)(i) through (c)(2)(v) of this section. The eligible sponsored 
alien is responsible for providing the names and other identifying 
factors of other aliens for whom the alien's sponsor has signed an 
affidavit of support. The State agency must attribute the entire amount 
of income and resources to the applicant eligible sponsored alien until 
he or she provides the information specified under this paragraph 
(c)(4). The eligible sponsored alien is also responsible for reporting 
the required information about the sponsor and sponsor's spouse should 
the alien obtain a different sponsor during the certification period and 
for reporting a change in income should the sponsor or the sponsor's 
spouse change or lose employment or die during the certification period. 
The State agency must handle such changes in accordance with the 
timeliness standards described in Sec.  273.12 or Sec.  273.21, as 
appropriate.
    (5) Awaiting verification. Until the alien provides information or 
verification necessary to carry out the provisions of paragraph (c)(2) 
of this section, the sponsored alien is ineligible. The State agency 
must determine the eligibility of any remaining household members. The 
State agency must consider available to the remaining household members 
the income and resources of the ineligible alien (excluding the deemed 
income and resources of the alien's sponsor and sponsor's spouse) in 
determining the eligibility and benefit level of the remaining household 
members in accordance with Sec.  273.11(c). If the sponsored alien 
refuses to cooperate in providing information or verification, other 
adult members of the alien's household are responsible for providing the 
information or verification required in accordance with the provisions 
of Sec.  273.2(d). If the State agency subsequently receives information 
or verification, it must act on the information as a reported change in 
household membership in accordance with the timeliness standards in 
Sec.  273.12 or Sec.  273.21, as appropriate. If the same sponsor is 
responsible for the entire household, the entire household is ineligible 
until such time as the household provides the needed sponsor information 
or verification. The State agency must assist aliens in obtaining 
verification in accordance with the provisions of Sec.  273.2(f)(5).
    (6) Demands for restitution. The State agency must exclude any 
sponsor who is participating in the Program from any demand made under 8 
CFR 213a.4(a) for the value of food stamp benefits issued to an eligible 
sponsored alien he or she sponsors.

[Amdt. 388, 65 FR 70200, Nov. 21, 2000]



Sec.  273.5  Students.

    (a) Applicability. An individual who is enrolled at least half-time 
in an institution of higher education shall be ineligible to participate 
in the Food Stamp Program unless the individual qualifies for one of the 
exemptions contained in paragraph (b) of this section. An individual is 
considered to be enrolled in an institution of higher education if the 
individual is enrolled in a business, technical, trade, or vocational 
school that normally requires a high school diploma or equivalency 
certificate for enrollment in the curriculum or if the individual is 
enrolled in a regular curriculum at a college or university that offers 
degree programs regardless of whether a high school diploma is required.
    (b) Student Exemptions. To be eligible for the program, a student as 
defined in paragraph (a) of the section must meet at least one of the 
following criteria.
    (1) Be age 17 or younger or age 50 or older;
    (2) Be physically or mentally unfit;
    (3) Be receiving Temporary Assistance for Needy Families under Title 
IV of the Social Security Act;

[[Page 650]]

    (4) Be enrolled as a result of participation in the Job 
Opportunities and Basic Skills program under Title IV of the Social 
Security Act or its successor program;
    (5) Be employed for a minimum of 20 hours per week and be paid for 
such employment or, if self-employed, be employed for a minimum of 20 
hours per week and receiving weekly earnings at least equal to the 
Federal minimum wage multiplied by 20 hours;
    (6) Be participating in a State or federally financed work study 
program during the regular school year.
    (i) To qualify under this provision, the student must be approved 
for work study at the time of application for food stamps, the work 
study must be approved for the school term, and the student must 
anticipate actually working during that time. The exemption shall begin 
with the month in which the school term begins or the month work study 
is approved, whichever is later. Once begun, the exemption shall 
continue until the end of the month in which the school term ends, or it 
becomes known that the student has refused an assignment.
    (ii) The exemption shall not continue between terms when there is a 
break of a full month or longer unless the student is participating in 
work study during the break.
    (7) Be participating in an on-the-job training program. A person is 
considered to be participating in an on-the-job training program only 
during the period of time the person is being trained by the employer;
    (8) Be responsible for the care of a dependent household member 
under the age of 6;
    (9) Be responsible for the care of a dependent household member who 
has reached the age of 6 but is under age 12 when the State agency has 
determined that adequate child care is not available to enable the 
student to attend class and comply with the work requirements of 
paragraph (b)(5) or (b)(6) of this section;
    (10) Be a single parent enrolled in an institution of higher 
education on a full-time basis (as determined by the institution) and be 
responsible for the care of a dependent child under age 12.
    (i) This provision applies in those situations where only one 
natural, adoptive or stepparent (regardless of marital status) is in the 
same food stamp household as the child.
    (ii) If no natural, adoptive or stepparent is in the same food stamp 
household as the child, another full-time student in the same food stamp 
household as the child may qualify for eligible student status under 
this provision if he or she has parental control over the child and is 
not living with his or her spouse.
    (11) Be assigned to or placed in an institution of higher education 
through or in compliance with the requirements of one of the programs 
identified in paragraphs (b)(11)(i) through (b)(11)(iv) of this section. 
Self-initiated placements during the period of time the person is 
enrolled in one of these employment and training programs shall be 
considered to be in compliance with the requirements of the employment 
and training program in which the person is enrolled provided that the 
program has a component for enrollment in an institution of higher 
education and that program accepts the placement. Persons who 
voluntarily participate in one of these employment and training programs 
and are placed in an institution of higher education through or in 
compliance with the requirements of the program shall also qualify for 
the exemption. The programs are:
    (i) A program under the Job Training Partnership Act of 1974 (29 
U.S.C. 1501, et seq.);
    (ii) An employment and training program under Sec.  273.7;
    (iii) A program under section 236 of the Trade Act of 1974 (19 
U.S.C. 2296); or
    (iv) An employment and training program for low-income households 
that is operated by a State or local government where one or more of the 
components of such program is at least equivalent to an acceptable food 
stamp employment and training program component as specified in Sec.  
273.7(e)(1). Using the criteria in Sec.  273.7(e)(1), State agencies 
shall make the determinations as to whether or not the programs qualify.
    (c) The enrollment status of a student shall begin on the first day 
of the school term of the institution of higher

[[Page 651]]

education. Such enrollment shall be deemed to continue through normal 
periods of class attendance, vacation and recess, unless the student 
graduates, is suspended or expelled, drops out, or does not intend to 
register for the next normal school term (excluding summer school).
    (d) The income and resources of an ineligible student shall be 
handled as outlined in Sec.  273.11(d).

[46 FR 43025, Aug. 25, 1981, as amended by Amdt. 235, 47 FR 55908, Dec. 
14, 1982; Amdt. 269, 51 FR 10785, Mar. 28, 1986; Amdt. 274, 51 FR 18750, 
May 21, 1986; Amdt. 277, 51 FR 30048, Aug. 22, 1986; Amdt. 370, 60 FR 
48869, Sept. 21, 1995; 67 FR 41603, June 19, 2002]



Sec.  273.6  Social security numbers.

    (a) Requirements for participation. The State agency shall require 
that a household participating or applying for participation in the Food 
Stamp Program provide the State agency with the social security number 
(SSN) of each household member or apply for one before certification. If 
individuals have more than one number, all numbers shall be required. 
The State agency shall explain to applicants and participants that 
refusal or failure without good cause to provide an SSN will result in 
disqualification of the individual for whom an SSN is not obtained.
    (b) Obtaining SSNs for food stamp household members. (1) For those 
individuals who provide SSNs prior to certification, recertification or 
at any office contact, the State agency shall record the SSN and verify 
it in accordance with Sec.  273.2(f)(1)(v).
    (2) For those individuals who do not have an SSN, the State agency 
shall:
    (i) If an enumeration agreement with SSA exists, complete the 
application for an SSN, Form SS-5. To complete Form SS-5, the State 
agency must document the verification of identity, age, and citizenship 
or alien status as required by SSA and forward the SS-5 to SSA.
    (ii) If no enumeration agreement exists, an individual must apply at 
the SSA, and the State agency shall arrange with SSA to be notified 
directly of the SSN when it is issued. The State agency shall inform the 
household where to apply and what information will be needed, including 
any which may be needed for SSA to notify the State agency of the SSN. 
The State agency shall advise the household member that proof of 
application from SSA will be required prior to certification. SSA 
normally uses the Receipt of Application for a Social Security Number, 
Form SSA-5028, as evidence that an individual has applied for an SSN. 
State agencies may also use their own documents for this purpose.
    (3) The State agency shall follow the procedures described in 
paragraphs (b)(2) (i) and (ii) of this section for individuals who do 
not know if they have an SSN, or are unable to find their SSN.
    (4) If the household is unable to provide proof of application for 
an SSN for a newborn, the household must provide the SSN or proof of 
application at its next recertification or within 6 months following the 
month the baby is born, whichever is later. If the household is unable 
to provide an SSN or proof of application for an SSN at its next 
recertification within 6 months following the baby's birth, the State 
agency shall determine if the good cause provisions of paragraph (d) of 
this section are applicable.
    (c) Failure to comply. If the State agency determines that a 
household member has refused or failed without good cause to provide or 
apply for an SSN, then that individual shall be ineligible to 
participate in the Food Stamp Program. The disqualification applies to 
the individual for whom the SSN is not provided and not to the entire 
household. The earned or unearned income and resources of an individual 
disqualified from the household for failure to comply with this 
requirement shall be counted as household income and resources to the 
extent specified in Sec.  273.11(c) of these regulations.
    (d) Determining good cause. In determining if good cause exists for 
failure to comply with the requirement to apply for or provide the State 
agency with an SSN, the State agency shall consider information from the 
household member, SSA and the State agency (especially if the State 
agency was designated to send the SS-5 to SSA and either did not process 
the SS-5 or did not process it in a timely manner).

[[Page 652]]

Documentary evidence or collateral information that the household member 
has applied for an SSN or made every effort to supply SSA with the 
necessary information to complete an application for an SSN shall be 
considered good cause for not complying timely with this requirement. 
Good cause does not include delays due to illness, lack of 
transportation or temporary absences, because SSA makes provisions for 
mail-in applications in lieu of applying in person. If the household 
member can show good cause why an application for a SSN has not been 
completed in a timely manner, that person shall be allowed to 
participate for one month in addition to the month of application. If 
the household member applying for an SSN has been unable to obtain the 
documents required by SSN, the State agency caseworker should make every 
effort to assist the individual in obtaining these documents. Good cause 
for failure to apply must be shown monthly in order for such a household 
member to continue to participate. Once an application has been filed, 
the State agency shall permit the member to continue to participate 
pending notification of the State agency of the household member's SSN.
    (e) Ending disqualification. The household member(s) disqualified 
may become eligible upon providing the State agency with an SSN.
    (f) Use of SSNs. The State agency is authorized to use SSNs in the 
administration of the Food Stamp Program. To the extent determined 
necessary by the Secretary and the Secretary of Health and Human 
Services, State agencies shall have access to information regarding 
individual Food Stamp Program applicants and participants who receive 
benefits under title XVI of the Social Security Act to determine such a 
household's eligibility to receive assistance and the amount of 
assistance, or to verify information related to the benefit of these 
households. State agencies shall use the State Data Exchange (SDX) to 
the maximum extent possible. The State agency should also use the SSNs 
to prevent duplicate participation, to facilitate mass changes in 
Federal benefits as described in Sec.  273.12(e)(3) and to determine the 
accuracy and/or reliability of information given by households. In 
particular, SSNs shall be used by the State agency to request and 
exchange information on individuals through the IEVS as specified in 
Sec.  272.8.
    (g) Entry of SSNs into automated data bases. State agencies with 
automated food stamp data bases containing household information shall 
enter all SSNs obtained in accordance with Sec.  273.6(a) into these 
files.

[Amdt. 264, 51 FR 7206, Feb. 28, 1986; Amdt. 364, 61 FR 54317, Oct. 17, 
1996]



Sec.  273.7  Work provisions.

    (a) Work requirements. (1) As a condition of eligibility for food 
stamps, each household member not exempt under paragraph (b)(1) of this 
section must comply with the following Food Stamp Program work 
requirements:
    (i) Register for work or be registered by the State agency at the 
time of application and every 12 months after initial registration. The 
member required to register need not complete the registration form.
    (ii) Participate in a Food Stamp Employment and Training (E&T) 
program if assigned by the State agency, to the extent required by the 
State agency;
    (iii) Participate in a workfare program if assigned by the State 
agency;
    (iv) Provide the State agency or its designee with sufficient 
information regarding employment status or availability for work;
    (v) Report to an employer to whom referred by the State agency or 
its designee if the potential employment meets the suitability 
requirements described in paragraph (h) of this section;
    (vi) Accept a bona fide offer of suitable employment, as defined in 
paragraph (h) of this section, at a site or plant not subject to a 
strike or lockout, at a wage equal to the higher of the Federal or State 
minimum wage or 80 percent of the wage that would have governed had the 
minimum hourly rate under section 6(a)(1) of the Fair Labor Standards 
Act been applicable to the offer of employment.
    (vii) Do not voluntarily and without good cause quit a job of 30 or 
more hours a week or reduce work effort to less than 30 hours a week, in 
accordance with paragraph (j) of this section.

[[Page 653]]

    (2) The Food and Nutrition Service (FNS) has defined the meaning of 
``good cause,'' and ``voluntary quit,'' and ``reduction of work effort'' 
as used in paragraph (a)(1)(vii) of this section. See paragraph (i) of 
this section for a discussion of good cause; see paragraph (j) of this 
section for a discussion of voluntary quit and reduction of work effort.
    (3) Each State agency will determine the meaning of any other terms 
used in paragraph (a)(1) of this section; the procedures for 
establishing compliance with Food Stamp Program work requirements; and 
whether an individual is complying with Food Stamp Program work 
requirements. A State agency must not use a meaning, procedure, or 
determination that is less restrictive on food stamp recipients than is 
a comparable meaning, procedure, or determination under the State 
agency's program funded under title IV-A of the Social Security Act.
    (4) Strikers whose households are eligible under the criteria in 
Sec.  273.1(e) are subject to Food Stamp Program work requirements 
unless they are exempt under paragraph (b)(1) of this section at the 
time of application.
    (5) State agencies may request approval from FNS to substitute State 
or local procedures for work registration for PA households not subject 
to the work requirements under title IV of the Social Security Act or 
for GA households. However, the failure of a household member to comply 
with State or local work requirements that exceed the requirements 
listed in this section must not be considered grounds for 
disqualification. Work requirements imposed on refugees participating in 
refugee resettlement programs may also be substituted, with FNS 
approval.
    (6) Household members who are applying for SSI and for food stamps 
under Sec.  273.2(k)(1)(i) will have Food Stamp Program work 
requirements waived until they are determined eligible for SSI and 
become exempt from Food Stamp Program work requirements, or until they 
are determined ineligible for SSI, at which time their exemptions from 
Food Stamp Program work requirements will be reevaluated.
    (b) Exemptions from work requirements. (1) The following persons are 
exempt from Food Stamp Program work requirements:
    (i) A person younger than 16 years of age or a person 60 years of 
age or older. A person age 16 or 17 who is not the head of a household 
or who is attending school, or is enrolled in an employment training 
program, on at least a half-time basis, is also exempt. If the person 
turns 16 (or 18 under the preceding sentence) during a certification 
period, the State agency must register the person as part of the next 
scheduled recertification process, unless the person qualifies for 
another exemption.
    (ii) A person physically or mentally unfit for employment. For the 
purposes of this paragraph (b), a State agency will define physical and 
mental fitness; establish procedures for verifying; and will verify 
claimed physical or mental unfitness when necessary. However, the State 
agency must not use a definition, procedure for verification, or 
verification that is less restrictive on food stamp recipients than a 
comparable meaning, procedure, or determination under the State agency's 
program funded under title IV-A of the Social Security Act.
    (iii) A person subject to and complying with any work requirement 
under title IV of the Social Security Act. If the exemption claimed is 
questionable, the State agency is responsible for verifying the 
exemption.
    (iv) A parent or other household member responsible for the care of 
a dependent child under 6 or an incapacitated person. If the child has 
his or her 6th birthday during a certification period, the State agency 
must work register the individual responsible for the care of the child 
as part of the next scheduled recertification process, unless the 
individual qualifies for another exemption.
    (v) A person receiving unemployment compensation. A person who has 
applied for, but is not yet receiving, unemployment compensation is also 
exempt if that person is complying with work requirements that are part 
of the Federal-State unemployment compensation application process. If 
the exemption claimed is questionable, the State agency is responsible 
for

[[Page 654]]

verifying the exemption with the appropriate office of the State 
employment services agency.
    (vi) A regular participant in a drug addiction or alcoholic 
treatment and rehabilitation program.
    (vii) An employed or self-employed person working a minimum of 30 
hours weekly or earning weekly wages at least equal to the Federal 
minimum wage multiplied by 30 hours. This includes migrant and seasonal 
farm workers under contract or similar agreement with an employer or 
crew chief to begin employment within 30 days (although this will not 
prevent individuals from seeking additional services from the State 
employment services agency). For work registration purposes, a person 
residing in areas of Alaska designated in Sec.  274.10(a)(4)(iv) of this 
chapter, who subsistence hunts and/or fishes a minimum of 30 hours 
weekly (averaged over the certification period) is considered exempt as 
self-employed. An employed or self-employed person who voluntarily and 
without good cause reduces his or her work effort and, after the 
reduction, is working less than 30 hours per week, is ineligible to 
participate in the Food Stamp Program under paragraph (j) of this 
section.
    (viii) A student enrolled at least half-time in any recognized 
school, training program, or institution of higher education. Students 
enrolled at least half-time in an institution of higher education must 
meet the student eligibility requirements listed in Sec.  273.5. A 
student will remain exempt during normal periods of class attendance, 
vacation, and recess. If the student graduates, enrolls less than half-
time, is suspended or expelled, drops out, or does not intend to 
register for the next normal school term (excluding summer), the State 
agency must work register the individual, unless the individual 
qualifies for another exemption.
    (2)(i) Persons losing exemption status due to any changes in 
circumstances that are subject to the reporting requirements of Sec.  
273.12 must register for employment when the change is reported. If the 
State agency does not use a work registration form, it must annotate the 
change to the member's exemption status. If a work registration form is 
used, the State agency is responsible for providing the participant with 
a work registration form when the change is reported. Participants are 
responsible for returning the completed form to the State agency within 
10 calendar days from the date the form was handed to the household 
member reporting the change in person, or the date the State agency 
mailed the form. If the participant fails to return the completed form, 
the State agency must issue a notice of adverse action stating that the 
participant is being terminated and why, but that the termination can be 
avoided by returning the form.
    (ii) Those persons who lose their exemption due to a change in 
circumstances that is not subject to the reporting requirements of Sec.  
273.12 must register for employment at their household's next 
recertification.
    (c) State agency responsibilities. (1) The State agency must 
register for work each household member not exempted by the provisions 
of paragraph (b)(1) of this section. As part of the work registration 
process, the State agency must explain to the individual the pertinent 
work requirements, the rights and responsibilities of work-registered 
household members, and the consequences of failure to comply. The State 
agency must provide a written statement of the above to each individual 
in the household who is registered for work. A notice must also be 
provided when a previously exempt individual or new household member 
becomes subject to a work requirement, and at recertification. The State 
agency must permit the applicant to complete a record or form for each 
household member required to register for employment in accordance with 
paragraph (a)(1)(i) of this section. Household members are considered to 
have registered when an identifiable work registration form is submitted 
to the State agency or when the registration is otherwise annotated or 
recorded by the State agency.
    (2) The State agency is responsible for screening each work 
registrant to determine whether or not it is appropriate, based on the 
State agency's criteria, to refer the individual to an E&T program, and 
if appropriate, referring

[[Page 655]]

the individual to an E&T program component. Upon entry into each 
component, the State agency must inform the participant, either orally 
or in writing, of the requirements of the component, what will 
constitute noncompliance and the sanctions for noncompliance. The State 
agency may, with FNS approval, use intake and sanction systems that are 
compatible with its title IV-A work program. Such systems must be 
proposed and explained in the State agency's E&T State Plan.
    (3) The State agency must issue a notice of adverse action to an 
individual, or to a household if appropriate, within 10 days after 
learning of the individual's noncompliance with Food Stamp Program work 
requirements. The notice of adverse action must meet the timeliness and 
adequacy requirements of Sec.  273.13. If the individual complies before 
the end of the advance notice period, the State agency will cancel the 
adverse action. If the State agency offers a conciliation process as 
part of its E&T program, it must issue the notice of adverse action no 
later than the end of the conciliation period.
    (4) The State agency must design and operate an E&T program that may 
consist of one or more or a combination of employment and/or training 
components as described in paragraph (e)(1) of this section. The State 
agency must ensure that it is notified by the agency or agencies 
operating its E&T components within 10 days if an E&T mandatory 
participant fails to comply with E&T requirements.
    (5) Each component of the State agency's E&T program must be 
delivered through its statewide workforce development system, unless the 
component is not available locally through such a system.
    (6) In accordance with Sec.  272.2(d) and Sec.  272.2(e) of this 
chapter, the State agency must prepare and submit an E&T Plan to its 
appropriate FNS Regional Office. The E&T Plan must be available for 
public inspection at the State agency headquarters. In its E&T Plan, the 
State agency will detail the following:
    (i) The nature of the E&T components the State agency plans to offer 
and the reasons for such components, including cost information. The 
methodology for State agency reimbursement for education components must 
be specifically addressed;
    (ii) An operating budget for the Federal fiscal year with an 
estimate of the cost of operation for one full year. Any State agency 
that requests 50 percent Federal reimbursement for State agency E&T 
administrative costs, other than for participant reimbursements, must 
include in its plan, or amendments to its plan, an itemized list of all 
activities and costs for which those Federal funds will be claimed, 
including the costs for case management and casework to facilitate the 
transition from economic dependency to self-sufficiency through work. 
Costs in excess of the Federal grant will be allowed only with the prior 
approval of FNS and must be adequately documented to assure that they 
are necessary, reasonable and properly allocated. If the State agency 
intends to spend the additional E&T grant allocation for which it is 
eligible in a fiscal year in accordance with paragraph (d)(1)(i)(B) of 
this section, it must declare its intention to maintain its level of 
expenditures for E&T and workfare at a level not less than the level of 
such expenditures in FY 1996;
    (iii) The categories and types of individuals the State agency 
intends to exempt from E&T participation, the estimated percentage of 
work registrants the State agency plans to exempt, and the frequency 
with which the State agency plans to reevaluate the validity of its 
exemptions;
    (iv) The characteristics of the population the State agency intends 
to place in E&T
    (v) The estimated number of volunteers the State agency expects to 
place in E&T
    (vi) The geographic areas covered and not covered by the E&T Plan 
and why, and the type and location of services to be offered;
    (vii) The method the State agency uses to count all work registrants 
the first month of each fiscal year;
    (viii) The method the State agency uses to report work registrant 
information on the quarterly Form FNS-583;
    (ix) The method the State agency uses to prevent work registrants 
from

[[Page 656]]

being counted twice within a Federal fiscal year. If the State agency 
universally work registers all food stamp applicants, this method must 
specify how the State agency excludes those exempt from work 
registration under paragraph (b)(1) of this section. If the State agency 
work registers nonexempt participants whenever a new application is 
submitted, this method must also specify how the State agency excludes 
those participants who may have already been registered within the past 
12 months as specified under paragraph (a)(1)(i) of this section;
    (x) The organizational relationship between the units responsible 
for certification and the units operating the E&T components, including 
units of the statewide workforce development system, if available. FNS 
is specifically concerned that the lines of communication be efficient 
and that noncompliance be reported to the certification unit within 10 
working days after the noncompliance occurs;
    (xi) The relationship between the State agency and other 
organizations it plans to coordinate with for the provision of services, 
including organizations in the statewide workforce development system, 
if available. Copies of contracts must be available for inspection;
    (xii) The availability, if appropriate, of E&T programs for Indians 
living on reservations;
    (xiii) If a conciliation process is planned, the procedures that 
will be used when an individual fails to comply with an E&T program 
requirement. Include the length of the conciliation period; and
    (xiv) The payment rates for child care established in accordance 
with the Child Care and Development Block Grant provisions of 45 CFR 
98.43, and based on local market rate surveys.
    (7) The State agency will submit its E&T Plan biennially, at least 
45 days before the start of the Federal fiscal year. The State agency 
must submit plan revisions to the appropriate FNS regional office for 
approval if it plans to alter the nature or location of its components 
or the number or characteristics of persons served. The proposed changes 
must be submitted for approval at least 30 days prior to planned 
implementation.
    (8) The State agency will submit quarterly reports to FNS no later 
than 45 days after the end of each Federal fiscal quarter containing 
monthly figures for:
    (i) Participants newly work registered;
    (ii) Work registrants exempted by the State agency from 
participation in E&T
    (iii) Participants who volunteer for and commence participation in 
an approved E&T component;
    (iv) E&T mandatory participants who commence an approved E&T 
component, including Food Stamp Program applicants if the State agency 
chooses to operate a component for applicants;
    (v) Able-bodied adults without dependents (ABAWDs) subject to the 3-
month food stamp time limit imposed in accordance with Sec.  273.24(b) 
who are exempt under the State agency's 15 percent exemption allowance 
under Sec.  273.24(g);
    (vi) Filled and offered slots created in E&T workfare components or 
comparable programs that serve ABAWDs subject to the 3-month food stamp 
time limit. This information must be broken out to show the number of 
slots created in areas of the State that have received a waiver of the 
time limit in accordance with Sec.  273.24(f) and in non-waived areas;
    (vii) Filled and offered slots created in education and training 
components or comparable programs that serve ABAWDs subject to the 3-
month food stamp time limit. This information must be broken out to show 
the number of slots created in areas of the State that have received a 
waiver of the time limit in accordance with Sec.  273.24(f) and in non-
waived areas;
    (viii) The amount of 100 percent Federal E&T funds spent to create 
workfare slots that serve ABAWDs subject to the 3-month time limit; and
    (ix) The amount of 100 percent Federal E&T funds spent to create 
education and training slots that serve ABAWDs subject to the 3-month 
time limit.
    (9) The State agency will submit annually, on its first quarterly 
report:

[[Page 657]]

    (i) The number of work registered persons in the State during the 
period October 1 through October 31 of the new fiscal year, including 
persons work registered during October; and
    (ii) The number of these work registered persons the State agency 
subsequently exempted from participation in E&T.
    (10) The State agency will submit annually, on its final quarterly 
report, a list of E&T components it offered during the fiscal year and 
the number of mandatory and volunteer participants placed in each E&T 
component.
    (11) Additional information may be required of the State agency, on 
an as needed basis, regarding the type of components offered and the 
characteristics of persons served, depending on the contents of its E&T 
Plan.
    (12) The State agency must ensure, to the maximum extent 
practicable, that E&T programs are provided for Indians living on 
reservations.
    (13) If a benefit overissuance is discovered for a month or months 
in which a mandatory E&T participant has already fulfilled a work 
component requirement, the State agency must follow the procedure 
specified in paragraph (m)(6)(v) of this section for a workfare 
overissuance.
    (14) If a State agency fails to efficiently and effectively 
administer its E&T program, the provisions of Sec.  276.1(a)(4) of this 
chapter will apply.
    (d) Federal financial participation. (1) Employment and training 
grants. (i) Allocation of grants. Each State agency will receive an E&T 
program grant for each fiscal year to operate an E&T program. The grant 
requires no State matching. The grant will consist of a base amount and 
a additional amount that will be available only to those affected State 
agencies that elect to meet their maintenance of effort requirements as 
described in paragraph (d)(1)(iii) of this section.
    (A) In determining each State agency's base 100 percent Federal E&T 
grant amount, FNS will apply the percentage determined in accordance 
with paragraph (d)(1)(i)(C) of this section to the total amount of the 
100 percent Federal E&T grant provided under section 16(h)(1)(A) of the 
Food Stamp Act for each fiscal year.
    (B) In determining each State agency's additional 100 percent 
Federal E&T grant amount, FNS will apply the percentage determined in 
accordance with paragraph (d)(1)(i)(C) of this section to the total 
amount of 100 percent Federal E&T grant provided under section 
16(h)(1)(A) of the Food Stamp Act for each fiscal year.
    (C) Except as otherwise provided in paragraph (d)(1)(i)(F) of this 
section, Federal funding for E&T grants, including both the base and 
additional amounts, will be allocated based on the number of ABAWDs in 
each State not eligible for an exemption under Sec.  273.24(c), who 
either do not reside in an area subject to a waiver granted in 
accordance with Sec.  273.24(f) or who do reside in an area subject to a 
waiver in which the State agency provides E&T services to ABAWDs, as a 
percentage of such recipients nationwide. FNS will ensure that all 
waivers granted in accordance with Sec.  273.24(f) in a reasonable time 
before the E&T allocations are determined will be considered in the 
determination.
    (D) FNS will determine each State's percentage of ABAWDs using FY 
1996 Quality Control survey data adjusted for changes in each State's 
caseload.
    (E) No State agency will receive less than $50,000 in 100 percent 
Federal E&T funds. To ensure this, FNS will reduce, if necessary, the 
grant of each State agency allocated more than $50,000. The reduction 
will be proportionate to the number of ABAWDs in the State who are not 
eligible for an exemption under Sec.  273.24(c), and who do not reside 
in an area subject to a waiver under Sec.  273.24(f) or who do reside in 
an area subject to a waiver in which the State agency provides E&T 
services to ABAWDs as compared to the total number of such recipients in 
all the State agencies receiving more than $50,000. FNS will distribute 
the funds from the reduction to State agencies initially allocated less 
than $50,000 so they receive the $50,000 minimum.
    (F) If a State agency will not expend all of the funds allocated to 
it for a fiscal year under paragraph (d)(1)(i)(C) of this section, FNS 
will reallocate the

[[Page 658]]

unexpended funds to other State agencies during the fiscal year or the 
subsequent fiscal year as it considers appropriate and equitable.
    (ii) Use of Funds. (A) Not less than 80 percent of the funds a State 
agency receives in a fiscal year under paragraph (d)(1)(i) of this 
section must be used to serve ABAWDs who are placed in and comply with 
the requirements of a workfare component in an E&T program described in 
paragraph (e)(1)(iii) of this section or a comparable program, or to 
serve ABAWDs participating in qualifying education and training 
activities for 20 hours or more per week. Qualifying activities are 
those provided as part of a program operated under the Workforce 
Investment Act of 1998 (29 U.S.C. 2801 et seq.)(WIA), a program under 
section 236 of the Trade Act of 1974 (19 U.S.C. 2296), or an E&T program 
operated or supervised by the State agency or a political subdivision 
that meets standards approved by the Governor of the State, including 
programs described in paragraphs (e)(1)(iv), (e)(1)(v), (e)(1)(vi) and 
(e)(1)(vii) of this section. Job search and job search training programs 
as described in paragraphs (e)(1)(i) and (e)(1)(ii) of this section do 
not meet the definition of qualifying activities. However, job search 
and or job search training programs, when operated under title I of the 
WIA or under section 236 of the Trade Act, do meet the definition of 
qualifying activities. Further, job search or job search training 
activities, when offered as part of other E&T program components, are 
acceptable as long as those activities comprise less than half the 
required time spent in the other components. Lastly, a State agency may 
establish a job search period of up to 30 days following initial 
certification prior to making a workfare assignment. This job search 
activity is part of the workfare assignment, and not a job search 
``program.'' Participants are considered to be participating in and 
complying with the requirements of workfare, thereby meeting the work 
requirement for ABAWDs.
    (B) Funds a State agency receives in a fiscal year under paragraph 
(d)(1)(i) of this section that are used to serve ABAWDs who either 
reside in an area of a State granted a waiver under Sec.  273.24(f) or 
who have been granted an exemption under Sec.  273.24(g) and that are 
expended on qualifying ABAWD activities as described in paragraph 
(d)(1)(ii)(A) of this section count toward a State agency's 80 percent 
expenditure.
    (C) Not more than 20 percent of the funds a State agency receives in 
a fiscal year under paragraph (d)(1)(i) of this section may be used to 
serve individuals eligible for an exemption under Sec.  273.24(c) (non-
ABAWDs) or on activities that do not meet the definition of qualifying 
activities as described in paragraph (d)(1)(ii)(A) of this section. E&T 
funds expended in accordance with this paragraph (d)(1)(ii)(C) may be 
spent independent of whether or not the State agency expends any Federal 
funds that meet the requirements of paragraph (d)(1)(ii)(A) of this 
section.
    (D) If at the end of a fiscal year, FNS determines that a State 
agency has spent more than 20 percent of the Federal E&T funds it 
received for that fiscal year under paragraph (d)(1)(i) of this section 
to serve non-ABAWDs or on activities that do not meet the definition of 
qualifying activities as described in paragraph (d)(1)(ii)(A) of this 
section, it will reimburse States for allowable costs incurred in excess 
of the 20 percent threshold at the normal administrative 50/50 match 
rate.
    (E) A State agency must use E&T program grants to fund the 
administrative costs of planning, implementing and operating its food 
stamp E&T program in accordance with its approved State E&T plan. E&T 
grants must not be used for the process of determining whether an 
individual must be work registered, the work registration process, or 
any further screening performed during the certification process, nor 
for sanction activity that takes place after the operator of an E&T 
component reports noncompliance without good cause. For purposes of this 
paragraph (d), the certification process is considered ended when an 
individual is referred to an E&T component for assessment or 
participation. E&T grants may also not be used to subsidize the wages of 
participants, or to reimburse participants under paragraph (d)(3) of 
this section.

[[Page 659]]

    (F) A State agency's receipt of its 100 percent Federal E&T grant is 
contingent on FNS's approval of the State agency's E&T plan. If an 
adequate plan is not submitted, FNS may reallocate a State agency's 
grant among other State agencies with approved plans. Non-receipt of an 
E&T grant does not release a State agency from its responsibility under 
paragraph (c)(4) of this section to operate an E&T program.
    (G) Federal funds made available to a State agency to operate an 
educational component under paragraph (e)(1)(vi) of this section must 
not be used to supplant nonfederal funds for existing educational 
services and activities that promote the purposes of this component. 
Education expenses are approvable to the extent that E&T component costs 
exceed the normal cost of services provided to persons not participating 
in an E&T program.
    (H) In accordance with section 6(d)(4)(K) of the Food Stamp Act, and 
notwithstanding any other provision of this paragraph (d), the amount of 
Federal E&T funds, including participant and dependent care 
reimbursements, a State agency uses to serve participants who are 
receiving cash assistance under a State program funded under title IV-A 
of the Social Security Act must not exceed the amount of Federal E&T 
funds the State agency used in FY 1995 to serve participants who were 
receiving cash assistance under a State program funded under title IV-A 
of the Social Security Act.
    (1) Based on information provided by each State agency, FNS 
established claimed Federal E&T expenditures on this category of 
recipients in fiscal year 1995 for the State agencies of Colorado 
($318,613), Utah ($10,200), Vermont ($1,484,913), and Wisconsin 
($10,999,773). These State agencies may spend up to a like amount each 
fiscal year to serve food stamp recipients who also receive title IV 
assistance.
    (2) All other State agencies are prohibited from expending any 
Federal E&T funds on title IV cash assistance recipients.
    (iii) Maintenance of Effort. (A) To be eligible for a grant derived 
from the additional level of E&T funding described in paragraph 
(d)(1)(i)(B) of this section, a State agency must maintain State 
expenditures on E&T programs and optional workfare (if applicable) at a 
level not less than the level of its expenditures in FY 1996. A State 
agency need not expend all of its required maintenance of effort funds 
before it begins spending its additional E&T grant. In accordance with 
paragraph (c)(6)(ii) of this section, a State agency that intends to 
spend the additional allocation for which it is eligible in a fiscal 
year must declare in its State E&T plan for that fiscal year its 
intention to maintain its expenditures for E&T and optional workfare (if 
applicable) at a level not less than the level of such expenditures in 
FY 1996.
    (B) State funds that a State agency expends in order to meet its 
maintenance of effort requirement are not subject to the use of funds 
requirements of paragraph (d)(1)(ii) of this section.
    (C) Participant reimbursements paid with State funds do not count 
toward a State agency's maintenance of effort requirement, except in the 
case of optional workfare programs in which reimbursements to 
participants for work-related expenses are part of the State agency's 
administrative expenses in accordance with section 20(g)(1) of the Food 
Stamp Act.
    (iv) Component Costs. FNS will monitor State agencies' expenditures 
of 100 percent Federal E&T funds, including the costs of individual 
components of State agencies' programs, to ensure that planned and 
actual spending reflects the reasonable cost of efficiently and 
economically providing E&T services.
    (2) Additional administrative costs. Fifty percent of all other 
administrative costs incurred by State agencies in operating E&T 
programs, above the costs referenced in paragraph (d)(1) of this 
section, will be funded by the Federal government.
    (3) Participant reimbursements. The State agency must provide 
payments to participants in its E&T program, including applicants and 
volunteers, for expenses that are reasonably necessary and directly 
related to participation in the E&T program. These payments may be 
provided as a reimbursement for expenses incurred or in advance as 
payment for anticipated expenses in

[[Page 660]]

the coming month. The State agency must inform each E&T participant that 
allowable expenses up to the amounts specified in paragraphs (d)(3)(i) 
and (d)(3)(ii) of this section will be reimbursed by the State agency 
upon presentation of appropriate documentation. Reimbursable costs may 
include, but are not limited to, dependent care costs, transportation, 
and other work, training or education related expenses such as uniforms, 
personal safety items or other necessary equipment, and books or 
training manuals. These costs must not include the cost of meals away 
from home. If applicable, any allowable costs incurred by a noncompliant 
E&T participant after the expiration of the noncompliant participant's 
minimum mandatory disqualification period, as established by the State 
agency, that are reasonably necessary and directly related to 
reestablishing eligibility, as defined by the State agency, are 
reimbursable under paragraphs (d)(3)(i) and (d)(3)(ii) of this section. 
The State agency may reimburse participants for expenses beyond the 
amounts specified in paragraphs (d)(3)(i) and (d)(3)(ii) of this 
section; however, only costs that are up to but not in excess of those 
amounts are subject to Federal cost sharing. Reimbursement must not be 
provided from E&T grants allocated under paragraph (d)(1)(i) of this 
section. Any expense covered by a reimbursement under this section is 
not deductible under Sec.  273.10(d)(1)(i).
    (i) The State agency will reimburse the cost of dependent care it 
determines to be necessary for the participation of a household member 
in the E&T program up to the actual cost of dependent care, or the 
applicable payment rate for child care, whichever is lowest. The payment 
rates for child care are established in accordance with the Child Care 
and Development Block Grant provisions of 45 CFR 98.43, and are based on 
local market rate surveys. The State agency will provide a dependent 
care reimbursement to an E&T participant for all dependents requiring 
care unless otherwise prohibited by this section. The State agency will 
not provide a reimbursement for a dependent age 13 or older unless the 
dependent is physically and/or mentally incapable of caring for himself 
or herself or is under court supervision. The State agency must provide 
a reimbursement for all dependents who are physically and/or mentally 
incapable of caring for themselves or who are under court supervision, 
regardless of age, if dependent care is necessary for the participation 
of a household member in the E&T program. The State agency will obtain 
verification of the physical and/or mental incapacity for dependents age 
13 or older if the physical and/or mental incapacity is questionable. 
Also, the State agency will verify a court-imposed requirement for the 
supervision of a dependent age 13 or older if the need for dependent 
care is questionable. If more than one household member is required to 
participate in an E&T program, the State agency will reimburse the 
actual cost of dependent care or the applicable payment rate for child 
care, whichever is lowest, for each dependent in the household, 
regardless of the number of household members participating in the E&T 
program. An individual who is the caretaker relative of a dependent in a 
family receiving cash assistance under title IV-A of the Social Security 
Act in a local area where an employment, training, or education program 
under title IV-A is in operation is not eligible for such reimbursement. 
An E&T participant is not entitled to the dependent care reimbursement 
if a member of the E&T participant's food stamp household provides the 
dependent care services. The State agency must verify the participant's 
need for dependent care and the cost of the dependent care prior to the 
issuance of the reimbursement. The verification must include the name 
and address of the dependent care provider, the cost and the hours of 
service (e.g., five hours per day, five days per week for two weeks). A 
participant may not be reimbursed for dependent care services beyond 
that which is required for participation in the E&T program. In lieu of 
providing reimbursements for dependent care expenses, a State agency may 
arrange for dependent care through providers by the use of purchase of 
service contracts, by providing vouchers to the household or by other 
means. A State agency may require that dependent

[[Page 661]]

care provided or arranged by the State agency meet all applicable 
standards of State and local law, including requirements designed to 
ensure basic health and safety protections (e.g., fire safety). An E&T 
participant may refuse available appropriate dependent care as provided 
or arranged by the State agency, if the participant can arrange other 
dependent care or can show that such refusal will not prevent or 
interfere with participation in the E&T program as required by the State 
agency. A State agency may claim 50 percent of actual costs for 
dependent care services provided or arranged for by the State agency up 
to the actual cost of dependent care, the applicable payment rate for 
child care, or the Statewide limit, whichever is lowest.
    (ii) The State agency will reimburse the actual costs of 
transportation and other costs (excluding dependent care costs) it 
determines to be necessary and directly related to participation in the 
E&T program up the maximum level of reimbursement established by the 
State agency. Such costs are the actual costs of participation unless 
the State agency has a method approved in its E&T Plan for providing 
allowances to participants to reflect approximate costs of 
participation. If a State agency has an approved method to provide 
allowances rather than reimbursements, it must provide participants an 
opportunity to claim actual expenses up to the maximum level of 
reimbursements established by the State agency. Only costs up to $25 per 
participant per month are subject to Federal cost sharing.
    (iii) No participant cost that has been reimbursed under a workfare 
program under paragraph (m)(7)(i) of this section, title IV of the 
Social Security Act or other work program will be reimbursed under this 
section.
    (iv) Any portion of dependent care costs that are reimbursed under 
this section may not be claimed as an expense and used in calculating 
the dependent care deduction under Sec.  273.9(d)(4) for determining 
benefits.
    (v) The State agency must inform all mandatory E&T participants that 
they may be exempted from E&T participation if their monthly expenses 
that are reasonably necessary and directly related to participation in 
the E&T program exceed the allowable reimbursement amount. Persons for 
whom allowable monthly expenses in an E&T component exceed the amounts 
specified under paragraphs (d)(3)(i) and (d)(3)(ii) of this section are 
not required to participate in that component. These individuals will be 
placed, if possible, in another suitable component in which the 
individual's monthly E&T expenses would not exceed the allowable 
reimbursable amount paid by the State agency. If a suitable component is 
not available, these individuals will be exempt from E&T participation 
until a suitable component is available or the individual's 
circumstances change and his/her monthly expenses do not exceed the 
allowable reimbursable amount paid by the State agency. Dependent care 
expenses incurred that are otherwise allowable but not reimbursed 
because they exceed the reimbursable amount specified under paragraph 
(d)(3)(i) of this section will be considered in determining a dependent 
care deduction under Sec.  273.9(d)(4).
    (4) Workfare cost sharing. Enhanced cost-sharing due to placement of 
workfare participants in paid employment is available only for workfare 
programs funded under paragraph (m)(7)(iv) of this section at the 50 
percent reimbursement level and reported as such.
    (5) Funding mechanism. E&T program funding will be disbursed through 
States' Letters of Credit in accordance with Sec.  277.5 of this 
chapter. The State agency must ensure that records are maintained that 
support the financial claims being made to FNS.
    (6) Fiscal recordkeeping and reporting requirements. Total E&T 
expenditures are reported on the Financial Status Report (SF-269) in the 
column containing ``other'' expenses. E&T expenditures are also 
separately identified in an attachment to the SF-269 to show, as 
provided in instructions, total State and Federal E&T expenditures; 
expenditures funded with the unmatched Federal grants; State and Federal 
expenditures for participant reimbursements; State and Federal 
expenditures for

[[Page 662]]

E&T costs at the 50 percent reimbursement level; and State and Federal 
expenditures for optional workfare program costs, operated under section 
20 of the Food Stamp Act and paragraph (m)(7) of this section. Claims 
for enhanced funding for placements of participants in employment after 
their initial participation in the optional workfare program will be 
submitted in accordance with paragraph (m)(7)(iv) of this section.
    (e) Employment and training programs. Work registrants not otherwise 
exempted by the State agency are subject to the E&T program 
participation requirements imposed by the State agency. Such individuals 
are referred to in this section as E&T mandatory participants. 
Requirements may vary among participants. Failure to comply without good 
cause with the requirements imposed by the State agency will result in 
disqualification as specified in paragraph (f)(2) of this section.
    (1) Components. To be considered acceptable by FNS, any component 
offered by a State agency must entail a certain level of effort by the 
participants. The level of effort should be comparable to spending 
approximately 12 hours a month for two months making job contacts (less 
in workfare or work experience components if the household's benefit 
divided by the minimum wage is less than this amount). However, FNS may 
approve components that do not meet this guideline if it determines that 
such components will advance program goals. An initial screening by an 
eligibility worker to determine whom to place in an E&T program does not 
constitute a component. The State agency may require Food Stamp Program 
applicants to participate in any component it offers in its E&T program 
at the time of application. The State agency must not impose 
requirements that would delay the determination of an individual's 
eligibility for benefits or in issuing benefits to any household that is 
otherwise eligible. In accordance with section 6(o)(1)(A) of the Food 
Stamp Act and Sec.  273.24, job search and job search training, when 
offered as components of an E&T program, are not qualifying activities 
relating to the participation requirements necessary to maintain food 
stamp eligibility for ABAWDs. However, job search or job search training 
activities, when offered as part of other E&T program components, are 
acceptable as long as those activities comprise less than half the total 
required time spent in the components. An E&T program offered by a State 
agency must include one or more of the following components:
    (i) A job search program. The State agency may require an individual 
to participate in job search from the time an application is filed for 
an initial period established by the State agency. Following this 
initial period (which may extend beyond the date when eligibility is 
determined) the State agency may require an additional job search period 
in any period of 12 consecutive months. The first such period of 12 
consecutive months will begin at any time following the close of the 
initial period. The State agency may establish a job search period that, 
in its estimation, will provide participants a reasonable opportunity to 
find suitable employment. The State agency should not, however, 
establish a continuous, year-round job search requirement. If a 
reasonable period of job search does not result in employment, placing 
the individual in a training or education component to improve job 
skills will likely be more productive. In accordance with section 
6(o)(1)(A) of the Food Stamp Act and Sec.  273.24, a job search program 
is not a qualifying activity relating to the participation requirements 
necessary to maintain food stamp eligibility for ABAWDs. However, such a 
program, when operated under title I of the WIA, or under section 236 of 
the Trade Act, is considered a qualifying activity relating to the 
participation requirements necessary to maintain food stamp eligibility 
for ABAWDs.
    (ii) A job search training program that includes reasonable job 
search training and support activities. Such a program may consist of 
job skills assessments, job finding clubs, training in techniques for 
employability, job placement services, or other direct training or 
support activities, including educational programs determined by the 
State agency to expand the job search abilities or employability of

[[Page 663]]

those subject to the program. Job search training activities are 
approvable if they directly enhance the employability of the 
participants. A direct link between the job search training activities 
and job-readiness must be established for a component to be approved. In 
accordance with section 6(o)(1) of the Food Stamp Act and Sec.  273.24, 
a job search program is not a qualifying activity relating to the 
participation requirements necessary to maintain food stamp eligibility 
for ABAWDs. However, such a program, when operated under title I of the 
WIA or under section 236 of the Trade Act, is considered a qualifying 
activity relating to the participation requirements necessary to 
maintain food stamp eligibility for ABAWDs.
    (iii) A workfare program as described in paragraph (m) of this 
section.
    (A) The participation requirements of section 20(b) of the Food 
Stamp Act and paragraphs (m)(5)(i)(A) and (m)(5)(i)(B) of this section 
for individuals exempt from Food Stamp Program work requirements under 
paragraphs (b)(1)(iii) and (b)(1)(v) of this section, are not applicable 
to E&T workfare components.
    (B) In accordance with section 20(e) of the Food Stamp Act and 
paragraph (m)(6)(ii) of this section, the State agency may establish a 
job search period of up to 30 days following certification prior to 
making a workfare assignment. This job search activity is part of the 
workfare assignment, and not a job search ``program.'' Participants are 
considered to be participating in and complying with the requirements of 
workfare, thereby meeting the participation requirement for ABAWDs.
    (C) The sharing of workfare savings authorized under section 20(g) 
of the Food Stamp Act and paragraph (m)(7)(iv) of this section are not 
available for E&T workfare components.
    (iv) A program designed to improve the employability of household 
members through actual work experience or training, or both, and to 
enable individuals employed or trained under such programs to move 
promptly into regular public or private employment. Such an employment 
or training experience must:
    (A) Not provide any work that has the effect of replacing the 
employment of an individual not participating in the employment or 
training experience program; and
    (B) Provide the same benefits and working conditions that are 
provided at the job site to employees performing comparable work for 
comparable hours.
    (v) A project, program or experiment such as a supported work 
program, or a WIA or State or local program aimed at accomplishing the 
purpose of the E&T program.
    (vi) Educational programs or activities to improve basic skills or 
otherwise improve employability including educational programs 
determined by the State agency to expand the job search abilities or 
employability of those subject to the program. Allowable educational 
activities may include, but are not limited to, high school or 
equivalent educational programs, remedial education programs to achieve 
a basic literacy level, and instructional programs in English as a 
second language. Only educational components that directly enhance the 
employability of the participants are allowable. A direct link between 
the education and job-readiness must be established for a component to 
be approved.
    (vii) A program designed to improve the self-sufficiency of 
recipients through self-employment. Included are programs that provide 
instruction for self-employment ventures.
    (2) Exemptions. Each State agency may, at its discretion, exempt 
individual work registrants and categories of work registrants from E&T 
participation. Each State agency must periodically reevaluate its 
individual and categorical exemptions to determine whether they remain 
valid. Each State agency will establish the frequency of its periodic 
evaluation.
    (3) Time spent in an employment and training program. (i) Each State 
agency will determine the length of time a participant spends in any E&T 
component it offers. The State agency may also determine the number of 
successive components in which a participant may be placed.
    (ii) The time spent by the members of a household collectively each 
month in

[[Page 664]]

an E&T work program (including, but not limited to, those carried out 
under paragraphs (e)(1)(iii) and (e)(1)(iv) of this section) combined 
with any hours worked that month in a workfare program under paragraph 
(m) of this section must not exceed the number of hours equal to the 
household's allotment for that month divided by the higher of the 
applicable Federal or State minimum wage. The total hours of 
participation in an E&T component for any household member individually 
in any month, together with any hours worked in a workfare program under 
paragraph (m) of this section and any hours worked for compensation (in 
cash or in kind), must not exceed 120.
    (4) Voluntary participation. (i) A State agency may operate program 
components in which individuals elect to participate.
    (ii) A State agency must not disqualify voluntary participants in an 
E&T component for failure to comply with E&T requirements.
    (iii) The hours of participation or work of a volunteer may not 
exceed the hours required of E&T mandatory participants, as specified in 
paragraph (e)(3) of this section.
    (f) Failure to comply (1) Ineligibility for failure to comply. A 
nonexempt individual who refuses or fails without good cause, as defined 
in paragraphs (i)(2) and (i)(3) of this section, to comply with the Food 
Stamp Program work requirements listed under paragraph (a)(1) of this 
section is ineligible to participate in the Food Stamp Program, and will 
be considered an ineligible household member, pursuant to Sec.  
273.1(b)(7).
    (i) As soon as the State agency learns of the individual's 
noncompliance it must determine whether good cause for the noncompliance 
exists, as discussed in paragraph (i) of this section. Within 10 days of 
establishing that the noncompliance was without good cause, the State 
agency must provide the individual with a notice of adverse action, as 
specified in Sec.  273.13. If the State agency offers a conciliation 
process as part of its E&T program, it must issue the notice of adverse 
action no later than the end of the conciliation period.
    (ii) The notice of adverse action must contain the particular act of 
noncompliance committed and the proposed period of disqualification. The 
notice must also specify that the individual may, if appropriate, 
reapply at the end of the disqualification period. Information must be 
included on or with the notice describing the action that can be taken 
to avoid the disqualification before the disqualification period begins. 
The disqualification period must begin with the first month following 
the expiration of the 10-day adverse notice period, unless a fair 
hearing is requested.
    (iii) An E&T disqualification may be imposed after the end of a 
certification period. Thus, a notice of adverse action must be sent 
whenever the State agency becomes aware of an individual's noncompliance 
with Food Stamp Program work requirements, even if the disqualification 
begins after the certification period expires and the household has not 
been recertified.
    (2) Disqualification periods. The following disqualification periods 
will be imposed:
    (i) For the first occurrence of noncompliance, the individual will 
be disqualified until the later of:
    (A) The date the individual complies, as determined by the State 
agency;
    (B) One month; or
    (C) Up to three months, at State agency option.
    (ii) For the second occurrence, until the later of:
    (A) The date the individual complies, as determined by the State 
agency;
    (B) Three months; or
    (C) Up to six months, at State agency option.
    (iii) For the third or subsequent occurrence, until the later of:
    (A) The date the individual complies, as determined by the State 
agency;
    (B) Six months;
    (C) A date determined by the State agency; or
    (D) At the option of the State agency, permanently.
    (3) Record retention. In accordance with Sec.  272.1(f) of this 
chapter, State agencies are required to retain records concerning the 
frequency of noncompliance with FSP work requirements and the resulting 
disqualification actions imposed. These records must be available for 
inspection and

[[Page 665]]

audit at any reasonable time to ensure conformance with the minimum 
mandatory disqualification periods instituted.
    (4) Disqualification plan. In accordance with Sec.  
272.2(d)(1)(xiii) of this chapter, each State agency must prepare and 
submit a plan detailing its disqualification policies. The plan must 
include the length of disqualification to be enforced for each 
occurrence of noncompliance, how compliance is determined by the State 
agency, and the State agency's household disqualification policy.
    (5) Household ineligibility. (i) If the individual who becomes 
ineligible to participate under paragraph (f)(1) of this section is the 
head of a household, the State agency, at its option, may disqualify the 
entire household from Food Stamp Program participation.
    (ii) The State agency may disqualify the household for a period that 
does not exceed the lesser of:
    (A) The duration of the ineligibility of the noncompliant individual 
under paragraph (f)(2) of this section; or
    (B) 180 days.
    (iii) A household disqualified under this provision may reestablish 
eligibility if:
    (A) The head of the household leaves the household;
    (B) A new and eligible person joins the household as the head of the 
household, as defined in Sec.  273.1(d)(2); or
    (C) The head of the household becomes exempt from work requirements 
during the disqualification period.
    (iv) If the head of the household joins another household as its 
head, that household will be disqualified from participating in the Food 
Stamp Program for the remaining period of ineligibility.
    (6) Fair hearings. Each individual or household has the right to 
request a fair hearing, in accordance with Sec.  273.15, to appeal a 
denial, reduction, or termination of benefits due to a determination of 
nonexempt status, or a State agency determination of failure to comply 
with Food Stamp Program work requirements. Individuals or households may 
appeal State agency actions such as exemption status, the type of 
requirement imposed, or State agency refusal to make a finding of good 
cause if the individual or household believes that a finding of failure 
to comply has resulted from improper decisions on these matters. The 
State agency or its designee operating the relevant component must 
receive sufficient advance notice to either permit the attendance of a 
representative or ensure that a representative will be available for 
questioning over the phone during the hearing. A representative of the 
appropriate agency must be available through one of these means. A 
household must be allowed to examine its E&T component casefile at a 
reasonable time before the date of the fair hearing, except for 
confidential information (that may include test results) that the agency 
determines should be protected from release. Confidential information 
not released to a household may not be used by either party at the 
hearing. The results of the fair hearing are binding on the State 
agency.
    (7) Failure to comply with a work requirement under title IV of the 
Social Security Act, or an unemployment compensation work requirement. 
An individual exempt from Food Stamp Program work requirements by 
paragraphs (b)(1)(iii) or (b)(1)(v) of this section because he or she is 
subject to work requirements under title IV-A or unemployment 
compensation who fails to comply with a title IV-A or unemployment 
compensation work requirement will be treated as though he or she failed 
to comply with the Food Stamp Program work requirement.
    (i) When a food stamp household reports the loss or denial of title 
IV-A or unemployment compensation benefits, or if the State agency 
otherwise learns of a loss or denial, the State agency must determine 
whether the loss or denial resulted when a household member refused or 
failed without good cause to comply with a title IV-A or unemployment 
compensation work requirement.
    (ii) If the State agency determines that the loss or denial of 
benefits resulted from an individual's refusal or failure without good 
cause to comply with a title IV or unemployment compensation 
requirement, the individual

[[Page 666]]

(or household if applicable under paragraph (f)(5) of this section) must 
be disqualified in accordance with the applicable provisions of this 
paragraph (f). However, if the noncomplying individual meets one of the 
work registration exemptions provided in paragraph (b)(1) of this 
section (other than the exemptions provided in paragraphs (b)(1)(iii) 
and (b)(1)(v) of this section) the individual (or household if 
applicable under paragraph (f)(5) of this section) will not be 
disqualified.
    (iii) If the State agency determination of noncompliance with a 
title IV-A or unemployment compensation work requirement leads to a 
denial or termination of the individual's or household's food stamp 
benefits, the individual or household has a right to appeal the decision 
in accordance with the provisions of paragraph (f)(6) of this section.
    (iv) In cases where the individual is disqualified from the title 
IV-A program for refusal or failure to comply with a title IV-A work 
requirement, but the individual meets one of the work registration 
exemptions provided in paragraph (b)(1) of this section, other than the 
exemptions provided in paragraphs (b)(1)(iii) and (b)(1)(v) of this 
section, the State agency may, at its option, apply the identical title 
IV-A disqualification on the individual under the Food Stamp Program. 
The State agency must impose such optional disqualifications in 
accordance with section 6(i) of the Food Stamp Act and with the 
provisions of Sec.  273.11(1).
    (g) Ending disqualification. Except in cases of permanent 
disqualification, at the end of the applicable mandatory 
disqualification period for noncompliance with Food Stamp Program work 
requirements, participation may resume if the disqualified individual 
applies again and is determined by the State agency to be in compliance 
with work requirements. A disqualified individual may be permitted to 
resume participation during the disqualification period (if otherwise 
eligible) by becoming exempt from work requirements.
    (h) Suitable employment. (1) Employment will be considered suitable 
unless:
    (i) The wage offered is less than the highest of the applicable 
Federal minimum wage, the applicable State minimum wage, or eighty 
percent (80%) of the Federal minimum wage if neither the Federal nor 
State minimum wage is applicable.
    (ii) The employment offered is on a piece-rate basis and the average 
hourly yield the employee can reasonably be expected to earn is less 
than the applicable hourly wages specified under paragraph (h)(1)(i) of 
this section.
    (iii) The household member, as a condition of employment or 
continuing employment, is required to join, resign from, or refrain from 
joining any legitimate labor organization.
    (iv) The work offered is at a site subject to a strike or lockout at 
the time of the offer unless the strike has been enjoined under section 
208 of the Labor-Management Relations Act (29 U.S.C. 78) (commonly known 
as the Taft-Hartley Act), or unless an injunction has been issued under 
section 10 of the Railway Labor Act (45 U.S.C. 160).
    (v) It fails to meet additional suitability criteria established by 
State agencies.
    (2) In addition, employment will be considered suitable unless the 
household member involved can demonstrate or the State agency otherwise 
becomes aware that:
    (i) The degree of risk to health and safety is unreasonable.
    (ii) The member is physically or mentally unfit to perform the 
employment, as documented by medical evidence or by reliable information 
from other sources.
    (iii) The employment offered within the first 30 days of 
registration is not in the member's major field of experience.
    (iv) The distance from the member's home to the place of employment 
is unreasonable considering the expected wage and the time and cost of 
commuting. Employment will not be considered suitable if daily commuting 
time exceeds 2 hours per day, not including the transporting of a child 
to and from a child care facility. Nor will employment be considered 
suitable if the distance to the place of employment prohibits walking 
and neither public nor private transportation is

[[Page 667]]

available to transport the member to the jobsite.
    (v) The working hours or nature of the employment interferes with 
the member's religious observances, convictions, or beliefs.
    (i) Good Cause. (1) The State agency is responsible for determining 
good cause when a food stamp recipient fails or refuses to comply with 
Food Stamp Program work requirements. Since it is not possible for the 
Department to enumerate each individual situation that should or should 
not be considered good cause, the State agency must take into account 
the facts and circumstances, including information submitted by the 
employer and by the household member involved, in determining whether or 
not good cause exists.
    (2) Good cause includes circumstances beyond the member's control, 
such as, but not limited to, illness, illness of another household 
member requiring the presence of the member, a household emergency, the 
unavailability of transportation, or the lack of adequate child care for 
children who have reached age six but are under age 12.
    (3) Good cause for leaving employment includes the good cause 
provisions found in paragraph (i)(2) of this section, and resigning from 
a job that is unsuitable, as specified in paragraphs (h)(1) and (h)(2) 
of this section. Good cause for leaving employment also includes:
    (i) Discrimination by an employer based on age, race, sex, color, 
handicap, religious beliefs, national origin or political beliefs;
    (ii) Work demands or conditions that render continued employment 
unreasonable, such as working without being paid on schedule;
    (iii) Acceptance of employment by the individual, or enrollment by 
the individual in any recognized school, training program or institution 
of higher education on at least a half time basis, that requires the 
individual to leave employment;
    (iv) Acceptance by any other household member of employment or 
enrollment at least half-time in any recognized school, training program 
or institution of higher education in another county or similar 
political subdivision that requires the household to move and thereby 
requires the individual to leave employment;
    (v) Resignations by persons under the age of 60 which are recognized 
by the employer as retirement;
    (vi) Employment that becomes unsuitable, as specified in paragraphs 
(h)(1) and (h)(2) of this section, after the acceptance of such 
employment;
    (vii) Acceptance of a bona fide offer of employment of more than 30 
hours a week or in which the weekly earnings are equivalent to the 
Federal minimum wage multiplied by 30 hours that, because of 
circumstances beyond the individual's control, subsequently either does 
not materialize or results in employment of less than 30 hours a week or 
weekly earnings of less than the Federal minimum wage multiplied by 30 
hours; and
    (viii) Leaving a job in connection with patterns of employment in 
which workers frequently move from one employer to another such as 
migrant farm labor or construction work. There may be some circumstances 
where households will apply for food stamp benefits between jobs 
particularly in cases where work may not yet be available at the new job 
site. Even though employment at the new site has not actually begun, the 
quitting of the previous employment must be considered as with good 
cause if it is part of the pattern of that type of employment.
    (4) Verification. To the extent that the information given by the 
household is questionable, as defined in Sec.  273.2(f)(2), State 
agencies must request verification of the household's statements. The 
primary responsibility for providing verification, as provided in Sec.  
273.2(f)(5), rests with the household.
    (j) Voluntary quit and reduction of work effort. (1) Period for 
establishing voluntary quit and reduction of work effort. For the 
purpose of establishing that a voluntary quit without good cause or 
reduction in work effort without good cause occurred prior to applying 
for food stamps, a State agency may, at its option, choose a period 
between 30 and 60 days before application in which to determine 
voluntary quit or reduction in work effort.

[[Page 668]]

    (2) Individual ineligibility. An individual is ineligible to 
participate in the Food Stamp Program if, in a period established by the 
State agency between 30 and 60 day before applying for food stamp 
benefits or at any time thereafter, the individual:
    (i) Voluntarily and without good cause quits a job of 30 hours a 
week or more; or
    (ii) Reduces his or her work effort voluntarily and without good 
cause and, after the reduction, is working less than 30 hours per week.
    (3) Determining whether a voluntary quit or reduction of work effort 
occurred and application processing. (i) When a household files an 
application for participation, or when a participating household reports 
the loss of a source of income or a reduction in household earnings, the 
State agency must determine whether any household member voluntarily 
quit his or her job or reduced his or her work effort. Benefits must not 
be delayed beyond the normal processing times specified in Sec.  273.2 
pending the outcome of this determination.
    (ii) The voluntary quit provision applies if the employment involved 
30 hours or more per week or provided weekly earnings at least 
equivalent to the Federal minimum wage multiplied by 30 hours; the quit 
occurred within a period established by the State agency between 30 to 
60 days prior to the date of application or anytime thereafter; and the 
quit was without good cause. Changes in employment status that result 
from terminating a self-employment enterprise or resigning from a job at 
the demand of the employer will not be considered a voluntary quit for 
purposes of this paragraph (j). An employee of the Federal Government, 
or of a State or local government who participates in a strike against 
such government, and is dismissed from his or her job because of 
participation in the strike, will be considered to have voluntarily quit 
his or her job without good cause. If an individual quits a job, secures 
new employment at comparable wages or hours and is then laid off or, 
through no fault of his own, loses the new job, the individual must not 
be disqualified for the earlier quit.
    (iii) The reduction of work effort provision applies if, before the 
reduction, the individual was employed 30 hours or more per week; the 
reduction occurred within a period established by the State agency 
between 30 and 60 days prior to the date of application or anytime 
thereafter; and the reduction was voluntary and without good cause. The 
minimum wage equivalency does not apply when determining a reduction in 
work effort.
    (iv) In the case of an applicant household, the State agency must 
determine if any household member subject to Food Stamp Program work 
requirements voluntarily quit his or her job or reduced his or her work 
effort within a period established by the State agency between 30 and 60 
days prior to date of application. If the State agency learns that a 
household has lost a source of income or experienced a reduction in 
income after the date of application but before the household is 
certified, the State agency must determine whether a voluntary quit or 
reduction in work effort occurred.
    (v) Upon determining that an individual voluntarily quit employment 
or reduced work effort, the State agency must determine if the voluntary 
quit or reduction of work effort was with good cause as defined in 
paragraph (i) of this section.
    (vi) In the case of an individual who is a member of an applicant 
household, if the voluntary quit or reduction in work effort was without 
good cause, the individual will be determined ineligible to participate 
and will be disqualified according to the State agency's established 
minimum mandatory sanction schedule. The ineligible individual must be 
considered an ineligible household member, pursuant to Sec.  
273.1(b)(7). The disqualification is effective upon the determination of 
eligibility for the remaining household members. If the individual who 
becomes ineligible is the head of the household, as defined in Sec.  
273.1(d)(2), the State agency may choose to disqualify the entire 
household, in accordance with paragraph (f)(5) of this section. If the 
State agency chooses to disqualify the household, the State agency must 
provide the applicant household with a notice of denial in accordance 
with

[[Page 669]]

Sec.  273.2(g)(3). The notice must inform the household of the proposed 
period of disqualification; its right to reapply at the end of the 
disqualification period; and of its right to a fair hearing. The 
household's disqualification is effective upon the issuance of the 
notice of denial.
    (vii) In the case of an individual who is a member of a 
participating household, if the State agency determines that the 
individual voluntarily quit his or her job or reduced his or her work 
effort without good cause while participating in the program or 
discovers that the individual voluntarily quit his or her job or reduced 
his or her work effort without good cause during a period established by 
the State agency between 30 and 60 days prior to the date of application 
for benefits or between application and certification, the State agency 
must provide the individual with a notice of adverse action as specified 
in Sec.  273.13 within 10 days after the determination of a quit or 
reduction in work effort. The notification must contain the particular 
act of noncompliance committed, the proposed period of ineligibility, 
the actions that may be taken to avoid the disqualification, and it must 
specify that the individual, if otherwise eligible, may resume 
participation at the end of the disqualification period if the State 
agency determines the individual to be in compliance with Program work 
requirements. The individual will be disqualified according to the State 
agency's established minimum mandatory sanction schedule. The ineligible 
individual must be considered an ineligible household member, pursuant 
to Sec.  273.1(b)(7). The disqualification period will begin the first 
month following the expiration of the 10-day adverse notice period, 
unless the individual requests a fair hearing. If a voluntary quit or 
reduction in work effort occurs in the last month of a certification 
period, or is determined in the last 30 days of the certification 
period, the individual must be denied recertification for a period equal 
to the appropriate mandatory disqualification period, beginning with the 
day after the last certification period ends and continuing for the 
length of the disqualification, regardless of whether the individual 
reapplies for food stamps. Each individual has a right to a fair hearing 
to appeal a denial or termination of benefits due to a determination 
that the individual voluntarily quit his or her job or reduced his or 
her work effort without good cause. If the participating individual's 
benefits are continued pending a fair hearing and the State agency 
determination is upheld, the disqualification period must begin the 
first of the month after the hearing decision is rendered.
    (viii) If the individual who voluntarily quit his or her job, or who 
reduced his or her work effort without good cause is the head of a 
household, as defined in Sec.  273.1(d), the State agency, at its 
option, may disqualify the entire household from Food Stamp Program 
participation in accordance with paragraph (f)(5) of this section.
    (4) Ending a voluntary quit or a reduction in work disqualification. 
Except in cases of permanent disqualification, following the end of the 
mandatory disqualification period for voluntarily quitting a job or 
reducing work effort without good cause, an individual may begin 
participation in the program if he or she reapplies and is determined 
eligible by the State agency. Eligibility may be reestablished during a 
disqualification and the individual, if otherwise eligible, may be 
permitted to resume participation if the individual becomes exempt from 
Program work requirements under paragraph (b)(1) of this section.
    (5) Application in the final month of disqualification. Except in 
cases of permanent disqualification, if an application for participation 
in the Program is filed in the final month of the mandatory 
disqualification period, the State agency must, in accordance with Sec.  
273.10(a)(3), use the same application for the denial of benefits in the 
remaining month of disqualification and certification for any subsequent 
month(s) if all other eligibility criteria are met.
    (k) Employment initiatives program. (1) General. In accordance with 
section 17(d)(1)(B) of the Food Stamp Act, qualified State agencies may 
elect to operate an employment initiatives program, in which an eligible 
household can receive the cash equivalent of its food stamp coupon 
allotment.

[[Page 670]]

    (2) State agency qualification. A State agency qualifies to operate 
an employment initiatives program if, during the summer of 1993, at 
least half of its food stamp households also received cash benefits from 
a State program funded under title IV-A of the Social Security Act.
    (3) Qualified State agencies. The State agencies of Alaska, 
California, Connecticut, the District of Columbia, Massachusetts, 
Michigan, Minnesota, New Jersey, West Virginia, and Wisconsin meet the 
qualification. These 10 State agencies may operate an employment 
initiatives program.
    (4) Eligible households. A food stamp household in one of the 10 
qualified State agencies may receive cash benefits in lieu of a food 
stamp coupon allotment if it meets the following requirements:
    (i) The food stamp household elects to participate in an employment 
initiatives program;
    (ii) An adult member of the household:
    (A) Has worked in unsubsidized employment for the last 90 days, 
earning a minimum of $350 per month;
    (B) Is receiving cash benefits under a State program funded under 
title IV-A of the Social Security Act; or
    (C) Was receiving cash benefits under the State program but, while 
participating in the employment initiatives program, became ineligible 
because of earnings and continues to earn at least $350 a month from 
unsubsidized employment.
    (5) Program Provisions. (i) Cash benefits provided in an employment 
initiatives program will be considered an allotment, as defined at Sec.  
271.2 of this chapter.
    (ii) An eligible household receiving cash benefits in an employment 
initiatives program will not receive any other food stamp benefit during 
the period for which cash assistance is provided.
    (iii) A qualified State agency operating an employment initiatives 
program must increase the cash benefit to participating households to 
compensate for any State or local sales tax on food purchases, unless 
FNS determines that an increase is unnecessary because of the limited 
nature of items subject to the State or local sales tax.
    (iv) Any increase in cash assistance to account for a State or local 
sales tax on food purchases must be paid by the State agency.
    (6) Evaluation. After two years of operating an employment 
initiatives program, a State agency must evaluate the impact of 
providing cash assistance in lieu of a food stamp coupon allotment to 
participating households. The State agency must provide FNS with a 
written report of its evaluation findings. The State agency, with the 
concurrence of FNS, will determine the content of the evaluation.
    (l) Work supplementation program. In accordance with section 16(b) 
of the Food Stamp Act, States may operate work supplementation (or 
support) programs that allow the cash value of food stamp benefits and 
public assistance, such as cash assistance authorized under title IV-A 
of the Social Security Act or cash assistance under a program 
established by a State, to be provided to employers as a wage subsidy to 
be used for hiring and employing public assistance recipients. The goal 
of these programs is to promote self-sufficiency by providing public 
assistance recipients with work experience to help them move into 
unsubsidized jobs. In accordance with Sec.  272.2(d)(1)(xiv) of this 
chapter, State agencies that wish to exercise their option to implement 
work supplementation programs must submit to FNS for approval a plan 
that complies with the provisions of this paragraph (l). Work 
supplementation programs may not be implemented without prior approval 
from FNS.
    (1) Plan. (i) Assurances. The plan must contain the following 
assurances:
    (A) The individual participating in a work supplementation program 
must not be employed by the employer at the time the individual enters 
the program;
    (B) The wage subsidy received under the work supplementation program 
must be excluded from household income and resources during the term the 
individual is participating in work supplementation;
    (C) The household must not receive a separate food stamp allotment 
while

[[Page 671]]

participating in the work supplementation program;
    (D) An individual participating in a work supplementation program is 
excused from meeting any other work requirements;
    (E) The work supplementation program must not displace any persons 
currently employed who are not supplemented or supported;
    (F) The wage subsidy must not be considered income or resources 
under any Federal, State or local laws, including but not limited to, 
laws relating to taxation, welfare, or public assistance programs, and 
the household's food stamp allotment must not be decreased due to 
taxation or any other reason because of its use as a wage subsidy;
    (G) The earned income deduction does not apply to the subsidized 
portion of wages received in a work supplementation program; and
    (H) All work supplemented or supported employees must receive the 
same benefits (sick and personal leave, health coverage, workmen's 
compensation, etc.) as similarly situated coworkers who are not 
participating in work supplementation and wages paid under a wage 
supplementation or support program must meet the requirements of the 
Fair Labor Standards Act and other applicable employment laws.
    (ii) Description. The plan must also describe:
    (A) The procedures the State agency will use to ensure that the cash 
value of food stamp benefits for participating households are not 
subject to State or local sales taxes on food purchases. The costs of 
increasing household food stamp allotments to compensate for such sales 
taxes must be paid from State funds;
    (B) State agency, employer and recipient obligations and 
responsibilities;
    (C) The procedures the State agency will use to provide wage 
subsidies to employers and to ensure accountability;
    (D) How public assistance recipients in the proposed work 
supplementation program will, within a specified period of time, be 
moved from supplemented or supported employment to employment that is 
not supplemented or supported;
    (E) Whether the food stamp allotment and public assistance grant 
will be frozen at the time a recipient begins a subsidized job; and
    (F) The procedures the State agency will use to ensure that work 
supplementation program participants do not incur any Federal, State, or 
local tax liabilities on the cash value of their food stamp benefits.
    (2) Budget. In addition to the plan described in paragraph (l)(1) of 
this section, an operating budget for the proposed work supplementation 
program must be submitted to FNS.
    (3) Approval. FNS will review the initial plan and any subsequent 
amendments. Upon approval by FNS, the State agency must incorporate the 
approved work supplementation program plan or subsequent amendment into 
its State Plan of Operation and its operating budget must be included in 
the State agency budget. No plan or amendment may be implemented without 
approval from FNS.
    (4) Reporting. State agencies operating work supplementation and 
support programs are required to comply with all FNS reporting 
requirements, including reporting the amount of benefits contributed to 
employers as a wage subsidy on the FNS-388, State Issuance and 
Participation Estimates; FNS-388A, Participation and Issuance by Project 
Area; FNS-46, Issuance Reconciliation Report; and SF-269, Addendum 
Financial Status Report. State agencies are also required to report 
administrative costs associated with work supplementation programs on 
the FNS-366A, Budget Projection and SF-269, Financial Status Report. 
Special codes for work supplementation programs will be assigned for 
reporting purposes.
    (5) Funding. FNS will pay the cash value of a participating 
household's food stamp benefits to a State agency with an approved work 
supplementation program to pay to an employer as a wage subsidy, and 
will also reimburse the State agency for related administrative costs, 
in accordance with Section 16 of the Food Stamp Act.
    (6) Quality control. Cases in which a household member is 
participating in a work supplementation program will be coded as not 
subject to review.

[[Page 672]]

    (m) Optional workfare program. (1) General. This paragraph (m) 
contains the rules to be followed in operating a food stamp workfare 
program. In workfare, nonexempt food stamp recipients may be required to 
perform work in a public service capacity as a condition of eligibility 
to receive the coupon allotment to which their household is normally 
entitled. The primary goal of workfare is to improve employability and 
enable individuals to move into regular employment.
    (2) Program administration. (i) A food stamp workfare program may be 
operated as a component of a State agency's E&T program, or it may be 
operated independently. If the workfare program is part of an E&T 
program it must be included as a component in the State agency's E&T 
plan in accordance with the requirements of paragraph (c)(4) of this 
section. If it is operated independent of the E&T program, the State 
agency must submit a workfare plan to FNS for its approval. For the 
purpose of this paragraph (m), a political subdivision is any local 
government, including, but not limited to, any county, city, town or 
parish. A State agency may implement a workfare program statewide or in 
only some areas of the State. The areas of operation must be identified 
in the State agency's workfare or E&T plan.
    (ii) Political subdivisions are encouraged, but not required, to 
submit their plans to FNS through their respective State agencies. At a 
minimum, however, plans must be submitted to the State agencies 
concurrent with their submission to FNS. Workfare plans and subsequent 
amendments must not be implemented prior to their approval by FNS.
    (iii) When a State agency chooses to sponsor a workfare program by 
submitting a plan to FNS, it must incorporate the approved plan into its 
State Plan of Operations. When a political subdivision chooses to 
sponsor a workfare program by submitting a plan to FNS, the State agency 
is responsible as a facilitator in the administration of the program by 
disbursing Federal funding and meeting the requirements identified in 
paragraph (m)(4) of this section. When it is notified that FNS has 
approved a workfare plan submitted by a political subdivision in its 
State, the State agency must append that political subdivision's 
workfare plan to its own State Plan of Operations.
    (iv) The operating agency is the administrative organization 
identified in the workfare plan as being responsible for establishing 
job sites, assigning eligible recipients to the job sites, and meeting 
the requirements of this paragraph (m). The operating agency may be any 
public or private, nonprofit organization. The State agency or political 
subdivision that submitted the workfare plan is responsible for 
monitoring the operating agency's compliance with the requirements of 
this paragraph (m) or of the workfare plan. The Department may suspend 
or terminate some or all workfare program funding, or withdraw approval 
of the workfare program from the State agency or political subdivision 
that submitted the workfare plan upon finding that that State agency or 
political subdivision, or their respective operating agencies, have 
failed to comply with the requirements of this paragraph (m) or of the 
workfare plan.
    (v) State agencies or other political subdivisions must describe in 
detail in the plan how the political subdivision, working with the State 
agency and any other cooperating agencies that may be involved in the 
program, will fulfill the provisions of this paragraph (m). The plan 
will be a one-time submittal, with amendments submitted as needed to 
cover any changes in the workfare program as they occur.
    (vi) State agencies or political subdivisions submitting a workfare 
plan must submit with the plan an operating budget covering the period 
from the initiation of the workfare program's implementation schedule to 
the close of the Federal fiscal year. In addition, an estimate of the 
cost for one full year of operation must be submitted together with the 
workfare plan. For subsequent fiscal years, the workfare program budget 
must be included in the State agency's budget.
    (vii) If workfare plans are submitted by more than one political 
subdivision, each representing the same population (such as a city 
within a county), the Department will determine which political 
subdivision will have its plan

[[Page 673]]

approved. Under no circumstances will a food stamp recipient be subject 
to more than one food stamp workfare program. If a political subdivision 
chooses to operate a workfare program and represents a population which 
is already, at least in part, subject to a food stamp workfare program 
administered by another political subdivision, it must establish in its 
workfare plan how food stamp recipients will not be subject to more than 
one food stamp workfare program.
    (3) Operating agency responsibilities. (i) General. The operating 
agency, as designated by the State agency or other political subdivision 
that submits a plan, is responsible for establishing and monitoring job 
sites, interviewing and assessing eligible recipients, assigning 
eligible recipients to appropriate job sites, monitoring participant 
compliance, making initial determinations of good cause for household 
noncompliance, and otherwise meeting the requirements of this paragraph 
(m).
    (ii) Establishment of job sites. Workfare job slots may only be 
located in public or private nonprofit agencies. Contractual agreements 
must be established between the operating agency and organizations 
providing jobs that include, but are not limited to, designation of the 
slots available and designation of responsibility for provision of 
benefits, if any are required, to the workfare participant.
    (iii) Notifying State agency of noncompliance. The operating agency 
must notify the State agency of noncompliance by an individual with a 
workfare obligation when it determines that the individual did not have 
good cause for the noncompliance. This notification must occur within 
five days of such a determination so that the State agency can make a 
final determination as provided in paragraph (m)(4)(iv) of this section.
    (iv) Notifications. (A) State agencies must establish and use 
notices to notify the operating agency of workfare-eligible households. 
The notice must include the case name, case number, names of workfare-
eligible household members, address of the household, certification 
period, and indication of any part-time work. If the State agency is 
calculating the hours of obligation, it must also include this in the 
notice. If the operating agency is computing the hours to be worked, 
include the monthly allotment amount.
    (B) Operating agencies must establish and use notices to notify the 
workfare participant of where and when the participant is to report, to 
whom the participant is to report, a brief description of duties for the 
particular placement, and the number of hours to be worked.
    (C) Operating agencies must establish and use notices to notify the 
State agency of failure by a household to meet its workfare obligation.
    (v) Recordkeeping requirements. (A) Files that record activity by 
workfare participants must be maintained. At a minimum, these records 
must contain job sites, hours assigned, and hours completed.
    (B) Program records must be maintained, for audit and review 
purposes, for a period of 3 years from the month of origin of each 
record. Fiscal records and accountable documents must be retained for 3 
years from the date of fiscal or administrative closure of the workfare 
program. Fiscal closure, as used in this paragraph (m), means that 
workfare program obligations for or against the Federal government have 
been liquidated. Administrative closure, as used in this paragraph (m), 
means that the operating agency or Federal government has determined and 
documented that no further action to liquidate the workfare program 
obligation is appropriate. Fiscal records and accountable records must 
be kept in a manner that will permit verification of direct monthly 
reimbursements to recipients, in accordance with paragraph (m)(7)(iii) 
of this section.
    (vi) Reporting requirements. The operating agency is responsible for 
providing information needed by the State agency to fulfill the 
reporting requirements contained in paragraph (m)(4)(v) of this section.
    (vii) Disclosure. The provisions of Sec.  272.1(c) of this chapter 
restricting the use and disclosure of information obtained from food 
stamp households is applicable to the administration of the workfare 
program.

[[Page 674]]

    (4) State agency responsibilities. (i) If a political subdivision 
chooses to operate a workfare program, the State agency must cooperate 
with the political subdivision in developing a plan.
    (ii) The State agency must determine at certification or 
recertification which household members are eligible for the workfare 
program and inform the household representative of the nature of the 
program and of the penalties for noncompliance. If the State agency is 
not the operating agency, each member of a household who is subject to 
workfare under paragraph (m)(5)(i) of this section must be referred to 
the organization which is the operating agency. The information 
identified in paragraph (m)(3)(iv)(A) of this section must be forwarded 
to the operating agency within 5 days after the date of household 
certification. Computation of hours to be worked may be delegated to the 
operating agency.
    (iii) The State agency must inform the household and the operating 
agency of the effect of any changes in a household's circumstances on 
the household's workfare obligation. This includes changes in benefit 
levels or workfare eligibility.
    (iv) Upon notification by the operating agency that a participant 
has failed to comply with the workfare requirement without good cause, 
the State agency must make a final determination as to whether or not 
the failure occurred and whether there was good cause for the failure. 
If the State agency determines that the participant did not have good 
cause for noncompliance, a sanction must be processed as provided in 
paragraphs (f)(1)(i) and (f)(1)(ii) of this section. The State agency 
must immediately inform the operating agency of the months during which 
the sanction will apply.
    (v) The State agency must submit quarterly reports to FNS within 45 
days of the end of each quarter identifying for that quarter for that 
State:
    (A) The number of households with workfare-eligible recipients 
referred to the operating agency. A household will be counted each time 
it is referred to the operating agency;
    (B) The number of households assigned to jobs each month by the 
operating agency;
    (C) The number of individuals assigned to jobs each month by the 
operating agency;
    (D) The total number of hours worked by participants; and
    (E) The number of individuals against which sanctions were applied. 
An individual being sanctioned over two quarters should only be reported 
as sanctioned for the earlier quarter.
    (vi) The State agency may, at its option, assume responsibility for 
monitoring all workfare programs in its State to assure that there is 
compliance with this section and with the plan submitted and approved by 
FNS. Should the State agency assume this responsibility, it would act as 
agent for FNS, which is ultimately responsible for ensuring such 
compliance. Should the State agency determine that noncompliance exists, 
it may withhold funding until compliance is achieved or FNS directs 
otherwise.
    (5) Household responsibilities. (i) Participation requirement. 
Participation in workfare, if assigned by the State agency, is a Food 
Stamp Program work requirement for all nonexempt household members, as 
provided in paragraph (a) of this section. In addition:
    (A) Those recipients exempt from Food Stamp Program work 
requirements because they are subject to and complying with any work 
requirement under title IV of the Social Security Act are subject to 
workfare if they are currently involved less than 20 hours a week in 
title IV work activities. Those recipients involved 20 hours a week or 
more may be subject to workfare at the option of the political 
subdivision; and
    (B) Those recipients exempt from Food Stamp Program work 
requirements because they have applied for or are receiving unemployment 
compensation are subject to workfare.
    (ii) Household obligation. The maximum total number of hours of work 
required of a household each month is determined by dividing the 
household's coupon allotment by the Federal or State minimum wage, 
whichever is higher. Fractions of hours of obligation may be rounded 
down. The household's hours of obligation for any given

[[Page 675]]

month may not be carried over into another month.
    (6) Other program requirements. (i) Conditions of employment. (A) A 
participant may be required to work a maximum of 30 hours per week. This 
maximum must take into account hours worked in any other compensated 
capacity (including hours of participation in a title IV work program) 
by the participant on a regular or predictable part-time basis. With the 
participant's consent, the hours to be worked may be scheduled in such a 
manner that more than 30 hours are worked in one week, as long as the 
total for that month does not exceed the weekly average of 30 hours.
    (B) No participant will be required to work more than eight hours on 
any given day without his or her consent.
    (C) No participant will be required to accept an offer of workfare 
employment if it fails to meet the criteria established in paragraphs 
(h)(1)(iii), (h)(1)(iv), (h)(2)(i), (h)(2)(ii), (h)(2)(iv), and 
(h)(2)(v) of this section.
    (D) If the workfare participant is unable to report for job 
scheduling, to appear for scheduled workfare employment, or to complete 
the entire workfare obligation due to compliance with Unemployment 
Insurance requirements; other Food Stamp Program work requirements 
established in paragraph (a)(1) of this section; or the job search 
requirements established in paragraph (e)(1)(i) of this section, that 
inability must not be considered a refusal to accept workfare 
employment. If the workfare participant informs the operating agency of 
the time conflict, the operating agency must, if possible, reschedule 
the missed activity. If the rescheduling cannot be completed before the 
end of the month, that must not be considered as cause for 
disqualification.
    (E) The operating agency must assure that all persons employed in 
workfare jobs receive job-related benefits at the same levels and to the 
same extent as similar non-workfare employees. These are benefits 
related to the actual work being performed, such as workers' 
compensation, and not to the employment by a particular agency, such as 
health benefits. Of those benefits required to be offered, any elective 
benefit that requires a cash contribution by the participant will be 
optional at the discretion of the participant.
    (F) The operating agency must assure that all workfare participants 
experience the same working conditions that are provided to non-workfare 
employees similarly employed.
    (G) The provisions of section 2(a)(3) of the Service Contract Act of 
1965 (Public Law 89-286), relating to health and safety conditions, 
apply to the workfare program.
    (H) Operating agencies must not place a workfare participant in a 
work position that has the effect of replacing or preventing the 
employment of an individual not participating in the workfare program. 
Vacancies due to hiring freezes, terminations, or lay-offs must not be 
filled by workfare participants unless it can be demonstrated that the 
vacancies are a result of insufficient funds to sustain former staff 
levels.
    (I) Workfare jobs must not, in any way, infringe upon the 
promotional opportunities that would otherwise be available to regular 
employees.
    (J) Workfare jobs must not be related in any way to political or 
partisan activities.
    (K) The cost of workers' compensation or comparable protection 
provided to workfare participants by the State agency, political 
subdivision, or operating agency is a matchable cost under paragraph 
(m)(7) of this section. However, whether or not this coverage is 
provided, in no case is the Federal government the employer in these 
workfare programs (unless a Federal agency is the job site). The 
Department does not assume liability for any injury to or death of a 
workfare participant while on the job.
    (L) The nondiscrimination requirement provided in Sec.  272.6(a) of 
this chapter applies to all agencies involved in the workfare program.
    (ii) Job search period. The operating agency may establish a job 
search period of up to 30 days following certification prior to making a 
workfare assignment during which the potential participant is expected 
to look for a job. This period may only be established at household 
certification, not

[[Page 676]]

at recertification. The potential participant would not be subject to 
any job search requirements beyond those required under this section 
during this time.
    (iii) Participant reimbursement. The operating agency must reimburse 
participants for transportation and other costs that are reasonably 
necessary and directly related to participation in the program. These 
other costs may include the cost of child care, or the cost of personal 
safety items or equipment required for performance of work if these 
items are also purchased by regular employees. These other costs may not 
include the cost of meals away from home. No participant cost reimbursed 
under a workfare program operated under Title IV of the Social Security 
Act or any other workfare program may be reimbursed under the food stamp 
workfare program. Only reimbursement of participant costs up to but not 
in excess of $25 per month for any participant will be subject to 
Federal cost sharing as provided in paragraph (m)(7) of this section. 
Reimbursed child care costs may not be claimed as expenses and used in 
calculating the child care deduction for determining household benefits. 
In accordance with paragraph (m)(4)(i) of this section, a State agency 
may decide what its reimbursement policy shall be.
    (iv) Failure to comply. When a workfare participant is determined by 
the State agency to have failed or refused without good cause to comply 
with the requirements of this paragraph (m), the provisions of paragraph 
(f) of this section will apply.
    (v) Benefit overissuances. If a benefit overissuance is discovered 
for a month or months in which a participant has already performed a 
workfare or work component requirement, the State agency must apply the 
claim recovery procedures as follows:
    (A) If the person who performed the work is still subject to a work 
obligation, the State must determine how may extra hours were worked 
because of the improper benefit. The participant should be credited 
those extra hours toward future work obligations; and
    (B) If a workfare or work component requirement does not continue, 
the State agency must determine whether the overissuance was the result 
of an intentional program violation, an inadvertent household error, or 
a State agency error. For an intentional program violation a claim 
should be established for the entire amount of the overissuance. If the 
overissuance was caused by an inadvertent household error or State 
agency error, the State agency must determine whether the number of 
hours worked in workfare are more than the number which could have been 
assigned had the proper benefit level been used in calculating the 
number of hours to work. A claim must be established for the amount of 
the overissuance not ``worked off,''' if any. If the hours worked equal 
the amount of hours calculated by dividing the overissuance by the 
minimum wage, no claim will be established. No credit for future work 
requirements will be given.
    (7) Federal financial participation--(i) Administrative costs. Fifty 
percent of all administrative costs incurred by State agencies or 
political subdivisions in operating a workfare program will be funded by 
the Federal government. Such costs include those related to recipient 
participation in workfare, up to $25 per month for any participant, as 
indicated in paragraph (m)(6)(iii) of this section. Such costs do not 
include the costs of equipment, capital expenditures, tools or materials 
used in connection with the work performed by workfare participants, the 
costs of supervising workfare participants, the costs of reimbursing 
participants for meals away from home, or reimbursed expenses in excess 
of $25 per month for any participant. State agencies must not use any 
portion of their annual 100 percent Federal E&T allocations to fund the 
administration of optional workfare programs under section 20 of the 
Food Stamp Act and this paragraph (m).
    (ii) Funding mechanism. The State agencies have responsibility for 
disbursing Federal funds used for the workfare program through the State 
agencies' Letters of Credit. The State agency must also assure that 
records are being maintained which support

[[Page 677]]

the financial claims being made to FNS. This will be for all programs, 
regardless of who submits the plan. Mechanisms for funding local 
political subdivisions which have submitted plans must be established by 
the State agencies.
    (iii) Fiscal recordkeeping and reporting requirements. Workfare-
related costs must be identified by the State agency on the Financial 
Status Report (Form SF-269) as a separate column. All financial records, 
supporting documents, statistical records, negotiated contracts, and all 
other records pertinent to workfare program funds must be maintained in 
accordance with Sec.  277.12 of this chapter.
    (iv) Sharing workfare savings--(A) Entitlement. A political 
subdivision is entitled to share in the benefit reductions that occur 
when a workfare participant begins employment while participating in 
workfare for the first time, or within thirty days of ending the first 
participation in workfare.
    (1) To begin employment means to appear at the place of employment 
and to begin working.
    (2) First participation in workfare means performing work for the 
first time in a particular workfare program. The only break in 
participation that does not end the first participation will be due to 
the participant's taking a job which does not affect the household's 
allotment by an entire month's wages and which is followed by a return 
to workfare.
    (B) Calculating the benefit reductions. The political subdivision 
will calculate benefit reductions from each workfare participant's 
employment as follows.
    (1) Unless the political subdivision knows otherwise, it will 
presume that the benefit reduction equals the difference between the 
last allotment issued before the participant began the new employment 
and the first allotment that reflects a full month's wages, earned 
income deduction, and dependent care deduction attributable to the new 
job.
    (2) If the political subdivision knows of other changes besides the 
new job that affect the household's allotment after the new job began, 
the political subdivision will obtain the first allotment affected by an 
entire month's wages from the new job. The political subdivision will 
then recalculate the allotment to account for the wages, earned income 
deduction, and dependent care deduction attributable to the new job. In 
recalculating the allotment the political subdivision will also replace 
any benefits from a State program funded under title IV-A of the Social 
Security Act received after the new job with benefits received in the 
last month before the new job began. The difference between the first 
allotment that accounts for the new job and the recalculated allotment 
will be the benefit reduction.
    (3) The political subdivision's share of the benefit reduction is 
three times this difference, divided by two.
    (4) If, during these procedures, an error is discovered in the last 
allotment issued before the new employment began, that allotment must be 
corrected before the savings are calculated.
    (C) Accounting. The reimbursement from workfare will be reported and 
paid as follows:
    (1) The political subdivision will report its enhanced reimbursement 
to the State agency in accordance with paragraph (m)(7)(iii) of this 
section.
    (2) The Food and Nutrition Service will reimburse the political 
subdivision in accordance with paragraph (m)(7)(ii) of this section.
    (3) The political subdivision will, upon request, make available for 
review sufficient documentation to justify the amount of the enhanced 
reimbursement.
    (4) The Food and Nutrition Service will reimburse only the political 
subdivision's reimbursed administrative costs in the fiscal year in 
which the workfare participant began new employment and which are 
acceptable according to paragraph (m)(7)(i) of this section.
    (8) Voluntary workfare program. State agencies and political 
subdivisions may operate workfare programs whereby participation by food 
stamp recipients is voluntary. In such a program, the penalties for 
failure to comply, as provided in paragraph (f) of this section, will 
not apply for noncompliance. The amount of hours to be worked will be 
negotiated between the household and

[[Page 678]]

the operating agency, though not to exceed the limits provided under 
paragraph (m)(5)(ii) of this section. In addition, all protections 
provided under paragraph (m)(6)(i) of this section shall continue to 
apply. Those State agencies and political subdivisions choosing to 
operate such a program shall indicate in their workfare plan how their 
staffing will adapt to anticipated and unanticipated levels of 
participation. The Department will not approve plans which do not show 
that the benefits of the workfare program, in terms of hours worked by 
participants and reduced food stamp allotments due to successful job 
attainment, are expected to exceed the costs of such a program. In 
addition, if the Department finds that an approved voluntary program 
does not meet this criterion, the Department reserves the right to 
withdraw approval.
    (9) Comparable workfare programs. In accordance with section 
6(o)(2)(C) of the Food Stamp Act, State agencies and political 
subdivisions may establish programs comparable to workfare under this 
paragraph (m) for the purpose of providing ABAWDs subject to the time 
limits specified at Sec.  273.24 a means of fulfilling the work 
requirements in order to remain eligible for food stamps. While 
comparable to workfare in that they require the participant to work for 
his or her household's food stamp allotment, these programs may or may 
not conform to other workfare requirements. State agencies or political 
subdivisions desiring to operate a comparable workfare program must meet 
the following conditions:
    (i) The maximum number of hours worked weekly in a comparable 
workfare activity, combined with any other hours worked during the week 
by a participant for compensation (in cash or in kind) in any other 
capacity, must not exceed 30;
    (ii) Participants must not receive a fourth month of food stamp 
benefits (the first month for which they would not be eligible under the 
time limit) without having secured a workfare position or without having 
met their workfare obligation. Participation must be verified timely to 
prevent issuance of a month's benefits for which the required work 
obligation is not met;
    (iii) The State agency or political subdivision must maintain 
records to support the issuance of benefits to comparable workfare 
participants beyond the third month of eligibility; and
    (iv) The State agency or political subdivision must provide a 
description of its program, including a methodology for ensuring 
compliance with (m)(9)(ii) of this section. The description should be 
submitted to the appropriate Regional office, with copies forwarded to 
the Food Stamp Program National office.

[67 FR 41603, June 19, 2002]



Sec.  273.8  Resource eligibility standards.

    (a) Uniform standards. The State agency shall apply the uniform 
national resource standards of eligibility to all applicant households, 
including those households in which members are recipients of federally 
aided public assistance, general assistance, or supplemental security 
income. Households which are categorically eligible as defined in Sec.  
273.2(j)(2) or 273.2(j)(4) do not have to meet the resource limits or 
definitions in this section.
    (b) Maximum allowable resources. The maximum allowable resources, 
including both liquid and nonliquid assets, of all members of the 
household shall not exceed $2,000 for the household, except that, for 
households including a member or members age 60 or over, such resources 
shall not exceed $3,000.
    (c) Definition of resources. In determining the resources of a 
household, the following shall be included and documented by the State 
agency in sufficient detail to permit verification:
    (1) Liquid resources, such as cash on hand, money in checking or 
savings accounts, savings certificates, stocks or bonds, lump sum 
payments as specified in Sec.  273.9(c)(8), funds held in individual 
retirement accounts (IRA's), and funds held in Keogh plans which do not 
involve the household member in a contractual relationship with 
individuals who are not household members. In counting resources of 
households with IRA's or includable Keogh plans, the State agency shall 
include the total cash value of the account or plan minus the amount of 
the penalty (if

[[Page 679]]

any) that would be exacted for the early withdrawal of the entire amount 
in the account or plan; and
    (2) Nonliquid resources, personal property, licensed and unlicensed 
vehicles, buildings, land, recreational properties, and any other 
property, provided that these resources are not specifically excluded 
under paragraph (e) of this section. The value of nonexempt resources, 
except for licensed vehicles as specified in paragraph (f) of this 
section, shall be its equity value. The equity value is the fair market 
value less encumbrances.
    (3) For a household containing a sponsored alien, the State agency 
must deem the resources of the sponsor and the sponsor's spouse in 
accordance with Sec.  273.4(c)(2).
    (d) Jointly owned resources. Resources owned jointly by separate 
households shall be considered available in their entirety to each 
household, unless it can be demonstrated by the applicant household that 
such resources are inaccessible to that household. If the household can 
demonstrate that it has access to only a portion of the resource, the 
value of that portion of the resource shall be counted toward the 
household's resource level. The resource shall be considered totally 
inaccessible to the household if the resource cannot practically be 
subdivided and the household's access to the value of the resource is 
dependent on the agreement of a joint owner who refuses to comply. For 
the purpose of this provision, ineligible aliens or disqualified 
individuals residing with the household shall be considered household 
members. Resources shall be considered inaccessible to persons residing 
in shelters for battered women and children, as defined in Sec.  271.2, 
if
    (1) The resources are jointly owned by such persons and by members 
of their former household; and
    (2) The shelter resident's access to the value of the resources is 
dependent on the agreement of a joint owner who still resides in the 
former household.
    (e) Exclusions from resources. In determining the resources of a 
household, only the following shall be excluded:
    (1) The home and surrounding property which is not separated from 
the home by intervening property owned by others. Public rights of way, 
such as roads which run through the surrounding property and separate it 
from the home, will not affect the exemption of the property. The home 
and surrounding property shall remain exempt when temporarily unoccupied 
for reasons of employment, training for future employment, illness, or 
uninhabitability caused by casualty or natural disaster, if the 
household intends to return. Households that currently do not own a 
home, but own or are purchasing a lot on which they intend to build or 
are building a permanent home, shall receive an exclusion for the value 
of the lot and, if it is partially completed, for the home.
    (2) Household goods, personal effects, the cash value of life 
insurance policies, one burial plot per household member, and the value 
of one bona fide funeral agreement per household member, provided that 
the agreement does not exceed $1,500 in equity value, in which event the 
value above $1,500 is counted. The cash value of pension plans or funds 
shall be excluded, except that Keogh plans which involve no contractual 
relationship with individuals who are not household members and 
individual retirement accounts (IRA's) shall not be excluded under this 
paragraph.
    (3)(i) Licensed vehicles that meet the following conditions:
    (A) Used for income-producing purposes such as, but not limited to, 
a taxi, truck, or fishing boat, or a vehicle used for deliveries, to 
call on clients or customers, or required by the terms of employment. 
Licensed vehicles that have previously been used by a self-employed 
household member engaged in farming but are no longer used in farming 
because the household member has terminated his/her self-employment from 
farming must continue to be excluded as a resource for one year from the 
date the household member terminated his/her self-employment farming;
    (B) Annually producing income consistent with its fair market value, 
even if used only on a seasonal basis;
    (C) Necessary for long-distance travel, other than daily commuting, 
that is essential to the employment of a household member (or ineligible 
alien or disqualified person whose resources

[[Page 680]]

are being considered available to the household)--for example, the 
vehicle of a traveling sales person or a migrant farm worker following 
the work stream;
    (D) Used as the household's home and, therefore, excluded under 
paragraph (e)(1) of this section;
    (E) Necessary to transport a physically disabled household member 
(or physically disabled ineligible alien or physically disabled 
disqualified person whose resources are being considered available to 
the household) regardless of the purpose of such transportation (limited 
to one vehicle per physically disabled household member). The vehicle 
need not have special equipment or be used primarily by or for the 
transportation of the physically disabled household member; or
    (F) Necessary to carry fuel for heating or water for home use when 
the transported fuel or water is anticipated to be the primary source of 
fuel or water for the household during the certification period. 
Households must receive this resource exclusion without having to meet 
any additional tests concerning the nature, capabilities, or other uses 
of the vehicle. Households must not be required to furnish 
documentation, as mandated by Sec.  273.2(f)(4), unless the exclusion of 
the vehicle is questionable. If the basis for exclusion of the vehicle 
is questionable, the State agency may require documentation from the 
household, in accordance with Sec.  273.2(f)(4).
    (G) The value of the vehicle is inaccessible, in accordance with 
paragraph (e)(18) of this section, because its sale would produce an 
estimated return of not more than $1,500.
    (ii) On those Indian reservations that do not require vehicles 
driven by tribal members to be licensed, such vehicles must be treated 
as licensed vehicles for the purpose of this exclusion.
    (iii) The exclusions in paragraphs (e)(3)(i)(A) through (e)(3)(i)(C) 
of this section will apply when the vehicle is not in use because of 
temporary unemployment, such as when a taxi driver is ill and cannot 
work, or when a fishing boat is frozen in and cannot be used.
    (4) Property which annually produces income consistent with its fair 
market value, even if only used on a seasonal basis. Such property shall 
include rental homes and vacation homes.
    (5) Property, such as farm land or work related equipment, such as 
the tools of a tradesman or the machinery of a farmer, which is 
essential to the employment or self-employment of a household member. 
Property essential to the self-employment of a household member engaged 
in farming shall continue to be excluded for one year from the date the 
household member terminates his/her self-employment from farming.
    (6) Installment contracts for the sale of land or buildings if the 
contract or agreement is producing income consistent with its fair 
market value. The exclusion shall also apply to the value of the 
property sold under the installment contract, or held as security in 
exchange for a purchase price consistent with the fair market value of 
that property.
    (7) Any governmental payments which are designated for the 
restoration of a home damaged in a disaster, if the household is subject 
to a legal sanction if the funds are not used as intended; for example, 
payments made by the Department of Housing and Urban Development through 
the individual and family grant program or disaster loans or grants made 
by the Small Business Administration.
    (8) Resources having a cash value which is not accessible to the 
household, such as but not limited to, irrevocable trust funds, security 
deposits on rental property or utilities, property in probate, and real 
property which the household is making a good faith effort to sell at a 
reasonable price and which has not been sold. The State agency may 
verify that the property is for sale and that the household has not 
declined a reasonable offer. Verification may be obtained through a 
collateral contact or documentation, such as an advertisement for public 
sale in a newspaper of general circulation or a listing with a real 
estate broker. Any funds in a trust or transferred to a trust, and the 
income produced by that trust to the extent it is not available to the 
household, shall be considered inaccessible to the household if:

[[Page 681]]

    (i) The trust arrangement is not likely to cease during the 
certification period and no household member has the power to revoke the 
trust arrangement or change the name of the beneficiary during the 
certification period;
    (ii) The trustee administering the funds is either:
    (A) A court, or an institution, corporation, or organization which 
is not under the direction or ownership of any household member, or (B) 
an individual appointed by the court who has court imposed limitations 
placed on his/her use of the funds which meet the requirements of this 
paragraph;
    (iii) Trust investments made on behalf of the trust do not directly 
involve or assist any business or corporation under the control, 
direction, or influence of a household member; and
    (iv) The funds held in irrevocable trust are either:
    (A) Established from the household's own funds, if the trustee uses 
the funds solely to make investments on behalf of the trust or to pay 
the educational or medical expenses of any person named by the household 
creating the trust, or (B) established from non-household funds by a 
nonhousehold member.
    (9) Resources, such as those of students or self-employed persons, 
which have been prorated as income. The treatment of student income is 
explained in Sec.  273.10(c) and the treatment of self-employment income 
is explained in Sec.  273.11(a).
    (10) Indian lands held jointly with the Tribe, or land that can be 
sold only with the approval of the Department of the Interior's Bureau 
of Indian Affairs; and
    (11) Resources which are excluded for food stamp purposes by express 
provision of Federal statute.
    (12) Earned income tax credits shall be excluded as follows:
    (i) A Federal earned income tax credit received either as a lump sum 
or as payments under section 3507 of the Internal Revenue Code for the 
month of receipt and the following month for the individual and that 
individual's spouse.
    (ii) Any Federal, State or local earned income tax credit received 
by any household member shall be excluded for 12 months, provided the 
household was participating in the Food Stamp Program at the time of 
receipt of the earned income tax credit and provided the household 
participates continuously during that 12-month period. Breaks in 
participation of one month or less due to administrative reasons, such 
as delayed recertification or missing or late monthly reports, shall not 
be considered as nonparticipation in determining the 12-month exclusion.
    (13) Where an exclusion applies because of use of a resource by or 
for a household member, the exclusion shall also apply when the resource 
is being used by or for an ineligible alien or disqualified person whose 
resources are being counted as part of the household's resources. For 
example, work related equipment essential to the employment of an 
ineligible alien or disqualified person shall be excluded (in accordance 
with paragraph (e)(5) of this section), as shall one burial plot per 
ineligible alien or disqualified household member (in accordance with 
paragraph (e)(2) of this section).
    (14) Energy assistance payments or allowances excluded as income 
under Sec.  273.9(c)(11).
    (15) Non-liquid asset(s) against which a lien has been placed as a 
result of taking out a business loan and the household is prohibited by 
the security or lien agreement with the lien holder (creditor) from 
selling the asset(s).
    (16) Property, real or personal, to the extent that it is directly 
related to the maintenance or use of a vehicle excluded under paragraphs 
(e)(3)(i)(A), (e)(3)(i)(B) or (e)(3)(i)(C) of this section. Only that 
portion of real property determined necessary for maintenance or use is 
excludable under this provision. For example, a household which owns a 
produce truck to earn its livelihood may be prohibited from parking the 
truck in a residential area. The household may own a 100-acre field and 
use a quarter-acre of the field to park and/or service the truck. Only 
the value of the quarter-acre would be excludable under this provision, 
not the entire 100-acre field.
    (17) The resources of a household member who receives SSI or PA 
benefits. A household member is considered

[[Page 682]]

a recipient of these benefits if the benefits have been authorized but 
not received, if the benefits are suspended or recouped, or if the 
benefits are not paid because they are less than a minimum amount. For 
purposes of this paragraph (e)(17), if an individual receives non-cash 
or in-kind services from a program specified in Sec. Sec.  
273.2(j)(2)(i)(B), 273.2(j)(2)(i)(C), 273.2(j)(2)(ii)(A), or 
273.2(j)(2)(ii)(B), the State agency must determine whether the 
individual or the household benefits from the assistance provided, in 
accordance with Sec.  273.2(j)(2)(iii). Individuals entitled to Medicaid 
benefits only are not considered recipients of SSI or PA.
    (18) The State agency must develop clear and uniform standards for 
identifying kinds of resources that, as a practical matter, the 
household is unable to sell for any significant return because the 
household's interest is relatively slight or the costs of selling the 
household's interest would be relatively great. The State agency must so 
identify a resource if its sale or other disposition is unlikely to 
produce any significant amount of funds for the support of the household 
or the cost of selling the resource would be relatively great. This 
provision does not apply to financial instruments such as stocks, bonds, 
and negotiable financial instruments. The determination of whether any 
part of the value of a vehicle is included as a resource must be made in 
accordance with the provisions of paragraphs (e)(3) and (f) of this 
section. The State agency may require verification of the value of a 
resource to be excluded if the information provided by the household is 
questionable. The State agencies must use the following definitions in 
developing these standards:
    (i) ``Significant return'' means any return, after estimating costs 
of sale or disposition, and taking into account the ownership interest 
of the household, that the State agency determines are more than $1,500; 
and
    (ii) ``Any significant amount of funds'' means funds amounting to 
more than $1,500.
    (f) Determining the value of non-excluded vehicles. (1) The State 
agency must:
    (i) Individually evaluate the fair market value of each licensed 
vehicle that is not excluded under paragraph (e)(3) of this section;
    (ii) Count in full toward the household's resource level, regardless 
of any encumbrances on the vehicle, that portion of the fair market 
value that exceeds $4,650 beginning October 1, 1996;
    (iii) Evaluate such licensed vehicles as well as all unlicensed 
vehicles for their equity value (fair market value less encumbrances), 
unless specifically exempt from the equity value test; and
    (iv) Count as a resource only the greater of the two amounts if the 
vehicle has a countable fair market value of more than $4,650 after 
October 1, 1996, and also has a countable equity value.
    (2) Only the following vehicles are exempt from the equity value 
test outlined in paragraph (f)(1)(iii) of this section:
    (i) Vehicles excluded under paragraph (e)(3)(i) of this section;
    (ii) One licensed vehicle per adult household member (or an 
ineligible alien or disqualified household member whose resources are 
being considered available to household), regardless of the use of the 
vehicle; and
    (iii) Any other vehicle a household member under age 18 (or an 
ineligible alien or disqualified household member under age 18 whose 
resources are being considered available to household) drives to commute 
to and from employment, or to and from training or education which is 
preparatory to employment, or to seek employment. This equity exclusion 
applies during temporary periods of unemployment to a vehicle which a 
household member under age 18 customarily drives to commute to and from 
employment.
    (3) State agencies will be responsible for establishing 
methodologies for determining the fair market value of vehicles. In 
establishing such methodologies, the State agency must not increase the 
basic value of a vehicle by adding the value of low mileage or other 
factors such as optional equipment or special apparatus for the 
handicapped. Any household that claims that the State agency's 
determination of the value of its vehicle(s)

[[Page 683]]

is not accurate must be given the opportunity to acquire verification of 
the true value of the vehicle from a reliable source.
    (g) Handling of excluded funds. Excluded funds that are kept in a 
separate account, and that are not commingled in an account with 
nonexcluded funds, shall retain their resource exclusion for an 
unlimited period of time. The resources of students and self-employment 
households which are excluded as provided in paragraph (e)(9) of this 
section and are commingled in an account with nonexcluded funds shall 
retain their exclusion for the period of time over which they have been 
prorated as income. All other excluded moneys which are commingled in an 
account with nonexcluded funds shall retain their exemption for six 
months from the date they are commingled. After six months from the date 
of commingling, all funds in the commingled account shall be counted as 
a resource.
    (h) Transfer of resources. (1) At the time of application, 
households shall be asked to provide information regarding any resources 
which any household member (or ineligible alien or disqualified person 
whose resources are being considered available to the household) had 
transferred within the 3-month period immediately preceding the date of 
application. Households which have transferred resources knowingly for 
the purpose of qualifying or attempting to qualify for food stamp 
benefits shall be disqualified from participation in the program for up 
to 1 year from the date of the discovery of the transfer. This 
disqualification period shall be applied if the resources are 
transferred knowingly in the 3-month period prior to application or if 
they are transferred knowingly after the household is determined 
eligible for benefits. An example of the latter would be assets which 
the household acquires after being certified and which are then 
transferred to prevent the household from exceeding the maximum resource 
limit.
    (2) Eligibility for the program will not be affected by the 
following transfers:
    (i) Resources which would not otherwise affect eligibility, for 
example, resources consisting of excluded personal property such as 
furniture or of money that, when added to other nonexempt household 
resources, totaled less at the time of the transfer than the allowable 
resource limits;
    (ii) Resources which are sold or traded at, or near, fair market 
value;
    (iii) Resources which are transferred between members of the same 
household (including ineligible aliens or disqualified persons whose 
resources are being considered available to the household); and
    (iv) Resources which are transferred for reasons other than 
qualifying or attempting to qualify for food stamp benefits, for 
example, a parent placing funds into an educational trust fund described 
in paragraph (e)(9) of this section.
    (3) In the event the State agency establishes that an applicant 
household knowingly transferred resources for the purpose of qualifying 
or attempting to qualify for food stamp benefits, the household shall be 
sent a notice of denial explaining the reason for and length of the 
disqualification. The period of disqualification shall begin in the 
month of application. If the household is participating at the time of 
the discovery of the transfer, a notice of adverse action explaining the 
reason for and length of the disqualification shall be sent. The period 
of disqualification shall be made effective with the first allotment to 
be issued after the notice of adverse action period has expired, unless 
the household has requested a fair hearing and continued benefits.
    (4) The length of the disqualification period shall be based on the 
amount by which nonexempt transferred resources, when added to other 
countable resources, exceeds the allowable resource limits. The 
following chart will be used to determine the period of 
disqualification.

------------------------------------------------------------------------
                                                            Period of
        Amount in excess of the resource limit          disqualification
                                                            (months)
------------------------------------------------------------------------
$0 to 249.99..........................................               1
250 to 999.99.........................................               3
1,000 to 2999.99......................................               6
3,000 to 4,999.99.....................................               9
5,000 or more.........................................              12
------------------------------------------------------------------------


[[Page 684]]

    (i) Resources of non-household members. (1) The resources of non-
household members, as defined in Sec.  273.1(b)(7)(i) and (ii), must be 
handled as outlined in Sec.  273.11(d).
    (2) The resources of non-household members, as defined in Sec.  
273.1(b)(7)(iii) through (vi), must be handled as outlined in Sec.  
273.11(c) and (d), as appropriate.

[Amdt. 132, 43 FR 47889, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
273.8, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  273.9  Income and deductions.

    (a) Income eligibility standards. Participation in the Program shall 
be limited to those households whose incomes are determined to be a 
substantial limiting factor in permitting them to obtain a more 
nutritious diet. Households which contain an elderly or disabled member 
shall meet the net income eligiblity standards for the Food Stamp 
Program. Households which do not contain an elderly or disabled member 
shall meet both the net income eligibility standards and the gross 
income eligibility standards for the Food Stamp Program. Households 
which are categorically eligible as defined in Sec.  273.2(j)(2) or 
273.2(j)(4) do not have to meet either the gross or net income 
eligibility standards. The net and gross income eligibility standards 
shall be based on the Federal income poverty levels established as 
provided in section 673(2) of the Community Services Block Grant Act (42 
U.S.C. 9902(2)).
    (1) The gross income eligibility standards for the Food Stamp 
Program shall be as follows:
    (i) The income eligibility standards for the 48 contiguous States 
and the District of Columbia, Guam and the Virgin Islands shall be 130 
percent of the Federal income poverty levels for the 48 contiguous 
States and the District of Columbia.
    (ii) The income eligibility standards for Alaska shall be 130 
percent of the Federal income poverty levels for Alaska.
    (iii) The income eligibility standards for Hawaii shall be 130 
percent of the Federal income poverty levels for Hawaii.
    (2) The net income eligibility standards for the Food Stamp Program 
shall be as follows:
    (i) The income eligibility standards for the 48 contiguous States 
and the District of Columbia, Guam and the Virgin Islands shall be the 
Federal income poverty levels for the 48 contiguous States and the 
District of Columbia.
    (ii) The income eligibility standards for Alaska shall be the 
Federal income poverty levels for Alaska.
    (iii) The income eligibility standard for Hawaii shall be the 
Federal income poverty levels for Hawaii.
    (3) The income eligibility limits, as described in this paragraph, 
are revised each October 1 to reflect the annual adjustment to the 
Federal income poverty guidelines for the 48 States and the District of 
Columbia, for Alaska, and for Hawaii.
    (i) 130 percent of the annual income poverty guidelines shall be 
divided by 12 to determine the monthly gross income standards, rounding 
the results upwards as necessary. For households greater than eight 
persons, the increment in the Federal income poverty guidelines is 
multiplied by 130 percent, divided by 12, and the results rounded upward 
if necessary.
    (ii) The annual income poverty guidelines shall be divided by 12 to 
determine the monthly net income eligibility standards, rounding the 
results upward as necessary. For households greater than eight persons, 
the increment in the Federal income poverty guidelines is divided by 12, 
and the results rounded upward if necessary.
    (4) The monthly gross and net income eligibility standards for all 
areas will be prescribed in tables posted on the FNS web site, at 
www.fns.usda.gov/fsp.
    (b) Definition of income. Household income shall mean all income 
from whatever source excluding only items specified in paragraph (c) of 
this section.
    (1) Earned income shall include: (i) All wages and salaries of an 
employee.
    (ii) The gross income from a self-employment enterprise, including 
the total gain from the sale of any capital

[[Page 685]]

goods or equipment related to the business, excluding the costs of doing 
business as provided in paragraph (c) of this section. Ownership of 
rental property shall be considered a self-employment enterprise; 
however, income derived from the rental property shall be considered 
earned income only if a member of the household is actively engaged in 
the management of the property at least an average of 20 hours a week. 
Payments from a roomer or boarder, except foster care boarders, shall 
also be considered self-employment income.
    (iii) Training allowances from vocational and rehabilitative 
programs recognized by Federal, State, or local governments, such as the 
work incentive program, to the extent they are not a reimbursement. 
Training allowances under Job Training Partnership Act, other than 
earnings as specified in paragraph (b)(1)(v) of this section, are 
excluded from consideration as income.
    (iv) Payments under Title I (VISTA, University Year for Action, 
etc.) of the Domestic Volunteer Service Act of 1973 (Pub. L. 93-113 
Stat., as amended) shall be considered earned income and subject to the 
earned income deduction prescribed in Sec.  273.10(e)(1)(i)(B), 
excluding payments made to those households specified in paragraph 
(c)(10)(iii) of this section.
    (v) Earnings to individuals who are participating in on-the-job 
training programs under section 204(b)(1)(C) or section 264(c)(1)(A) of 
the Workforce Investment Act. This provision does not apply to household 
members under 19 years of age who are under the parental control of 
another adult member, regardless of school attendance and/or enrollment 
as discussed in paragraph (c)(7) of this section. For the purpose of 
this provision, earnings include monies paid under the Workforce 
Investment Act and monies paid by the employer.
    (vi) Educational assistance which has a work requirement (such as 
work study, an assistantship or fellowship with a work requirement) in 
excess of the amount excluded under Sec.  273.9(c)(3).
    (2) Unearned income shall include, but not be limited to:
    (i) Assistance payments from Federal or federally aided public 
assistance programs, such as supplemental security income (SSI) or 
Temporary Assistance for Needy Families (TANF); general assistance (GA) 
programs (as defined in Sec.  271.2); or other assistance programs based 
on need. Such assistance is considered to be unearned income even if 
provided in the form of a vendor payment (provided to a third party on 
behalf of the household), unless the vendor payment is specifically 
exempt from consideration as countable income under the provisions of 
paragraph (c)(1) of this section. Assistance payments from programs 
which require, as a condition of eligibility, the actual performance of 
work without compensation other than the assistance payments themselves, 
shall be considered unearned income.
    (ii) Annuities; pensions; retirement, veteran's, or disability 
benefits; worker's or unemployment compensation including any amounts 
deducted to repay claims for intentional program violations as provided 
in Sec.  272.12; old-age, survivors, or social security benefits; strike 
benefits; foster care payments for children or adults who are considered 
members of the household; gross income minus the cost of doing business 
derived from rental property in which a household member is not actively 
engaged in the management of the property at least 20 hours a week.
    (iii) Support or alimony payments made directly to the household 
from nonhousehold members.
    (iv) Scholarships, educational grants, deferred payment loans for 
education, veteran's educational benefits and the like, other than 
educational assistance with a work requirement, in excess of amounts 
excluded under Sec.  273.9(c).
    (v) Payments from Government-sponsored programs, dividends, 
interest, royalties, and all other direct money payments from any source 
which can be construed to be a gain or benefit.
    (vi) Monies which are withdrawn or dividends which are or could be 
received by a household from trust funds considered to be excludable 
resources under Sec.  273.8(e)(8). Such trust withdrawals shall be 
considered income in the month received, unless otherwise exempt under 
the provisions of paragraph (c) of this section. Dividends which the 
household has the option of

[[Page 686]]

either receiving as income or reinvesting in the trust are to be 
considered as income in the month they become available to the household 
unless otherwise exempt under the provisions of paragraph (c) of this 
section.
    (3) The earned or unearned income of an individual disqualified from 
the household for intentional Program violation, in accordance with 
Sec.  273.16, or as a result of a sanction imposed while he/she was 
participating in a household disqualified for failure to comply with 
workfare requirements, in accordance with Sec.  273.22, shall continue 
to be attributed in their entirety to the remaining household members. 
However, the earned or unearned income of individuals disqualified from 
households for failing to comply with the requirement to provide an SSN, 
in accordance with Sec.  273.6, or for being an ineligible alien, in 
accordance with Sec.  273.4, shall continue to be counted as income, 
less a pro rata share for the individual. Procedures for calculating 
this pro rata share are described in Sec.  273.11(c).
    (4) For a household containing a sponsored alien, the income of the 
sponsor and the sponsor's spouse must be deemed in accordance with Sec.  
273.4(c)(2).
    (5) Income shall not include the following:
    (i) Moneys withheld from an assistance payment, earned income, or 
other income source, or moneys received from any income source which are 
voluntarily or involuntarily returned, to repay a prior overpayment 
received from that income source, provided that the overpayment was not 
excludable under paragraph (c) of this section. However, moneys withheld 
from assistance from another program, as specified in Sec.  273.11(k), 
shall be included as income.
    (ii) Child support payments received by TANF recipients which must 
be transferred to the agency administering title IV-D of the Social 
Security Act, as amended, to maintain TANF eligibility.
    (c) Income exclusions. Only the following items shall be excluded 
from household income and no other income shall be excluded:
    (1) Any gain or benefit which is not in the form of money payable 
directly to the household, including in-kind benefits and certain vendor 
payments. In-kind benefits are those for which no monetary payment is 
made on behalf of the household and include meals, clothing, housing, or 
produce from a garden. A vendor payment is a money payment made on 
behalf of a household by a person or organization outside of the 
household directly to either the household's creditors or to a person or 
organization providing a service to the household. Payments made to a 
third party on behalf of the household are included or excluded as 
income as follows:
    (i) Public assistance (PA) vendor payments. PA vendor payments are 
counted as income unless they are made for:
    (A) Medical assistance;
    (B) Child care assistance;
    (C) Energy assistance as defined in paragraph (c)(11) of this 
section;
    (D) Emergency assistance (including, but not limited to housing and 
transportation payments) for migrant or seasonal farmworker households 
while they are in the job stream;
    (E) Housing assistance payments made through a State or local 
housing authority;
    (F) Emergency and special assistance. PA provided to a third party 
on behalf of a household which is not specifically excluded from 
consideration as income under the provisions of paragraphs (c)(1)(i)(A) 
through (c)(1)(i)(E) of this section shall be considered for exclusion 
under this provision. To be considered emergency or special assistance 
and excluded under this provision, the assistance must be provided over 
and above the normal PA grant or payment, or cannot normally be provided 
as part of such grant or payment. If the PA program is composed of 
various standards or components, the assistance would be considered over 
and above the normal grant or not part of the grant if the assistance is 
not included as a regular component of the PA grant or benefit or the 
amount of assistance exceeds the maximum rate of payment for the 
relevant component. If the PA program is not composed of various 
standards or components but is designed to provide a basic monthly grant 
or payment for all eligible households and provides a larger

[[Page 687]]

basic grant amount for all households in a particular category, e.g., 
all households with infants, the larger amount is still part of the 
normal grant or benefit for such households and not an ``extra'' payment 
excluded under this provision. On the other hand, if a fire destroyed a 
household item and a PA program provides an emergency amount paid 
directly to a store to purchase a replacement, such a payment is 
excluded under this provision. If the PA program is not composed of 
various standards, allowances, or components but is simply designed to 
provide assistance on an as-needed basis rather than to provide routine, 
regular monthly benefits to a client, no exclusion would be granted 
under this provision because the assistance is not provided over and 
above the normal grant, it is the normal grant. If it is not clear 
whether a certain type of PA vendor payment is covered under this 
provision, the State agency shall apply to the appropriate FNS Regional 
Office for a determination of whether the PA vendor payments should be 
excluded. The application for this exclusion determination must explain 
the emergency or special nature of the vendor payment, the exact type of 
assistance it is intended to provide, who is eligible for the 
assistance, how the assistance is paid, and how the vendor payment fits 
into the overall PA benefit standard. A copy of the rules, ordinances, 
or statutes which create and authorize the program shall accompany the 
application request.
    (ii) General assistance (GA) vendor payments. Vendor payments made 
under a State or local GA program or a comparable basic assistance 
program are excluded from income except for some vendor payments for 
housing. A housing vendor payment is counted as income unless the 
payment is for:
    (A) Energy assistance (as defined in paragraph (c)(11) of this 
section);
    (B) Housing assistance from a State or local housing authority;
    (C) Emergency assistance for migrant or seasonal farmworker 
households while they are in the job stream;
    (D) Emergency or special payments (as defined in paragraph 
(c)(1)(i)(F) of this section; or
    (E) Assistance provided under a program in a State in which no GA 
payments may be made directly to the household in the form of cash.
    (iii) Department of Housing and Urban Development (HUD) vendor 
payments. Rent or mortgage payments made to landlords or mortgagees by 
HUD are excluded.
    (iv) Educational assistance vendor payments. Educational assistance 
provided to a third party on behalf of the household for living expenses 
shall be treated the same as educational assistance payable directly to 
the household.
    (v) Vendor payments that are reimbursements. Reimbursements made in 
the form of vendor payments are excluded on the same basis as 
reimbursements paid directly to the household in accordance with 
paragraph (c)(5) of this section.
    (vi) Demonstration project vendor payments. In-kind or vendor 
payments which would normally be excluded as income but are converted in 
whole or in part to a direct cash payment under a federally authorized 
demonstration project or waiver of provisions of Federal law shall be 
excluded from income.
    (vii) Other third-party payments. Other third-party payments shall 
be handled as follows: moneys legally obligated and otherwise payable to 
the household which are diverted by the provider of the payment to a 
third party for a household expense shall be counted as income and not 
excluded. If a person or organization makes a payment to a third party 
on behalf of a household using funds that are not owed to the household, 
the payment shall be excluded from income. This distinction is 
illustrated by the following examples:
    (A) A friend or relative uses his or her own money to pay the 
household's rent directly to the landlord. This vendor payment shall be 
excluded.
    (B) A household member earns wages. However, the wages are garnished 
or diverted by the employer and paid to a third party for a household 
expense, such as rent. This vendor payment is counted as income. 
However, if the employer pays a household's rent directly to the 
landlord in addition to paying the household its regular wages, the rent 
payment shall be excluded from

[[Page 688]]

income. Similarly, if the employer provides housing to an employee in 
addition to wages, the value of the housing shall not be counted as 
income.
    (C) A household receives court-ordered monthly support payments in 
the amount of $400. Later, $200 is diverted by the provider and paid 
directly to a creditor for a household expense. The payment is counted 
as income. Money deducted or diverted from a court-ordered support or 
alimony payment (or other binding written support or alimony agreement) 
to a third party for a household's expense shall be included as income 
because the payment is taken from money that is owed to the household. 
However, payments specified by a court order or other legally binding 
agreement to go directly to a third party rather than the household are 
excluded from income because they are not otherwise payable to the 
household. For example, a court awards support payments in the amount of 
$400 a month and in addition orders $200 to be paid directly to a bank 
for repayment of a loan. The $400 payment is counted as income and the 
$200 payment is excluded from income. Support payments not required by a 
court order or other legally binding agreement (including payments in 
excess of the amount specified in a court order or written agreement) 
which are paid to a third party on the household's behalf shall be 
excluded from income.
    (2) Any income in the certification period which is received too 
infrequently or irregularly to be reasonably anticipated, but not in 
excess of $30 in a quarter.
    (3)(i) Educational assistance, including grants, scholarships, 
fellowships, work study, educational loans on which payment is deferred, 
veterans' educational benefits and the like.
    (ii) To be excluded, educational assistance referred to in paragraph 
(c)(3)(i) must be:
    (A) Awarded to a household member enrolled at a:
    (1) Recognized institution of post-secondary education (meaning any 
public or private educational institution which normally requires a high 
school diploma or equivalency certificate for enrollment or admits 
persons who are beyond the age of compulsory school attendance in the 
State in which the institution is located, provided that the institution 
is legally authorized or recognized by the State to provide an 
educational program beyond secondary education in the State or provides 
a program of training to prepare students for gainful employment, 
including correspondence schools at that level),
    (2) School for the handicapped,
    (3) Vocational education program,
    (4) Vocational or technical school,
    (5) Program that provides for obtaining a secondary school diploma 
or the equivalent;
    (B) Used for or identified (earmarked) by the institution, school, 
program, or other grantor for the following allowable expenses:
    (1) Tuition,
    (2) Mandatory school fees, including the rental or purchase of any 
equipment, material, and supplies related to the pursuit of the course 
of study involved,
    (3) Books,
    (4) Supplies,
    (5) Transportation,
    (6) Miscellaneous personal expenses, other than normal living 
expenses, of the student incidental to attending a school, institution 
or program,
    (7) Dependent care,
    (8) Origination fees and insurance premiums on educational loans,
    (9) Normal living expenses which are room and board are not 
excludable.
    (10) Amounts excluded for dependent care costs shall not also be 
excluded under the general exclusion provisions of paragraph Sec.  
273.9(c)(5)(i)(C). Dependent care costs which exceed the amount 
excludable from income shall be deducted from income in accordance with 
paragraph Sec.  273.9(d)(4) and be subject to a cap.
    (iii) Exclusions based on use pursuant to paragraph (c)(3)(ii)(B) 
must be incurred or anticipated for the period the educational income is 
intended to cover regardless of when the educational income is actually 
received. If a student uses other income sources to pay for allowable 
educational expenses in months before the educational income is 
received, the exclusions to cover the expenses shall be allowed

[[Page 689]]

when the educational income is received. When the amounts used for 
allowable expense are more than amounts earmarked by the institution, 
school, program or other grantor, an exclusion shall be allowed for 
amounts used over the earmarked amounts. Exclusions based on use shall 
be subtracted from unearned educational income to the extent possible. 
If the unearned educational income is not enough to cover the expense, 
the remainder of the allowable expense shall be excluded from earned 
educational income.
    (iv) An individual's total educational income exclusions granted 
under the provisions of paragraph (c)(3)(i) through (c)(3)(iii) of this 
section cannot exceed that individual's total educational income which 
was subject to the provisions of paragraph (c)(3)(i) through (c)(3)(iii) 
of this section.
    (4) All loans, including loans from private individuals as well as 
commercial institutions, other than educational loans on which repayment 
is deferred. Educational loans on which repayment is deferred shall be 
excluded pursuant to the provisions of Sec.  273.9(c)(3)(i). A loan on 
which repayment must begin within 60 days after receipt of the loan 
shall not be considered a deferred repayment loan.
    (5) Reimbursements for past or future expenses, to the extent they 
do not exceed actual expenses, and do not represent a gain or benefit to 
the household. Reimbursements for normal household living expenses such 
as rent or mortgage, personal clothing, or food eaten at home are a gain 
or benefit and, therefore, are not excluded. To be excluded, these 
payments must be provided specifically for an identified expense, other 
than normal living expenses, and used for the purpose intended. When a 
reimbursement, including a flat allowance, covers multiple expenses, 
each expense does not have to be separately identified as long as none 
of the reimbursement covers normal living expenses. The amount by which 
a reimbursement exceeds the actual incurred expense shall be counted as 
income. However, reimbursements shall not be considered to exceed actual 
expenses, unless the provider or the household indicates the amount is 
excessive.
    (i) Examples of excludable reimbursements which are not considered 
to be a gain or benefit to the household are:
    (A) Reimbursements or flat allow ances, including reimbursements 
made to the household under Sec.  273.7(d)(3), for job- or training-
related expenses such as travel, per diem, uniforms, and transportation 
to and from the job or training site. Reimbursements which are provided 
over and above the basic wages for these expenses are excluded; however, 
these expenses, if not reimbursed, are not otherwise deductible. 
Reimbursements for the travel expenses incurred by migrant workers are 
also excluded.
    (B) Reimbursements for out-of-pocket expenses of volunteers incurred 
in the course of their work.
    (C) Medical or dependent care reimbursements.
    (D) Reimbursements received by households to pay for services 
provided by Title XX of the Social Security Act.
    (E) Any allowance a State agency provides no more frequently than 
annually for children's clothes when the children enter or return to 
school or daycare, provided the State agency does not reduce the monthly 
TANF payment for the month in which the school clothes allowance is 
provided. State agencies are not required to verify attendance at school 
or daycare.
    (F) Reimbursements made to the household under Sec.  273.7(d)(3) for 
expenses necessary for participation in an education component under the 
E&T program.
    (ii) The following shall not be considered a reimbursement 
excludable under this provision:
    (A) No portion of benefits provided under title IV-A of the Social 
Security Act, to the extent such benefits are attributed to an 
adjustment for work-related or child care expenses (except for payments 
or reimbursements for such expenses made under an employment, education 
or training program initiated under such title after September 19, 
l988), shall be considered excludable under this provision.
    (B) No portion of any educational assistance that is provided for 
normal living expenses (room and board) shall

[[Page 690]]

be considered a reimbursement excludable under this provision.
    (6) Moneys received and used for the care and maintenance of a 
third-party beneficiary who is not a household member. If the intended 
beneficiaries of a single payment are both household and nonhousehold 
members, any identifiable portion of the payment intended and used for 
the care and maintenance of the nonhousehold member shall be excluded. 
If the nonhousehold member's portion cannot be readily identified, the 
payment shall be evenly prorated among intended beneficiaries and the 
exclusion applied to the nonhousehold member's pro rata share or the 
amount actually used for the nonhousehold member's care and maintenance, 
whichever is less.
    (7) The earned income (as defined in paragraph (b)(1) of this 
section) of any household member who is under age 18, who is an 
elementary or secondary school student, and who lives with a natural, 
adoptive, or stepparent or under the parental control of a household 
member other than a parent. For purposes of this provision, an 
elementary or secondary school student is someone who attends elementary 
or secondary school, or who attends classes to obtain a General 
Equivalency Diploma that are recognized, operated, or supervised by the 
student's state or local school district, or who attends elementary or 
secondary classes through a home-school program recognized or supervised 
by the student's state or local school district. The exclusion shall 
continue to apply during temporary interruptions in school attendance 
due to semester or vacation breaks, provided the child's enrollment will 
resume following the break. If the child's earnings or amount of work 
performed cannot be differentiated from that of other household members, 
the total earnings shall be prorated equally among the working members 
and the child's pro rata share excluded.
    (8) Money received in the form of a nonrecurring lump-sum payment, 
including, but not limited to, income tax refunds, rebates, or credits; 
retroactive lump-sum social security, SSI, public assistance, railroad 
retirement benefits, or other payments; lump-sum insurance settlements; 
or refunds of security deposits on rental property or utilities. These 
payments shall be counted as resources in the month received, in 
accordance with Sec.  273.8(c) unless specifically excluded from 
consideration as a resource by other Federal laws. TANF payments made to 
divert a family from becoming dependent on welfare may be excluded as a 
nonrecurring lump-sum payment if the payment is not defined as 
assistance because of the exception for non-recurrent, short-term 
benefits in 45 CFR 261.31(b)(1).
    (9) The cost of producing self-employment income. The procedures for 
computing the cost of producing self-employment income are described in 
Sec.  273.11.
    (10) Any income that is specifically excluded by any other Federal 
statute from consideration as income for the purpose of determining 
eligibility for the food stamp program. The following laws provide such 
an exclusion:
    (i) Reimbursements from the Uniform Relocation Assistance and Real 
Property Acquisition Policy Act of 1970 (Pub. L. 91-646, section 216).
    (ii) Payments received under the Alaska Native Claims Settlement Act 
(Pub. L. 92-203, section 21(a));
    (iii) Any payment to volunteers under Title II (RSVP, Foster 
Grandparents and others) of the Domestic Volunteer Services Act of 1973 
(Pub. L. 93-113) as amended. Payments under title I of that Act 
(including payments from such title I programs as VISTA, University Year 
for Action, and Urban Crime Prevention Program) to volunteers shall be 
excluded for those individuals receiving food stamps or public 
assistance at the time they joined the title I program, except that 
households which were receiving an income exclusion for a Vista or other 
title I Subsistence allowance at the time of conversion to the Food 
Stamp Act of 1977 shall continue to receive an income exclusion for 
VISTA for the length of their volunteer contract in effect at the time 
of conversion. Temporary interruptions in food stamp participation shall 
not alter the exclusion once an initial determination has been made. New 
applicants who were not receiving public assistance or food stamps at 
the time they joined VISTA

[[Page 691]]

shall have these volunteer payments included as earned income. The FNS 
National Office shall keep FNS Regional Offices informed of any new 
programs created under title I and II or changes in programs mentioned 
above so that they may alert State agencies.
    (iv) Income derived from certain submarginal land of the United 
States which is held in trust for certain Indian tribes (Pub. L. 94-114, 
section 6).
    (v) Allowances, earnings, or payments (including reimbursements) to 
individuals participating in programs under the Job Training Partnership 
Act (Pub. L. 90-300), except as provided for under paragraph (b)(1)(v) 
of this section.
    (vi) Income derived from the disposition of funds to the Grand River 
Band of Ottawa Indians (Pub. L. 94-540).
    (vii) Earned income tax credits received as a result of Pub. L. 95-
600, the Revenue Act of 1978 which are received before January 1, 1980.
    (viii) Payments by the Indian Claims Commission to the Confederated 
Tribes and Bands of the Yakima Indian Nation or the Apache Tribe of the 
Mescalero Reservation (Pub. L. 95-433).
    (ix) Payments to the Passamaquoddy Tribe and the Penobscot Nation or 
any of their members received pursuant to the Maine Indian Claims 
Settlement Act of 1980 (Pub. L. 96-420, section 5).
    (x) Payments of relocation assistance to members of the Navajo and 
Hopi Tribes under Pub. L. 93-531.
    (11) Energy assistance as follows:
    (i) Any payments or allowances made for the purpose of providing 
energy assistance under any Federal law other than part A of Title IV of 
the Social Security Act (42 U.S.C. 601 et seq.), including utility 
reimbursements made by the Department of Housing and Urban Development 
and the Rural Housing Service, or
    (ii) A one-time payment or allowance applied for on an as-needed 
basis and made under a Federal or State law for the costs of 
weatherization or emergency repair or replacement of an unsafe or 
inoperative furnace or other heating or cooling device. A down-payment 
followed by a final payment upon completion of the work will be 
considered a one-time payment for purposes of this provision.
    (12) Cash donations based on need received on or after February 1, 
1988 from one or more private nonprofit charitable organizations, but 
not to exceed $300 in a Federal fiscal year quarter.
    (13) Earned income tax credit payments received either as a lump sum 
or payments under section 3507 of the Internal Revenue Code of 1986 
(relating to advance payment of earned income tax credits received as 
part of the paycheck or as a reduction in taxes that otherwise would 
have been paid at the end of the year).
    (14) Any payment made to an E&T participant under Sec.  273.7(d)(3) 
for costs that are reasonably necessary and directly related to 
participation in the E&T program. These costs include, but are not 
limited to, dependent care costs, transportation, other expenses related 
to work, training or education, such as uniforms, personal safety items 
or other necessary equipment, and books or training manuals. These costs 
shall not include the cost of meals away from home. Also, the value of 
any dependent care services provided for or arranged under Sec.  
273.7(d)(3)(i) would be excluded.
    (15) Governmental foster care payments received by households with 
foster care individuals who are considered to be boarders in accordance 
with Sec.  273.1(c).
    (16) Income of an SSI recipient necessary for the fulfillment of a 
plan for achieving self-support (PASS) which has been approved under 
section 1612(b)(4)(A)(iii) or 1612(b)(4)(B)(iv) of the Social Security 
Act. This income may be spent in accordance with an approved PASS or 
deposited into a PASS savings account for future use.
    (d) Income deductions. Deductions shall be allowed only for the 
following household expenses:
    (1) Standard deduction. Effective October 1, 1996, for each 
household in the 48 contiguous States and the District of Columbia, 
Alaska, Hawaii, Guam and the Virgin Islands of the United States, the 
standard deduction must be $134, $229, $189, $269, and $118, 
respectively.
    (2) Earned income deduction. Twenty percent of gross earned income 
as defined in paragraph (b)(1) of this section. Earnings excluded in 
paragraph (c) of

[[Page 692]]

this section shall not be included in gross earned income for purposes 
of computing the earned income deduction.
    (3) Excess medical deduction. That portion of medical expenses in 
excess of $35 per month, excluding special diets, incurred by any 
household member who is elderly or disabled as defined in Sec.  271.2. 
Spouses or other persons receiving benfits as a dependent of the SSI or 
disability and blindness recipient are not eligible to receive this 
deduction but persons receiving emergency SSI benefits based on 
presumptive eligibility are eligible for this deduction. Allowable 
medical costs are:
    (i) Medical and dental care including psychotherapy and 
rehabilitation services provided by a licensed practitioner authorized 
by State law or other qualified health professional.
    (ii) Hospitalization or outpatient treatment, nursing care, and 
nursing home care including payments by the household for an individual 
who was a household member immediately prior to entering a hospital or 
nursing home provided by a facility recognized by the State.
    (iii) Prescription drugs when prescribed by a licensed practitioner 
authorized under State law and other over-the-counter medication 
(including insulin) when approved by a licensed practitioner or other 
qualified health professional; in addition, costs of medical supplies, 
sick-room equipment (including rental) or other prescribed equipment are 
deductible;
    (iv) Health and hospitalization insurance policy premiums. The costs 
of health and accident policies such as those payable in lump sum 
settlements for death or dismemberment or income maintenance policies 
such as those that continue mortgage or loan payments while the 
beneficiary is disabled are not deductible;
    (v) Medicare premiums related to coverage under Title XVIII of the 
Social Security Act; any cost-sharing or spend down expenses incurred by 
Medicaid recipients;
    (vi) Dentures, hearing aids, and prosthetics;
    (vii) Securing and maintaining a seeing eye or hearing dog including 
the cost of dog food and veterinarian bills;
    (viii) Eye glasses prescribed by a physician skilled in eye disease 
or by an optometrist;
    (ix) Reasonable cost of transportation and lodging to obtain medical 
treatment or services;
    (x) Maintaining an attendant, homemaker, home health aide, or child 
care services, housekeeper, necessary due to age, infirmity, or illness. 
In addition, an amount equal to the one person coupon allotment shall be 
deducted if the household furnishes the majority of the attendant's 
meals. The allotment for this meal related deduction shall be that in 
effect at the time of initial certification. The State agency is only 
required to update the allotment amount at the next scheduled 
recertification; however, at their option, the State agency may do so 
earlier. If a household incurs attendant care costs that could qualify 
under both the medical deduction and dependent care deduction, the State 
agency shall treat the cost as a medical expense.
    (4) Dependent care. Payments for the actual costs for the care of 
children or other dependents when necessary for a household member to 
accept or continue employment, comply with the employment and training 
requirements as specified under Sec.  273.7(e), or attend training or 
pursue education which is preparatory to employment, except as provided 
in Sec.  273.10(d)(1)(i). The maximum monthly dependent care deduction 
amount households shall be granted under this provision is $200 a month 
for each dependent child under two (2) years of age and $175 a month for 
each other dependent.
    (5) Child support deduction. Legally obligated child support 
payments paid by a household member to or for a nonhousehold member, 
including payments made to a third party on behalf of the nonhousehold 
member (vendor payments). The State agency shall allow a deduction for 
amounts paid toward arrearages. Alimony payments made to or for a 
nonhousehold member shall not be included in the child support 
deduction.
    (6) Standard utility allowance.--(i) Homeless shelter deduction. A 
State

[[Page 693]]

agency may develop a standard homeless shelter deduction up to a maximum 
of $143 a month for shelter expenses specified in paragraphs 
(d)(6)(ii)(A), (d)(6)(ii)(B) and (d)(6)(ii)(C) of this section that may 
reasonably be expected to be incurred by households in which all members 
are homeless individuals but are not receiving free shelter throughout 
the month. The deduction must be subtracted from net income in 
determining eligibility and allotments for the households. The State 
agency may make a household with extremely low shelter costs ineligible 
for the deduction. A household receiving the homeless shelter deduction 
cannot have its shelter expenses considered under paragraphs (d)(6)(ii) 
or (d)(6)(iii) of this section. However, a homeless household may choose 
to claim actual costs under paragraph (d)(6)(ii) of this section instead 
of the homeless shelter deduction if actual costs are higher and 
verified.
    (ii) Excess shelter deduction. Monthly shelter expenses in excess of 
50 percent of the household's income after all other deductions in 
paragraphs (d)(1) through (d)(5) of this section have been allowed. If 
the household does not contain an elderly or disabled member, as defined 
in Sec.  271.2 of this chapter, the shelter deduction cannot exceed the 
maximum shelter deduction limit established for the area. FNS will 
notify State agencies of the amount of the limit. Only the following 
expenses are allowable shelter expenses:
    (A) Continuing charges for the shelter occupied by the household, 
including rent, mortgage, condo and association fees, or other 
continuing charges leading to the ownership of the shelter such as loan 
repayments for the purchase of a mobile home, including interest on such 
payments.
    (B) Property taxes, State and local assessments, and insurance on 
the structure itself, but not separate costs for insuring furniture or 
personal belongings.
    (C) The cost of fuel for heating; cooling (i.e., the operation of 
air conditioning systems or room air conditioners); electricity or fuel 
used for purposes other than heating or cooling; water; sewerage; well 
installation and maintenance; septic tank system installation and 
maintenance; garbage and trash collection; all service fees required to 
provide service for one telephone, including, but not limited to, basic 
service fees, wire maintenance fees, subscriber line charges, relay 
center surcharges, 911 fees, and taxes; and fees charged by the utility 
provider for initial installation of the utility. One-time deposits 
cannot be included.
    (D) The shelter costs for the home if temporarily not occupied by 
the household because of employment or training away from home, illness, 
or abandonment caused by a natural disaster or casualty loss. For costs 
of a home vacated by the household to be included in the household's 
shelter costs, the household must intend to return to the home; the 
current occupants of the home, if any, must not be claiming the shelter 
costs for food stamp purposes; and the home must not be leased or rented 
during the absence of the household.
    (E) Charges for the repair of the home which was substantially 
damaged or destroyed due to a natural disaster such as a fire or flood. 
Shelter costs shall not include charges for repair of the home that have 
been or will be reimbursed by private or public relief agencies, 
insurance companies, or from any other source.
    (iii) Standard utility allowances.
    (A) With FNS approval, a State agency may develop the following 
standard utility allowances (standards) to be used in place of actual 
costs in determining a household's excess shelter deduction: an 
individual standard for each type of utility expense; a standard utility 
allowance for all utilities that includes heating or cooling costs 
(HCSUA); and, a limited utility allowance (LUA) that includes 
electricity and fuel for purposes other than heating or cooling, water, 
sewerage, well and septic tank installation and maintenance, telephone, 
and garbage or trash collection. The LUA must include expenses for at 
least two utilities. However, at its option, the State agency may 
include the excess heating and cooling costs of public housing residents 
in the LUA if it wishes to offer the lower standard to such households. 
The State agency may use different types of standards but cannot

[[Page 694]]

allow households the use of two standards that include the same expense. 
In States in which the cooling expense is minimal, the State agency may 
include the cooling expense in the electricity component. The State 
agency may vary the allowance by factors such as household size, 
geographical area, or season. Only utility costs identified in paragraph 
(d)(6)(ii)(C) of this section must be used in developing standards.
    (B) The State agency must review the standards annually and make 
adjustments to reflect changes in costs, rounded to the nearest whole 
dollar. State agencies must provide the amounts of standards to FNS when 
they are changed and submit methodologies used in developing and 
updating standards to FNS for approval when the methodologies are 
developed or changed.
    (C) A standard with a heating or cooling component must be made 
available to households that incur heating or cooling expenses 
separately from their rent or mortgage and to households that receive 
direct or indirect assistance under the Low Income Home Energy 
Assistance Act of 1981 (LIHEAA). A heating or cooling standard is 
available to households in private rental housing who are billed by 
their landlords on the basis of individual usage or who are charged a 
flat rate separately from their rent. However, households in public 
housing units which have central utility meters and which charge 
households only for excess heating or cooling costs are not entitled to 
a standard that includes heating or cooling costs based only on the 
charge for excess usage. Households that receive direct or indirect 
energy assistance that is excluded from income consideration (other than 
that provided under the LIHEAA) are entitled to a standard that includes 
heating or cooling only if the amount of the expense exceeds the amount 
of the assistance. Households that receive direct or indirect energy 
assistance that is counted as income and incur a heating or cooling 
expense are entitled to use a standard that includes heating or cooling 
costs. A household that has both an occupied home and an unoccupied home 
is only entitled to one standard.
    (D) At initial certification, recertification, and when a household 
moves, the household may choose between a standard or verified actual 
utility costs for any allowable expense identified in paragraph 
(d)(6)(ii)(C) of this section (except the telephone standard), unless 
the State agency has opted, with FNS approval, to mandate use of a 
standard. The State agency may require use of the telephone standard for 
the cost of basic telephone service even if actual costs are higher. 
Households certified for 24 months may also choose to switch between a 
standard and actual costs at the time of the mandatory interim contact 
required by Sec.  273.10(f)(1)(i), if the State agency has not mandated 
use of the standard.
    (E) A State agency may mandate use of standard utility allowances 
for all households with qualifying expenses if the State has developed 
one or more standards that include the costs of heating and cooling and 
one or more standards that do not include the costs of heating and 
cooling, the standards will not result in increased program costs, and 
FNS approves the standard. The prohibition on increasing Program costs 
does not apply to necessary increases to standards resulting from 
utility cost increases. Under this option households entitled to the 
standard may not claim actual expenses, even if the expenses are higher 
than the standard. Households not entitled to the standard may claim 
actual allowable expenses. Households in public housing units that have 
central utility meters and charge households only for excess heating or 
cooling costs are not entitled to the HCSUA but, at State agency option, 
may claim the LUA. Requests for approval to use a standard for a single 
utility must include the cost figures upon which the standard is based. 
Requests to use an LUA should include the approximate number of food 
stamp households that would be entitled to the nonheating and noncooling 
standard, the average utility costs prior to use of the mandatory 
standard, the proposed standards, and an explanation of how the 
standards were computed.
    (F) If a household lives with and shares heating or cooling expenses 
with another individual, another household,

[[Page 695]]

or both, the State agency must prorate a standard that includes heating 
or cooling expenses among the household and the other individual, 
household, or both. However, the State agency may not prorate the SUA if 
all the individuals who share utility expenses but are not in the food 
stamp household are excluded from the household only because they are 
ineligible.

[Amdt. 132, 43 FR 47889, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
273.9, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  273.10  Determining household eligibility and benefit levels.

    (a) Month of application--(1) Determination of eligibility and 
benefit levels. (i) A household's eligibility shall be determined for 
the month of application by considering the household's circumstances 
for the entire month of application. Most households will have the 
eligibility determination based on circumstances for the entire calendar 
month in which the household filed its application. However, State 
agencies may, with the prior approval of FNS, use a fiscal month if the 
State agency determines that it is more efficient and satisfies FNS that 
the accounting procedures fully comply with certification and issuance 
requirements contained in these regulations. A State agency may elect to 
use either a standard fiscal month for all households, such as from the 
15th of one calendar month to the 15th of the next calendar month, or a 
fiscal month that will vary for each household depending on the date an 
individual files an application for the Program. Applicant households 
consisting of residents of a public institution who apply jointly for 
SSI and food stamps prior to release from the public institution in 
accordance with Sec.  273.1(e)(2) will have their eligibility determined 
for the month in which the applicant household was released from the 
institution.
    (ii) A household's benefit level for the initial months of 
certification shall be based on the day of the month it applies for 
benefits and the household shall receive benefits from the date of 
application to the end of the month unless the applicant household 
consists of residents of a public institution. For households which 
apply for SSI prior to their release from a public institution in 
accordance with Sec.  273.1(e)(2), the benefit level for the initial 
month of certification shall be based on the date of the month the 
household is released from the institution and the household shall 
receive benefits from the date of the household's release from the 
institution to the end of the month. As used in this section, the term 
``initial month'' means the first month for which the household is 
certified for participation in the Food Stamp Program following any 
period during which the household was not certified for participation, 
except for migrant and seasonal farmworker households. In the case of 
migrant and seasonal farmworker households, the term ``initial month'' 
means the first month for which the household is certified for 
participation in the Food Stamp Program following any period of more 
than 1 month during which the household was not certified for 
participation. Recertification shall be processed in accordance with 
Sec.  273.10(a)(2). The State agency shall prorate a household's 
benefits according to one of the two following options:
    (A) The State agency shall use a standard 30-day calendar or fiscal 
month. A household applying on the 31st of a month will be treated as 
though it applied on the 30th of the month.
    (B) The State agency shall prorate benefits over the exact length of 
a particular calendar or fiscal month.
    (iii) To determine the amount of the prorated allotment, the State 
agency shall use either the appropriate Food Stamp Allotment Proration 
Table provided by FNS or whichever of the following formulae is 
appropriate:
    (A) For State agencies which use a standard 30-day calendar or 
fiscal month the formula is as follows, keeping in mind that the date of 
application for someone applying on the 31st of a month is the 30th:
[GRAPHIC] [TIFF OMITTED] TR07OC94.022


[[Page 696]]



                                                                    (31-date of application)
                                   full month's benefits x           ----------------------      = allotment
                                                                               30
 

    (B) For State agencies which use the exact number of days in a 
month, the formula is:
[GRAPHIC] [TIFF OMITTED] TR07OC94.022


                                                                               (number of days in month+1-date of application)
                                            full month's benefits x                  ----------------------------------            = allotment
                                                                                           number of days in month
 

    (C) If after using the appropriate formula the result ends in 1 
through 99 cents, the State agency shall round the product down to the 
nearest lower whole dollar. If the computation results in an allotment 
of less than $10, then no issuance shall be made for the initial month.
    (2) Application for recertification. Eligibility for recertification 
shall be determined based on circumstances anticipated for the 
certification period starting the month following the expiration of the 
current certification period. The level of benefits for recertifications 
shall be based on the same anticipated circumstances, except for 
retrospectively budgeted households which shall be recertified in 
accordance with Sec.  273.21(f)(2). If a household, other than a migrant 
or seasonal farmworker household, submits an application after the 
household's certification period has expired, that application shall be 
considered an initial application and benefits for that month shall be 
prorated in accordance with paragraph (a)(1)(ii) of this section. If a 
household's failure to timely apply for recertification was due to an 
error of the State agency and therefore there was a break in 
participation, the State agency shall follow the procedures in Sec.  
273.14(e). In addition, if the household submits an application for 
recertification prior to the end of its certification period but is 
found ineligible for the first month following the end of the 
certification period, then the first month of any subsequent 
participation shall be considered an initial month. Conversely, if the 
household submits an application for recertification prior to the end of 
its certification period and is found eligible for the first month 
following the end of the certification period, then that month shall not 
be an initial month.
    (3) Anticipated changes. Because of anticipated changes, a household 
may be eligible for the month of application, but ineligible in the 
subsequent month. The household shall be entitled to benefits for the 
month of application even if the processing of its application results 
in the benefits being issued in the subsequent month. Similarly, a 
household may be ineligible for the month of application, but eligible 
in the subsequent month due to anticipated changes in circumstances. 
Even though denied for the month of application, the household does not 
have to reapply in the subsequent month. The same application shall be 
used for the denial for the month of application and the determination 
of eligibility for subsequent months, within the timeliness standards in 
Sec.  273.2.
    (4) Changes in allotment levels. As a result of anticipating 
changes, the household's allotment for the month of application may 
differ from its allotment in subsequent months. The State agency shall 
establish a certification period for the longest possible period over 
which changes in the household's circumstances can be reasonably 
anticipated. The household's allotment shall vary month to month within 
the certification period to reflect changes anticipated at the time of 
certification, unless the household elects the averaging techniques in 
paragraphs (c)(3) and (d)(3) of this section.
    (b) Determining resources. Available resources at the time the 
household is interviewed shall be used to determine the household's 
eligibility.

[[Page 697]]

    (c) Determining income--(1) Anticipating income. (i) For the purpose 
of determining the household's eligibility and level of benefits, the 
State agency shall take into account the income already received by the 
household during the certification period and any anticipated income the 
household and the State agency are reasonably certain will be received 
during the remainder of the certification period. If the amount of 
income that will be received, or when it will be received, is uncertain, 
that portion of the household's income that is uncertain shall not be 
counted by the State agency. For example, a household anticipating 
income from a new source, such as a new job or recently applied for 
public assistance benefits, may be uncertain as to the timing and amount 
of the initial payment. These moneys shall not be anticipated by the 
State agency unless there is reasonable certainty concerning the month 
in which the payment will be received and in what amount. If the exact 
amount of the income is not known, that portion of it which can be 
anticipated with reasonable certainty shall be considered as income. In 
cases where the receipt of income is reasonably certain but the monthly 
amount may fluctuate, the household may elect to income average. 
Households shall be advised to report all changes in gross monthly 
income as required by Sec.  273.12.
    (ii) Income received during the past 30 days shall be used as an 
indicator of the income that is and will be available to the household 
during the certification period. However, the State agency shall not use 
past income as an indicator of income anticipated for the certification 
period if changes in income have occurred or can be anticipated. If 
income fluctuates to the extent that a 30-day period alone cannot 
provide an accurate indication of anticipated income, the State agency 
and the household may use a longer period of past time if it will 
provide a more accurate indication of anticipated fluctuations in future 
income. Similarly, if the household's income fluctuates seasonally, it 
may be appropriate to use the most recent season comparable to the 
certification period, rather than the last 30 days, as one indicator of 
anticipated income. The State agency shall exercise particular caution 
in using income from a past season as an indicator of income for the 
certification period. In many cases of seasonally fluctuating income, 
the income also fluctuates from one season in one year to the same 
season in the next year. However, in no event shall the State agency 
automatically attribute to the household the amounts of any past income. 
The State agency shall not use past income as an indicator of 
anticipated income when changes in income have occurred or can be 
anticipated during the certification period.
    (2) Income only in month received. (i) Income anticipated during the 
certification period shall be counted as income only in the month it is 
expected to be received, unless the income is averaged. Whenever a full 
month's income is anticipated but is received on a weekly or biweekly 
basis, the State agency shall convert the income to a monthly amount by 
multiplying weekly amounts by 4.3 and biweekly amounts by 2.15, use the 
State Agency's PA conversion standard, or use the exact monthly figure 
if it can be anticipated for each month of the certification period. 
Nonrecurring lump-sum payments shall be counted as a resource starting 
in the month received and shall not be counted as income.
    (ii) Wages held at the request of the employee shall be considered 
income to the household in the month the wages would otherwise have been 
paid by the employer. However, wages held by the employer as a general 
practice, even if in violation of law, shall not be counted as income to 
the household, unless the household anticipates that it will ask for and 
receive an advance, or that it will receive income from wages that were 
previously held by the employer as a general practice and that were, 
therefore, not previously counted as income by the State agency. 
Advances on wages shall count as income in the month received only if 
reasonably anticipated as defined in paragraph (c)(1) of this section.
    (iii) Households receiving income on a recurring monthly or 
semimonthly basis shall not have their monthly income varied merely 
because of changes

[[Page 698]]

in mailing cycles or pay dates or because weekends or holidays cause 
additional payments to be received in a month.
    (3) Income averaging. (i) Income may be averaged in accordance with 
methods established by the State agency to be applied Statewide for 
categories of households. When averaging income, the State agency shall 
use the household's anticipation of monthly income fluctuations over the 
certification period. An average must be recalculated at recertification 
and in response to changes in income, in accordance with Sec.  
273.12(c), and the State agency shall inform the household of the amount 
of income used to calculate the allotment. Conversion of income received 
weekly or biweekly in accordance with paragraph (c)(2) of this section 
does not constitute averaging.
    (ii) Households which, by contract or self-employment, derive their 
annual income in a period of time shorter than 1 year shall have that 
income averaged over a 12-month period, provided the income from the 
contract is not received on an hourly or piecework basis. These 
households may include school employees, sharecroppers, farmers, and 
other self-employed households. However, these provisions do not apply 
to migrant or seasonal farmworkers. The procedures for averaging self-
employed income are described in Sec.  273.11. Contract income which is 
not the household's annual income and is not paid on an hourly or 
piecework basis shall be prorated over the period the income is intended 
to cover.
    (iii) Earned and unearned educational income, after allowable 
exclusions, shall be averaged over the period which it is intended to 
cover. Income shall be counted either in the month it is received, or in 
the month the household anticipates receiving it or receiving the first 
installment payment, although it is still prorated over the period it is 
intended to cover.
    (d) Determining deductions. Deductible deductions include only 
certain dependent care, shelter, child support and medical costs as 
described in Sec.  273.9.
    (1) Disallowed expenses. (i) Any expense, in whole or part, covered 
by educational income which has been excluded pursuant to the provisions 
of Sec.  273.9(c)(3) shall not be deductible. For example, the portion 
of rent covered by excluded vendor payments shall not be calculated as 
part of the household's shelter cost. In addition, an expense which is 
covered by an excluded vendor payment that has been converted to a 
direct cash payment under the approval of a federally authorized 
demonstration project as specified under Sec.  273.9(c)(1) shall not be 
deductible. However, that portion of an allowable medical expense which 
is not reimbursable shall be included as part of the household's medical 
expenses. If the household reports an allowable medical expense at the 
time of certification but cannot provide verification at that time, and 
if the amount of the expense cannot be reasonably anticipated based upon 
available information about the recipient's medical condition and public 
or private medical insurance coverage, the household shall have the 
nonreimbursable portion of the medical expense considered at the time 
the amount of the expense or reimbursement is reported and verified. A 
dependent care expense which is reimbursed or paid for by the Job 
Opportunities and Basic Skills Training (JOBS) program under title IV-F 
of the Social Security Act (42 U.S.C. 681) or the Transitional Child 
Care (TCC) program shall not be deductible. A utility expense which is 
reimbursed or paid by an excluded payment, including HUD or FmHA utility 
reimbursements, shall not be deductible.
    (ii) Expenses shall only be deductible if the service is provided by 
someone outside of the household and the household makes a money payment 
for the service. For example, a dependent care deduction shall not be 
allowed if another household member provides the care, or compensation 
for the care is provided in the form of an inkind benefit, such as food.
    (2) Billed expenses. Except as provided in paragraph (d)(3) of this 
section a deduction shall be allowed only in the month the expense is 
billed or otherwise becomes due, regardless of when the household 
intends to pay the expense. For example, rent which is due each month 
shall be included in the household's shelter costs, even if the 
household has not yet paid the expense.

[[Page 699]]

Amounts carried forward from past billing periods are not deductible, 
even if included with the most recent billing and actually paid by the 
household. In any event, a particular expense may only be deducted once.
    (3) Averaging expenses. Households may elect to have fluctuating 
expenses averaged. Households may also elect to have expenses which are 
billed less often than monthly averaged forward over the interval 
between scheduled billings, or, if there is no scheduled interval, 
averaged forward over the period the expense is intended to cover. For 
example, if a household receives a single bill in February which covers 
a 3-month supply of fuel oil, the bill may be averaged over February, 
March, and April. The household may elect to have one-time only expenses 
averaged over the entire certification period in which they are billed. 
Households reporting one-time only medical expenses during their 
certification period may elect to have a one-time deduction or to have 
the expense averaged over the remaining months of their certification 
period. Averaging would begin the month the change would become 
effective. For households certified for 24 months that have one-time 
medical expenses, the State agency must use the following procedure. In 
averaging any one-time medical expense incurred by a household during 
the first 12 months, the State agency must give the household the option 
of deducting the expense for one month, averaging the expense over the 
remainder of the first 12 months of the certification period, or 
averaging the expense over the remaining months in the certification 
period. One-time expenses reported after the 12th month of the 
certification period will be deducted in one month or averaged over the 
remaining months in the certification period, at the household's option.
    (4) Anticipating expenses. The State agency shall calculate a 
household's expenses based on the expenses the household expects to be 
billed for during the certification period. Anticipation of the expense 
shall be based on the most recent month's bills, unless the household is 
reasonably certain a change will occur. When the household is not 
claiming the utility standard, the State agency may anticipate changes 
during the certification period based on last year's bills from the same 
period updated by overall price increases; or, if only the most recent 
bill is available, utility cost increases or decreases over the months 
of the certification period may be based on utility company estimates 
for the type of dwelling and utilities used by the household. The State 
agency shall not average past expenses, such as utility bills for the 
last several months, as a method of anticipating utility costs for the 
certification period. At certification and recertification, the 
household shall report and verify all medical expenses. The household's 
monthly medical deduction for the certification period shall be based on 
the information reported and verified by the household, and any 
anticipated changes in the household's medical expenses that can be 
reasonably expected to occur during the certification period based on 
available information about the recipient's medical condition, public or 
private insurance coverage, and current verified medical expenses. The 
household shall not be required to file reports about its medical 
expenses during the certification period. If the household voluntarily 
reports a change in its medical expenses, the State agency shall verify 
the change in accordance with Sec.  273.2(f)(8)(ii) if the change would 
increase the household's allotment. The State agency has the option of 
either requiring verification prior to acting on the change, or 
requiring the verification prior to the second normal monthly allotment 
after the change is reported. In the case of a reported change that 
would decrease the household's allotment, or make the household 
ineligible, the State agency shall act on the change without requiring 
verification, though verification which is required by Sec.  273.2(f)(8) 
shall be obtained prior to the household's recertification. If a child 
in the household reaches his or her second birthday during the 
certification period, the $200 maximum dependent care deduction defined 
in Sec.  273.9(d)(4) shall be adjusted in accordance with this section 
not later than the household's next regularly scheduled recertification.

[[Page 700]]

    (5) Conversion of deductions. The income conversion procedures in 
paragraph (c)(2) of this section shall also apply to expenses billed on 
a weekly or biweekly basis.
    (6) Energy Assistance Payments. Except for payments made under the 
Low Income Energy Assistance Act of 1981, the State agency shall prorate 
energy assistance payments as provided for in Sec.  273.9(d) over the 
entire heating or cooling season the payment is intended to cover.
    (7) Households which contain a member who is a disabled SSI 
recipient in accordance with paragraphs (2), (3), (4) or (5) of the 
definition of a disabled member in Sec.  271.2 or households which 
contain a member who is a recipient of SSI benefits and the household is 
determined within the 30-day processing standard to be categorically 
eligible (as discussed in Sec.  273.2(j)) or determined to be eligible 
as an NPA household and later becomes a categorically eligible 
household, shall be entitled to the excess medical deduction of Sec.  
273.9(d)(3) and the uncapped excess shelter expense deduction of Sec.  
273.9(d)(5) for the period for which the SSI recipient is authorized to 
receive SSI benefits or the date of the food stamp application, 
whichever is later, if the household incurs such expenses. Households, 
which contain an SSI recipient as discussed in this paragraph, which are 
determined ineligible as an NPA household and later become categorically 
eligible and entitled to restored benefits in accordance with Sec.  
273.2(j)(1)(iv), shall receive restored benefits using the medical and 
excess shelter expense deductions from the beginning of the period for 
which SSI benefits are paid, the original food stamp application date or 
December 23, 1985, whichever is later, if the household incurs such 
expenses.
    (8) Child support deduction. State agencies may budget child support 
payments prospectively, in accordance with paragraphs (d)(2) through 
(d)(5) of this section, or retrospectively, in accordance with Sec.  
273.21(b) and Sec.  273.21(f)(2), regardless of the budgeting system 
used for the household's other circumstances.
    (e) Calculating net income and benefit levels--(1) Net monthly 
income. (i) To determine a household's net monthly income, the State 
agency shall:
    (A) Add the gross monthly income earned by all household members and 
the total monthly unearned income of all household members, minus income 
exclusions, to determine the household's total gross income. Net losses 
from the self-employment income of a farmer shall be offset in 
accordance with Sec.  273.11(a)(2)(iii).
    (B) Multiply the total gross monthly earned income by 20 percent and 
subtract that amount from the total gross income; or multiply the total 
gross monthly earned income by 80 percent and add that to the total 
monthly unearned income, minus income exclusions.
    (C) Subtract the standard deduction.
    (D) If the household is entitled to an excess medical deduction as 
provided in Sec.  273.9(d)(3), determine if total medical expenses 
exceed $35. If so, subtract that portion which exceeds $35.
    (E) Subtract allowable monthly dependent care expenses, if any, up 
to a maximum amount as specified under Sec.  273.9(d)(4) for each 
dependent.
    (F) Subtract allowable monthly child support payments in accordance 
with Sec.  273.9(d)(7).
    (G) Subtract the homeless shelter deduction, if any, up to the 
maximum of $143.
    (H) Total the allowable shelter expenses to determine shelter costs, 
unless a deduction has been subtracted in accordance with paragraph 
(e)(1)(i)(G) of this section. Subtract from total shelter costs 50 
percent of the household's monthly income after all the above deductions 
have been subtracted. The remaining amount, if any, is the excess 
shelter cost. If there is no excess shelter cost, the net monthly income 
has been determined. If there is excess shelter cost, compute the 
shelter deduction according to paragraph (e)(1)(i)(I) of this section.
    (I) Subtract the excess shelter cost up to the maximum amount 
allowed for the area (unless the household is entitled to the full 
amount of its excess shelter expenses) from the household's monthly 
income after all other applicable deductions. Households not subject to 
a capped shelter expense shall

[[Page 701]]

have the full amount exceeding 50 percent of their net income 
subtracted. The household's net monthly income has been determined.
    (ii) In calculating net monthly income, the State agency shall use 
one of the following two procedures:
    (A) Round down each income and allotment calculation that ends in 1 
through 49 cents and round up each calculation that ends in 50 through 
99 cents; or
    (B) Apply the rounding procedure that is currently in effect for the 
State's Temporary Assistance for Needy Families (TANF) program. If the 
State TANF program includes the cents in income calculations, the State 
agency may use the same procedures for food stamp income calculations. 
Whichever procedure is used, the State agency may elect to include the 
cents associated with each individual shelter cost in the computation of 
the shelter deduction and round the final shelter deduction amount. 
Likewise, the State agency may elect to include the cents associated 
with each individual medical cost in the computation of the medical 
deduction and round the final medical deduction amount.
    (2) Eligibility and benefits. (i)(A) Households which contain an 
elderly or disabled member as defined in Sec.  271.2, shall have their 
net income, as calculated in paragraph (e)(1) of this section (except 
for households considered destitute in accordance with paragraph (e)(3) 
of this section), compared to the monthly income eligibility standards 
defined in Sec.  273.9(a)(2) for the appropriate household size to 
determine eligibility for the month.
    (B) In addition to meeting the net income eligibility standards, 
households which do not contain an elderly or disabled member shall have 
their gross income, as calculated in accordance with paragraph 
(e)(1)(i)(A) of this section, compared to the gross monthly income 
standards defined in Sec.  273.9(a)(1) for the appropriate household 
size to determine eligibility for the month.
    (C) For households considered destitute in accordance with paragraph 
(e)(3) of this section, the State agency shall determine a household's 
eligibility by computing its gross and net income according to paragraph 
(e)(3) of this section, and comparing, as appropriate, the gross and/or 
net income to the corresponding income eligibility standard in 
accordance with Sec.  273.9(a) (1) or (2).
    (D) If a household contains a member who is fifty-nine years old on 
the date of application, but who will become sixty before the end of the 
month of application, the State agency shall determine the household's 
eligibility in accordance with paragraph (e)(2)(i)(A) of this section.
    (E) If a household contains a student whose income is excluded in 
accordance with Sec.  273.9(c)(7) and the student becomes 18 during the 
month of application, the State agency shall exclude the student's 
earnings in the month of application and count the student's earnings in 
the following month. If the student becomes 18 during the certification 
period, the student's income shall be excluded until the month following 
the month in which the student turns 18.
    (ii)(A) Except as provided in paragraphs (a)(1), (e)(2)(iii) and 
(e)(2)(vi) of this section, the household's monthly allotment shall be 
equal to the maximum food stamp allotment for the household's size 
reduced by 30 percent of the household's net monthly income as 
calculated in paragraph (e)(1) of this section. If 30 percent of the 
household's net income ends in cents, the State agency shall round in 
one of the following ways:
    (1) The State agency shall round the 30 percent of net income up to 
the nearest higher dollar; or
    (2) The State agency shall not round the 30 percent of net income at 
all. Instead, after subtracting the 30 percent of net income from the 
appropriate Thrifty Food Plan, the State agency shall round the 
allotment down to the nearest lower dollar.
    (B) If the calculation of benefits in accordance with paragraph 
(e)(2)(ii)(A) of this section for an initial month would yield an 
allotment of less than $10 for the household, no benefits shall be 
issued to the household for the initial month.
    (C) Except during an initial month, all eligible one- and two-person 
households shall receive minimum monthly

[[Page 702]]

allotments equal to the minimum benefit and all eligible households with 
three or more members which are entitled to $1, $3, and $5 allotments 
shall receive allotments, of $2, $4, and $6, respectively, to correspond 
with current coupon book determinations.
    (iii) For an eligible household with three or more members which is 
entitled to no benefits (except because of the proration requirements of 
paragraph (a)(1) and the provision precluding issuances of less than $10 
in an initial month of paragraph (e)(2)(ii)(B)) of this section:
    (A) The State agency shall deny the household's application on the 
grounds that its net income exceeds the level at which benefits are 
issued; or
    (B) The State agency shall certify the household but suspend its 
participation, subject to the following conditions:
    (1) The State agency shall inform the suspended household, in 
writing, of its suspended status, and of its rights and responsibilities 
while it is in that status.
    (2) The State agency shall set the household's change reporting 
requirements and the manner in which those changes will be reported and 
processed.
    (3) The State agency shall specify which changes shall entitle the 
household to have its status converted from suspension to issuance, and 
which changes shall require the household to reapply for participation.
    (4) The household shall retain the right to submit a new application 
while it is suspended.
    (5) The State agency shall convert a household from suspension to 
issuance status, without requiring an additional certification 
interview, and issue its initial allotment, within ten days of the date 
the household reports the change.
    (6) The State agency shall prorate the household's benefits, in the 
first month after the suspension period, from the date the household 
reports a change, in accordance with paragraph (a)(1) of this section.
    (7) The State agency may delay the work registration of the 
household's members until the household is determined to be entitled to 
benefits.
    (iv) For those eligible households which are entitled to no benefits 
in their initial month of application, in accordance with paragraph 
(a)(1) or (e)(2)(ii)(B) of this section, but are entitled to benefits in 
subsequent months, the State agency shall certify the households 
beginning with the month of application.
    (v) When a household's circumstances change and it becomes entitled 
to a different income eligibility standard, the State agency shall apply 
the different standard at the next recertification or whenever the State 
agency changes the household's eligibility, benefit level or 
certification period, whichever occurs first.
    (vi) During a month when a reduction, suspension or cancellation of 
allotments has been ordered pursuant to the provisions of Sec.  271.7, 
eligible housholds shall have their benefits calculated as follows:
    (A) If a benefit reduction is ordered, State agencies shall reduce 
the maximum food stamp allotment amounts for each household size by the 
percentage ordered in the Department's notice on benefit reductions. 
State agencies shall multiply the maximum food stamp allotment amounts 
by the percentage specified in the FNS notice; if the result ends in 1 
through 99 cents, round the result up to the nearest higher dollar; and 
subtract the result from the normal maximum food stamp allotment amount. 
In calculating benefit levels for eligible households, State agencies 
would follow the procedures detailed in paragraph (e)(2)(ii) of this 
section and substitute the reduced maximum food stamp allotment amounts 
for the normal maximum food stamp allotment amounts.
    (B) Except as provided in paragraphs (a)(1), (e)(2)(ii)(B), and 
(e)(2)(vi)(C) of this section, one- and two-person households shall be 
provided with at least the minimum benefit.
    (C) In the event that the national reduction in benefits is 90 
percent or more of the benefits projected to be issued for the affected 
month, the provision for a minimum benefit for households with one or 
two members only may be disregarded and all households may have their 
benefits lowered

[[Page 703]]

by reducing maximum food stamp allotment amounts by the percentage 
specified by the Department. The benefit reduction notice issued by the 
Department to effectuate a benefit reduction will specify whether 
minimum benefits for households with one or two members only are to be 
provided to households.
    (D) If the action in effect is a suspension or cancellation, 
eligible households shall have their allotment levels calculated 
according to the procedures in paragraph (e)(2)(ii) of this section. 
However, the allotments shall not be issued for the month the suspension 
or cancellation is in effect. The provision for the minimum benefit for 
households with one or two members only shall be disregarded and all 
households shall have their benefits suspended or cancelled for the 
designated month.
    (E) In the event of a suspension or cancellation, or a reduction 
exceeding 90 percent of the affected month's projected issuance, all 
households, including one and two-person households, shall have their 
benefits suspended, cancelled or reduced by the percentage specified by 
FNS.
    (3) Destitute households. Migrant or seasonal farmworker households 
may have little or no income at the time of application and may be in 
need of immediate food assistance, even though they receive income at 
some other time during the month of application. The following 
procedures shall be used to determine when migrant or seasonal 
farmworker households in these circumstances may be considered destitute 
and, therefore, entitled to expedited service and special income 
calculation procedures. Households other than migrant or seasonal 
farmworker households shall not be classified as destitute.
    (i) Households whose only income for the month of application was 
received prior to the date of application, and was from a terminated 
source, shall be considered destitute households and shall be provided 
expedited service.
    (A) If income is received on a monthly or more frequent basis, it 
shall be considered as coming from a terminated source if it will not be 
received again from the same source during the balance of the month of 
application or during the following month.
    (B) If income is normally received less often than monthly, the 
nonreceipt of income from the same source in the balance of the month of 
application or in the following month is inappropriate to determine 
whether or not the income is terminated. For example, if income is 
received on a quarterly basis (e.g., on January 1, April 1, July 1, and 
October 1), and the household applies in mid-January, the income should 
not be considered as coming from a terminated source merely because no 
further payments will be received in the balance of January or in 
February. The test for whether or not this household's income is 
terminated is whether the income is anticipated to be received in April. 
Therefore, for households that normally receive income less often than 
monthly, the income shall be considered as coming from a terminated 
source if it will not be received in the month in which the next payment 
would normally be received.
    (ii) Households whose only income for the month of application is 
from a new source shall be considered destitute and shall be provided 
expedited service if income of more than $25 from the new source will 
not be received by the 10th calendar day after the date of application.
    (A) Income which is normally received on a monthly or more frequent 
basis shall be considered to be from a new source if income of more than 
$25 has not been received from that source within 30 days prior to the 
date the application was filed.
    (B) If income is normally received less often than monthly, it shall 
be considered to be from a new source if income of more than $25 was not 
received within the last normal interval between payments. For example, 
if a household applies in early January and is expecting to be paid 
every 3 months, starting in late January, the income shall be considered 
to be from a new source if no income of more than $25 was received from 
the source during October or since that time.
    (iii) Households may receive both income from a terminated source 
prior to the date of application, and income

[[Page 704]]

from a new source after the date of application, and still be considered 
destitute if they receive no other income in the month of application 
and income of more than $25 from the new source will not be received by 
the 10th day after the date of application.
    (iv) Destitute households shall have their eligibility and level of 
benefits calculated for the month of application by considering only 
income which is received between the first of the month and the date of 
application. Any income from a new source that is anticipated after the 
day of application shall be disregarded.
    (v) Some employers provide travel advances to cover the travel costs 
of new employees who must journey to the location of their new 
employment. To the extent that these payments are excluded as 
reimbursements, receipt of travel advances will not affect the 
determination of when a household is destitute. However, if the travel 
advance is by written contract an advance of wages that will be 
subtracted from wages later earned by the employee, rather than a 
reimbursement, the wage advance shall count as income. In addition, the 
receipt of a wage advance for travel costs of a new employee shall not 
affect the determination of whether subsequent payments from the 
employer are from a new source of income, nor whether a household shall 
be considered destitute. For example, if a household applies on May 10, 
has received a $50 advance for travel from its new employer on May 1 
which by written contract is an advance on wages, but will not receive 
any other wages from the employer until May 30, the household shall be 
considered destitute. The May 30 payment shall be disregarded, but the 
wage advance received prior to the date of application shall be counted 
as income.
    (vi) A household member who changes jobs but continues to work for 
the same employer shall be considered as still receiving income from the 
same source. A migrant farmworker's source of income shall be considered 
to be the grower for whom the migrant is working at a particular point 
in time, and not the crew chief. A migrant who travels with the same 
crew chief but moves from one grower to another shall be considered to 
have moved from a terminated income source to a new source.
    (vii) The above procedures shall apply at initial application and at 
recertification, but only for the first month of each certification 
period. At recertification, income from a new source shall be 
disregarded in the first month of the new certification period if income 
of more than $25 will not be received from this new source by the 10th 
calendar day after the date of the household's normal issuance cycle.
    (4) Thrifty Food Plan (TFP) and Maximum Food Stamp Allotments.
    (i) Maximum food stamp allotment level. Maximum food stamp 
allotments shall be based on the TFP as defined in Sec.  271.2, and they 
shall be uniform by household size throughout the 48 contiguous States 
and the District of Columbia. The TFP for Hawaii shall be the TFP for 
the 48 States and DC adjusted for the price of food in Honolulu. The 
TFPs for urban, rural I, and rural II parts of Alaska shall be the TFP 
for the 48 States and DC adjusted by the price of food in Anchorage and 
further adjusted for urban, rural I, and rural II Alaska as defined in 
Sec.  272.7(c). The TFPs for Guam and the Virgin Islands shall be 
adjusted for changes in the cost of food in the 48 States and DC, 
provided that the cost of these TFPs may not exceed the cost of the 
highest TFP for the 50 States. The TFP amounts and maximum allotments in 
each area are adjusted annually and will be prescribed in a table posted 
on the FNS web site, at www.fns.usda.gov/fsp.
    (ii) Adjustment. Effective October 1, 1996, the maximum food stamp 
allotments must be based on 100% of the cost of the TFP as defined in 
Sec.  271.2 of this chapter for the preceding June, rounded to the 
nearest lower dollar increment, except that on October 1, 1996, the 
allotments may not fall below those in effect on September 30, 1996.
    (f) Certification periods. The State agency must certify each 
eligible household for a definite period of time. State agencies must 
assign the longest certification period possible based on the 
predictability of the household's circumstances. The first month of the 
certification period will be the first

[[Page 705]]

month for which the household is eligible to participate. The 
certification period cannot exceed 12 months, except as specified in 
paragraphs (f)(1) and (f)(2) of this section:
    (1) Households in which all adult members are elderly or disabled. 
The State agency may certify for up to 24 months households in which all 
adult members are elderly or disabled. The State agency must have at 
least one contact with each household every 12 months. The State agency 
may use any method it chooses for this contact.
    (2) Households residing on a reservation. The State agency must 
certify for 24 months those households residing on a reservation which 
it requires to submit monthly reports in accordance with Sec.  273.21, 
unless the State agency obtains a waiver from FNS. In the waiver request 
the State agency must include justification for a shorter period and 
input from the affected Indian tribal organization(s). When households 
move off the reservation, the State agency must either continue their 
certification periods until they would normally expire or shorten the 
certification periods in accordance with paragraph (f)(4) of this 
section.
    (3) Certification period length. The State agency should assign each 
household the longest certification period possible, consistent with its 
circumstances.
    (i) Households should be assigned certification periods of at least 
6 months, unless the household's circumstances are unstable or the 
household contains an ABAWD.
    (ii) Households with unstable circumstances, such as households with 
zero net income, and households with an ABAWD member should be assigned 
certification periods consistent with their circumstances, but generally 
no less than 3 months.
    (iii) Households may be assigned 1- or 2-month certification periods 
when it appears likely that the household will become ineligible for 
food stamps in the near future.
    (4) Shortening certification periods. The State agency may not end a 
household's certification period earlier than its assigned termination 
date, unless the State agency receives information that the household 
has become ineligible, or the household has not complied with the 
requirements of Sec.  273.12(c)(3). Loss of public assistance or a 
change in employment status is not sufficient in and of itself to meet 
the criteria necessary for shortening the certification period. The 
State agency must close the household's case or adjust the household's 
benefit amount in accordance with Sec.  273.12(c)(1) or (c)(2) in 
response to reported changes. The State agency may not use the Notice of 
Expiration to shorten a certification period.
    (5) Lengthening certification periods. State agencies may lengthen a 
household's current certification period once it is established, as long 
as the total months of the certification period do not exceed 24 months 
for households in which all adult members are elderly or disabled, or 12 
months for other households. If the State agency extends a household's 
certification period, it must advise the household of the new 
certification ending date with a notice containing the same information 
as the notice of eligibility set forth in paragraph (g)(1)(i)(A) of this 
section.
    (g) Certification notices to households. (1) Initial applications. 
State agencies shall provide applicants with one of the following 
written notices as soon as a determination is made, but no later than 30 
days after the date of the initial application:
    (i) Notice of eligibility. (A) If an application is approved, the 
State agency shall provide the household with written notice of the 
amount of the allotment and the beginning and ending dates of the 
certification period. The household shall also be advised of variations 
in the benefit level based on changes anticipated at the time of 
certification. If the initial allotment contains benefits for both the 
month of application and the current month's benefits, the notice shall 
explain that the initial allotment includes more than 1 month's 
benefits, and shall indicate the monthly allotment amount for the 
remainder of the certification period. The notice shall also advise the 
household of its right to a fair hearing, the telephone number of the 
food stamp office (a toll-free number or a number where collect calls 
will be accepted for households outside the local calling

[[Page 706]]

area), and, if possible, the name of the person to contact for 
additional information. If there is an individual or organization 
available that provides free legal representation, the notice shall also 
advise the household of the availability of the services. The State 
agency may also include in the notice a reminder of the household's 
obligation to report changes in circumstance and of the need to reapply 
for continued participation at the end of the certification period. 
Other information which would be useful to the household may also be 
included.
    (B) In cases where a household's application is approved on an 
expedited basis without verification, as provided in Sec.  273.2(i), the 
notice shall explain that the household must provide the verification 
which was waived. If the State agency has elected to assign a longer 
certification period to some households certified on an expedited basis, 
the notice shall also explain the special conditions of the longer 
certification period, as specified in Sec.  273.2(i), and the 
consequences of failure to provide the postponed verification.
    (C) For households provided a notice of expiration at the time of 
certification, as required in Sec.  273.14(b), the notice of eligibility 
may be combined with the notice of expiration or separate notices may be 
sent.
    (ii) Notice of denial. If the application is denied, the State 
agency shall provide the household with written notice explaining the 
basis for the denial, the household's right to request a fair hearing, 
the telephone number of the food stamp office (a toll-free number or a 
number where collect calls will be accepted for households outside the 
local calling area), and, if possible, the name of the person to contact 
for additional information. If there is an individual or organization 
available that provides free legal representation, the notice shall also 
advise the household of the availability of the service. A household 
which is potentially categorically eligible but whose food stamp 
application is denied shall be asked to inform the State agency if it is 
approved to receive PA and/or SSI benefits or benefits from a State or 
local GA program. In cases where the State agency has elected to use a 
notice of denial when a delay was caused by the household's failure to 
take action to complete the application process, as provided in Sec.  
273.2(h)(2), the notice of denial shall also explain: The action that 
the household must take to reactivate the application; that the case 
will be reopened without a new application if action is taken within 30 
days of the date the notice of denial was mailed; and that the household 
must submit a new application if, at the end of the 30-day period, the 
household has not taken the needed action and wishes to participate in 
the program. If the State agency chooses the option specified in Sec.  
273.2(h)(2) of reopening the application in cases where verification is 
lacking only if household provides verification within 30 days of the 
date of the initial request for verification, the State agency shall 
include on the notice of denial the date by which the household must 
provide the missing verification.
    (iii) Notice of pending status. If the application is to be held 
pending because some action by the State is necessary to complete the 
application process, as specified in Sec.  273.2(h)(2), or the State 
agency has elected to pend all cases regardless of the reason for delay, 
the State agency shall provide the household with a written notice which 
informs the household that its application has not been completed and is 
being processed. If some action by the household is also needed to 
complete the application process, the notice shall also explain what 
action the household must take and that its application will be denied 
if the household fails to take the required action within 60 days of the 
date the application was filed. If the State agency chooses the option 
specified in Sec.  273.2(h) (2) and (3) of holding the application 
pending in cases where verification is lacking only until 30 days 
following the date verification was initially requested, the State 
agency shall include on the notice of pending status the date by which 
the household must provide the missing verification.
    (2) Applications for recertification. The State agency shall provide 
households that have filed an application by the 15th of the last month 
of their certification period with either a notice of eligibility or a 
notice of denial by the

[[Page 707]]

end of the current certification period if the household has complied 
with all recertification requirements. The State agency shall provide 
households that have received a notice of expiration at the time of 
certification, and have timely reapplied, with either a notice of 
eligibility or a notice of denial not later than 30 days after the date 
of the household's initial opportunity to obtain its last allotment.

[Amdt. 132, 43 FR 47889, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
273.10, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  273.11  Action on households with special circumstances.

    (a) Self-employment income. The State agency must calculate a 
household's self-employment income as follows:
    (1) Averaging self-employment income. (i) Self-employment income 
must be averaged over the period the income is intended to cover, even 
if the household receives income from other sources. If the averaged 
amount does not accurately reflect the household's actual circumstances 
because the household has experienced a substantial increase or decrease 
in business, the State agency must calculate the self-employment income 
on the basis of anticipated, not prior, earnings.
    (ii) If a household's self-employment enterprise has been in 
existence for less than a year, the income from that self-employment 
enterprise must be averaged over the period of time the business has 
been in operation and the monthly amount projected for the coming year.
    (iii) Notwithstanding the provisions of paragraphs (a)(1)(i) and 
(a)(1)(ii) of this section, households subject to monthly reporting and 
retrospective budgeting who derive their self-employment income from a 
farming operation and who incur irregular expenses to produce such 
income have the option to annualize the allowable costs of producing 
self-employment income from farming when the self-employment farm income 
is annualized.
    (2) Determining monthly income from self-employment. (i) For the 
period of time over which self-employment income is determined, the 
State agency must add all gross self-employment income (either actual or 
anticipated, as provided in paragraph (a)(1)(i) of this section) and 
capital gains (according to paragraph (a)(3) of this section), exclude 
the costs of producing the self-employment income (as determined in 
paragraph (a)(4) of this section), and divide the remaining amount of 
self-employment income by the number of months over which the income 
will be averaged. This amount is the monthly net self-employment income. 
The monthly net self-employment income must be added to any other earned 
income received by the household to determine total monthly earned 
income.
    (ii) If the cost of producing self-employment income exceeds the 
income derived from self-employment as a farmer (defined for the 
purposes of this paragraph (a)(2)(ii) as a self-employed farmer who 
receives or anticipates receiving annual gross proceeds of $1,000 or 
more from the farming enterprise), such losses must be prorated in 
accordance with paragraph (a)(1) of this section, and then offset 
against countable income to the household as follows:
    (A) Offset farm self-employment losses first against other self-
employment income.
    (B) Offset any remaining farm self-employment losses against the 
total amount of earned and unearned income after the earned income 
deduction has been applied.
    (iii) If a State agency determines that a household is eligible 
based on its monthly net income, the State may elect to offer the 
household an option to determine the benefit level by using either the 
same net income which was used to determine eligibility, or by unevenly 
prorating the household's total net income over the period for which the 
household's self-employment income was averaged to more closely 
approximate the time when the income is actually received. If income is 
prorated, the net income assigned in any month cannot exceed the maximum 
monthly income eligibility standards for the household's size.
    (3) Capital gains. The proceeds from the sale of capital goods or 
equipment must be calculated in the same manner as a capital gain for 
Federal income

[[Page 708]]

tax purposes. Even if only 50 percent of the proceeds from the sale of 
capital goods or equipment is taxed for Federal income tax purposes, the 
State agency must count the full amount of the capital gain as income 
for food stamp purposes. For households whose self-employment income is 
calculated on an anticipated (rather than averaged) basis in accordance 
with paragraph (a)(1) of this section, the State agency must count the 
amount of capital gains the household anticipates receiving during the 
months over which the income is being averaged.
    (b) Allowable costs of producing self-employment income. (1) 
Allowable costs of producing self-employment income include, but are not 
limited to, the identifiable costs of labor; stock; raw material; seed 
and fertilizer; payments on the principal of the purchase price of 
income-producing real estate and capital assets, equipment, machinery, 
and other durable goods; interest paid to purchase income-producing 
property; insurance premiums; and taxes paid on income-producing 
property.
    (2) In determining net self-employment income, the following items 
are not allowable costs of doing business:
    (i) Net losses from previous periods;
    (ii) Federal, State, and local income taxes, money set aside for 
retirement purposes, and other work-related personal expenses (such as 
transportation to and from work), as these expenses are accounted for by 
the 20 percent earned income deduction specified in Sec.  273.9(d)(2);
    (iii) Depreciation; and
    (iv) Any amount that exceeds the payment a household receives from a 
boarder for lodging and meals.
    (3) When calculating the costs of producing self-employment income, 
State agencies may elect to use actual costs for allowable expenses in 
accordance with paragraphs (b)(1) and (b)(2) of this section or 
determine self-employment expenses as follows:
    (i) For income from day care, use the current reimbursement amounts 
used in the Child and Adult Care Food Program or a standard amount based 
on estimated per-meal costs.
    (ii) For income from boarders, other than those in commercial 
boarding houses or from foster care boarders, use:
    (A) The maximum food stamp allotment for a household size that is 
equal to the number of boarders; or
    (B) A flat amount or fixed percentage of the gross income, provided 
that the method used to determine the flat amount or fixed percentage is 
objective and justifiable and is stated in the State's food stamp 
manual.
    (iii) For income from foster care boarders, refer to Sec.  
273.1(c)(6).
    (iv) Use the standard amount the State uses for its TANF program.
    (v) Use an amount approved by FNS. State agencies may submit a 
proposal to FNS for approval to use a simplified self-employment expense 
calculation method that does not result in increased Program costs. 
Different methods may be proposed for different types of self-
employment. The proposal must include a description of the proposed 
method, the number and type of households and percent of the caseload 
affected, and documentation indicating that the proposed procedure will 
not increase Program costs.
    (c) Treatment of income and resources of certain nonhousehold 
members. During the period of time that a household member cannot 
participate for the reasons addressed in this section, the eligibility 
and benefit level of any remaining household members shall be determined 
in accordance with the procedures outlined in this section.
    (1) Intentional Program violation, felony drug conviction, or 
fleeing felon disqualifications, and workfare or work requirement 
sanctions. The eligibility and benefit level of any remaining household 
members of a household containing individuals determined ineligible 
because of a disqualification for an intentional Program violation, a 
felony drug conviction, their fleeing felon status, noncompliance with a 
work requirement of Sec.  273.7, or imposition of a sanction while they 
were participating in a household disqualified because of failure to 
comply with workfare requirements shall be determined as follows:
    (i) Income, resources, and deductible expenses. The income and 
resources of the ineligible household member(s) shall continue to count 
in their entirety,

[[Page 709]]

and the entire household's allowable earned income, standard, medical, 
dependent care, child support, and excess shelter deductions shall 
continue to apply to the remaining household members.
    (ii) Eligibility and benefit level. The ineligible member shall not 
be included when determining the household's size for the purposes of:
    (A) Assigning a benefit level to the household;
    (B) Comparing the household's monthly income with the income 
eligibility standards; or
    (C) Comparing the household's resources with the resource 
eligibility limits. The State agency shall ensure that no household's 
coupon allotment is increased as a result of the exclusion of one or 
more household members.
    (2) SSN disqualifications, comparable disqualifications, child 
support disqualifications, and ineligible ABAWDs. The eligibility and 
benefit level of any remaining household members of a household 
containing individuals determined to be ineligible for refusal to obtain 
or provide an SSN, for meeting the time limit for able-bodied adults 
without dependents or for being disqualified under paragraphs (k), (o), 
(p), or (q) of this section shall be determined as follows:
    (i) Resources. The resources of such ineligible members shall 
continue to count in their entirety to the remaining household members.
    (ii) Income. A pro rata share of the income of such ineligible 
members shall be counted as income to the remaining members. This pro 
rata share is calculated by first subtracting the allowable exclusions 
from the ineligible member's income and dividing the income evenly among 
the household members, including the ineligible members. All but the 
ineligible members' share is counted as income for the remaining 
household members.
    (iii) Deductible expenses. The 20 percent earned income deduction 
shall apply to the prorated income earned by such ineligible members 
which is attributed to their households. That portion of the households' 
allowable child support payment, shelter and dependent care expenses 
which are either paid by or billed to the ineligible members shall be 
divided evenly among the households' members including the ineligible 
members. All but the ineligible members' share is counted as a 
deductible child support payment, shelter or dependent care expense for 
the remaining household members.
    (iv) Eligibility and benefit level. Such ineligible members shall 
not be included when determining their households' sizes for the 
purposes of:
    (A) Assigning a benefit level to the household;
    (B) Comparing the household's monthly income with the income 
eligibility standards; or
    (C) Comparing the household's resources with the resource 
eligibility limits.
    (3) Ineligible alien. The State agency must determine the 
eligibility and benefit level of any remaining household members of a 
household containing an ineligible alien as follows:
    (i) The State agency must count all or, at the discretion of the 
State agency, all but a pro rata share, of the ineligible alien's income 
and deductible expenses and all of the ineligible alien's resources in 
accordance with paragraphs (c)(1) or (c)(2) of this section. In 
exercising its discretion under this paragraph (c)(3)(i), the State 
agency may count all of the alien's income for purposes of applying the 
gross income test for eligibility purposes while only counting all but a 
pro rata share to apply the net income test and determine level of 
benefits. This paragraph (c)(3)(i) does not apply to an alien:
    (A) Who is lawfully admitted for permanent residence under the INA;
    (B) Who is granted asylum under section 208 of the INA;
    (C) Who is admitted as a refugee under section 207 of the INA;
    (D) Who is paroled in accordance with section 212(d)(5) of the INA;
    (E) Whose deportation or removal has been withheld in accordance 
with section 243 of the INA;
    (F) Who is aged, blind, or disabled in accordance with section 
1614(a)(1) of the Social Security Act and is admitted for temporary or 
permanent residence under section 245A(b)(1) of the INA; or

[[Page 710]]

    (G) Who is a special agricultural worker admitted for temporary 
residence under section 210(a) of the INA.
    (ii) For an ineligible alien within a category described in 
paragraphs (c)(3)(i)(A) through (c)(3)(i)(G) of this section, State 
agencies may either:
    (A) Count all of the ineligible alien's resources and all but a pro 
rata share of the ineligible alien's income and deductible expenses; or
    (B) Count all of the ineligible alien's resources, count none of the 
ineligible alien's income and deductible expenses, count any money 
payment (including payments in currency, by check, or electronic 
transfer) made by the ineligible alien to at least one eligible 
household member, not deduct as a household expense any otherwise 
deductible expenses paid by the ineligible alien, but cap the resulting 
benefit amount for the eligible members at the allotment amount the 
household would receive if the household member within the one of the 
categories described in paragraphs (c)(3)(i)(A) through (c)(3)(i)(G) of 
this section were still an eligible alien. The State agency must elect 
one State-wide option for determining the eligibility and benefit level 
of households with members who are aliens within the categories 
described paragraphs (c)(3)(i)(A) through (c)(3)(i)(G) of this section.
    (iii) For an alien who is ineligible under Sec.  273.4(a) because 
the alien's household indicates inability or unwillingness to provide 
documentation of the alien's immigration status, the State agency must 
count all or, at the discretion of the State agency, all but a pro rata 
share of the ineligible alien's income and deductible expenses and all 
of the ineligible alien's resources in accordance with paragraphs (c)(1) 
or (c)(2) of this section. In exercising its discretion under this 
paragraph (c)(3)(iii), the State agency may count all of the alien's 
income for purposes of applying the gross income test for eligibility 
purposes while only counting all but a pro rata to apply the net income 
test and determine level of benefits.
    (iv) The State agency must compute the income of the ineligible 
aliens using the income definition in Sec.  273.9(b) and the income 
exclusions in Sec.  273.9(c).
    (v) For purposes of this paragraph (c)(3), the State agency must not 
include the resources and income of the sponsor and the sponsor's spouse 
in determining the resources and income of an ineligible sponsored 
alien.
    (4) Reduction or termination of benefits within the certification 
period. Whenever an individual is determined ineligible within the 
household's certification period, the State agency shall determine the 
eligibility or ineligibility of the remaining household members based, 
as much as possible, on information in the case file.
    (i) Excluded for intentional Program violation disqualification. If 
a household's benefits are reduced or terminated within the 
certification period because one of its members was excluded because of 
disqualification for intentional Program violation, the State agency 
shall notify the remaining members of their eligibility and benefit 
level at the same time the excluded member is notified of his or her 
disqualification. The household is not entitled to a notice of adverse 
action but may request a fair hearing to contest the reduction or 
termination of benefits, unless the household has already had a fair 
hearing on the amount of the claim as a result of consolidation of the 
administrative disqualification hearing with the fair hearing.
    (ii) Disqualified or determined ineligible for reasons other than 
intentional Program violation. If a household's benefits are reduced or 
terminated within the certification period for reasons other than an 
Intentional Program Violation disqualification, the State agency shall 
issue a notice of adverse action in accordance with Sec.  273.13(a)(2) 
which informs the household of the ineligibility, the reason for the 
ineligibility, the eligibility and benefit level of the remaining 
members, and the action the household must take to end the 
ineligibility.
    (d) Treatment of income and resources of other nonhousehold members. 
(1) For all other nonhousehold members defined in Sec.  273.1 (b)(1) and 
(b)(2) who are not specifically mentioned in paragraph (c) of this 
section, the income and resources of such individuals shall not be 
considered available to the household with whom the individual

[[Page 711]]

resides. Cash payments from the nonhousehold member to the household 
will be considered income under the normal income standards set in Sec.  
273.9(b). Vendor payments, as defined in Sec.  273.9(c)(1), shall be 
excluded as income. If the household shares deductible expenses with the 
nonhousehold member, only the amount actually paid or contributed by the 
household shall be deducted as a household expense. If the payments or 
contributions cannot be differentiated, the expenses shall be prorated 
evenly among persons actually paying or contributing to the expense and 
only the household's pro rata share deducted.
    (2) When the earned income of one or more household members and the 
earned income of a nonhousehold member are combined into one wage, the 
income of the household members shall be determined as follows:
    (i) If the household's share can be identified, the State agency 
shall count that portion due to the household as earned income.
    (ii) If the household's share cannot be identified the State agency 
shall prorate the earned income among all those whom it was intended to 
cover and count that prorated portion to the household.
    (3) Such nonhousehold members shall not be included when determining 
the size of the household for the purposes of:
    (i) Assigning a benefit level to the household;
    (ii) Comparing the household's monthly income with the income 
eligibility standards; or
    (iii) Comparing the household's resources with the resource 
eligibility limits.
    (e) Residents of drug and alcohol treatment and rehabilitation 
programs. (1) Narcotic addicts or alcoholics who regularly participate 
in publicly operated or private non-profit drug addict or alcoholic 
(DAA) treatment and rehabilitation programs on a resident basis may 
voluntarily apply for the Food Stamp Program. Applications must be made 
through an authorized representative who is employed by the DAA center 
and designated by the center for that purpose. The State agency may 
require the household to designate the DAA center as its authorized 
representative for the purpose of receiving and using an allotment on 
behalf of the household. Residents must be certified as one-person 
households unless their children are living with them, in which case 
their children must be included in the household with the parent.
    (2)(i) Prior to certifying any residents for food stamps, the State 
agency must verify that the DAA center is authorized by FNS as a 
retailer in accordance with Sec.  278.1(e) of this chapter or that it 
comes under part B of title XIX of the Public Health Service Act, 42 
U.S.C. 300x et seq., (as defined in ``Drug addiction or alcoholic 
treatment and rehabilitation program'' in Sec.  271.2 of this chapter).
    (ii) Except as otherwise provided in this paragraph (e)(2), the 
State agency must certify residents of DAA centers by using the same 
provisions that apply to all other households, including, but not 
limited to, the same rights to notices of adverse action and fair 
hearings.
    (iii) DAA centers in areas without EBT systems may redeem the 
households' paper coupons through authorized food stores. DAA centers in 
areas with EBT systems may redeem benefits in various ways depending on 
the State's EBT system design. The designs may include DAA use of 
individual household EBT cards at authorized stores, authorization of 
DAA centers as retailers with EBT access via POS at the center, DAA use 
of a center EBT card that is an aggregate of individual household 
benefits, and other designs. Guidelines for approval of EBT systems are 
contained in Sec.  274.12 of this chapter.
    (iv) The treatment center must notify the State agency of changes in 
the household's circumstances as provided in Sec.  273.12(a).
    (3) The DAA center must provide the State agency a list of currently 
participating residents that includes a statement signed by a 
responsible center official attesting to the validity of the list. The 
State agency must require submission of the list on either a monthly or 
semimonthly basis. In addition, the State agency must conduct periodic 
random on-site visits to the center to assure the accuracy of the

[[Page 712]]

list and that the State agency's records are consistent and up to date.
    (4) The State agency may issue allotments on a semimonthly basis to 
households in DAA centers.
    (5) When a household leaves the center, the center must notify the 
State agency and the center must provide the household with its ID card. 
If possible, the center must provide the household with a change report 
form to report to the State agency the household's new address and other 
circumstances after leaving the center and must advise the household to 
return the form to the appropriate office of the State agency within 10 
days. After the household leaves the center, the center can no longer 
act as the household's authorized representative for certification 
purposes or for obtaining or using benefits.
    (i) The center must provide the household with its EBT card if it 
was in the possession of the center, any untransacted ATP, or the 
household's full allotment if already issued and if no coupons have been 
spent on behalf of that individual household. If the household has 
already left the center, the center must return them to the State 
agency. These procedures are applicable at any time during the month.
    (ii) If the coupons have already been issued and any portion spent 
on behalf of the household, the following procedures must be followed.
    (A) If the household leaves prior to the 16th of the month and 
benefits are not issued under an EBT system, the center must provide the 
household with one-half of its monthly coupon allotment unless the State 
agency issues semi-monthly allotments and the second half has not been 
turned over to the center. If benefits are issued under an EBT system, 
the State must ensure that the EBT design or procedures for DAAs 
prohibit the DAA from obtaining more than one-half of the household's 
allotment prior to the 16th of the month or permit the return of one-
half of the allotment to the household's EBT account through a refund, 
transfer, or other means if the household leaves prior to the 16th of 
the month.
    (B) If the household leaves on or after the 16th day of the month, 
the State agency, at its option, may require the center to give the 
household a portion of its allotment. Under an EBT system where the 
center has an aggregate EBT card, the State agency may, but is not 
required to transfer a portion of the household's monthly allotment from 
a center's EBT account back to the household's EBT account. However, the 
household, not the center, must be allowed to receive any remaining 
benefits authorized by the household's HIR or ATP or posted to the EBT 
account at the time the household leaves the center.
    (iii) The center must return to the State agency any EBT card or 
coupons not provided to departing residents by the end of each month. 
These coupons include those not provided to departing residents because 
they left either prior to the 16th and the center was unable to provide 
the household with the coupons or the household left on or after the 
16th of the month and the coupons were not returned to the household.
    (6) The organization or institution shall be responsible for any 
misrepresentation or intentional Program violation which it knowingly 
commits in the certification of center residents. As an authorized 
representative, the organization or institution must be knowledgeable 
about household circumstances and should carefully review those 
circumstances with residents prior to applying on their behalf. The 
organization or institution shall be strictly liable for all losses or 
misuse of food coupons held on behalf of resident households and for all 
overissuances which occur while the households are residents of the 
treatment center.
    (7) The organization or institution authorized by FNS as a retail 
food store may be penalized or disqualified, as described in Sec.  
278.6, if it is determined administratively or judicially that coupons 
were misappropriated or used for purchases that did not contribute to a 
certified household's meals. The State agency shall promptly notify FNS 
when it has reason to believe that an organization or institution is 
misusing coupons in its possession. However, the State agency shall take 
no action prior to FNS action against the organization or institution. 
The State agency shall establish a

[[Page 713]]

claim for overissuances of food coupons held on behalf of resident 
clients as stipulated in paragraph (e)(6) of this section if any 
overissuances are discovered during an investigation or hearing 
procedure for redemption violations. If FNS disqualifies an organization 
or institution as an authorized retail food store, the State agency 
shall suspend its authorized representative status for the same period.
    (f) Residents of a group living arrangement. (1) Disabled or blind 
residents of a group living arrangement (GLA) (as defined in Sec.  271.2 
of this chapter) may apply either through use of an authorized 
representative employed and designated by the group living arrangement 
or on their own behalf or through an authorized representative of their 
choice. The GLA must determine if a resident may apply on his or her own 
behalf based on the resident's physical and mental ability to handle his 
or her own affairs. Some residents of the GLA may apply on their own 
behalf while other residents of the same GLA may apply through the GLA's 
representative. Prior to certifying any residents, the State agency must 
verify that the GLA is authorized by FNS or is certified by the 
appropriate agency of the State (as defined in Sec.  271.2 of this 
chapter) including the agency's determination that the center is a 
nonprofit organization.
    (i) If the residents apply on their own behalf, the household size 
must be in accordance with the definition in Sec.  273.1. The State 
agency must certify these residents using the same provisions that apply 
to all other households. If FNS disqualifies the GLA as an authorized 
retail food store, the State agency must suspend its authorized 
representative status for the same time; but residents applying on their 
own behalf will still be able to participate if otherwise eligible.
    (ii) If the residents apply through the use of the GLA's authorized 
representative, their eligibility must be determined as a one-person 
household.
    (2) Each group living arrangement shall provide the State agency 
with a list of currently participating residents. This list shall 
include a statement signed by a responsible center official attesting to 
the validity of the list. The State shall require the list on a periodic 
basis. In addition, the State agency shall conduct periodic random 
onsite visits to assure the accuracy of the list and that the State 
agency's rec ords are consistent and up to date.
    (3) The same provisions applicable in Sec.  273.11(e)(3) to 
residents of treatment centers also apply to blind or disabled residents 
of group living arrangements when the facility acts as the resident's 
authorized representative.
    (4) If the resident has made application on his/her own behalf, the 
household is responsible for reporting changes to the State agency as 
provided in Sec.  273.12(a). If the group living arrangement is acting 
in the capacity of an authorized representative, the group living 
arrangement shall notify the State agency, as provided in Sec.  
273.12(a), of changes in the household's income or other household 
circumstances and when the individual leaves the group living 
arrangement. The group living arrangement shall return any household's 
ATP card or coupons to the State agency if they are received after the 
household has left the group living arrangement.
    (5)(i) When the household leaves the facility, the group living 
arrangement, either acting as an authorized representative or retaining 
use of the coupons on behalf of the residents (regardless of the method 
of application), shall provide residents with their ID cards (if 
applicable) and any untransacted ATP cards. The household, not the group 
living arrangement, shall be allowed to sign for and receive any 
remaining authorized benefits reflected on HIR cards. Also, the 
departing household shall receive its full allotment if issued and if no 
coupons have been spent on behalf of that individual household. These 
procedures are applicable at any time during the month. However, if the 
coupons have already been issued and any portion spent on behalf of the 
individual, and the household leaves the group living arrangement prior 
to the 16th day of the month, the facility shall provide the household 
with its ID card (if applicable) and one half of its monthly coupon 
allotment. If the household leaves on or after the 16th day of the month 
and the coupons have already been issued and used, the

[[Page 714]]

household does not receive any coupons. If a group of residents have 
been certified as one household and have returned the coupons to the 
facility to use, the departing residents shall be given a pro rata share 
of one-half of the coupon allotment if leaving prior to the 16th day of 
the month and shall be instructed to obtain ID cards or written 
authorizations to use the coupons from the local office.
    (ii) Once the resident leaves, the group living arrangement no 
longer acts as his/her authorized representative. The group living 
arrangement, if possible, shall provide the household with a change 
report form to report to the State agency the individual's new address 
and other circumstances after leaving the group living arrangement and 
shall advise the household to return the form to the appropriate office 
of the State agency within 10 days.
    (iii) The group living arrangement shall return to the State agency 
any coupons not provided to departing residents at the end of each 
month. These returned coupons shall include those not provided to 
departing residents because they left on or after the 16th of the month 
or they left prior to the 16th and the facility was unable to provide 
them with the coupons.
    (6) The same provisions applicable to drug and alcoholic treatment 
center in paragraphs (e) (6) and (7) of this section also apply to group 
living arrangements when acting as an authorized representative. These 
provisions, however, are not applicable if a resident has applied on 
his/her own behalf. The resident applying on his/her own behalf shall be 
responsible for overissuances as would any other household as discussed 
in Sec.  273.18.
    (7) If the residents are certified on their own behalf, the food 
stamp benefits may either be returned to the GLA to be used to purchase 
meals served either communally or individually to eligible residents or 
retained and used to purchase and prepare food for their own 
consumption. The GLA may purchase and prepare food to be consumed by 
eligible residents on a group basis if residents normally obtain their 
meals at a central location as part of the GLA's service or if meals are 
prepared at a central location for delivery to the individual residents. 
If personalized meals are prepared and paid for with food stamps, the 
GLA must ensure that the resident's food stamp benefits are used for 
meals intended for that resident.
    (g) Shelters for battered women and children. (1) Prior to 
certifying its residents under this paragraph, the State agency shall 
determine that the shelter for battered women and children meets the 
definition in Sec.  271.2 and document the basis of this determination. 
Shelters having FNS authorization to redeem at wholesalers shall be 
considered as meeting the definition and the State agency is not 
required to make any further determination. The State agency may choose 
to require local project area offices to maintain a list of shelters 
meeting the definition to facilitate prompt certification of eligible 
residents following the special procedures outlined below.
    (2) Many shelter residents have recently left a household containing 
the person who has abused them. Their former household may be certified 
for participation in the Program, and its certification may be based on 
a household size that includes the women and children who have just 
left. Shelter residents who are included in such certified households 
may nevertheless apply for and (if otherwise eligible) participate in 
the Program as separate households if such certified household which 
includes them is the household containing the person who subjected them 
to abuse. Shelter residents who are included in such certified 
households may receive an additional allotment as a separate household 
only once a month.
    (3) Shelter residents who apply as separate households shall be 
certified solely on the basis of their income and resources and the 
expenses for which they are responsible. They shall be certified without 
regard to the income, resources, and expenses of their former household. 
Jointly held resources shall be considered inaccessible in accordance 
with Sec.  273.8. Room payments to the shelter shall be considered as 
shelter expenses.
    (4) Any shelter residents eligible for expedited service shall be 
handled in accordance with Sec.  273.2(i).

[[Page 715]]

    (5) State agencies must take prompt action to ensure that the former 
household's eligibility or allotment reflects the change in the 
household's composition. Such action must include acting on the reported 
change in accordance with Sec.  273.12 or Sec.  273.21, as appropriate, 
by issuing a notice of adverse action in accordance with Sec.  273.13.
    (h) Homeless food stamp households. Homeless food stamp households 
shall be permitted to use their food stamp benefits to purchase prepared 
meals from homeless meal providers authorized by FNS under Sec.  
278.1(h).
    (i) Prerelease applicants. A household which consists of a resident 
or residents of a public institution(s) which applies for SSI under 
SSA's Prerelease Program for the Institutionalized shall be allowed to 
apply for food stamp benefits jointly with their application for SSI 
prior to their release from the institution. Such households shall be 
certified in accordance with the provisions of Sec.  273.1(e), Sec.  
273.2(c), (g), (i), (j) and (k), and Sec.  273.10(a), as appropriate.
    (j) Reduction of public assistance benefits. If the benefits of a 
household that is receiving public assistance are reduced under a 
Federal, State, or local means-tested public assistance program because 
of the failure of a food stamp household member to perform an action 
required under the assistance program or for fraud, the State agency 
shall not increase the household's food stamp allotment as the result of 
the decrease in income. In addition to prohibiting an increase in food 
stamp benefits, the State agency may impose a penalty on the household 
that represents a percentage of the food stamp allotment that does not 
exceed 25 percent. The 25 percent reduction in food stamp benefits must 
be based on the amount of food stamp benefits the household should have 
received under the regular food stamp benefit formula, taking into 
account its actual (reduced) income. However, under no circumstances can 
the food stamp benefits be allowed to rise. Reaching a time limit for 
time-limited benefits, having a child that is not eligible because of a 
family cap, failing to reapply or complete the application process for 
continued assistance under the other program, failing to perform an 
action that the individual is unable to perform as opposed to refusing 
to perform, or failing to comply with a purely procedural requirement, 
shall not be considered a failure to perform an action required by an 
assistance program for purposes of this provision. A procedural 
requirement, which would not trigger a food stamp sanction, is a step 
that an individual must take to continue receiving benefits in the 
assistance program such as submitting a monthly report form or providing 
verification of circumstances. A substantive requirement, which would 
trigger a food stamp sanction, is a behavioral requirement in the 
assistance program designed to improve the well being of the recipient 
family, such as participating in job search activities. The State agency 
shall not apply this provision to individuals who fail to perform a 
required action at the time the individual initially applies for 
assistance. The State agency shall not increase food stamp benefits, and 
may reduce food stamp benefits only if the person is receiving such 
assistance at the time the reduction in assistance is imposed or the 
reduction in assistance is imposed at the time of application for 
continued assistance benefits if there is no break in participation. The 
individual must be certified for food stamps at the time of the failure 
to perform a required action for this provision to apply. Assistance 
benefits shall be considered reduced if they are decreased, suspended, 
or terminated.
    (1) For purposes of this provision a Federal, State or local 
``means-tested public assistance program'' shall mean public or general 
assistance as defined in Sec.  271.2 of this chapter, and is referred to 
as ``assistance''. This provision must be applied to all applicable 
cases. If a State agency is not successful in obtaining the necessary 
cooperation from another Federal, State or local means-tested welfare or 
public assistance program to enable it to comply with the requirements 
of this provision, the State agency shall not be held responsible for 
noncompliance as long as the State agency has made a good faith effort 
to obtain the information. The State agency, rather than the household, 
shall be responsible for obtaining information about sanctions from

[[Page 716]]

other programs and changes in those sanctions.
    (2) The prohibition on increasing food stamp benefits applies for 
the duration of the reduction in the assistance program. If at any time 
the State agency can no longer ascertain the amount of the reduction, 
then the State agency may terminate the food stamp sanction. However, 
the sanction may not exceed the sanction in the other program. If the 
sanction is still in effect at the end of one year, the State agency 
shall review the case to determine if the sanction continues to be 
appropriate. If, for example, the household is not receiving assistance, 
it would not be appropriate to continue the sanction. Sanctions extended 
beyond one year must be reviewed at least annually but may be ended by 
the State agency at any time. It shall be concurrent with the reduction 
in the other assistance program to the extent allowed by normal food 
stamp change processing and notice procedures.
    (3) The State agency shall determine how to prevent an increase in 
food stamp benefits. Among other options, the State agency may increase 
the assistance grant by a flat percent, not to exceed 25 percent, for 
all households that fail to perform a required action in lieu of 
computing an individual amount or percentage for each affected 
household.
    (4) If the allotment of a household is reduced under Title IV-A of 
the Social Security Act, the State agency may use the same procedures 
that apply under Title IV-A to prevent an increase in food stamp 
benefits as the result of the decrease in Title IV-A benefits. For 
example, the same budgeting procedures and combined notices and hearings 
may be used, but the food stamp allotment may not be reduced by more 
than 25 percent.
    (5) The State agency must lift the ban on increasing food stamp 
benefits if it becomes aware that the person has become ineligible for 
the assistance program during the disqualification period for some other 
reason, or the person's assistance case is closed.
    (6) If an individual moves within the State, the prohibition on 
increasing food stamp benefits shall be applied to the gaining household 
unless that person is ineligible for the assistance program for some 
other reason. If such individual moves to a new State the prohibition on 
increasing benefits shall not be applied.
    (7) The State agency must restore lost benefits when necessary in 
accordance with Sec.  273.17 if it is later determined that the 
reduction in the public assistance grant was not appropriate.
    (8) The State agency must act on changes which are not related to 
the assistance violation and that would affect the household's benefits.
    (9) The State agency must include in its State Plan of Operations 
any options it has selected in this paragraph (j).
    (k) Comparable disqualifications. If a disqualification is imposed 
on a member of a household for failure to perform an action required 
under a Federal, State or local means-tested public assistance program, 
the State agency may impose the same disqualification on the member of 
the household under the Food Stamp Program. The program must be 
authorized by a Federal, State, or local law, but the provision itself 
does not have to be specified in the law. A State agency may choose to 
apply this provision to one or more of these programs, and it may select 
the types of disqualifications within a program that it wants to impose 
on food stamp recipients. The State agency shall be responsible for 
obtaining information about sanctions from other programs and changes in 
those sanctions.
    (1) For purposes of this section Federal, State or local ``means-
tested public assistance program'' shall mean public and general 
assistance as defined in Sec.  271.2 of this chapter.
    (2) The State agency shall not apply this provision to individuals 
who are disqualified at the time the individual initially applies for 
assistance benefits. It may apply the provision if the person was 
receiving such assistance at the time the disqualification in the 
assistance program was imposed and to disqualifications imposed at the 
time of application for continued assistance benefits if there is no 
break in participation with the following exceptions: Reaching a time 
limit for time-limited benefits, having a child that is not eligible 
because of a family cap, failing to

[[Page 717]]

reapply or complete the application process for continued assistance, 
failing to perform an action that the individual is unable to perform as 
opposed to refusing to perform, and failing to perform purely procedural 
requirements, shall not be considered failures to perform an action 
required by an assistance program. A procedural requirement, which would 
not trigger a food stamp sanction, is a step that an individual must 
take to continue receiving benefits in the assistance program such as 
submitting a monthly report form or providing verification of 
circumstances. A substantive requirement, which would trigger a food 
stamp sanction, is a behavioral requirement in the assistance program 
designed to improve the well being of the recipient family, such as 
participating in job search activities. The individual must be receiving 
food stamps at the time of the disqualification in the assistance 
program to be disqualified from the Food Stamp Program under this 
provision.
    (3) The State agency must stop the food stamp disqualification when 
it becomes aware that the person has become ineligible for assistance 
for some other reason, or the assistance case is closed.
    (4) If a disqualification is imposed for a failure of an individual 
to perform an action required under a program under Title IV-A of the 
Social Security Act, the State may use the rules and procedures that 
apply under the Title IV-A program to impose the same disqualification 
under the Food Stamp Program.
    (5) Only the individual who committed the violation in the 
assistance program may be disqualified for food stamp purposes even if 
the entire assistance unit is disqualified for Title IV-A purposes.
    (6) A comparable disqualification for food stamp purposes shall be 
imposed concurrently with the disqualification in the assistance program 
to the extent allowed by normal food stamp processing times and notice 
requirements. The State agency may determine the length of the 
disqualification, providing that the disqualification does not exceed 
the disqualification in the other program. If the sanction is still in 
effect at the end of one year, the State agency shall review the case to 
determine if the sanction continues to be appropriate. If, for example, 
the household is not receiving assistance, if would not be appropriate 
to continue the sanction. Sanctions extended beyond one year must be 
reviewed at least annually but may be ended by the State agency at any 
time.
    (7) If there is a pending disqualification for a food stamp 
violation and a pending comparable disqualification, they shall be 
imposed concurrently to the extent appropriate. For example, if the 
household is disqualified for June for a food stamp violation and an 
individual is disqualified for June and July for an assistance program 
violation, the whole household shall be disqualified for June and the 
individual shall be disqualified for July for food stamp purposes.
    (8) The State agency must treat the income and resources of the 
disqualified individual in accordance with Sec.  273.11(c)(2).
    (9) After a disqualification period has expired, the person may 
apply for food stamp benefits and shall be treated as a new applicant or 
a new household member, except that a current disqualification based on 
a food stamp work requirement shall be considered in determining 
eligibility.
    (10) A comparable food stamp disqualification may be imposed in 
addition to any coupon allotment reductions made in accordance with 
paragraph (j) of this section.
    (11) State agencies shall state in their Plan of Operation if they 
have elected to apply comparable disqualifications, identify which 
sanctions in the other programs this provision applies to, and indicate 
the options and procedures allowed in paragraphs (k)(1), (k)(2), (k)(3), 
(k)(4), and (k)(10) of this section which they have selected.
    (12) The State agency must act on changes which are not related to 
the assistance violation and that would affect the household's benefits.
    (13) The State agency must restore lost benefits when necessary in 
accordance with 7 CFR 273.17 if it is later determined that the 
reduction in the public assistance grant was not appropriate.

[[Page 718]]

    (l) School Attendance. Section 404(i) of Part A of the Social 
Security Act, 42 U.S.C. 601, et seq., provides that any state receiving 
a TANF block grant cannot be prohibited from sanctioning a family that 
includes an adult who has received assistance financed with federal TANF 
dollars or provided from the food stamp program if such adult fails to 
ensure that the minor dependent children of such adult attend school as 
required by the law of the State in which the minor children reside. 
Section 404(j) of Part A of the Social Security Act, 42 U.S.C. 601, et 
seq., provides that States shall not be prohibited from sanctioning a 
family that includes an adult who is older than 20 and younger than 51 
and who has received assistance that is either financed with federal 
TANF funds or provided through the food stamp program if such adult does 
not have, or is not working toward attaining, a secondary school diploma 
or recognized equivalent. These provisions do not provide independent 
authority for food stamp sanctions beyond any that may apply through 
paragraphs (j) and (k) of this section.
    (m) Individuals convicted of drug-related felonies. An individual 
convicted (under Federal or State law) of any offense which is 
classified as a felony by the law of the jurisdiction involved and which 
has as an element the possession, use, or distribution of a controlled 
substance (as defined in section 102(6) of the Controlled Substance Act, 
21 U.S.C. 802(6)) shall not be considered an eligible household member 
unless the State legislature of the State where the individual is 
domiciled has enacted legislation exempting individuals domiciled in the 
State from the above exclusion. If the State legislature has enacted 
legislation limiting the period of disqualification, the period of 
ineligibility shall be equal to the length of the period provided under 
such legislation. Ineligibility under this provision is only limited to 
convictions based on behavior which occurred after August 22, 1996. The 
income and resources of individuals subject to disqualification under 
this paragraph (m) shall be treated in accordance with the procedures at 
paragraph (c)(1) of this section.
    (n) Fleeing felons and probation or parole violators. Individuals 
who are fleeing to avoid prosecution or custody for a crime, or an 
attempt to commit a crime, that would be classified as a felony (or in 
the State of New Jersey, a high misdemeanor) or who are violating a 
condition of probation or parole under a Federal or State law shall not 
be considered eligible household members. The income and resources of 
the ineligible member shall be handled in accordance with (c)(1) of this 
section.
    (o) Custodial parent's cooperation with the State Child Support 
Agency. For purposes of this provision, a custodial parent is a natural 
or adoptive parent who lives with his or her child, or other individual 
who is living with and exercises parental control over a child under the 
age of 18.
    (1) Option to disqualify custodial parent for failure to cooperate. 
At the option of a State agency, subject to paragraphs (o)(2) and (o)(4) 
of this section, no natural or adoptive parent or, at State agency 
option, other individual (collectively referred to in this paragraph (o) 
as ``the individual'') who is living with and exercising parental 
control over a child under the age of 18 who has an absent parent shall 
be eligible to participate in the Food Stamp Program unless the 
individual cooperates with the agency administering a State Child 
Support Enforcement Program established under Part D of Title IV of the 
Social Security Act (42 U.S.C. 651, et seq.), hereafter referred to as 
the State Child Support Agency.
    (i) If the State agency chooses to implement paragraph (o)(1) of 
this section, it must notify all individuals of this requirement in 
writing at the time of application and reapplication for continued 
benefits.
    (ii) If the State agency chooses to implement paragraph (o)(1) of 
this section, it must refer all appropriate individuals to the State 
Child Support Agency.
    (iii) If the individual is receiving TANF or Medicaid, or assistance 
from the State Child Support Agency, and has already been determined to 
be cooperating, or has been determined to have good cause for not 
cooperating, then the State agency shall consider

[[Page 719]]

the individual to be cooperating for food stamp purposes.
    (iv) The individual must cooperate with the State Child Support 
Agency in establishing paternity of the child, and in establishing, 
modifying, or enforcing a support order with respect to the child and 
the individual in accordance with section 454(29) of the Social Security 
Act (42 U.S.C. 654(29)).
    (v) Pursuant to Section 454(29)(E) of the Social Security Act (42 
U.S.C. 654(29)(E) the State Child Support Agency will notify the 
individual and the State agency whether or not it has determined that 
the individual is cooperating in good faith.
    (2) Claiming good cause for non-cooperation. Prior to requiring 
cooperation under paragraph (o)(1) of this section, the State agency 
will notify the household in writing at initial application and at 
application for continued benefits of the right to good cause as an 
exception to the cooperation requirement and of all the requirements 
applicable to a good cause determination. Paragraph (o)(1) of this 
section shall not apply to the individual if good cause is found for 
refusing to cooperate, as determined by the State agency:
    (i) Circumstances under which cooperation may be ``against the best 
interests of the child.'' The individual's failure to cooperate is 
deemed to be for ``good cause'' if:
    (A) The individual meets the good cause criteria established under 
the State program funded under Part A of Title IV or Part D of Title IV 
of the Social Security Act (42 U.S.C. 601, et seq, or 42 U.S.C. 651, et 
seq.) (whichever agency is authorized to define and determine good 
cause) for failing to cooperate with the State Child Support Agency; or
    (B) Cooperating with the State Child Support Agency would make it 
more difficult for the individual to escape domestic violence or 
unfairly penalize the individual who is or has been victimized by such 
violence, or the individual who is at risk of further domestic violence. 
For purposes of this provision, the term ``domestic violence'' means the 
individual or child would be subject to physical acts that result in, or 
are threatened to result in, physical injury to the individual; sexual 
abuse; sexual activity involving a dependent child; being forced as the 
caretaker relative of a dependent child to engage in nonconsensual 
sexual acts or activities; threats of, or attempts at physical or sexual 
abuse; mental abuse; or neglect or deprivation of medical care.
    (C) The individual meets any other good cause criteria identified by 
the State agency. These criteria will be defined in consultation with 
the Child Support Agency or TANF program, whichever is appropriate, and 
identified in the State plan according to Sec.  272.2(d) (xiii).
    (ii) Proof of good cause claim. (A) The State agency will accept as 
corroborative evidence the same evidence required by Part A of Title IV 
or Part D of Title IV of the Social Security Act (42 U.S.C. 601, et seq. 
or 42 U.S.C. 651, et seq.) to corroborate a claim of good cause.
    (B) The State agency will make a good cause determination based on 
the corroborative evidence supplied by the individual only after it has 
examined the evidence and found that it actually verifies the good cause 
claim.
    (iii) Review by the State Child Support or TANF Agency. Prior to 
making a final determination of good cause for refusing to cooperate, 
the State agency will afford the State Child Support Agency or the 
agency which administers the program funded under Part A of the Social 
Security Act the opportunity to review and comment on the findings and 
the basis for the proposed determination and consider any recommendation 
from the State Child Support or TANF Agency.
    (iv) Delayed finding of good cause. The State agency will not deny, 
delay, or discontinue assistance pending a determination of good cause 
for refusal to cooperate if the applicant or recipient has complied with 
the requirements to furnish corroborative evidence and information. In 
such cases, the State agency must abide by the normal processing 
standards according to Sec.  273.2(g).
    (3) Individual disqualification. If the State agency has elected to 
implement this provision and determines that the individual has not 
cooperated without good cause, then that individual shall be ineligible 
to participate in the Food

[[Page 720]]

Stamp Program. The disqualification shall not apply to the entire 
household. The income and resources of the disqualified individual shall 
be handled in accordance with paragraph(c)(2) of this section.
    (4) Fees. A State electing to implement this provision shall not 
require the payment of a fee or other cost for services provided under 
Part D of Title IV of the Social Security Act (42 U.S.C. 651, et seq.)
    (5) Terminating the Disqualification. The period of disqualification 
ends once it has been determined that the individual is cooperating with 
the State Child Support Agency. The State agency must have procedures in 
place for re-qualifying such an individual.
    (p) Non-custodial parent's cooperation with child support agencies. 
For purposes of this provision, a ``non-custodial parent'' is a putative 
or identified parent who does not live with his or her child who is 
under the age of 18.
    (1) Option to disqualify non-custodial parent for refusal to 
cooperate. At the option of a State agency, subject to paragraphs (p)(2) 
and (p)(4) of this section, a putative or identified non-custodial 
parent of a child under the age of 18 (referred to in this subsection as 
``the individual'') shall not be eligible to participate in the Food 
Stamp Program if the individual refuses to cooperate with the State 
agency administering the program established under Part D of Title IV of 
the Social Security Act (42 U.S.C. 651, et seq.), hereafter referred to 
as the State Child Support Agency, in establishing the paternity of the 
child (if the child is born out of wedlock); and in providing support 
for the child.
    (i) If the State agency chooses to implement paragraph (p)(1) of 
this section, it must notify all individuals in writing of this 
requirement at the time of application and reapplication for continued 
benefits.
    (ii) If the individual is receiving TANF, Medicaid, or assistance 
from the State Child Support Agency, and has already been determined to 
be cooperating, or has been determined to have good cause for not 
cooperating, then the State agency shall consider the individual is 
cooperating for food stamp purposes.
    (iii) If the State agency chooses to implement paragraph (p)(1) of 
this section, it must refer all appropriate individuals to the State 
Child Support Agency established under Part D of Title IV of the Social 
Security Act (42 U.S.C. 651, et seq.).
    (iv) The individual must cooperate with the State Child Support 
Agency in establishing the paternity of the child (if the child is born 
out of wedlock), and in providing support for the child.
    (v) Pursuant to Section 454(29)(E) of the Social Security Act (42 
U.S.C. 654(29)(E)), the State Child Support Agency will notify the 
individual and the State agency whether or not it has determined that 
the individual is cooperating in good faith.
    (2) Determining refusal to cooperate. If the State Child Support 
Agency determines that the individual is not cooperating in good faith, 
then the State agency will determine whether the non-cooperation 
constitutes a refusal to cooperate. Refusal to cooperate is when an 
individual has demonstrated an unwillingness to cooperate as opposed to 
an inability to cooperate.
    (3) Individual disqualification. If the State agency determines that 
the non-custodial parent has refused to cooperate, then that individual 
shall be ineligible to participate in the Food Stamp Program. The 
disqualification shall not apply to the entire household. The income and 
resources of the disqualified individual shall be handled according to 
paragraph (c)(2) of this section.
    (4) Fees. A State electing to implement this provision shall not 
require the payment of a fee or other cost for services provided under 
Part D of Title IV of the Social Security Act (42 U.S.C. 651, et seq.)
    (5) Privacy. The State agency shall provide safeguards to restrict 
the use of information collected by a State agency administering the 
program established under Part D of Title IV of the Social Security Act 
(42 U.S.C. 651, et seq.) to purposes for which the information is 
collected.
    (6) Termination of disqualification. The period of disqualification 
ends once it has been determined that the individual is cooperating with 
the child support agency. The State agency must

[[Page 721]]

have procedures in place for re-qualifying such an individual.
    (q) Disqualification for child support arrears.--(1) Option to 
disqualify. At the option of a State agency, no individual shall be 
eligible to participate in the Food Stamp Program as a member of any 
household during any month that the individual is delinquent in any 
payment due under a court order for the support of a child of the 
individual. The State agency may opt to apply this provision to only 
non-custodial parents.
    (2) Exceptions. A disqualification under paragraph (q)(1) of this 
section shall not apply if:
    (i) A court is allowing the individual to delay payment;
    (ii) The individual is complying with a payment plan approved by a 
court or the State agency designated under Part D of Title IV of the 
Social Security Act (42 U.S.C., 651 et seq.) to provide support of a 
child of the individual; or
    (iii) The State agency determines the individual has good cause for 
non-support.
    (3) Individual disqualification. If the State agency has elected to 
implement this provision and determines that the individual should be 
disqualified for child support arrears, then that individual shall be 
ineligible to participate in the Food Stamp Program. The 
disqualification shall not apply to the entire household. The income and 
resources of the disqualified individual shall be handled according to 
paragraph (c)(2) of this section.
    (4) Collecting claims. State agencies shall initiate collection 
action as provided for in Sec.  273.18 for any month a household member 
is disqualified for child support arrears by sending the household a 
written demand letter which informs the household of the amount owed, 
the reason for the claim and how the household may pay the claim. The 
household should also be informed as to the adjusted amount of income, 
resources, and deductible expenses of the remaining members of the 
household for the month(s) a member is disqualified for child support 
arrears.

[Amdt. 132, 43 FR 47889, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
273.11, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  273.12  Requirements for change reporting households.

    (a) Household responsibility to report. (1) Monthly reporting 
households are required to report as provided in Sec.  273.21. Quarterly 
reporting households are subject to the procedures as provided in 
paragraph (a)(4) of this section. Certified change reporting households 
are required to report the following changes in circumstances:
    (i) (A) A change of more than $50 in the amount of unearned income, 
except changes relating to public assistance (PA) or general assistance 
(GA) in project areas in which GA and food stamp cases are jointly 
processed. The State agency is responsible for identifying changes 
during the certification period in the amount of PA, or GA in jointly 
processed cases. If GA and food stamp cases are not jointly processed, 
the household is responsible for reporting changes in GA of more than 
$50.
    (B) A change in the source of income, including starting or stopping 
a job or changing jobs, if the change in employment is accompanied by a 
change in income.
    (C) One of the following, as determined by the State agency 
(different options may be used for different categories of households as 
long as no household is required to report under more than one option; 
the State may also utilize different options in different project areas 
within the State):
    (1) A change in the wage rate or salary or a change in full-time or 
part-time employment status (as determined by the employer or as defined 
in the State's PA program), provided that the household is certified for 
no more than 6 months; or
    (2) A change in the amount earned of more than $100 a month from the 
amount last used to calculate the household's allotment, provided that 
the household is certified for no more than 6 months.
    (ii) All changes in household composition, such as the addition or 
loss of a household member;

[[Page 722]]

    (iii) Changes in residence and the resulting change in shelter 
costs;
    (iv) The acquisition of a licensed vehicle not fully excludable 
under Sec.  273.8(e); and
    (v) When cash on hand, stocks, bonds, and money in a bank account or 
savings institution reach or exceed a total of $2,000.
    (vi) Changes in the legal obligation to pay child support.
    (vii) State agencies may opt to require households with earned 
income that are assigned 6-month or longer certification periods to 
report only changes in the amount of gross monthly income that result in 
their gross monthly income exceeding 130 percent of the monthly poverty 
income guideline for their household size.
    (A) Households with earned income certified for 6 months in 
accordance with paragraph (a)(1)(vii) of this section must not be 
required to report changes in accordance with paragraphs (a)(1)(ii) 
through (a)(1)(vi) of this section. The State agency must act on any 
change reported by such households that would increase their benefits in 
accordance with paragraph (c)(1) of this section. The State agency must 
not act on changes that would result in a decrease in benefits unless:
    (1) The household has voluntarily requested that its case be closed 
in accordance with Sec.  273.13(b)(12);
    (2) The State agency has information about the household's 
circumstances considered verified upon receipt; or
    (3) There has been a change in the household's PA grant, or GA grant 
in project areas where GA and food stamp cases are jointly processed in 
accord with Sec.  273.2(j)(2).
    (B) Households with earned income certified for longer than 6 months 
under this option shall be required to submit an interim report at 6 
months in accordance with paragraphs (a)(1)(i) through (a)(1)(vi) of 
this section. The State agency must act on any change reported by such 
households on the interim report in accordance with paragraph (c) of 
this section. If the household files a complete report resulting in 
reduction or termination of benefits, the State agency shall send an 
adequate notice, as defined in Sec.  271.2 of this chapter. The notice 
must be issued so that it will be received by the household no later 
than the time that its benefits are normally received. If the household 
fails to provide sufficient information or verification regarding a 
deductible expense, the State agency will not terminate the household, 
but will instead determine the household's benefits without regard to 
the deduction.
    (viii) For able-bodied adults subject to the time limit of Sec.  
273.24, any changes in work hours that bring an individual below 20 
hours per week, averaged monthly, as defined in Sec.  273.24(a)(1)(i). 
An individual shall report this information in accordance with the 
reporting system for income to which he is subject.
    (2) Certified households must report changes within 10 days of the 
date the change becomes known to the household. For reportable changes 
of income, the State agency may require that change to be reported as 
early as within 10 days of the date that the household becomes aware of 
the change or as late as within 10 days of the date that the household 
receives the first payment attributable to the change. For example, in 
the case of new employment, the State may require the household to 
report the change within 10 days of the date that the household becomes 
aware of the new employment, within 10 days of the date the employment 
begins or within 10 days of the date that the household receives its 
first paycheck. For households subject to semi-annual reporting, the 
household must report changes no later than 10 days from the end of the 
calendar month in which the change occurred, provided that the household 
has at least 10 days within which to report the change. Optional 
procedures for reporting changes are contained in paragraph (f) of this 
section for households in States with forms for jointly reporting food 
stamp and public assistance changes and food stamp and general 
assistance changes.
    (3) An applying household shall report all changes related to its 
food stamp eligibility and benefits at the certification interview. 
Changes, as provided in paragraph (a)(1) of this section, which occur 
after the interview

[[Page 723]]

but before the date of the notice of eligibility, shall be reported by 
the household within 10 days of the date of the notice.
    (4) The State agency may establish a system of quarterly reporting 
in lieu of the change reporting requirements specified under paragraph 
(a)(1) of this section. The following requirements are applicable to 
quarterly reporting systems:
    (i) Included households. The State agency may include all households 
within a quarterly reporting system, except migrant or seasonal 
farmworker households, households that have no earned income and in 
which all adult members are elderly or disabled, households in which all 
members are homeless individuals, or households subject to the reporting 
requirement under paragraph (a)(1)(vii) of this section. The State 
agency may also limit quarterly reporting to specific categories of 
households.
    (ii) Notification of the quarterly reporting requirement. The State 
agency must notify households of the quarterly reporting requirement, 
including the consequences of failure to file a report, at initial 
certification and recertification.
    (iii) Failure to file a complete form by the specified filing date. 
If a household fails to file a complete report by the specified filing 
date, the State agency will send a notice to the household advising it 
of the missing or incomplete report no later than 10 days from the date 
the report should have been submitted. If the household does not respond 
to the notice, the household's participation shall be terminated. The 
State agency may combine the notice of a missing or incomplete report 
with the adequate notice of termination described in paragraph (a)(4)(v) 
of this section.
    (iv) Content of the quarterly report form. The State agency may 
include all of the items subject to reporting under paragraph (a)(1) of 
this section in the quarterly report, except changes reportable under 
paragraphs (a)(1)(vii) or (a)(1)(viii) of this section, or may limit the 
report to specific items while requiring that households report other 
items through the use of the change report form.
    (v) Reduction or termination of benefits. If the household files a 
complete report resulting in reduction or termination of benefits, the 
State agency shall send an adequate notice, as defined in Sec.  271.2 of 
this chapter. The notice must be issued so that it will be received by 
the household no later than the time that its benefits are normally 
received. If the household fails to provide sufficient information or 
verification regarding a deductible expense, the State agency will not 
terminate the household, but will instead determine the household's 
benefits without regard to the deduction.
    (vi) Changes reported outside of the quarterly report. The State 
agency must act on any changes reported outside of the quarterly report 
in accordance with paragraph (c) of this section.
    (vii) Sole reporting requirement. The quarterly report form shall be 
the sole reporting requirement for any information that is required to 
be reported on the form, except that able-bodied adults subject to the 
time limit of Sec.  273.24 shall report whenever their work hours fall 
below 20 hours per week, averaged monthly.
    (5) The State agency may require a household that is eligible to 
receive a child support deduction in accordance with Sec.  273.9(d)(7) 
to report information required by the State agency regarding child 
support on a change report, a monthly report, or quarterly report. The 
State agency shall process the reports in accordance with procedures for 
the systems used in budgeting the household's income and deductions. The 
following requirements apply to quarterly reports:
    (i) The State agency shall provide the household a reasonable period 
after the end of the last month covered by the report in which to return 
the report. If the household does not file the report by the due date or 
files an incomplete report, the State agency shall provide the household 
with a reminder notice advising the household that it has 10 days from 
the date the State agency mails the notice to file a complete report. If 
the household does not file a complete report by the extended filing 
date as specified in the reminder notice, the State agency shall 
determine the household's eligibility and benefits

[[Page 724]]

without consideration of the child support deduction. The State agency 
shall not terminate the benefits of a household for failure to submit a 
quarterly report unless the household is otherwise ineligible. The State 
agency shall send the household an adequate notice as defined in Sec.  
271.2 of this chapter if the household fails to submit a complete report 
or if the information contained on a complete report results in a 
reduction or termination of benefits. The quarterly report shall meet 
the requirements specified in paragraph (b) of this section. The State 
agency may combine the content of the reminder notice and the adequate 
notice as long as the notice meets the requirements of the individual 
notices.
    (ii) The quarterly report form, if required, shall be the sole 
reporting requirement for reporting child support payments during the 
certification period. Households excluded from monthly reporting as 
specified in Sec.  273.21(b) and households required to submit monthly 
reports shall not be required to submit quarterly reports.
    (6) State agencies shall not impose any food stamp reporting 
requirements on households except as provided in paragraph (a) of this 
section.
    (b) Report forms. (1) The State agency shall provide the household 
with a form for reporting the changes required in paragraph (a)(1) of 
this section to be reported within 10 days and shall pay the postage for 
return of the form. The change report form shall, at a minimum, include 
the following:
    (i) A space for the household to report whether the change shall 
continue beyond the report month;
    (ii) The civil and criminal penalties for violations of the Act in 
understand able terms and in prominent and boldface lettering;
    (iii) A reminder to the household of its right to claim actual 
utility costs if its costs exceed the standard;
    (iv) The number of the food stamp office and a toll-free number or a 
number where collect calls will be accepted for households outside the 
local calling area; and
    (v) A statement describing the changes in household circumstances 
contained in Sec.  273.12(a)(1) that must be reported and a statement 
which clearly informs the household that it is required to report these 
changes.
    (2) The quarterly report form, including the form for the quarterly 
reporting of the child support obligation, must be written in clear, 
simple language, and must meet the bilingual requirements described in 
Sec.  272.4(b) of this chapter. In addition, the form must specify the 
date by which the agency must receive the form and the consequences of 
submitting a late or incomplete form. The form (or an attachment) must 
specify the verification the household must submit with the form, inform 
the household where to call for help in completing the form, and include 
a statement to be signed by a member of the household indicating his or 
her understanding that the information provided may result in reduction 
or termination of benefits. The form should also include a brief 
description of the Food Stamp Program fraud penalties.
    (3) Changes reported over the telephone or in person by the 
household shall be acted on in the same manner as those reported on the 
change report form.
    (4) A change report form shall be provided to newly certified 
households at the time of certification, at recertification if the 
household needs a new form; and a new form shall be sent to the 
household whenever a change report form is returned by the household. A 
change report may be provided to households more often at the State 
agency's option.
    (c) State agency action on changes. The State agency shall take 
prompt action on all changes to determine if the change affects the 
household's eligibility or allotment. If a household reports a change in 
income, and the new circumstance is expected to continue for at least 
one month beyond the month in which the change is reported, the State 
agency shall act on the change in accordance with paragraphs (c)(1) and 
(c)(2) of this section. The time frames in paragraphs (c)(1) and (c)(2) 
of this section apply to these actions. However, during the 
certification period, the State agency shall not act on changes in the 
medical expenses of households eligible for the medical expense 
deduction which it

[[Page 725]]

learns of from a source other than the household and which, in order to 
take action, require the State agency to contact the household for 
verification. The State agency shall only act on those changes in 
medical expenses that it learns about from a source other than the 
household if those changes are verified upon receipt and do not 
necessitate contact with the household. Even if there is no change in 
the allotment, the State agency shall document the reported change in 
the casefile, provide another change report form to the household, and 
notify the household of the receipt of the change report. If the 
reported change affects the household's eligibility or level of 
benefits, the adjustment shall also be reported to the household. The 
State agency shall also advise the household of additional verification 
requirements, if any, and state that failure to provide verification 
shall result in increased benefits reverting to the original allotment. 
The State agency shall document the date a change is reported, which 
shall be the date the State agency receives a report form or is advised 
of the change over the telephone or by a personal visit. Restoration of 
lost benefits shall be provided to any household if the State agency 
fails to take action on a change which increases benefits within the 
time limits specified in paragraph (c)(1) of this section.
    (1) Increase in benefits. (i) For changes which result in an 
increase in a household's benefits, other than changes described in 
paragraph (c)(1)(ii) of this section, the State agency shall make the 
change effective no later than the first allotment issued 10 days after 
the date the change was reported to the State agency. For example, a $30 
decrease in income reported on the 15th of May would increase the 
household's June allotment. If the same decrease were reported on May 
28, and the household's normal issuance cycle was on June 1, the 
household's allotment would have to be increased by July.
    (ii) For changes which result in an increase in a household's 
benefits due to the addition of a new household member who is not a 
member of another certified household, or due to a decrease of $50 or 
more in the household's gross monthly income, the State agency shall 
make the change effective not later than the first allotment issued 10 
days after the date the change was reported. However, in no event shall 
these changes take effect any later than the month following the month 
in which the change is reported. Therefore, if the change is reported 
after the 20th of a month and it is too late for the State agency to 
adjust the following month's allotment, the State agency shall issue a 
supplementary ATP or otherwise provide an opportunity for the household 
to obtain the increase in benefits by the 10th day of the following 
month, or the household's normal issuance cycle in that month, whichever 
is later. For example, a household reporting a $100 decrease in income 
at any time during May would have its June allotment increased. If the 
household reported the change after the 20th of May and it was too late 
for the State agency to adjust the ATP normally issued on June 1, the 
State agency would issue a supplementary ATP for the amount of the 
increase by June 10.
    (iii) The State agency may elect to verify changes which result in 
an increase in a household's benefits in accordance with the 
verification requirements of Sec.  273.2(f)(8)(ii), prior to taking 
action on these changes. If the State agency elects this option, it must 
allow the household 10 days from the date the change is reported to 
provide verification required by Sec.  273.2(f)(8)(ii). If the household 
provides verification within this period, the State shall take action on 
the changes within the timeframes specified in paragraphs (c)(1) (i) and 
(ii) of this section. The timeframes shall run from the date the change 
was reported, not from the date of verification. If, however, the 
household fails to provide the required verification within 10 days 
after the change is reported but does provide the verification at a 
later date, then the timeframes specified in paragraphs (c)(1) (i) and 
(ii) of this section for taking action on changes shall run from the 
date verification is provided rather than from the date the change is 
reported. If the State agency does not elect this option, verification 
required by Sec.  273.2(f)(8)(ii) must be obtained

[[Page 726]]

prior to the issuance of the second normal monthly allotment after the 
change is reported. If in these circumstances the household does not 
provide verification, the household's benefits will revert to the 
original benefit level. Whenever a State agency increases a household's 
benefits to reflect a reported change and subsequent verification shows 
that the household was actually eligible for fewer benefits, the State 
agency shall establish a claim for the overissuance in accordance with 
Sec.  273.18. In cases where the State agency has determined that a 
household has refused to cooperate as defined in Sec.  273.2(d), the 
State agency shall terminate the household's eligibility following the 
notice of adverse action.
    (2) Decreases in benefits. (i) If the household's benefit level 
decreases or the household becomes ineligible as a result of the change, 
the State agency shall issue a notice of adverse action within 10 days 
of the date the change was reported unless one of the exemptions to the 
notice of adverse action in Sec.  273.13 (a)(3) or (b) applies. When a 
notice of adverse action is used, the decrease in the benefit level 
shall be made effective no later than the allotment for the month 
following the month in which the notice of adverse action period has 
expired, provided a fair hearing and continuation of benefits have not 
been requested. When a notice of adverse action is not used due to one 
of the exemptions in Sec.  273.13 (a)(3) or (b), the decrease shall be 
made effective no later than the month following the change. 
Verification which is required by Sec.  273.2(f) must be obtained prior 
to recertification.
    (ii) The State agency may suspend a household's certification 
prospectively for one month if the household becomes temporarily 
ineligible because of a periodic increase in recurring income or other 
change not expected to continue in the subsequent month. If the 
suspended household again becomes eligible, the State agency shall issue 
benefits to the household on the household's normal issuance date. If 
the suspended household does not become eligible after one month, the 
State agency shall terminate the household's certification. Households 
are responsible for reporting changes as required by paragraph (a) of 
this section during the period of suspension.
    (3) Unclear information. During the certification period, the State 
agency may obtain information about changes in a household's 
circumstances from which the State agency cannot readily determine the 
effect of the change on the household's benefit amount. The State agency 
might receive such unclear information from a third party or from the 
household itself. The State agency must pursue clarification and 
verification of household circumstances using the following procedure:
    (i) The State agency must issue a written request for contact (RFC) 
which clearly advises the household of the verification it must provide 
or the actions it must take to clarify its circumstances, which affords 
the household at least 10 days to respond and to clarify its 
circumstances, either by telephone or by correspondence, as the State 
agency directs, and which states the consequences if the household fails 
to respond to the RFC.
    (ii) If the household does not respond to the RFC, or does respond 
but refuses to provide sufficient information to clarify its 
circumstances, the State agency must issue a notice of adverse action as 
described in Sec.  273.13 which terminates the case, explains the 
reasons for the action, and advises the household of the need to submit 
a new application if it wishes to continue participating in the program. 
When the household responds to the RFC and provides sufficient 
information, the State agency must act on the new circumstances in 
accordance with paragraphs (c)(1) or (c)(2 ) of this section.
    (iii) If the household does not respond to the RFC, or does respond 
but refuses to provide sufficient information to clarify its 
circumstances, the State agency may elect to issue a notice of adverse 
action as described in Sec.  273.13 which suspends the household for 1 
month before the termination becomes effective, explains the reasons for 
the action, and advises the household of the need to submit a new 
application if it wishes to continue participating in the program. If a 
household responds satisfactorily to the RFC during the

[[Page 727]]

period of suspension, the State agency must reinstate the household 
without requiring a new application, issue the allotment for the month 
of suspension, and if necessary, adjust the household's participation 
with a new notice of adverse action.
    (d) Failure to report. If the State agency discovers that the 
household failed to report a change as required by paragraph (a) of this 
section and, as a result, received benefits to which it was not 
entitled, the State agency shall file a claim against the household in 
accordance with Sec.  273.18. If the discovery is made within the 
certification period, the household is entitled to a notice of adverse 
action if the household's benefits are reduced. A household shall not be 
held liable for a claim because of a change in household circumstances 
which it is not required to report in accordance with Sec.  
273.12(a)(1). Individuals shall not be disqualified for failing to 
report a change, unless the individual is disqualified in accordance 
with the disqualification procedures specified in Sec.  273.16.
    (e) Mass changes. Certain changes are initiated by the State or 
Federal government which may affect the entire caseload or significant 
portions of the caseload. These changes include, but are not limited to, 
adjustments to the income eligibility standards, the shelter and 
dependent care deductions, the maximum food stamp allotment and the 
standard deduction; annual and seasonal adjustments to State utility 
standards; periodic cost-of-living adjustments to Retirement, Survivors, 
and Disability Insurance (RSDI), Supplemental Security Income (SSI) and 
other Federal benefits; periodic adjustments to Temporary Assistance for 
Needy Families (TANF) or General Assistance (GA) payments; and other 
changes in the eligibility and benefit criteria based on legislative or 
regulatory changes.
    (1) Federal adjustments to eligibility standards, allotments, and 
deductions, and State adjustments to utility standards. (i) State 
agencies shall implement these changes for all households at a specific 
point in time. Adjustments to Federal standards shall be implemented 
prospectively regardless of the household's budgeting system. Annual and 
seasonal adjustments in State utility standards shall also be 
implemented prospectively for all households.
    (A) Adjustments in the maximum food stamp allotment shall be 
effective in accordance with Sec.  273.10(e)(4)(ii).
    (B) Adjustments in the standard deduction shall be effective in 
accordance with Sec.  273.9(d)(7).
    (C) Adjustments in the shelter deduction shall be effective in 
accordance with Sec.  273.9(d)(8).
    (D) Adjustments in the income eligibility standards shall be 
effective in accordance with Sec.  273.9(a)(3).
    (ii) A notice of adverse action shall not be used for these changes. 
At a minimum, the State agencies shall publicize these mass changes 
through the news media; posters in certification offices, issuance 
locations, or other sites frequented by certified households; or general 
notices mailed to households. At its option, the State agency may send 
the notice described in paragraph (e)(4) of this section or some other 
type of written explanation of the change. A household whose 
certification period overlaps a seasonal variation in the State utility 
standard shall be advised at the time of initial certification of when 
the adjustment will occur and what the variation in the benefit level 
will be, if known.
    (2) Mass changes in public assistance and general assistance. (i) 
When the State agency makes an overall adjustment to public assistance 
(PA) payments, corresponding adjustments in households' food stamp 
benefits shall be handled as a mass change in accordance with the 
procedures in paragraphs (e) (4), (5) and (6) of this section. When the 
State agency has at least 30 days, advance knowledge of the amount of 
the PA adjustment, the State agency shall make the change in benefits 
effective in the same month as the PA change. If the State agency does 
not have sufficient notice, the food stamp change shall be effective no 
later than the month following the month in which the PA change was 
made.
    (ii) State agencies which also administer a general assistance (GA) 
program shall handle mass adjustments to GA payments in accordance with 
the schedules outlined in paragraph

[[Page 728]]

(e)(2)(i) and the procedures in paragraphs (e) (4), (5) and (6) of this 
section. However, where State agencies do not administer both programs, 
mass changes in GA payments shall be subject to the schedule in 
paragraph (e)(3) and the procedures in paragraphs (e) (4), (5) and (6) 
of this section.
    (3) Mass changes in Federal benefits. The State agency shall 
establish procedures for making mass changes to reflect cost-of-living 
adjustments (COLAs) in benefits and any other mass changes under RSDI, 
SSI, and other programs such as veteran's assistance under title 38 of 
the United States Code and the Black Lung Program, where information on 
COLA's is readily available and is applicable to all or a majority of 
those programs' beneficiaries. Households on retrospective budgeting but 
not monthly reporting shall have the change reflected in accordance with 
the State's system. Monthly reporting households shall report the change 
on the appropriate monthly report but are not required to report these 
types of changes outside the monthly report. The State agency shall 
handle such information provided on the monthly report in accordance 
with its normal procedures. Households not subject to monthly reporting 
shall not be responsible for reporting these changes. The State agency 
shall be responsible for automatically adjusting a household's food 
stamp benefit level. The change shall be reflected no later than the 
second allotment issued to nonmonthly reporting households issued after 
the month in which the change becomes effective.
    (4) Notice for Mass Changes. When the State agency makes a mass 
change in food stamp eligibility or benefits by simultaneously 
converting the caseload or that portion of the caseload that is 
affected, or by conducting individual desk reviews in place of a mass 
change, it shall notify all households whose benefits are reduced or 
terminated in accordance with the requirements of this paragraph, except 
for mass changes made under Sec.  273.12(e)(1); and
    (i) At a minimum, the State agency shall inform the household of:
    (A) The general nature of the change;
    (B) Examples of the change's effect on households' allotments;
    (C) The month in which the change will take effect;
    (D) The household's right to a fair hearing;
    (E) The household's right to continue benefits and under what 
circumstances benefits will be continued pending a fair hearing;
    (F) General information on whom to contact for additional 
information; and
    (G) The liability the household will incur for any overissued 
benefits if the fair hearing decision is adverse.
    (ii) At a minimum, the State agency shall notify the household of 
the mass change or the result of the desk review on the date the 
household is scheduled to receive the allotment which has been changed.
    (iii) In addition, the State shall notify the household of the mass 
change as much before the household's scheduled issuance date as 
reasonably possible, although the notice need not be given any earlier 
than the time required for advance notice of adverse action.
    (5) Fair hearings. The household shall be entitled to request a fair 
hearing when it is aggrieved by the mass change.
    (6) Continuation of benefits. A household which requests a fair 
hearing due to a mass change shall be entitled to continued benefits at 
its previous level only if the household meets three criteria;
    (i) The household does not specifically waive its right to a 
continuation of benefits;
    (ii) The household requests a fair hearing in accordance with Sec.  
273.13(a)(1); and
    (iii) The household's fair hearing is based upon improper 
computation of food stamp eligibility or benefits, or upon 
misapplication or misinterpretation of Federal law or regulation.
    (f) PA and GA households. (1) Except as provided in paragraph (f)(2) 
of this section, PA households have the same reporting requirements as 
any other food stamp household. PA households which report a change in 
circumstances to the PA worker shall be considered to have reported the 
change for food stamp purposes. All of the requirements pertaining to 
reporting

[[Page 729]]

changes for PA households shall be applied to GA households in project 
areas where GA and food stamp cases are processed jointly in accordance 
with provisions of Sec.  273.2(j)(3).
    (2)(i) State agencies may use a joint change reporting form for 
households to report changes for both PA and food stamp purposes. 
Whenever a joint change reporting form is used, the State agency shall 
insure that adjustments are made in a household's eligibility status or 
allotment for the months determined appropriate given the household's 
budgeting cycle.
    (ii) State agencies may combine the use of a joint PA/food stamp 
change reporting form with a PA reporting system that demands the 
regular submission of reports, such as a monthly reporting system. The 
State agency shall insure that the procedures in Sec.  273.21(h) are 
followed.
    (3) The State agency may not terminate a household's food stamp 
benefits solely because it has terminated the household's PA benefits 
without a separate determination that the household fails to satisfy the 
eligibility requirements for participation in the Program. Whenever a 
change results in the reduction or termination of a household's PA 
benefits within its food stamp certification period, the State agency 
must follow the procedures set forth below:
    (i) If a change in household circumstances requires a reduction or 
termination in the PA payment and the State agency has sufficient 
information to determine how the change affects the household's food 
stamp eligibility and benefit level, the State agency must take the 
following actions:
    (A) If the change requires a reduction or termination of food stamp 
benefits, the State agency must issue a single notice of adverse action 
for both the PA and food stamp actions. If the household requests a fair 
hearing within the period provided by the notice of adverse action, the 
State agency must continue the household's food stamp benefits on the 
basis authorized immediately prior to sending the notice. If the fair 
hearing is requested for both programs' benefits, the State agency must 
conduct the hearing according to PA procedures and timeliness standards. 
However, the household must reapply for food stamp benefits if the food 
stamp certification period expires before the fair hearing process is 
completed. If the household does not appeal, the State agency must make 
the change effective in accordance with the procedures specified in 
paragraph (c) of this section.
    (B) If the household's food stamp benefits will increase as a result 
of the reduction or termination of PA benefits, the State agency must 
issue the PA notice of adverse action, but must not take any action to 
increase the household's food stamp benefits until the household decides 
whether it will appeal the PA adverse action. If the household decides 
to appeal and its PA benefits are continued, the household's food stamp 
benefits must continue at the previous level. If the household does not 
appeal, the State agency must make the change effective in accordance 
with the procedures specified in paragraph (c) of this section, except 
that the time limits for the State agency to act on changes which 
increase a household's benefits must be calculated from the date the PA 
notice of adverse action period expires.
    (ii) Whenever a change results in the termination of a household's 
PA benefits within its food stamp certification period, and the State 
agency does not have sufficient information to determine how the change 
affects the household's food stamp eligibility and benefit level (such 
as when an absent parent returns to a household, and the household asks 
to have its TANF case closed without providing any information on the 
income of the new household member), the State agency must take the 
following action:
    (A) If the situation requires a reduction or termination of PA 
benefits, the State agency must issue a request for contact (RFC) in 
accordance with paragraph (c)(3)(i) of this section at the same time it 
sends a PA notice of adverse action. Before taking further action, the 
State agency must wait until the household's PA notice of adverse action 
period expires or until the household requests a fair hearing, whichever 
occurs first. If the household requests a fair hearing and elects to 
have its PA benefits continued pending

[[Page 730]]

the appeal, the State agency must continue the household's food stamp 
benefits at the same level. If the household decides not to request a 
fair hearing and continuation of its PA benefits, the State agency must 
resume action on the changes as required in paragraph (c)(3) of this 
section.
    (B) If the situation does not require a PA notice of adverse action, 
the State agency must issue a RFC and take action in accordance with 
paragraph (c)(3) of this section.
    (iii) Depending on the household's response to the RFC, the State 
agency must take appropriate action, if necessary, to close the 
household's case or adjust the household's benefit amount.
    (4) Transitional Benefits Alternative. The State agency may elect to 
provide households leaving TANF with transitional food stamp benefits as 
provided in this paragraph (f)(4). A State agency electing the 
Transitional Benefits Alternative (TBA) must provide transitional 
benefits, at a minimum, to all families with earnings who leave TANF. 
The State agency may not provide transitional benefits to a household 
which is leaving TANF when: the State agency has determined that the 
household is noncompliant with TANF requirements and the State agency is 
imposing a comparable food stamp sanction in accordance with Sec.  
273.11; the State agency has determined that the household has violated 
a food stamp work requirement in accordance with Sec.  273.7; the State 
agency has determined that a household member has committed an 
intentional Program violation in accordance with Sec.  273.16, or the 
State agency is closing the household's TANF case in response to 
information indicating the household failed to comply with food stamp 
reporting requirements. The State agency must use procedures at 
paragraph (f)(3) of this section to determine the continued eligibility 
and benefit level of households denied transitional benefits under this 
paragraph (f)(4).
    (i) When a household leaves TANF, the State agency may freeze for up 
to 3 months the household's benefit amount at the level the household 
received when it was receiving TANF. This is the household's transition 
period. If the household is losing income as a result of leaving TANF, 
the State agency must adjust the food stamp benefit amount before 
initiating the transition period. To provide the transition period, the 
State agency may extend the certification period for up to 3 months, not 
to exceed the maximum periods specified in Sec.  273.10(f)(1) and 
(f)(2).
    (ii) The State agency must issue a transition notice (TN) advising 
the household of the following: that the State agency must reevaluate 
its food stamp case no more than 3 months from the effective date of the 
TANF case closing; that its benefit amount will remain the same as when 
it was receiving cash assistance (or that the State agency has adjusted 
the food stamp benefit amount if the household's income is decreasing as 
the result of leaving cash assistance); that it is not required to 
report and provide verification for any changes in household 
circumstances until the deadline established in accordance with 
paragraph (c)(3) of this section (or its recertification interview, if 
the certification period is expiring); and that it may report changes if 
income decreases or expenses or household size increase.
    (iii) If the household does report changes in its circumstances 
during the transition period, the State agency must adjust the 
household's benefit amount in accordance with paragraph (c) of this 
section, except that, if the reported change would cause a reduction in 
the household's benefit amount, the State agency must make the change 
effective the month following the last month of the transition period.
    (iv) Before the end of the transition period, the State agency must 
issue the RFC specified in paragraph (c)(3) of this section and act on 
any information it has about the household's new circumstances in 
accordance with paragraph (c)(3) of this section, or recertify the 
household in accordance with Sec.  273.14. At the end of the transition 
period, the State agency may extend the household's certification period 
in accordance with Sec.  273.10(f)(5).

[Amdt. 132, 43 FR 47889, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
273.12, see the List of CFR Sections Affected, which appears in the

[[Page 731]]

Finding Aids section of the printed volume and on GPO Access.



Sec.  273.13  Notice of adverse action.

    (a) Use of notice. Prior to any action to reduce or terminate a 
household's benefits within the certification period, the State agency 
shall, except as provided in paragraph (b) of this section, provide the 
household timely and adequate advance notice before the adverse action 
is taken.
    (1) The notice of adverse action shall be considered timely if the 
advance notice period conforms to that period of time defined by the 
State agency as an adequate notice period for its public assistance 
caseload, provided that the period includes at least 10 days from the 
date the notice is mailed to the date upon which the action becomes 
effective. Also, if the adverse notice period ends on a weekend or 
holiday, and a request for a fair hearing and continuation of benefits 
is received the day after the weekend or holiday, the State agency shall 
consider the request timely received.
    (2) The notice of adverse action shall be considered adequate if it 
explains in easily understandable language: The proposed action; the 
reason for the proposed action; the household's right to request a fair 
hearing; the telephone number of the food stamp office (toll-free number 
or a number where collect calls will be accepted for households outside 
the local calling area) and, if possible, the name of the person to 
contact for additional information; the availability of continued 
benefits; and the liability of the household for any overissuances 
received while awaiting a fair hearing if the hearing official's 
decision is adverse to the household. If there is an individual or 
organization available that provides free legal representation, the 
notice shall also advise the household of the availability of the 
service.
    (3) The State agency may notify a household that its benefits will 
be reduced or terminated, no later than the date the household receives, 
or would have received, its allotment, if the following conditions are 
met:
    (i) The household reports the information which results in the 
reduction or termination.
    (ii) The reported information is in writing and signed by the 
household.
    (iii) The State agency can determine the household's allotment or 
ineligibility based solely on the information provided by the household 
as required in paragraph (a)(3)(ii) of this section.
    (iv) The household retains its right to a fair hearing as allowed in 
Sec.  273.15.
    (v) The household retains its right to continued benefits if the 
fair hearing is requested within the time period set by the State agency 
in accordance with Sec.  273.13(a)(1).
    (vi) The State agency continues the household's previous benefit 
level, if required, within five working days of the household's request 
for a fair hearing.
    (4) The State agency shall notify a household that its benefits will 
be reduced if an EBT system-error has occurred during the redemption 
process resulting in an out-of-balance settlement condition. This 
notification shall be made no later than the date the action is 
initiated against the household account. The State agency shall adjust 
the benefit in accordance with Sec.  274.12 of this chapter.
    (b) Exemptions from notice. Individual notices of adverse action 
shall not be provided when:
    (1) The State initiates a mass change as described in Sec.  
273.12(e).
    (2) The State agency determines, based on reliable information, that 
all members of a household have died.
    (3) The State agency determines, based on reliable information, that 
the household has moved from the project area.
    (4) The household has been receiving an increased allotment to 
restore lost benefits, the restoration is complete, and the household 
was previously notified in writing of when the increased allotment would 
terminate.
    (5) The household's allotment varies from month to month within the 
certification period to take into account changes which were anticipated 
at the time of certification, and the household was so notified at the 
time of certification.
    (6) The household jointly applied for PA/GA and food stamp benefits 
and has been receiving food stamp benefits pending the approval of the 
PA/GA

[[Page 732]]

grant and was notified at the time of certification that food stamp 
benefits would be reduced upon approval of the PA/GA grant.
    (7) A household member is disqualified for intentional Program 
violation, in accordance with Sec.  273.16, or the benefits of the 
remaining household members are reduced or terminated to reflect the 
disqualification of that household member. The notice requirements for 
individuals or households affected by intentional Program violation 
disqualifications are explained in Sec.  273.16.
    (8) The State agency has elected to assign a longer certification 
period to a household certified on an expedited basis and for whom 
verification was postponed, provided the household has received written 
notice that the receipt of benefits beyond the month of application is 
contingent on its providing the verification which was initially 
postponed and that the State agency may act on the verified information 
without further notice as provided in Sec.  273.2(i)(4).
    (9) The State agency must change the household's benefits back to 
the original benefit level as required in Sec.  273.12(c)(1)(iii).
    (10) Converting a household from cash and/or food stamp coupon 
repayment to benefit reduction as a result of failure to make agreed 
upon repayment as discussed in Sec.  273.18.
    (11) The State agency is terminating the eligibility of a resident 
of a drug or alcoholic treatment center or a group living arrangement if 
the facility loses either its certification from the appropriate agency 
or agencies of the State (as defined in Sec.  271.2) or has its status 
as an authorized representative suspended due to FNS disqualifying it as 
a retailer. However, residents of group living arrangements applying on 
their own behalf are still eligible to participate.
    (12) The household voluntarily requests, in writing or in the 
presence of a caseworker, that its participation be terminated. If the 
household does not provide a written request, the State agency shall 
send the household a letter confirming the voluntary withdrawal. Written 
confirmation does not entail the same rights as a notice of adverse 
action except that the household may request a fair hearing.
    (13) The State agency determines, based on reliable information, 
that the household will not be residing in the project area and, 
therefore, will be unable to obtain its next allotment. The State agency 
shall inform the household of its termination no later than its next 
scheduled issuance date. While the State agency may inform the household 
before its next issuance date, the State agency shall not delay 
terminating the household's participation in order to provide advance 
notice.
    (14) The State agency initiates recoupment of a claim as specified 
in Sec.  273.18(g)(4) against a household which has previously received 
a notice of adverse action with respect to such claim.
    (c) Optional notice. The State agency may, at its option, send the 
household an adequate notice as provided in paragraph (b)(3) of this 
section when the household's address is unknown and mail directed to it 
has been returned by the post office indicating no known forwarding 
address.

[Amdt. 132, 43 FR 47889, Oct. 17, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
273.13, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  273.14  Recertification.

    (a) General. No household may participate beyond the expiration of 
the certification period assigned in accordance with Sec.  273.10(f) 
without a determination of eligibility for a new period. The State 
agency must establish procedures for notifying households of expiration 
dates, providing application forms, scheduling interviews, and 
recertifying eligible households prior to the expiration of 
certification periods. Households must apply for recertification and 
comply with interview and verification requirements.
    (b) Recertification process. (1) Notice of expiration. (i) The State 
agency shall provide households certified for one month or certified in 
the second month of a two-month certification period a notice of 
expiration (NOE) at the time of certification. The State agency shall

[[Page 733]]

provide other households the NOE before the first day of the last month 
of the certification period, but not before the first day of the next-
to-the-last month. Jointly processed PA and GA households need not 
receive a separate food stamp notice if they are recertified for food 
stamps at the same time as their PA or GA redetermination.
    (ii) Each State agency shall develop a NOE. The NOE must contain the 
following:
    (A) The date the certification period expires;
    (B) The date by which a household must submit an application for 
recertification in order to receive uninterrupted benefits;
    (C) The consequences of failure to apply for recertification in a 
timely manner;
    (D) Notice of the right to receive an application form upon request 
and to have it accepted as long as it contains a signature and a legible 
name and address;
    (E) Information on alternative submission methods available to 
households which cannot come into the certification office or do not 
have an authorized representative and how to exercise these options;
    (F) The address of the office where the application must be filed;
    (G) The household's right to request a fair hearing if the 
recertification is denied or if the household objects to the benefit 
issuance;
    (H) Notice that any household consisting only of Supplemental 
Security Income (SSI) applicants or recipients is entitled to apply for 
food stamp recertification at an office of the Social Security 
Administration;
    (I) Notice that failure to attend an interview may result in delay 
or denial of benefits; and
    (J) Notice that the household is responsible for rescheduling a 
missed interview and for providing required verification information.
    (iii) To expedite the recertification process, State agencies are 
encouraged to send a recertification form, an interview appointment 
letter that allows for either in-person or telephone interviews, and a 
statement of needed verification required by Sec.  273.2(c)(5) with the 
NOE.
    (2) Application. The State agency must develop an application to be 
used by households when applying for recertification. It may be the same 
as the initial application, a simplified version, a monthly reporting 
form, or other method such as annotating changes on the initial 
application form. A new household signature and date is required at the 
time of application for recertification. The recertification process can 
only be used for those households which apply for recertification prior 
to the end of their current certification period, except for delayed 
applications as specified in paragraph (e)(3) of this section. The 
process, at a minimum, must elicit from the household sufficient 
information that, when added to information already contained in the 
casefile, will ensure an accurate determination of eligibility and 
benefits. The State agency must notify the applicant of information 
which is specified in Sec.  273.2(b)(2), and provide the household with 
a notice of required verification as specified in Sec.  273.2(c)(5).
    (3) Interview. As part of the recertification process, the State 
agency must conduct a face-to-face interview with a member of the 
household or its authorized representative at least once every 12 months 
for households certified for 12 months or less. The provisions of Sec.  
273.2(e) also apply to interviews for recertification. The State agency 
may choose not to interview the household at interim recertifications 
within the 12-month period. The requirement for a face-to-face interview 
once every 12 months may be waived in accordance with Sec.  273.2(e)(2).
    (ii) If a household receives PA/GA and will be recertified for food 
stamps more than once in a 12-month period, the State agency may choose 
to conduct a face-to-face interview with that household only once during 
that period. At any other recertification during that year period, the 
State agency may interview the household by telephone, conduct a home 
visit, or recertify the household by mail.
    (iii) State agencies shall schedule interviews so that the household 
has at least 10 days after the interview in which to provide 
verification before the certification period expires. If a

[[Page 734]]

household misses its scheduled interview, the State agency shall send 
the household a Notice of Missed Interview that may be combined with the 
notice of denial. If a household misses its scheduled interview and 
requests another interview, the State agency shall schedule a second 
interview.
    (4) Verification. Information provided by the household shall be 
verified in accordance with Sec.  273.2(f)(8)(i). The State agency shall 
provide the household a notice of required verification as provided in 
Sec.  273.2(c)(5) and notify the household of the date by which the 
verification requirements must be satisfied. The household must be 
allowed a minimum of 10 days to provide required verification 
information. Any household whose eligibility is not determined by the 
end of its current certification period due to the time period allowed 
for submitting any missing verification shall receive an opportunity to 
participate, if eligible, within 5 working days after the household 
submits the missing verification and benefits cannot be prorated.
    (c) Timely application for recertification. (1) Households reporting 
required changes in circumstances that are certified for one month or 
certified in the second month of a two-month certification period shall 
have 15 days from the date the NOE is received to file a timely 
application for recertification.
    (2) Other households reporting required changes in circumstances 
that submit applications by the 15th day of the last month of the 
certification period shall be considered to have made a timely 
application for recertification.
    (3) For monthly reporting households, the filing deadline shall be 
either the 15th of the last month of the certification period or the 
normal date for filing a monthly report, at the State agency's option. 
The option chosen must be uniformly applied to the State agency's entire 
monthly reporting caseload.
    (4) For households consisting only of SSI applicants or recipients 
who apply for food stamp recertification at SSA offices in accordance 
with Sec.  273.2(k)(1), an application shall be considered filed for 
normal processing purposes when the signed application is received by 
the SSA.
    (d) Timely processing. (1) Households that were certified for one 
month or certified for two months in the second month of the 
certification period and have met all required application procedures 
shall be notified of their eligibility or ineligibility. Eligible 
households shall be provided an opportunity to receive benefits no later 
than 30 calendar days after the date the household received its last 
allotment.
    (2) Other households that have met all application requirements 
shall be notified of their eligibility or ineligibility by the end of 
their current certification period. In addition, the State agency shall 
provide households that are determined eligible an opportunity to 
participate by the household's normal issuance cycle in the month 
following the end of its current certification period.
    (e) Delayed processing. (1) If an eligible household files an 
application before the end of the certification period but the 
recertification process cannot be completed within 30 days after the 
date of application because of State agency fault, the State agency must 
continue to process the case and provide a full month's allotment for 
the first month of the new certification period. The State agency shall 
determine cause for any delay in processing a recertification 
application in accordance with the provisions of Sec.  273.3(h)(1).
    (2) If a household files an application before the end of the 
certification period, but fails to take a required action, the State 
agency may deny the case at that time, at the end of the certification 
period, or at the end of 30 days. Notwithstanding the State's right to 
issue a denial prior to the end of the certification period, the 
household has 30 days after the end of the certification period to 
complete the process and have its application be treated as an 
application for recertification. If the household takes the required 
action before the end of the certification period, the State agency must 
reopen the case and provide a full month's benefits for the initial 
month of the new certification period. If the household takes the 
required action after the end of the certification period

[[Page 735]]

but within 30 days after the end of the certification period, the State 
agency shall reopen the case and provide benefits retroactive to the 
date the household takes the required action. The State agency shall 
determine cause for any delay in processing a recertification 
application in accordance with the provisions of Sec.  273.3(h)(1).
    (3) If a household files an application within 30 days after the end 
of the certification period, the application shall be considered an 
application for recertification; however, benefits must be prorated in 
accordance with Sec.  273.10(a). If a household's application for 
recertification is delayed beyond the first of the month of what would 
have been its new certification period through the fault of the State 
agency, the household's benefits for the new certification period shall 
be prorated based on the date of the new application, and the State 
agency shall provide restored benefits to the household back to the date 
the household's certification period should have begun had the State 
agency not erred and the household been able to apply timely.
    (f) Expedited service. A State agency is not required to apply the 
expedited service provisions of Sec.  273.2(i) at recertification if the 
household applies for recertification before the end of its current 
certification period.

[Amdt. 364, 61 FR 54318, Oct. 17, 1996, as amended by Amdt. 388, 65 FR 
70210, Nov. 21, 2000]



Sec.  273.15  Fair hearings.

    (a) Availability of hearings. Except as provided in Sec.  271.7(f), 
each State agency shall provide a fair hearing to any household 
aggrieved by any action of the State agency which affects the 
participation of the houshold in the Program.
    (b) Hearing system. Each State agency shall provide for either a 
fair hearing at the State level or for a hearing at the local level 
which permits the household to further appeal a local decision to a 
State level fair hearing. State agencies may adopt local level hearings 
in some project areas and maintain only State level hearings in other 
project areas.
    (c) Timely action on hearings--(1) State level hearings. Within 60 
days of receipt of a request for a fair hearing, the State agency shall 
assure that the hearing is conducted, a decision is reached, and the 
household and local agency are notified of the decision. Decisions which 
result in an increase in household benefits shall be reflected in the 
coupon allotment within 10 days of the receipt of the hearing decision 
even if the State agency must provide a supplementary ATP or otherwise 
provide the household with an opportunity to obtain the allotment 
outside of the normal issuance cycle. However, the State agency may take 
longer than 10 days if it elects to make the decision effective in the 
household's normal issuance cycle, provided that the issuance will occur 
within 60 days from the household's request for the hearing. Decisions 
which result in a decrease in household benefits shall be reflected in 
the next scheduled issuance following receipt of the hearing decision.
    (2) Local level hearings. Within 45 days of receipt of a request for 
a fair hearing, the State agency shall assure that the hearing is 
conducted, and that a decision is reached and reflected in the coupon 
allotment.
    (3) Appeals of local level decisions. Within 45 days of receipt of 
any request for a State level review of a decision or for a new State 
level hearing, the State agency shall assure that the review or the new 
hearing is conducted, and that a decision is reached and reflected in 
the coupon allotment.
    (4) Household requests for postponement. The household may request 
and is entitled to receive a postponement of the scheduled hearing. The 
postponement shall not exceed 30 days and the time limit for action on 
the decision may be extended for as many days as the hearing is 
postponed. For example, if a State level hearing is postponed by the 
household for 10 days, notification of the hearing decision will be 
required within 70 days from the date of the request for a hearing.
    (d) Agency conferences. (1) The State agency shall offer agency 
conferences to households which wish to contest a denial of expedited 
service under the procedures in Sec.  273.2(i). The State agency may 
also offer agency conferences to households adversely affected by an

[[Page 736]]

agency action. The State agency shall advise households that use of an 
agency conference is optional and that it shall in no way delay or 
replace the fair hearing process. The agency conferences may be attended 
by the eligibility worker responsible for the agency action, and shall 
be attended by an eligibility supervisor and/or the agency director, and 
by the household and/or its representative. An agency conference may 
lead to an informal resolution of the dispute. However, a fair hearing 
must still be held unless the household makes a written withdrawal of 
its request for a hearing.
    (2) An agency conference for households contesting a denial of 
expedited service shall be scheduled within 2 working days, unless the 
household requests that it be scheduled later or states that it does not 
wish to have an agency conference.
    (e) Consolidated hearings. State agencies may respond to a series of 
individual requests for hearings by conducting a single group hearing. 
State agencies may consolidate only cases where individual issues of 
fact are not disputed and where related issues of State and/or Federal 
law, regulation or policy are the sole issues being raised. In all group 
hearings, the regulations governing individual hearings must be 
followed. Each individual household shall be permitted to present its 
own case or have its case presented by a representative.
    (f) Notification of right to request hearing. At the time of 
application, each household shall be informed in writing of its right to 
a hearing, of the method by which a hearing may be requested, and that 
its case may be presented by a household member or a representative, 
such as a legal counsel, a relative, a friend or other spokesperson. In 
addition, at any time the household expresses to the State agency that 
it disagrees with a State agency action, it shall be reminded of the 
right to request a fair hearing. If there is an individual or 
organization available that provides free legal representation, the 
household shall also be informed of the availability of that service.
    (g) Time period for requesting hearing. A household shall be allowed 
to request a hearing on any action by the State agency or loss of 
benefits which occurred in the prior 90 days. Action by the State agency 
shall include a denial of a request for restoration of any benefits lost 
more than 90 days but less than a year prior to the request. In 
addition, at any time within a certification period a household may 
request a fair hearing to dispute its current level of benefits.
    (h) Request for hearing. A request for a hearing is defined as a 
clear expression, oral or written, by the household or its 
representative to the effect that it wishes to appeal a decision or that 
an opportunity to present its case to a higher authority is desired. If 
it is unclear from the household's request what action it wishes to 
appeal, the State agency may request the household to clarify its 
grievance. The freedom to make a request for a hearing shall not be 
limited or interfered with in any way.
    (i) State agency responsibilities on hearing requests. (1) Upon 
request, the State agency shall make available without charge the 
specific materials necessary for a household or its representative to 
determine whether a hearing should be requested or to prepare for a 
hearing. If the individual making the request speaks a language other 
than English and the State agency is required by Sec.  272.4(c)(3) to 
provide bilingual staff or interpreters who speak the appropriate 
language, the State agency shall insure that the hearing procedures are 
verbally explained in that language. Upon request, the State agency 
shall also help a household with its hearing request. If a household 
makes an oral request for a hearing, the State agency shall complete the 
procedures necessary to start the hearing process. Households shall be 
advised of any legal services available that can provide representation 
at the hearing.
    (2) The State agency shall expedite hearing requests from 
households, such as migrant farmworkers, that plan to move from the 
jurisdiction of the hearing official before the hearing decision would 
normally be reached. Hearing requests from these households shall be 
processed faster than others if necessary to enable them to receive a 
decision and a restoration of benefits if the

[[Page 737]]

decision so indicates before they leave the area.
    (3) The State agency shall publish clearly written uniform rules of 
procedure that conform to these regulations and shall make the rules 
available to any interested party. At a minimum, the uniform rules of 
procedure shall include the time limits for hearing requests as 
specified in paragraph (g) of this section, advance notification 
requirements as specified in paragraph (i)(1) of this section, hearing 
timeliness standards as specified in paragraph (c) of this section, and 
the rights and responsibilities of persons requesting a hearing as 
specified in paragraph (p) of this section.
    (j) Denial or dismissal of request for hearing. (1) The State agency 
must not deny or dismiss a request for a hearing unless:
    (i) The State agency does not receive the request within the 
appropriate time frame specified in paragraph (g) of this section, 
provided that the State agency considers untimely requests for hearings 
as requests for restoration of lost benefits in accordance with Sec.  
273.17;
    (ii) The household or its representative fails, without good cause, 
to appear at the scheduled hearing;
    (iii) The household or its representative withdraws the request in 
writing; or
    (iv) The household or its representative orally withdraws the 
request and the State agency has elected to allow such oral requests.
    (2) The State agency electing to accept an oral expression from the 
household or its representative to withdraw a fair hearing may discuss 
the option with the household when it appears that the State agency and 
household have resolved issues related to the fair hearing. However, the 
State agency is prohibited from coercion or actions which would 
influence the household or its representative to withdraw the 
household's fair hearing request. The State agency must provide a 
written notice to the household within 10 days of the household's 
request confirming the withdrawal request and providing the household 
with an opportunity to request a hearing. The written notice must advise 
the household it has 10 days from the date it receives the notice to 
advise the State agency of its desire to request, or reinstate, the 
hearing. If the household timely advises the State agency that it wishes 
to reinstate the fair hearing, the State agency must provide the 
household with a fair hearing, within the time frames specified in 
paragraph (c) of this section and beginning the date the household 
advises the State agency that it wishes to reinstate its request. The 
State agency must reinstate a fair hearing as requested from a household 
at least once. The State agency must not deny a household's request for 
a fair hearing if the household is aggrieved by a State agency action 
that differs from the reinstated action.
    (k) Continuation of benefits. (1) If a household requests a fair 
hearing within the period provided by the notice of adverse action, as 
set forth in Sec.  273.13, and its certification period has not expired, 
the household's participation in the program shall be continued on the 
basis authorized immediately prior to the notice of adverse action, 
unless the household specifically waives continuation of benefits. The 
form for requesting a fair hearing shall contain space for the household 
to indicate whether or not continued benefits are requested. If the form 
does not positively indicate that the household has waived continuation 
of benefits, the State agency shall assume that continuation of benefits 
is desired and the benefits shall be issued accordingly. If the State 
agency action is upheld by the hearing decision, a claim against the 
household shall be established for all overissuances, with one 
exception. In the case of an EBT adjustment, as defined in Sec.  
274.12(f)(4)(ii) of this chapter, once an adverse action is upheld, the 
State agency shall immediately debit the household's account for the 
total amount stated in its original notice. If there are no benefits or 
insufficient benefits remaining in the household's account at the time 
the State agency action is upheld, the State agency may only make the 
adjustment from the next month's benefits, regardless of whether this 
satisfies the full adjustment amount. If a hearing request is not made 
within the period provided by the notice of adverse action, benefits

[[Page 738]]

shall be reduced or terminated as provided in the notice. However, if 
the household establishes that its failure to make the request within 
the advance notice period was for good cause, the State agency shall 
reinstate the benefits to the prior basis. When benefits are reduced or 
terminated due to a mass change, participation on the prior basis shall 
be reinstated only if the issue being contested is that food stamp 
eligibility or benefits were improperly computed or that Federal law or 
regulation is being misapplied or misinterpreted by the State agency.
    (2) Once continued or reinstated, the State agency must not reduce 
or terminate benefits prior to the receipt of the official hearing 
decision unless:
    (i) The certification period expires. The household may reapply and 
may be determined eligible for a new certification period with a benefit 
amount as determined by the State agency;
    (ii) The hearing official makes a preliminary determination, in 
writing and at the hearing, that the sole issue is one of Federal law or 
regulation and that the household's claim that the State agency 
improperly computed the benefits or misinterpreted or misapplied such 
law or regulation is invalid;
    (iii) A change affecting the household's eligibility or basis of 
issuance occurs while the hearing decision is pending and the household 
fails to request a hearing after the subsequent notice of adverse 
action;
    (iv) A mass change affecting the household's eligibility or basis of 
issuance occurs while the hearing decision is pending; or
    (v) The household, or its representative, orally withdrew its 
request for a fair hearing and did not advise the State agency of its 
desire to reinstate the fair hearing within the time frame specified in 
paragraph (j)(2) of this section.
    (3) The State agency shall promptly inform the household in writing 
if benefits are reduced or terminated pending the hearing decision.
    (l) Notification of time and place of hearing. The time, date, and 
place of the hearing shall be arranged so that the hearing is accessible 
to the household. At least 10 days prior to the hearing, advance written 
notice shall be provided to all parties involved to permit adequate 
preparation of the case. However, the household may request less advance 
notice to expedite the scheduling of the hearing. The notice shall:
    (1) Advise the household or its representative of the name, address, 
and phone number of the person to notify in the event it is not possible 
for the household to attend the scheduled hearing.
    (2) Specify that the State agency will dismiss the hearing request 
if the household or its representative fails to appear for the hearing 
without good cause.
    (3) Include the State agency hearing procedures and any other 
information that would provide the household with an understanding of 
the proceedings and that would contribute to the effective presentation 
of the household's case.
    (4) Explain that the household or representative may examine the 
case file prior to the hearing.
    (m) Hearing official. Hearings shall be conducted by an impartial 
official(s) who: Does not have any personal stake or involvement in the 
case; was not directly involved in the initial determination of the 
action which is being contested; and was not the immediate supervisor of 
the eligibility worker who took the action. State level hearings shall 
be conducted by State level personnel and shall not be conducted by 
local level personnel.
    (1) Designation of hearing official. The hearing official shall be:
    (i) An employee of the State agency;
    (ii) An individual under contract with the State agency;
    (iii) An employee of another public agency designated by the State 
agency to conduct hearings;
    (iv) A member or official of a statutory board or other legal entity 
designated by the State agency to conduct hearings; or
    (v) An executive officer of the State agency, a panel of officials 
of the State agency or a person or persons expressly appointed to 
conduct State level hearings or to review State and/or local level 
hearing decisions.

[[Page 739]]

    (2) Power and duties. The hearing official shall:
    (i) Administer oaths or affirmations if required by the State;
    (ii) Insure that all relevant issues are considered;
    (iii) Request, receive and make part of the record all evidence 
determined necessary to decide the issues being raised;
    (iv) Regulate the conduct and course of the hearing consistent with 
due process to insure an orderly hearing;
    (v) Order, where relevant and useful, an independent medical 
assessment or professional evaluation from a source mutually 
satisfactory to the household and the State agency;
    (vi) Provide a hearing record and recommendation for final decision 
by the hearing authority; or, if the hearing official is the hearing 
authority, render a hearing decision in the name of the State agency, in 
accordance with paragraph (q) of this section, which will resolve the 
dispute.
    (n) Hearing authority. The hearing authority shall be the person 
designated to render the final administrative decision in a hearing. The 
same person may act as both the hearing official and the hearing 
authority. The hearing authority shall be subject to the requirements 
specified in paragraph (m) of this section.
    (o) Attendance at hearing. The hearing shall be attended by a 
representative of the State agency and by the household and/or its 
representative. The hearing may also be attended by friends or relatives 
of the household if the household so chooses. The hearing official shall 
have the authority to limit the number of persons in attendance at the 
hearing if space limitations exist.
    (p) Household rights during hearing. The household may not be 
familiar with the rules of order and it may be necessary to make 
particular efforts to arrive at the facts of the case in a way that 
makes the household feel most at ease. The household or its 
representative must be given adequate opportunity to:
    (1) Examine all documents and records to be used at the hearing at a 
reasonable time before the date of the hearing as well as during the 
hearing. The contents of the case file including the application form 
and documents of verification used by the State agency to establish the 
household's ineligibility or eligibility and allotment shall be made 
available, provided that confidential information, such as the names of 
individuals who have disclosed information about the household without 
its knowledge or the nature or status of pending criminal prosecutions, 
is protected from release. If requested by the household or its 
representative, the State agency shall provide a free copy of the 
portions of the case file that are relevant to the hearing. Confidential 
information that is protected from release and other documents or 
records which the household will not otherwise have an opportunity to 
contest or challenge shall not be introduced at the hearing or affect 
the hearing official's decision.
    (2) Present the case or have it presented by a legal counsel or 
other person.
    (3) Bring witnesses.
    (4) Advance arguments without undue interference.
    (5) Question or refute any testimony or evidence, including an 
opportunity to confront and cross-examine adverse witnesses.
    (6) Submit evidence to establish all pertinent facts and 
circumstances in the case.
    (q) Hearing decisions. (1) Decisions of the hearing authority shall 
comply with Federal law and regulations and shall be based on the 
hearing record. The verbatim transcript or recording of testimony and 
exhibits, or an official report containing the substance of what 
transpired at the hearing, together with all papers and requests filed 
in the proceeding, shall constitute the exclusive record for a final 
decision by the hearing authority. This record shall be retained in 
accordance with Sec.  272.1(f). This record shall also be available to 
the household or its representative at any reasonable time for copying 
and inspection.
    (2) A decision by the hearing authority shall be binding on the 
State agency and shall summarize the facts of the

[[Page 740]]

case, specify the reasons for the decision, and identify the supporting 
evidence and the pertinent Federal regulations. The decision shall 
become a part of the record.
    (3) The household and the local agency shall each be notified in 
writing of: The decision; the reasons for the decision in accordance 
with paragraph (q)(2) of this section; the available appeal rights; and 
that the household's benefits will be issued or terminated as decided by 
the hearing authority. The notice shall also state that an appeal may 
result in a reversal of the decision. The following are additional 
notice requirements and the available appeal rights:
    (i) After a State level hearing decision which upholds the State 
agency action, the household shall be notified of the right to pursue 
judicial review of the decision. In addition, in States which provide 
for rehearings of State level decisions, the household shall be notified 
of the right to pursue a rehearing.
    (ii) After a local level hearing decision which upholds the State 
agency action, the household shall be notified of the right to request a 
completely new State agency level hearing, and that a reversal of the 
decision may result in the restoration of lost benefits to the 
household. In addition, the household shall be advised that if a new 
hearing would pose an inconvenience to the household, a State level 
review of the decision based on the hearing record may be requested 
instead of a new hearing. A clear description of the two appeal 
procedures must be included to enable the household to make an informed 
choice, if it wishes to appeal. If the household indicates that it 
wishes to appeal, but does not select the method, the State agency shall 
proceed with a new State level hearing.
    (4) If the household wishes to appeal a local level hearing 
decision, the appeal request must be filed within 15 days of the mailing 
date of the hearing decision notice. Within 45 days of receipt of any 
request for a State level review of the decision or for a new State 
level hearing, the State agency shall assure that the review or the 
hearing is conducted, and that a decision is reached and reflected in 
the coupon allotment. If a new hearing will not be held, the State level 
hearing official will review the local level hearing record to determine 
if the local decision was supported by substantial evidence. State level 
review procedures shall provide for notifying the local agency and the 
household that each may file a summary of arguments which shall become a 
part of the record if timely received. Both parties shall be advised 
that failure to file a summary will not be considered in deciding the 
case and that the summary must be postmarked within 10 days of receipt 
of the notice.
    (5) All State agency hearing records and decisions shall be 
available for public inspection and copying, subject to the disclosure 
safeguards provided in Sec.  272.1(c), and provided identifying names 
and addresses of household members and other members of the public are 
kept confidential.
    (r) Implementation of local level hearing decision. (1) In the event 
the local hearing decision upholds the State agency action, any benefits 
to the household which were continued pending the hearing shall be 
discontinued beginning with the next scheduled issuance, regardless of 
whether or not an appeal is filed. Collection action for any claims 
against the household for overissuances shall be postponed until the 15-
day appeal request period has elapsed, or if an appeal is requested, 
until the State agency upholds the decision of the local hearing 
authority.
    (2) In the event the local hearing authority decides in favor of the 
household, benefits to the household shall begin or be reinstated, as 
required by the decision, within the 45-day time limit allowed for local 
hearing procedures. Any lost benefits due to the household shall be 
issued as soon as administratively feasible. The State agency shall 
restore benefits to households which are leaving the project area before 
the departure whenever possible. If benefits are not restored prior to 
the household's departure, the State agency shall forward an 
authorization to the benefits to the household or to the new project 
area if this information is known. The new project area shall accept an 
authorization and issue

[[Page 741]]

the appropriate benefits whether the notice is presented by the 
household or received directly from another project area.
    (s) Implementation of final State agency decisions. The State agency 
is responsible for insuring that all final hearing decisions are 
reflected in the household's coupon allotment within the time limits 
specified in paragraph (c) of this section.
    (1) When the hearing authority determines that a household has been 
improperly denied program benefits or has been issued a lesser allotment 
than was due, lost benefits shall be provided to the household in 
accordance with Sec.  273.17. The State agency shall restore benefits to 
households which are leaving the project area before the departure 
whenever possible. If benefits are not restored prior to the household's 
departure, the State agency shall forward an authorization to the 
benefits to the household or to the new project area if this information 
is known. The new project area shall accept an authorization and issue 
the appropriate benefits whether the notice is presented by the 
household or received directly from another proj ect area.
    (2) When the hearing authority upholds the State agency's action, a 
claim against the household for any overissuances shall be prepared in 
accordance with Sec.  273.18.
    (t) Review of appeals of local level decisions. State agencies which 
adopt a local level hearing system shall establish a procedure for 
monitoring local level hearing decisions. The number of local level 
decisions overturned upon appeal to a State level hearing shall be 
examined. If the number of reversed decisions is excessive, the State 
agency shall take corrective action.
    (u) Departmental review of decisions contrary to Federal law and 
regulations. [Reserved]

[Amdt. 132, 43 FR 47889, Oct. 17, 1978, as amended by Amdt. 132, 44 FR 
33385, June 8, 1979; Amdt. 146, 46 FR 1427, Jan. 6, 1981; Amdt. 269, 51 
FR 10793, Mar. 28, 1986; Amdt. 356, 59 FR 29713, June 9, 1994; 64 FR 
48938, Sept. 9, 1999; Amdt. 378, 65 FR 41325, July 5, 2000; Amdt. 388, 
65 FR 70211, Nov. 21, 2000]



Sec.  273.16  Disqualification for intentional Program violation.

    (a) Administrative responsibility. (1) The State agency shall be 
responsible for investigating any case of alleged intentional Program 
violation, and ensuring that appropriate cases are acted upon either 
through administrative disqualification hearings or referral to a court 
of appropriate jurisdiction in accordance with the procedures outlined 
in this section. Administrative disqualification procedures or referral 
for prosecution action should be initiated by the State agency in cases 
in which the State agency has sufficient documentary evidence to 
substantiate that an individual has intentionally made one or more acts 
of intentional Program violation as defined in paragraph (c) of this 
section. If the State agency does not initiate administrative 
disqualification procedures or refer for prosecution a case involving an 
overissuance caused by a suspected act of intentional Program violation, 
the State agency shall take action to collect the overissuance by 
establishing an inadvertent household error claim against the household 
in accordance with the procedures in Sec.  273.18. The State agency 
should conduct administrative disqualification hearings in cases in 
which the State agency believes the facts of the individual case do not 
warrant civil or criminal prosecution through the appropriate court 
system, in cases previously referred for prosecution that were declined 
by the appropriate legal authority, and in previously referred cases 
where no action was taken within a reasonable period of time and the 
referral was formally withdrawn by the State agency. The State agency 
shall not initiate an administrative disqualification hearing against an 
accused individual whose case is currently being referred for 
prosecution or subsequent to any action taken against the accused 
individual by the prosecutor or court of appropriate jurisdiction, if 
the factual issues of the case arise out of the same, or related, 
circumstances. The State agency may initiate administrative 
disqualification procedures or refer a case for prosecution regardless 
of the current eligibility of the individual.

[[Page 742]]

    (2) Each State agency shall establish a system for conducting 
administrative disqualifications for intentional Program violation which 
conforms with the procedures outlined in paragraph (e) of this section. 
FNS shall exempt any State agency from the requirement to establish an 
administrative disqualification system if the State agency has already 
entered into an agreement, pursuant to paragraph (g)(1) of this section, 
with the State's Attorney General's Office or, where necessary, with 
county prosecutors. FNS shall also exempt any State agency from the 
requirement to establish an administrative disqualification system if 
there is a State law that requires the referral of such cases for 
prosecution and if the State agency demonstrates to FNS that it is 
actually referring cases for prosecution and that prosecutors are 
following up on the State agency's referrals. FNS may require a State 
agency to establish an administrative disqualification system if it 
determines that the State agency is not promptly or actively pursuing 
suspected intentional Program violation claims through the courts.
    (3) The State agency shall base administrative disqualifications for 
intentional Program violations on the determinations of hearing 
authorities arrived at through administrative disqualification hearings 
in accordance with paragraph (e) of this section or on determinations 
reached by courts of appropriate jurisdiction in accordance with 
paragraph (g) of this section. However, any State agency has the option 
of allowing accused individuals either to waive their rights to 
administrative disqualification hearings in accordance with paragraph 
(f) of this section or to sign disqualification consent agreements for 
cases of deferred adjudication in accordance with paragraph (h) of this 
section. Any State agency which chooses either of these options may base 
administrative disqualifications for intentional Program violation on 
the waived right to an administrative disqualification hearing or on the 
signed disqualification consent agreement in cases of deferred 
adjudication.
    (b) Disqualification penalties. (1) Individuals found to have 
committed an intentional Program violation either through an 
administrative disqualification hearing or by a Federal, State or local 
court, or who have signed either a waiver of right to an administrative 
disqualification hearing or a disqualification consent agreement in 
cases referred for prosecution, shall be ineligible to participate in 
the Program:
    (i) For a period of twelve months for the first intentional Program 
violation, except as provided under paragraphs (b)(2), (b)(3), (b)(4), 
and (b)(5) of this section;
    (ii) For a period of twenty-four months upon the second occasion of 
any intentional Program violation, except as provided in paragraphs 
(b)(2), (b)(3), (b)(4), and (b)(5) of this section; and
    (iii) Permanently for the third occasion of any intentional Program 
violation.
    (2) Individuals found by a Federal, State or local court to have 
used or received benefits in a transaction involving the sale of a 
controlled substance (as defined in section 102 of the Controlled 
Substances Act (21 U.S.C. 802)) shall be ineligible to participate in 
the Program:
    (i) For a period of twenty four months upon the first occasion of 
such violation; and
    (ii) Permanently upon the second occasion of such violation.
    (3) Individuals found by a Federal, State or local court to have 
used or received benefits in a transaction involving the sale of 
firearms, ammunition or explosives shall be permanently ineligible to 
participate in the Program upon the first occasion of such violation.
    (4) An individual convicted by a Federal, State or local court of 
having trafficked benefits for an aggregate amount of $500 or more shall 
be permanently ineligible to participate in the Program upon the first 
occasion of such violation.
    (5) Except as provided under paragraph (b)(1)(iii) of this section, 
an individual found to have made a fraudulent

[[Page 743]]

statement or representation with respect to the identity or place of 
residence of the individual in order to receive multiple food stamp 
benefits simultaneously shall be ineligible to participate in the 
Program for a period of 10 years.
    (6) The penalties in paragraphs (b)(2) and (b)(3) of this section 
shall also apply in cases of deferred adjudication as described in 
paragraph (h) of this section, where the court makes a finding that the 
individual engaged in the conduct described in paragraph (b)(2) and 
(b)(3) of this section.
    (7) If a court fails to impose a disqualification or a 
disqualification period for any intentional Program violation, the State 
agency shall impose the appropriate disqualification penalty specified 
in paragraphs (b)(1), (b)(2), (b)(3), (b)(4), and (b)(5) of this section 
unless it is contrary to the court order.
    (8) One or more intentional Program violations which occurred prior 
to April 1, 1983 shall be considered as only one previous 
disqualification when determining the appropriate penalty to impose in a 
case under consideration.
    (9) Regardless of when an action taken by an individual which caused 
an intentional Program violation occurred, the disqualification periods 
specified in paragraphs (b)(2) and (b)(3) of this section shall apply to 
any case in which the court makes the requisite finding on or after 
September 1, 1994.
    (10) For the disqualification periods in paragraphs (b)(1), (b)(5) 
or (b)(6) of this section, if the offense occurred prior to the 
implementation of these penalties, the State agency may establish a 
policy of disqualifying these individuals in accordance with the 
disqualification periods in effect at the time of the offense. This 
policy must be consistently applied for all affected individuals.
    (11) State agencies shall disqualify only the individual found to 
have committed the intentional Program violation, or who signed the 
waiver of the right to an administrative disqualification hearing or 
disqualification consent agreement in cases referred for prosecution, 
and not the entire household.
    (12) Even though only the individual is disqualified, the household, 
as defined in Sec.  273.1, is responsible for making restitution for the 
amount of any overpayment. All intentional Program violation claims must 
be established and collected in accordance with the procedures set forth 
in Sec.  273.18.
    (13) The individual must be notified in writing once it is 
determined that he/she is to be disqualified. The disqualification 
period shall begin no later than the second month which follows the date 
the individual receives written notice of the disqualification. The 
disqualification period must continue uninterrupted until completed 
regardless of the eligibility of the disqualified individual's 
household.
    (c) Definition of intentional Program violation. Intentional Program 
violations shall consist of having intentionally:
    (1) made a false or misleading statement, or misrepresented, 
concealed or withheld facts; or
    (2) committed any act that constitutes a violation of the Food Stamp 
Act, the Food Stamp Program Regulations, or any State statute for the 
purpose of using, presenting, transferring, acquiring, receiving, 
possessing or trafficking of coupons, authorization cards or reusable 
documents used as part of an automated benefit delivery system (access 
device).
    (d) Notification to applicant households. The State agency shall 
inform the household in writing of the disqualification penalties for 
intentional Program violation each time it applies for Program benefits. 
The penalties shall be in clear, prominent, and boldface lettering on 
the application form.
    (e) Disqualification hearings. The State agency shall conduct 
administrative disqualification hearings for individuals accused of 
intentional Program violation in accordance with the requirements 
outlined in this section.
    (1) Consolidation of administrative disqualification hearing with 
fair hearing. The State agency may combine a fair hearing and an 
administrative disqualification hearing into a single hearing if the 
factual issues arise out of the same, or related, circumstances and the 
household receives prior notice that hearings will be combined. If the 
disqualification hearing and fair hearing are combined, the State agency

[[Page 744]]

shall follow the timeframes for conducting disqualification hearings. If 
the hearings are combined for the purpose of settling the amount of the 
claim at the same time as determining whether or not intentional Program 
violation has occurred, the household shall lose its right to a 
subsequent fair hearing on the amount of the claim. However, the State 
agency shall, upon household request, allow the household to waive the 
30-day advance notice period required by paragraph (e)(3)(i) of this 
section when the disqualification hearing and fair hearing are combined.
    (2) Disqualification hearing procedures. (i) State agencies have the 
option of using the same hearing officials for disqualification hearings 
and fair hearings or designating hearing officials to conduct only 
disqualification hearings.
    (ii) The provisions of Sec.  273.15 (m), (n), (o), (p), and (q)(1) 
are also applicable for disqualification hearings.
    (iii) At the disqualification hearing, the hearing official shall 
advise the household member or representative that they may refuse to 
answer questions during the hearing.
    (iv) Within 90 days of the date the household member is notified in 
writing that a State or local hearing initiated by the State agency has 
been scheduled, the State agency shall conduct the hearing, arrive at a 
decision and notify the household member and local agency of the 
decision. The household member or representative is entitled to a 
postponement of the scheduled hearing, provided that the request for 
postponement is made at least 10 days in advance of the date of the 
scheduled hearing. However, the hearing shall not be postponed for more 
than a total of 30 days and the State agency may limit the number of 
postponements to one. If the hearing is postponed, the above time limits 
shall be extended for as many days as the hearing is postponed.
    (v) The State agency shall publish clearly written rules of 
procedure for disqualification hearings, and shall make these procedures 
available to any interested party.
    (3) Advance notice of hearing. (i) The State agency shall provide 
written notice to the individual suspected of committing an intentional 
Program violation at least 30 days in advance of the date a 
disqualification hearing initiated by the State agency has been 
scheduled. If mailed, the notice shall be sent either first class mail 
or certified mail-return receipt requested. The notice may also be 
provided by any other reliable method. If the notice is sent using first 
class mail and is returned as undeliverable, the hearing may still be 
held.
    (ii) If no proof of receipt is obtained, a timely (as defined in 
paragraph (e)(4) of this section) showing of nonreceipt by the 
individual due to circumstances specified by the State agency shall be 
considered good cause for not appearing at the hearing. Each State 
agency shall establish the circumstances in which non-receipt 
constitutes good cause for failure to appear. Such circumstances shall 
be consistent throughout the State agency.
    (iii) The notice shall contain at a minimum:
    (A) The date, time, and place of the hearing;
    (B) The charge(s) against the individual;
    (C) A summary of the evidence, and how and where the evidence can be 
examined;
    (D) A warning that the decision will be based solely on information 
provided by the State agency if the individual fails to appear at the 
hearing;
    (E) A statement that the individual or representative will, upon 
receipt of the notice, have 10 days from the date of the scheduled 
hearing to present good cause for failure to appear in order to receive 
a new hearing;
    (F) A warning that a determination of intentional Program violation 
will result in disqualification periods as determined by paragraph (b) 
of this section, and a statement of which penalty the State agency 
believes is applicable to the case scheduled for a hearing;
    (G) A listing of the individual's rights as contained in Sec.  
273.15(p);
    (H) A statement that the hearing does not preclude the State or 
Federal Government from prosecuting the individual for the intentional 
Program violation in a civil or criminal court action, or from 
collecting any overissuance(s); and

[[Page 745]]

    (I) If there is an individual or organization available that 
provides free legal representation, the notice shall advise the affected 
individual of the availability of the service.
    (iv) A copy of the State agency's published hearing procedures shall 
be attached to the 30-day advance notice or the advance notice shall 
inform the individual of his/her right to obtain a copy of the State 
agency's published hearing procedures upon request.
    (v) Each State agency shall develop an advance notice form which 
contains the information required by this section.
    (4) Scheduling of hearing. The time and place of the hearing shall 
be arranged so that the hearing is accessible to the household member 
suspected of intentional Program violation. If the household member or 
its representative cannot be located or fails to appear at a hearing 
initiated by the State agency without good cause, the hearing shall be 
conducted without the household member being represented. Even though 
the household member is not represented, the hearing official is 
required to carefully consider the evidence and determine if intentional 
Program violation was committed based on clear and convincing evidence. 
If the household member is found to have committed an intentional 
Program violation but a hearing official later determines that the 
household member or representative had good cause for not appearing, the 
previous decision shall no longer remain valid and the State agency 
shall conduct a new hearing. The hearing official who originally ruled 
on the case may conduct the new hearing. In instances where good cause 
for failure to appear is based upon a showing of nonreceipt of the 
hearing notice as specified in paragraph (e)(3)(ii) of this section, the 
household member has 30 days after the date of the written notice of the 
hearing decision to claim good cause for failure to appear. In all other 
instances, the household member has 10 days from the date of the 
scheduled hearing to present reasons indicating a good cause for failure 
to appear. A hearing official must enter the good cause decision into 
the record.
    (5) Participation while awaiting a hearing. A pending 
disqualification hearing shall not affect the individual's or the 
household's right to be certified and participate in the Program. Since 
the State agency cannot disqualify a household member for intentional 
Program violation until the hearing official finds that the individual 
has committed intentional Program violation, the State agency shall 
determine the eligibility and benefit level of the household in the same 
manner it would be determined for any other household. For example, if 
the misstatement or action for which the household member is suspected 
of intentional Program violation does not affect the household's current 
circumstances, the household would continue to receive its allotment 
based on the latest certification action or be recertified based on a 
new application and its current circumstances. However, the household's 
benefits shall be terminated if the certification period has expired and 
the household, after receiving its notice of expiration, fails to 
reapply. The State agency shall also reduce or terminate the household's 
benefits if the State agency has documentation which substantiates that 
the household is ineligible or eligible for fewer benefits (even if 
these facts led to the suspicion of intentional Program violation and 
the resulting disqualification hearing) and the household fails to 
request a fair hearing and continuation of benefits pending the hearing. 
For example, the State agency may have facts which substantiate that a 
household failed to report a change in its circumstances even though the 
State agency has not yet demonstrated that the failure to report 
involved an intentional act of Program violation.
    (6) Criteria for determining intentional Program violation. The 
hearing authority shall base the determination of intentional Program 
violation on clear and convincing evidence which demonstrates that the 
household member(s) committed, and intended to commit, intentional 
Program violation as defined in paragraph (c) of this section.
    (7) Decision format. The hearing authority's decision shall specify 
the reasons for the decision, identify the

[[Page 746]]

supporting evidence, identify the pertinent FNS regulation, and respond 
to reasoned arguments made by the household member or representative.
    (8) Imposition of disqualification penalties. (i) If the hearing 
authority rules that the individual has committed an intentional Program 
violation, the household member must be disqualified in accordance with 
the disqualification periods and procedures in paragraph (b) of this 
section. The same act of intentional Program violation repeated over a 
period of time must not be separated so that separate penalties can be 
imposed.
    (ii) No further administrative appeal procedure exists after an 
adverse State level hearing. The determinaton of intentional Program 
violation made by a disqualification hearing official cannot be reversed 
by a subsequent fair hearing decision. The household member, however, is 
entitled to seek relief in a court having appropriate jurisdiction. The 
period of disqualification may be subject to stay by a court of 
appropriate jurisdiction or other injunctive remedy.
    (iii) Once a disqualification penalty has been imposed against a 
currently participating household member, the period of disqualification 
shall continue uninterrupted until completed regardless of the 
eligibility of the disqualifed member's household. However, the 
disqualified member's household shall continue to be responsible for 
repayment of the overissuance which resulted from the disqualified 
member's intentional Program violation regardless of its eligibility for 
Program benefits.
    (9) Notification of hearing decision. (i) If the hearing official 
finds that the household member did not commit intentional Program 
violation, the State agency shall provide a written notice which informs 
the household member of the decision.
    (ii) If the hearing official finds that the household member 
committed intentional Program violation, the State agency shall provide 
written notice to the household member prior to disqualification. The 
notice shall inform the household member of the decision and the reason 
for the decision. In addition, the notice shall inform the household 
member of the date the disqualification will take effect. If the 
individual is no longer participating, the notice shall inform the 
individual that the period of disqualification will be deferred until 
such time as the individual again applies for and is determined eligible 
for Program benefits. The State agency shall also provide written notice 
to the remaining household members, if any, of either the allotment they 
will receive during the period of disqualification or that they must 
reapply because the certification period has expired. The procedures for 
handling the income and resources of the disqualified member are 
described in Sec.  273.11(c). A written demand letter for restitution, 
as described in Sec.  273.18(d)(3), shall also be provided.
    (iii) Each State agency shall develop a form for notifying 
individuals that they have been found by an administrative 
disqualification hearing to have committed intentional Program 
violation. The form shall contain the information required by this 
section.
    (10) Local level hearings. (i) The State agency may choose to 
provide administrative disqualification hearings at the local level in 
some or all of its project areas with a right to appeal to a State level 
hearing. If a local level disqualification hearing determines that a 
household member committed intentional Program violation, the 
notification of hearing decision described in paragraph (e)(9) of this 
section shall also inform the household member of the right to appeal 
the decision within 15 days after the receipt of the notice, the date 
the disqualification will take effect unless a State level hearing is 
requested, and that benefits will be continued pending a State level 
hearing if the household is otherwise eligible. If the household member 
appeals the local level decision, the advance notice of hearing, as 
described in paragraph (e)(3) of this section, shall be provided at 
least 10 days in advance of the scheduled State level hearing and shall 
also inform the household member that the local hearing decision will be 
upheld if the household or its representative fails to appear for the 
hearing without good cause. When a local level decision is appealed, the 
State agency shall conduct the State level

[[Page 747]]

hearing, arrive at a decision, and notify the household member and local 
agency of the decision within 60 days of the date the household member 
appealed its case. The prior decision shall not be taken into 
consideration by the State hearing officer in making the final 
determination. In all other respects, local level disqualification 
hearings shall be handled in accordance with the procedures specified in 
this section for State level hearings.
    (ii) The State agency shall develop appropriate forms which contain 
the information required by this section for notification of a local 
level hearing decision and advance notice of a scheduled State level 
hearing for appeal of a local level decision.
    (f) Waived hearings. Each State agency shall have the option of 
establishing procedures to allow accused individuals to waive their 
rights to an administrative disqualification hearing. For State agencies 
which choose the option of allowing individuals to waive their rights to 
an administrative disqualification hearing, the procedures shall conform 
with the requirements outlined in this section.
    (1) Advance notification. (i) The State agency shall provide written 
notification to the household member suspected of intentional Program 
violation that the member can waive his/her right to an administrative 
disqualification hearing. Prior to providing this written notification 
to the household member, the State agency shall ensure that the evidence 
against the household member is reviewed by someone other than the 
eligibility worker assigned to the accused individual's household and a 
decision is obtained that such evidence warrants scheduling a 
disqualification hearing.
    (ii) The written notification provided to the household member which 
informs him/her of the possibility of waiving the administrative 
disqualification hearing shall include, at a minimum:
    (A) The date that the signed waiver must be received by the State 
agency to avoid the holding of a hearing and a signature block for the 
accused individual, along with a statement that the head of household 
must also sign the waiver if the accused individual is not the head of 
household, with an appropriately designated signature block;
    (B) A statement of the accused individual's right to remain silent 
concerning the charge(s), and that anything said or signed by the 
individual concerning the charge(s) can be used against him/her in a 
court of law;
    (C) The fact that a waiver of the disqualification hearing will 
result in disqualification and a reduction in benefits for the period of 
disqualification, even if the accused individual does not admit to the 
facts as presented by the State agency;
    (D) An opportunity for the accused individual to specify whether or 
not he/she admits to the facts as presented by the State agency. This 
opportunity shall consist of the following statements, or statements 
developed by the State agency which have the same effect, and a method 
for the individual to designate his/her choice:
    (1) I admit to the facts as presented, and understand that a 
disqualification penalty will be imposed if I sign this waiver; and
    (2) I do not admit that the facts as presented are correct. However, 
I have chosen to sign this waiver and understand that a disqualification 
penalty will result;
    (E) The telephone number and, if possible, the name of the person to 
contact for additional information; and
    (F) The fact that the remaining household members, if any, will be 
held responsible for repayment of the resulting claim.
    (iii) The State agency shall develop a waiver of right to an 
administrative disqualification hearing form which contains the 
information required by this section as well as the information 
described in paragraph (e)(3) of this section for advance notice of a 
hearing. However, if the household member is notified of the possibility 
of waiving his/her right to an administrative disqualification hearing 
before the State agency has scheduled a hearing, the State agency is not 
required to notify the household member of the date, time and place of 
the hearing at that point as required by paragraph (e)(3)(i)(A) of this 
section.

[[Page 748]]

    (2) Imposition of disqualification penalties. (i) If the household 
member suspected of intentional Program violation signs the waiver of 
right to an administrative disqualification hearing and the signed 
waiver is received within the timeframes specified by the State agency, 
the household member shall be disqualified in accordance with the 
disqualification periods specified in paragraph (b) of this section. The 
period of disqualification shall begin with the first month which 
follows the date the household member receives written notification of 
the disqualification. However, if the act of intentional Program 
violation which led to the disqualification occurred prior to the 
written notification of the disqualification periods specified in 
paragraph (b) of this section, the household member shall be 
disqualified in accordance with the disqualification periods in effect 
at the time of the offense. The same act of intentional Program 
violation repeated over a period of time shall not be separated so that 
separate penalties can be imposed.
    (ii) No further administrative appeal procedure exists after an 
individual waives his/her right to an administrative disqualification 
hearing and a disqualification penalty has been imposed. The 
disqualification penalty cannot be changed by a subsequent fair hearing 
decision. The household member, however is entitled to seek relief in a 
court having appropriate jurisdiction. The period of disqualification 
may be subject to stay by a court of appropriate jurisdiction or other 
injunctive remedy.
    (iii) Once a disqualification penalty has been imposed against a 
currently participating household member, the period of disqualification 
shall continue uninterrupted until completed regardless of the 
eligibility of the disqualified member's household. However, the 
disqualified member's household shall continue to be responsible for 
repayment of the overissuance which resulted from the disqualified 
member's intentional Program violation regardless of its eligibility for 
Program benefits.
    (3) Notification of disqualification. The State agency shall provide 
written notice to the household member prior to disqualification. The 
State agency shall also provide written notice to any remaining 
household members of the allotment they will receive during the period 
of disqualification or that they must reapply because the certification 
period has expired. The notice(s) shall conform to the requirements for 
notification of a hearing decision specified in paragraph (e)(9) of this 
section. A written demand letter for restitution, as described in Sec.  
273.18(d)(3), shall also be provided.
    (4) Waiver of hearing at local level. Any State agency which has 
adopted the two-tiered approach for administrative disqualification 
hearings may also provide for waiver of the right to disqualification 
hearing procedures outlined in this section.
    (g) Court referrals. Any State agency exempted from the requirement 
to establish an administrative disqualification system in accordance 
with paragraph (a) of this section shall refer appropriate cases for 
prosecution by a court of appropriate jurisdiction in accordance with 
the requirements outlined in this section.
    (1) Appropriate cases. (i) The State agency shall refer cases of 
alleged intentional Program violation for prosecution in accordance with 
an agreement with prosecutors or State law. The agreement shall provide 
for prosecution of intentional Program violation cases and include the 
understanding that prosection will be pursued in cases where 
appropriate. This agreement shall also include information on how, and 
under what circumstances, cases will be accepted for possible 
prosecution and any other criteria set by the prosecutor for accepting 
cases for prosecution, such as a minimum amount of overissuance which 
resulted from intentional Program violation.
    (ii) State agencies are encouraged to refer for prosecution under 
State or local statutes those individuals suspected of committing 
intentional Program violation, particularly if large amounts of food 
stamps are suspected of having been obtained by intentional Program 
violation, or the individual is suspected of committing more than one 
act of intentional Program violation. The State agency shall confer with 
its

[[Page 749]]

legal representative to determine the types of cases which will be 
accepted for possible prosecution. State agencies shall also encourage 
State and local prosecutors to recommend to the courts that a 
disqualification penalty as provided in section 6(b) of the Food Stamp 
Act be imposed in addition to any other civil or criminal penalties for 
such violations.
    (2) Imposition of disqualification penalties. (i) State agencies 
shall disqualify an individual found guilty of intentional Program 
violation for the length of time specified by the court. If the court 
fails to impose a disqualification period, the State agency shall impose 
a disqualification period in accordance with the provisions in paragraph 
(b) of this section, unless contrary to the court order. If 
disqualification is ordered but a date for initiating the 
disqualification period is not specified, the State agency shall 
initiate the disqualification period for currently eligible individuals 
within 45 days of the date the disqualification was ordered. Any other 
court-imposed disqualification shall begin within 45 days of the date 
the court found a currently eligible individual guilty of civil or 
criminal misrepresentation or fraud.
    (ii) Once a disqualification penalty has been imposed against a 
currently participating household member, the period of disqualification 
shall continue uninterrupted until completed regardless of the 
eligibility of the disqualified member's household. However, the 
disqualified member's household shall continue to be responsible for 
repayment of the overissuance which resulted from the disqualified 
member's intentional Program violation regardless of its eligibility for 
Program benefits.
    (3) Notification of disqualification. If the court finds that the 
household member committed intentional Program violation, the State 
agency shall provide written notice to the household member. The notice 
shall be provided prior to disqualification, whenever possible. The 
notice shall inform the household member of the disqualification and the 
date the disqualification will take effect. The State agency shall also 
provide written notice to the remaining household members, if any, of 
the allotment they will receive during the period of disqualification or 
that they must reapply because the certification period has expired. The 
procedures for handling the income and resources of the disqualified 
member are described in Sec.  273.11(c). In addition, the State agency 
shall provide the written demand letter for restitution described in 
Sec.  273.18(d)(3).
    (h) Deferred adjudication. Each State agency shall have the option 
of establishing procedures to allow accused individuals to sign 
disqualification consent agreements for cases of deferred adjudication. 
State agencies are encouraged to use this option for those cases in 
which a determination of guilt is not obtained from a court due to the 
accused individual having met the terms of a court order or which are 
not prosecuted due to the accused individual having met the terms of an 
agreement with the prosecutor. For State agencies which choose the 
option of allowing individuals to sign disqualification consent 
agreements in cases referred for prosecution, the procedures shall 
conform with the requirements outlined in this section.
    (1) Advance notification. (i) The State agency shall enter into an 
agreement with the State's Attorney General's Office or, where 
necessary, with county prosecutors which provides for advance written 
notification to the household member of the consequences of consenting 
to disqualification in cases of deferred adjudication.
    (ii) The written notification provided to the household member which 
informs him/her of the consequences of consenting to disqualification as 
a part of deferred adjudication shall include, at a minimum:
    (A) A statement for the accused individual to sign that the accused 
individual understands the consequences of consenting to 
disqualification, along with a statement that the head of household must 
also sign the consent agreement if the accused individual is not the 
head of household, with an appropriately designated signature block.
    (B) A statement that consenting to disqualification will result in 
disqualification and a reduction in benefits for the period of 
disqualification, even though the accused individual was not

[[Page 750]]

found guilty of civil of criminal misrepresentation or fraud.
    (C) A warning that the disqualification periods for intentional 
Program violations under the Food Stamp Program are as specified in 
paragraph (b) of this section, and a statement of which penalty will be 
imposed as a result of the accused individual having consented to 
disqualification.
    (D) A statement of the fact that the remaining household members, if 
any, will be held responsible for repayment of the resulting claim, 
unless the accused individual has already repaid the claim as a result 
of meeting the terms of the agreement with the prosecutor or the court 
order.
    (iii) The State agency shall develop a disqualification consent 
agreement, or language to be included in the agreements reached between 
the prosecutors and accused individuals or in the court orders, which 
contains the information required by this section for notifying a 
household member suspected of intentional Program violation of the 
consequences of signing a disqualification consent agreement.
    (2) Imposition of disqualification penalties. (i) If the household 
member suspected of intentional Program violation signs the 
disqualification consent agreement, the household member shall be 
disqualified in accordance with the disqualification periods specified 
in paragraph (b) of this section, unless contrary to the court order. 
The period of disqualification shall begin within 45 days of the date 
the household member signed the disqualification consent agreement. 
However, if the court imposes a disqualification period or specifies the 
date for initiating the disqualification period, the State agency shall 
disqualify the household member in accordance with the court order.
    (ii) Once a disqualification penalty has been imposed against a 
currently participating household member, the period of disqualification 
shall continue uninterrupted until completed regardless of the 
eligibility of the disqualified member's household. However, the 
disqualified member's household shall continue to be responsible for 
repayment of the overissuance which resulted from the disqualified 
member's intentional Program violation regardless of its eligibility for 
Program benefits.
    (3) Notification of disqualification. If the household member 
suspected of intentional Program violation signs the disqualification 
consent agreement, the State agency shall provide written notice to the 
household member. The notice shall be provided prior to 
disqualification, whenever possible. The notice shall inform the 
household member of the disqualification and the date the 
disqualification will take effect. The State agency shall also provide 
written notice to the remaining household members, if any, of the 
allotment they will receive during the period of disqualification or 
that they must reapply because the certification period has expired. The 
procedures for handling the income and resources of the disqualified 
member are described in Sec.  273.11(c). In addition, the State agency 
shall provide the written demand letter for restitution described in 
Sec.  273.18(d)(3).
    (i) Reporting requirements. (1) Each State agency shall report to 
FNS information concerning individuals disqualified for intentional 
Program violation, including those individuals disqualified based on the 
determination of an administrative disqualification hearing official or 
a court of appropriate jurisdiction and those individuals disqualified 
as a result of signing either a waiver of right to a disqualification 
hearing or a disqualification consent agreement in cases referred for 
prosecution. This information shall be submitted to FNS so that it is 
received no later than 30 days after the date the disqualification took 
effect, or would have taken effect for a currently ineligible individual 
whose disqualification is pending future eligibility.
    (2) Each State agency shall report information concerning each 
individual disqualified for intentional Program violation in a format 
designed by FNS. This format shall include the individual's social 
security number, date of birth, and full name, the number of the 
disqualification (1st, 2nd, or 3rd), 
the State and county in which the disqualification took place, the date 
on which the disqualification took effect, and the length of the 
disqualification period imposed.

[[Page 751]]

    (3) Each State agency shall submit the required information on each 
individual disqualified for intentional Program violation through a 
reporting system in accordance with procedures specified by FNS.
    (4) All the data submitted by State agencies will be available for 
use by any State Welfare Agency.
    (i) State agencies shall, at a minimum, use the data for the 
following:
    (A) To determine the eligibility of individual Program applicants 
prior to certification in cases where the State agency has reason to 
believe a household member is subject to disqualification in another 
political jurisdiction, and
    (B) To ascertain the appropriate penalty to impose, based on past 
disqualifications, in a case under consideration.
    (ii) State agencies may also use the data in other ways, such as the 
following:
    (A) To screen all program applicants prior to certification, and
    (B) To periodically match the entire list of disqualified 
individuals against their current caseloads.
    (5) The disqualification of an individual for intentional Program 
violation in one political jurisdiction shall be valid in another. 
However, one or more intentional Program violations which occurred prior 
to April 1, 1983 shall be considered as only one previous 
disqualification when determining the appropriate penalty to impose in a 
case under consideration, regardless of where the disqualification(s) 
took place. State agencies are required to identify any individuals 
disqualified for fraud prior to implementation of this rule and to 
submit the information required by this section on such individuals.
    (6) In cases where the imposition of a disqualification penalty is 
being held pending the future eligibility of a household member found to 
have committed intentional Program violation, the State agency shall 
submit a report revising the original disqualification report once the 
individual begins the period of disqualification in accordance with 
instructions provided by FNS.
    (7) In cases where the disqualification for intentional Program 
violation is reversed by a court of appropriate jurisdiction, the State 
agency shall submit a report to purge the file of the information 
relating to the disqualification which was reversed in accordance with 
instructions provided by FNS.
    (j) Reversed disqualifications. In cases where the determination of 
intentional program violation is reversed by a court of appropriate 
jurisdiction, the State agency shall reinstate the individual in the 
program if the household is eligible. The State agency shall restore 
benefits that were lost as a result of the disqualification in 
accordance with the procedures specified in Sec.  273.17(e).

[Amdt. 242, 48 FR 6855, Feb. 15, 1983, as amended by Amdt. 269, 51 FR 
10793, Mar. 28, 1986; Amdt. 357, 60 FR 43515, Aug. 22, 1995; 66 FR 4468, 
Jan. 17, 2001]



Sec.  273.17  Restoration of lost benefits.

    (a) Entitlement. (1) The State agency shall restore to households 
benefits which were lost whenever the loss was caused by an error by the 
State agency or by an administrative disqualification for intentional 
Program violation which was subsequently reversed as specified in 
paragraph (e) of this section, or if there is a statement elsewhere in 
the regulations specifically stating that the household is entitled to 
restoration of lost benefits. Furthermore, unless there is a statement 
elsewhere in the regulations that a household is entitled to lost 
benefits for a longer period, benefits shall be restored for not more 
than twelve months prior to whichever of the following occurred first:
    (i) The date the State agency receives a request for restoration 
from a household; or
    (ii) The date the State agency is notified or otherwise discovers 
that a loss to a household has occurred.
    (2) The State agency shall restore to households benefits which were 
found by any judicial action to have been wrongfully withheld. If the 
judicial action is the first action the recipient has taken to obtain 
restoration of lost benefits, then benefits shall be restored for a 
period of not more than twelve months from the date the court action was 
initiated. When the judicial action is a review of a State agency 
action,

[[Page 752]]

the benefits shall be restored for a period of not more than twelve 
months from the first of the following dates:
    (i) The date the State agency receives a request for restoration:
    (ii) If no request for restoration is received, the date the fair 
hearing action was initiated; but
    (iii) Never more than one year from when the State agency is 
notified of, or discovers, the loss.
    (3) Benefits shall be restored even if the household is currently 
ineligible.
    (b) Errors discovered by the State agency. If the State agency 
determines that a loss of benefits has occurred, and the household is 
entitled to restoration of those benefits, the State agency shall 
automatically take action to restore any benefits that were lost. No 
action by the household is necessary. However, benefits shall not be 
restored if the benefits were lost more than 12 months prior to the 
month the loss was discovered by the State agency in the normal course 
of business, or were lost more than 12 months prior to the month the 
State agency was notified in writing or orally of a possible loss to a 
specific household. The State agency shall notify the household of its 
entitlement, the amount of benefits to be restored, any offsetting that 
was done, the method of restoration, and the right to appeal through the 
fair hearing process if the household disagrees with any aspect of the 
proposed lost benefit restoration.
    (c) Disputed benefits. (1) If the State agency determines that a 
household is entitled to restoration of lost benefits, but the household 
does not agree with the amount to be restored as calculated by the State 
agency or any other action taken by the State agency to restore lost 
benefits, the household may request a fair hearing within 90 days of the 
date the household is notified of its entitlement to restoration of lost 
benefits. If a fair hearing is requested prior to or during the time 
lost benefits are being restored, the household shall receive the lost 
benefits as determined by the State agency pending the results of the 
fair hearing. If the fair hearing decision is favorable to the 
household, the State agency shall restore the lost benefits in 
accordance with that decision.
    (2) If a household believes it is entitled to restoration of lost 
benefits but the State agency, after reviewing the case file, does not 
agree, the household has 90 days from the date of the State agency 
determination to request a fair hearing. The State agency shall restore 
lost benefits to the household only if the fair hearing decision is 
favorable to the household. Benefits lost more than 12 months prior to 
the date the State agency was initially informed of the household's 
possible entitlement to lost benefits shall not be restored.
    (d) Computing the amount to be restored. After correcting the loss 
for future months and excluding those months for which benefits may have 
been lost prior to the 12-month time limits described in paragraphs (b) 
and (c) of this section, the State agency shall calculate the amount to 
be restored as follows:
    (1) If the household was eligible but received an incorrect 
allotment, the loss of benefits shall be calculated only for those 
months the household participated. If the loss was caused by an 
incorrect delay, denial, or termination of benefits, the months affected 
by the loss shall be calculated as follows:
    (i) If an eligible household's application was erroneously denied, 
the month the loss initially occurred shall be the month of application, 
or for an eligible household filing a timely reapplication, the month 
following the expiration of its certification period.
    (ii) If an eligible household's application was delayed, the months 
for which benefits may be lost shall be calculated in accordance with 
procedures in Sec.  273.2(h).
    (iii) If a household's benefits were erroneously terminated, the 
month the loss initially occurred shall be the first month benefits were 
not received as a result of the erroneous action.
    (iv) After computing the date the loss initially occurred, the loss 
shall be calculated for each month subsequent to that date until either 
the first month the error is corrected or the first month the household 
is found ineligible.
    (2) For each month affected by the loss, the State agency shall 
determine if the household was actually eligible. In cases where there 
is no information

[[Page 753]]

in the household's case file to document that the household was actually 
eligible, the State agency shall advise the household of what 
information must be provided to determine eligibility for these months. 
For each month the household cannot provide the necessary information to 
demonstrate its eligibility, the household shall be considered 
ineligible.
    (3) For the months the household was eligible, the State agency 
shall calculate the allotment the household should have received. If the 
household received a smaller allotment than it was eligible to receive, 
the difference between the actual and correct allotments equals the 
amount to be restored.
    (4) If a claim against a household is unpaid or held in suspense as 
provided in Sec.  273.18, the amount to be restored shall be offset 
against the amount due on the claim before the balance, if any, is 
restored to the household. At the point in time when the household is 
certified and receives an initial allotment, the initial allotment shall 
not be reduced to offset claims, even if the initial allotment is paid 
retroactively.
    (e) Lost benefits to individuals disqualified for intentional 
Program violation. Individuals disqualified for intentional Program 
violation are entitled to restoration of any benefits lost during the 
months that they were disqualified, not to exceed twelve months prior to 
the date of State agency notification, only if the decision which 
resulted in disqualification is subsequently reversed. For example, an 
individual would not be entitled to restoration of lost benefits for the 
period of disqualification based solely on the fact that a criminal 
conviction could not be obtained, unless the individual successfully 
challenged the disqualification period imposed by an administrative 
disqualification in a separate court action. For each month the 
individual was disqualified, not to exceed twelve months prior to State 
agency notification, the amount to be restored, if any, shall be 
determined by comparing the allotment the household received with the 
allotment the household would have received had the disqualified member 
been allowed to participate. If the household received a smaller 
allotment than it should have received, the difference equals the amount 
to be restored. Participation in an administrative disqualification 
hearing in which the household contests the State agency assertion of 
intentional Program violation shall be considered notification that the 
household is requesting restored benefits.
    (f) Method of restoration. Regardless of whether a household is 
currently eligible or ineligible, the State agency shall restore lost 
benefits to a household by issuing an allotment equal to the amount of 
benefits that were lost. The amount restored shall be issued in addition 
to the allotment currently eligible households are entitled to receive. 
The State agency shall honor reasonable requests by households to 
restore lost benefits in monthly installments if, for example, the 
household fears the excess coupons may be stolen, or that the amount to 
be restored is more than it can use in a reasonable period of time.
    (g) Changes in household composition. Whenever lost benefits are due 
a household and the household's membership has changed, the State agency 
shall restore the lost benefits to the household containing a majority 
of the individuals who were household members at the time the loss 
occurred. If the State agency cannot locate or determine the household 
which contains a majority of household members the State agency shall 
restore the lost benefits to the household containing the head of the 
household at the time the loss occurred.
    (h) Accounting procedures. Each State agency shall be responsible 
for maintaining an accounting system for documenting a household's 
entitlement to restoration of lost benefits and for recording the 
balance of lost benefits that must be restored to the household. Each 
State agency shall at a minimum, document how the amount to be restored 
was calculated and the reason lost benefits must be restored. The 
accounting system shall be designed to readily identify those situations 
where a claim against a household can be

[[Page 754]]

used to offset the amount to be restored.

[Amdt. 132, 43 FR 47889, Oct. 17, 1978, as amended by Amdt. 225, 48 FR 
16831, Apr. 19, 1983; Amdt. 314, 54 FR 24518, June 7, 1989; Amdt. 356, 
59 FR 29713, June 9, 1994]



Sec.  273.18  Claims against households.

    (a) General. (1) A recipient claim is an amount owed because of:
    (i) Benefits that are overpaid or
    (ii) Benefits that are trafficked. Trafficking is defined in 7 CFR 
271.2.
    (2) This claim is a Federal debt subject to this and other 
regulations governing Federal debts. The State agency must establish and 
collect any claim by following these regulations.
    (3) As a State agency, you must develop a plan for establishing and 
collecting claims that provides orderly claims processing and results in 
claims collections similar to recent national rates of collection. If 
you do not meet these standards, you must take corrective action to 
correct any deficiencies in the plan.
    (4) The following are responsible for paying a claim:
    (i) Each person who was an adult member of the household when the 
overpayment or trafficking occurred;
    (ii) A sponsor of an alien household member if the sponsor is at 
fault; or
    (iii) A person connected to the household, such as an authorized 
representative, who actually trafficks or otherwise causes an 
overpayment or trafficking.
    (b) Types of claims. There are three types of claims:

------------------------------------------------------------------------
           An . . .                             is . . .
------------------------------------------------------------------------
(1) Intentional Program        any claim for an overpayment or
 violation (IPV) claim.         trafficking resulting from an individual
                                committing an IPV. An IPV is defined in
                                Sec.   273.16.
(2) Inadvertent household      any claim for an overpayment resulting
 error (IHE) claim.             from a misunderstanding or unintended
                                error on the part of the household.
(3) Agency error (AE) claim..  any claim for an overpayment caused by an
                                action or failure to take action by the
                                State agency. The only exception is an
                                overpayment caused by a household
                                transacting an untampered expired
                                Authorization to Participate (ATP) card.
------------------------------------------------------------------------

    (c) Calculating the claim amount--(1) Claims not related to 
trafficking.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                       (i) As a State agency, you
------------------------------------------------------------------------
must calculate a claim . . .  and . . .             and . . .
 
back to at least twelve       for an IPV claim,     for all claims,
 months prior to when you      the claim must be     don't include any
 become aware of the           calculated back to    amounts that
 overpayment.                  the month the act     occurred more than
                               of IPV first          six years before
                               occurred.             you became aware of
                                                     the overpayment.
----------------------------------------------------
            (ii) The actual steps for calculating a claim are
------------------------------------------------------------------------
you . . .                     unless . . .          then . . .
 
(A) determine the correct
 amount of benefits for each
 month that a household
 received an overpayment.

[[Page 755]]

 
(B) do not apply the earned   the claim is an AE    apply the earned
 income deduction to that      claim.                income deduction.
 part of any earned income
 that the household failed
 to report in a timely
 manner when this act is the
 basis for the claim.
(C) subtract the correct      this answer is zero   dispose of the claim
 amount of benefits from the   or negative.          referral.
 benefits actually received.
 The answer is the amount of
 the overpayment.
(D) reduce the overpayment    you are not aware of  the amount of the
 amount by any EBT benefits    any expunged          overpayment
 expunged from the             benefits.             calculated in
 household's EBT benefit                             paragraph
 account in accordance with                          (e)(1)(ii)(C) of
 your own procedures. The                            this section is the
 difference is the amount of                         amount of the
 the claim.                                          claim.
------------------------------------------------------------------------

    (2) Trafficking-related claims. Claims arising from trafficking-
related offenses will be the value of the trafficked benefits as 
determined by:
    (i) The individual's admission;
    (ii) Adjudication; or
    (iii) The documentation that forms the basis for the trafficking 
determination.
    (d) Claim referral management.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                       (1) As a State agency, you
------------------------------------------------------------------------
must . . .                    and you . . .         unless . . .
 
establish a claim before the  will ensure that no   you develop and use
 last day of the quarter       less than 90          your own standards
 following the quarter in      percent of all        and procedures that
 which the overpayment or      claim referrals are   have been approved
 trafficking incident was      either established    by us (see
 discovered.                   or disposed of        paragraph (d)(2) of
                               according to this     this section).
                               time frame.
------------------------------------------------------------------------

    (2) Instead of using the standard in paragraph (d)(1) of this 
section, you may opt to develop and follow your own plan for the 
efficient and effective management of claim referrals.
    (i) This plan must be approved by us.
    (ii) At a minimum, this plan must include:
    (A) Justification as to why your standards and procedures will be 
more efficient and effective than our claim referral standard;
    (B) Procedures for the detection and referral of potential 
overpayments or trafficking violations;
    (C) Time frames and procedures for tracking claim referrals through 
date of discovery to date of establishment;
    (D) A description of the process to ensure that these time frames 
are being met;
    (E) Any special procedures and time frames for IPV referrals; and
    (F) A procedure to track and follow-up on IPV claim referrals when 
these referrals are referred for prosecutorial or similar action.
    (e) Initiating collection action and managing claims--(1) 
Applicability. State agencies must begin collection action on all claims 
unless the conditions under paragraph (g)(2) of this section apply.
    (2) Pre-establishment cost effectiveness determination. A State 
agency may opt not to establish and subsequently collect an overpayment 
that is not cost

[[Page 756]]

effective. The following is our cost-effectiveness policy for State 
agencies:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
         (i) You may follow your own cost effectiveness plan and
------------------------------------------------------------------------
opt not to establish any      unless . . .          or . . .
 claim if . . .
you determine that the claim  you do not have a     you already
 referral is not cost          cost-effectiveness    established the
 effective to pursue.          plan approved by us.  claim or discovered
                                                     the overpayment in
                                                     a quality control
                                                     review.
-----------------------------
              (ii) Or you may follow the FNS threshold and
------------------------------------------------------------------------
opt not to establish any      unless . . .          or . . .
 claim if . . .
you determine that the claim  the household is      you already
 referral is $125 or less.     currently             established the
                               participating in      claim or discovered
                               the Program.          the overpayment in
                                                     a quality control
                                                     review.
------------------------------------------------------------------------

    (3) Notification of claim. (i) Each State agency must develop and 
mail or otherwise deliver to the household written notification to begin 
collection action on any claim.
    (ii) The claim will be considered established for tracking purposes 
as of the date of the initial demand letter or written notification.
    (iii) If the claim or the amount of the claim was not established at 
a hearing, the State agency must provide the household with a one-time 
notice of adverse action. The notice of adverse action may either be 
sent separately or as part of the demand letter.

------------------------------------------------------------------------
 
-------------------------------------------------------------------------
(iv) The initial demand letter or notice of adverse action must include
 language stating:
------------------------------------------------------------------------
(A) The amount of the claim.
------------------------------------------------------------------------
(B) The intent to collect from all adults in the household when the
 overpayment occurred.
------------------------------------------------------------------------
(C) The type (IPV, IHE, AE or similar language) and reason for the
 claim.
------------------------------------------------------------------------
(D) The time period associated with the claim.
------------------------------------------------------------------------
(E) How the claim was calculated.
------------------------------------------------------------------------
(F) The phone number to call for more information about the claim.
------------------------------------------------------------------------
(G) That, if the claim is not paid, it will be sent to other collection
 agencies, who will use various collection methods to collect the claim.
------------------------------------------------------------------------
(H) The opportunity to inspect and copy records related to the claim.
------------------------------------------------------------------------
(I) Unless the amount of the claim was established at a hearing, the
 opportunity for a fair hearing on the decision related to the claim.
 The household will have 90 days to request a fair hearing.
------------------------------------------------------------------------
(J) That, if not paid, the claim will be referred to the Federal
 government for federal collection action.
------------------------------------------------------------------------

[[Page 757]]

 
(K) That the household can make a written agreement to repay the amount
 of the claim prior to it being referred for Federal collection action.
------------------------------------------------------------------------
(L) That, if the claim becomes delinquent, the household may be subject
 to additional processing charges.
------------------------------------------------------------------------
(M) That the State agency may reduce any part of the claim if the agency
 believes that the household is not able to repay the claim.
------------------------------------------------------------------------
(N) A due date or time frame to either repay or make arrangements to
 repay the claim, unless the State agency is to impose allotment
 reduction.
------------------------------------------------------------------------
(O) If allotment reduction is to be imposed, the percentage to be used
 and the effective date.
------------------------------------------------------------------------

    (v) The due date or time frame for repayment must be not later than 
30 days after the date of the initial written notification or demand 
letter.
    (vi) Subsequent demand letters or notices may be sent at the 
discretion of the State agency. The language to be used and content of 
these letters is left up to the State agency.
    (4) Repayment agreements. (i) Any repayment agreement for any claim 
must contain due dates or time frames for the periodic submission of 
payments.
    (ii) The agreement must specify that the household will be subject 
to involuntary collection action(s) if payment is not received by the 
due date and the claim becomes delinquent.
    (5) Determining Delinquency. (i) Unless specified in paragraph 
(e)(5)(iv) of this section, a claim must be considered delinquent if:
    (A) The claim has not been paid by the due date and a satisfactory 
payment arrangement has not been made; or
    (B) A payment arrangement has been established and a scheduled 
payment has not been made by the due date.
    (ii) The date of delinquency for a claim covered under paragraph 
(e)(5)(i)(A) of this section is the due date on the initial written 
notification/demand letter. The claim will remain delinquent until 
payment is received in full, a satisfactory payment agreement is 
negotiated, or allotment reduction is invoked.
    (iii) The date of delinquency for a claim covered under paragraph 
(e)(5)(i)(B) of this section is the due date of the missed installment 
payment. The claim will remain delinquent until payment is received in 
full, allotment reduction is invoked, or if the State agency determines 
to either resume or re-negotiate the repayment schedule.
    (iv) A claim will not be considered delinquent if another claim for 
the same household is currently being paid either through an installment 
agreement or allotment reduction and you, as a State agency, expect to 
begin collection on the claim once the prior claim(s) is settled.
    (v) A claim is not subject to the requirements for delinquent debts 
if the State agency is unable to determine delinquency status because 
collection is coordinated through the court system.
    (6) Fair hearings and claims. (i) A claim awaiting a fair hearing 
decision must not be considered delinquent.
    (ii) If the hearing official determines that a claim does, in fact, 
exist against the household, the household must be re-notified of the 
claim. The language to be used in this notice is left up to the State 
agency. The demand for payment may be combined with the notice of the 
hearing decision. Delinquency must be based on the due date of this 
subsequent notice and not on the initial pre-hearing demand letter sent 
to the household.
    (iii) If the hearing official determines that a claim does not 
exist, the claim is disposed of in accordance with paragraph (e)(8) of 
this section.
    (7) Compromising claims. (i) As a State agency, you may compromise a 
claim or any portion of a claim if it can be reasonably determined that 
a household's economic circumstances dictate that the claim will not be 
paid in three years.

[[Page 758]]

    (ii) You may use the full amount of the claim (including any amount 
compromised) to offset benefits in accordance with Sec.  273.17.
    (iii) You may reinstate any compromised portion of a claim if the 
claim becomes delinquent.
    (8) Terminating and writing-off claims-(i) A terminated claim is a 
claim in which all collection action has ceased. A written-off claim is 
no longer considered a receivable subject to continued Federal and State 
agency collection and reporting requirements.
    (ii) The following is our claim termination policy:

------------------------------------------------------------------------
 As a State agency, if . . .     Then you . . .         Unless . . .
------------------------------------------------------------------------
(A) you find that the claim   must discharge the    it is appropriate to
 is invalid.                   claim and reflect     pursue the
                               the event as a        overpayment as a
                               balance adjustment    different type of
                               rather than a         claim (e.g., as an
                               termination.          IHE rather than an
                                                     IPV claim).
(B) all adult household       must terminate and    you plan to pursue
 members die.                  write-off the claim.  the claim against
                                                     the estate.
(C) the claim balance is $25  must terminate and    other claims exist
 or less and the claim has     write-off the claim.  against this
 been delinquent for 90 days                         household resulting
 or more.                                            in an aggregate
                                                     claim total of
                                                     greater than $25.
(D) you determine it is not   must terminate and    we have not approved
 cost effective to pursue      write-off the claim.  your overall cost-
 the claim any further.                              effectiveness
                                                     criteria.
(E) the claim is delinquent   must terminate and    you plan to continue
 for three years or more.      write-off the claim.  to pursue the claim
                                                     through Treasury's
                                                     Offset Program.
(F) you cannot locate the     may terminate and
 household.                    write-off the claim.
(G) a new collection method   may reinstate a       you decide not to
 or a specific event (such     terminated and        pursue this option.
 as winning the lottery)       written-off claim.
 substantially increases the
 likelihood of further
 collections.
------------------------------------------------------------------------

    (f) Acceptable forms of payment.

------------------------------------------------------------------------
      You may collect a claim by:                 However . . .
------------------------------------------------------------------------
(1) Reducing benefits prior to           You must follow the
 issuance. This includes allotment        instructions and limits found
 reduction and offsets to restored        in paragraphs (g)(1) and
 benefits.                                (g)(3) of this section.
(2) Reducing benefits after issuance.    You must follow the
 These are benefits from electronic       instructions and limits found
 benefit transfer (EBT) accounts.         in paragraph (g)(2) of this
                                          section.
(3) Accepting cash or any of its         You do not have to accept
 generally accepted equivalents. These    credit or debit cards if you
 equivalents include check, money         do not have the capability to
 order, and credit or debit cards.        accept these payments.
(4) Accepting paper food coupons.......  You must destroy any coupons or
                                          coupon books that are not
                                          returned to inventory and
                                          document as appropriate.

[[Page 759]]

 
(5) Conducting your own offsets and      You must follow any limits that
 intercepts. This includes but is not     may apply in paragraph (g) of
 limited to wage garnishments and         this section.
 intercepts of various State payments.
 These collections are considered
 ``cash'' for FNS claim accounting and
 reporting purposes.
(6) Requiring the household to perform   This form of payment must be
 public service.                          ordered by a court and
                                          specifically be in lieu of
                                          paying any claim.
(7) Participating in the Treasury        You must follow the procedures
 collection programs.                     found in paragraph (n) of this
                                          section.
------------------------------------------------------------------------

    (g) Collection methods.
    (1) Allotment reduction. The following is our allotment reduction 
policy:

------------------------------------------------------------------------
   As a State agency, you must . . .               Unless . . .
------------------------------------------------------------------------
(i) Automatically collect payments for   the claim is being collected at
 any claim by reducing the amount of      regular intervals at a higher
 monthly benefits that a household        amount or another household is
 receives.                                already having its allotment
                                          reduced for the same claim
                                          (see paragraph (g)(1)(vi) of
                                          this section).
(ii) For an IPV claim, limit the amount  the household agrees to a
 reduced to the greater of $20 per        higher amount.
 month or 20 percent of the household's
 monthly allotment or entitlement.
(iii) For an IHE or AE claim, limit the  the household agrees to a
 amount reduced to the greater of $10     higher amount.
 per month or 10 percent of the
 household's monthly allotment.
(iv) Not reduce the initial allotment    the household agrees to this
 when the household is first certified.   reduction.
(v) Not use additional involuntary       the additional payment is
 collection methods against individuals   voluntary; or the source of
 in a household that is already having    the payment is irregular and
 its benefit reduced.                     unexpected such as a State tax
                                          refund or lottery winnings
                                          offset.
----------------------------------------
                              You may . . .
------------------------------------------------------------------------
 (vi) Collect using allotment reduction from two separate households for
      the same claim. However, you are not required to perform this
                         simultaneous reduction.
------------------------------------------------------------------------
(vii) Continue to use any other collection method against any individual
     who is not a current member of the household that is undergoing
                          allotment reduction.
------------------------------------------------------------------------

    (2) Benefits from EBT accounts. (i) As a State agency, you must 
allow a household to pay its claim using benefits from its EBT benefit 
account.
    (ii) You must comply with the following EBT benefit claims 
collection and adjustment requirements:

[[Page 760]]



------------------------------------------------------------------------
 
------------------------------------------------------------------------
   (A) For collecting from active (or reactivated) EBT benefits . . .
------------------------------------------------------------------------
You . . .                         or . . .            and . . .
need written permission which     oral permission     the retention
 may be obtained in advance and    for one time        rules do apply to
 done in accordance with           reductions with     this collection.
 paragraph (g)(2)(iv) of this      you sending the
 section;.                         household a
                                   receipt of the
                                   transaction
                                   within 10 days.
---------------------------------
            (B) For collecting from stale EBT benefits . . .
------------------------------------------------------------------------
You . . .                         and . . .           and . . .
 
must mail or otherwise deliver    give the household  the retention
 to the household written          at least 10 days    rules apply to
 notification that you intend to   to notify you       this collection.
 apply the benefits to the         that it doesn't
 outstanding claim.                want to use these
                                   benefits to pay
                                   the claim.
---------------------------------
      (C) For making an adjustment with expunged EBT benefits . . .
------------------------------------------------------------------------
You . . .                         and . . .           and . . .
must adjust the amount of any     this can be done    the retention
 claim by subtracting any          anytime.            rules do not
 expunged amount from the EBT                          apply to this
 benefit account for which you                         adjustment.
 become aware.
------------------------------------------------------------------------

    (iii) A collection from an EBT account must be non-settling against 
the benefit drawdown account.
    (iv) At a minimum, any written agreement with the household to 
collect a claim using active EBT benefits must include:
    (A) A statement that this collection activity is strictly voluntary;
    (B) The amount of the payment;
    (C) The frequency of the payments (i.e., whether monthly or one time 
only);
    (D) The length (if any) of the agreement; and
    (E) A statement that the household may revoke this agreement at any 
time.
    (3) Offsets to restored benefits. You must reduce any restored 
benefits owed to a household by the amount of any outstanding claim. 
This may be done at any time during the claim establishment and 
collection process.
    (4) Lump sum payments. You must accept any payment for a claim 
whether it represents full or partial payment. The payment may be in any 
of the acceptable formats.
    (5) Installment payments. (i) You may accept installment payments 
made for a claim as part of a negotiated repayment agreement.
    (ii) As a household, if you fail to submit a payment in accordance 
with the terms of your negotiated repayment schedule, your claim becomes 
delinquent and it will be subject to additional collection actions.
    (6) Intercept of unemployment compensation benefits. (i) As a State 
agency, you may arrange with a liable individual to intercept his or her 
unemployment compensation benefits for the collection of any claim. This 
collection option may be included as part of a repayment agreement.
    (ii) You may also intercept an individual's unemployment 
compensation benefits by obtaining a court order.
    (iii) You must report any intercept of unemployment compensation 
benefits as ``cash'' payments when they are reported to us.
    (7) Public service. If authorized by a court, the value of a claim 
may be paid by the household performing public

[[Page 761]]

service. As a State agency, you will report these amounts in accordance 
with our instructions.
    (8) Other collection actions. You may employ any other collection 
actions to collect claims. These actions include, but are not limited 
to, referrals to collection and/or other similar private and public 
sector agencies, state tax refund and lottery offsets, wage 
garnishments, property liens and small claims court.
    (9) Unspecified joint collections. When an unspecified joint 
collection is received for a combined public assistance/food stamp 
recipient claim, each program must receive its pro rata share of the 
amount collected. An unspecified joint collection is when funds are 
received in response to correspondence or a referral that contained both 
the food stamp and other program claim(s) and the debtor does not 
specify to which claim to apply the collection.
    (h) Refunds for overpaid claims. (1) As a household, if you overpay 
a claim, the State agency must provide a refund for the overpaid amount 
as soon as possible after the State agency finds out about the 
overpayment. You will be paid by whatever method the State agency deems 
appropriate considering the circumstances.
    (2) You are not entitled to a refund if the overpaid amount is 
attributed to an expunged EBT benefit.
    (i) Interstate claims collection. (1) Unless a transfer occurs as 
outlined in paragraph (i)(2) of this section, as a State agency, you are 
responsible for initiating and continuing collection action on any food 
stamp recipient claim regardless of whether the household remains in 
your State.
    (2) You may accept a claim from another State agency if the 
household with the claim moves into your State. Once you accept this 
responsibility, the claim is yours for future collection and reporting. 
You will report interstate transfers to us in accordance with our 
instructions.
    (j) Bankruptcy. A State agency may act on our behalf in any 
bankruptcy proceeding against a bankrupt household with outstanding 
recipient claims.
    (k) Retention rates. (1) The retention rates for State agencies are 
as follows:

------------------------------------------------------------------------
     If you collect an . . .          then the retention rate is . . .
------------------------------------------------------------------------
(i) IPV claim....................  35 percent.
(ii) IHE claim...................  20 percent.
(iii) IHE claim by reducing a      35 percent.
 person's unemployment
 compensation benefit.
(iv) AE claim....................  nothing.
------------------------------------------------------------------------

    (2) These rates do not apply to any reduction in benefits when you 
disqualify someone for an IPV.
    (l) Submission of payments to us. A State agency must send us the 
value of funds collected for IHE, IPV or AE claims according to our 
instructions. We must pay you for claims collection retention by 
electronic funds transfer.
    (m) Accounting procedures. (1) As a State agency, you must maintain 
an accounting system for monitoring recipient claims against households. 
This accounting system shall consist of both the system of records 
maintained for individual debtors and the accounts receivable summary 
data maintained for these debts.
    (2) At a minimum, the accounting system must document the following 
for each claim:
    (i) The date of discovery;
    (ii) The reason for the claim;
    (iii) The calculation of the claim;
    (iv) The date you established the claim;
    (v) The methods used to collect the claim;
    (vi) The amount and incidence of any claim processing charges;
    (vii) The reason for the final disposition of the claim;
    (viii) Any collections made on the claim;

[[Page 762]]

    (ix) Any correspondence, including follow-up letters, sent to the 
household.
    (3) At a minimum, your accounting or certification system must also 
identify the following for each claim:
    (i) Those households whose claims have become delinquent;
    (ii) Those situations in which an amount not yet restored to a 
household can be used to offset a claim owed by the household; and
    (iii) Those households with outstanding claims that are applying for 
benefits.
    (4) When requested and at intervals determined by us, your 
accounting system must also produce:
    (i) Accurate and supported outstanding balances and collections for 
established claims; and
    (ii) Summary reports of the funds collected, the amount submitted to 
FNS, the claims established and terminated, any delinquent claims 
processing charges, the uncollected balance and the delinquency of the 
unpaid debt.
    (5) On a quarterly basis, unless otherwise directed by us, your 
accounting system must reconcile summary balances reported to individual 
supporting records.
    (n) Treasury's Offset Programs (TOP). (1) Referring debts to TOP. 
(i) As a State agency, you must refer to TOP all recipient claims that 
are delinquent for 180 or more days.
    (ii) You must certify that all of these claims to be referred to TOP 
are 180 days delinquent and legally enforceable.
    (iii) You must refer these claims in accordance with our and the 
Department of the Treasury's (Treasury) instructions.
    (iv) You must not refer claims to TOP that:
    (A) You become aware that the debtor is a member of a participating 
household that is having its allotment reduced to collect the claim; or
    (B) Fall into any other category designated by us as non-referable 
to TOP.
    (2) Notifying debtors of referral to TOP. (i) As a State agency, you 
must notify the debtor of the impending referral to TOP according to our 
instructions relating to:
    (A) What constitutes an adequate address to send the notice;
    (B) What specific language will be included in the TOP referral 
notice;
    (C) What will be the appropriate time frames and appeal rights; and
    (D) Any other information that we determine necessary to fulfill all 
due process and other legal requirements as well as to adequately inform 
the debtor of the impending action.
    (ii) You must also follow our instructions regarding procedures 
connected with responding to inquiries, subsequent reviews and hearings, 
and any other procedures determined by us as necessary in the debtor 
notification process.
    (3) Effect on debtors. (i) If you, as a debtor, have your claim 
referred to TOP, any eligible Federal payment that you are owed may be 
intercepted through TOP.
    (ii) You may also be responsible for paying any collection or 
processing fees charged by the Federal government to intercept your 
payment.
    (4) Procedures when a claim is in TOP. (i) As a State agency, you 
must follow FNS and Treasury procedures when the claim is in TOP.
    (ii) You must remove a claim from TOP if:
    (A) FNS or Treasury instruct you to remove the debt; or
    (B) You discover that:
    (1) The debtor is a member of a food stamp household undergoing 
allotment reduction;
    (2) The claim is paid up;
    (3) The claim is disposed of through a hearing, termination, 
compromise or any other means;
    (4) The claim was referred to TOP in error; or
    (5) You make an arrangement with the debtor to resume payments.
    (5) Receiving and reporting. As a State agency, you must follow our 
procedures on receiving and reporting TOP payments.
    (6) Security or confidentiality agreements. As a State agency, you 
must follow our procedures regarding any security or confidentiality 
agreements or processes necessary for TOP participation.

[Amdt. 389, 66 FR 41775, July 6, 2000; 65 FR 47587, Aug. 2, 2000]

[[Page 763]]



Sec.  273.19  [Reserved]



Sec.  273.20  SSI cash-out.

    (a) Ineligibility. No individual who receives supplemental security 
income (SSI) benefits and/or State supplementary payments as a resident 
of California is eligible to receive food stamp benefits. The Secretary 
of the Department of Health and Human Services has determined that the 
SSI payments in California have been specifically increased to include 
the value of the food stamp allotment.
    (b) Receipt of SSI benefits. In California, an individual must 
actually receive, not merely have applied for, SSI benefits to be 
determined ineligible for the food stamp program. If the State agency 
provides payments at least equal to the level of SSI benefits to 
individuals who have applied for but are awaiting an SSI eligibility 
determination, receipt of these substitute payments will terminate the 
individual's eligibility for food stamp benefits. Once SSI benefits are 
received, the individual will remain ineligible for food stamp benefits, 
even during months in which receipt of the SSI benefits is interrupted, 
or suspended, until the individual is terminated from the SSI program.
    (c) Income and resources. In California, the income and resources of 
the SSI recipient living in a household shall not be considered in 
determining eligibility or level of benefits of the household, as 
specified in Sec.  273.11(d).

[Amdt. 132, 43 FR 47889, Oct. 17, 1978, as amended by Amdt. 132, 44 FR 
33383, June 8, 1979. Redesignated at 45 FR 7217, Jan. 31, 1980, and 
amended by Amdt. 237, 47 FR 57669, Dec. 28, 1982; Amdt. 269, 51 FR 
10793, Mar. 28, 1986; Amdt. 356, 59 FR 29713, June 9, 1994; Amdt. 364, 
61 FR 54320, Oct. 17, 1996]



Sec.  273.21  Monthly Reporting and Retrospective Budgeting (MRRB).

    (a) System design. This section provides for an MRRB system for 
determining household eligibility and benefits. For included households, 
this system replaces the prospective budgeting system provided in the 
preceding sections of this part. The MRRB system provides for the use of 
retrospective information in calculating household benefits, normally 
based on information submitted by the household in monthly reports. The 
State agency shall establish an MRRB system as follows:
    (1) In establishing either a one-month or a two-month MRRB system, 
the State agency shall use the same system it uses in its TANF Program 
unless it has been granted a waiver by FNS. Differences between a one-
month and a two-month system are described in paragraph (d) of this 
section.
    (2) The State agency shall determine eligibility, either 
prospectively or retrospectively, on the same basis that it uses for its 
TANF program, unless it has been granted a waiver by FNS.
    (3) Budgeting waivers. FNS may approve waivers of the budgeting 
requirements of this section to conform to budgeting procedures in the 
TANF program, except for households excluded from retrospective 
budgeting under paragraph (b) of this section.
    (b) Included and excluded households. The establishment of either a 
monthly reporting or retrospective budgeting system is a State agency 
option. Certain households are specifically excluded from both monthly 
reporting and retrospective budgeting. A household that is included in a 
monthly reporting system must be retrospectively budgeted. Households 
not required to submit monthly reports may have their benefits 
determined on either a prospective or retrospective basis at the State 
agency's option, unless specifically excluded from retrospective 
budgeting.
    (1) The following households are excluded from both monthly 
reporting and retrospective budgeting:
    (i) Migrant or seasonal farmworker households.
    (ii) Households in which all members are homeless individuals.
    (iii) Households with no earned income in which all adult members 
are elderly or disabled.
    (2) Households residing on an Indian reservation where there was no 
monthly reporting system in operation on March 25, 1994 are excluded 
from monthly reporting.
    (c) Information on MRRB. At the certification and recertification 
interview, the State agency shall provide the household with the 
following:

[[Page 764]]

    (1) An oral explanation of the purpose of MRRB;
    (2) A copy of the monthly report and an explanation of how to 
complete and file it;
    (3) An explanation that information required to be reported on the 
monthly report is the only reporting requirement for such information;
    (4) An explanation of what the household shall verify when it 
submits a monthly report and how it will verify it;
    (5) A telephone number (toll-free number or a number where collect 
calls will be accepted outside the local calling area) which the 
household may call to ask questions or to obtain help in completing the 
monthly report; and
    (6) Written explanations of this information.
    (7) Special assistance. The State agency shall provide special 
assistance in completing and filing monthly reports to households whose 
adult members are all either mentally or physically handicapped or are 
non-English speaking or otherwise lacking in reading and writing skills 
such that they cannot complete and file the required reports.
    (d) One and two-month systems. Each State agency shall adopt either 
a one-month or two-month MRRB system. A one-month system shall have 
either one or two beginning months in the certification period and a 
two-month system shall have two beginning months. Except for beginning 
months in sequence as described in the preceding sentence, the State 
agency shall not consider as a beginning month any month which 
immediately follows a month in which a household is certified.
    (1) One-month system. In the one-month system, the issuance month 
immediately follows its corresponding budget month.
    (2) Two-month system. In the two-month system, the issuance month is 
the second month following its corresponding budget month. There are two 
beginning months of participation in this system, the first month and 
the following month.
    (e) Determining eligibility for households not certified under the 
beginning months' procedures of Sec.  273.21(g). The State agency shall 
determine eligibility consistent with paragraph (a)(2) of this section 
and in accordance with either of the following options.
    (1) Prospective eligibility. The State agency shall determine 
eligibility by considering all factors of eligibility prospectively for 
each of the issuance months.
    (2) Retrospective eligibility. The State agency shall determine 
eligibility by considering all factors of eligibility retrospectively 
using the appropriate budget month except for residency and compliance 
with the requirements regarding social security numbers. Compliance with 
work registration provisions shall be considered as of the issuance 
month or month of application. The 60-day time frame for determining the 
applicability of the voluntary quit provision of Sec.  273.7(n) shall be 
measured by the State agency from the date of application.
    (f) Calculating allotments for households following the beginning 
months--(1) Household composition. (i) If eligibility is determined 
retrospectively the State agency shall determine the household's 
composition as of the last day of the budget month.
    (ii) If eligibility is determined prospectively (during the 
beginning months or for households processed under paragraph (e)(1) of 
this section), the State agency shall determine the household's 
composition as of the issuance month.
    (iii) In a two-month system, the following provisions shall apply 
with regard to a household which reports, in the month between the 
budget month and the corresponding issuance month, that it has gained a 
new member.
    (A) The State agency shall use the same household composition for 
determining the household's eligibility that it uses for calculating the 
household's benefit level.
    (B) If the new member is not already certified to receive food 
stamps in another household participating within the State, the new 
member's income, deductible expenses, and resources from the issuance 
month shall be considered in determining the household's eligibility and 
benefit level. If the new member had been providing income to the 
household on an ongoing basis prior to becoming a member of the

[[Page 765]]

household, the State agency shall exclude the previously provided income 
in determining the household's issuance month benefits and eligibility.
    (C) If the individual has moved out of one household receiving food 
stamps within the State and into another, with no break in 
participation, the State agency shall use the individual's income, 
deductible expenses, and resources from the budget month in determining 
benefits to be provided in the issuance month. The State agency shall 
include such an individual and the individual's income, deductible 
expenses, and resources in determining the issuance month eligibility 
and benefit level of either the household from which the individual has 
moved or the household into which the individual has moved, but not 
both. In determining the issuance month eligibility and benefit level of 
the household into which the individual has moved, the State agency 
shall disregard budget month income received by the new member from a 
terminated source.
    (D) The State agency may add new members to the household effective 
either the month the household reports the gain of a new household 
member or the first day of the issuance month following the month the 
household reports the gain of a new member. The benefits shall not be 
prorated.
    (iv) The State agency shall add a previously excluded member who was 
disqualified for an intentional program violation or failure to comply 
with workfare or work requirements, was ineligible because of failure to 
comply with the social security number requirement, or was previously an 
ineligible alien retrospectively to the household the month after the 
disqualification period ends. All other previously excluded members 
shall be added in accordance with the procedures in paragraph 
(f)(1)(iii)(B) of this section, using the new member's issuance month 
income and expenses.
    (2) Income and deductions. For the household members as determined 
in accordance with paragraph (f)(1) of this section, the State agency 
shall calculate the allotment using the household members' income and 
deductions from the budget month, except as follows:
    (i) The State agency shall annualize self-employment income which is 
received other than monthly, in accordance with Sec.  273.11(a). Such 
income shall be budgeted either prospectively or retrospectively and 
shall not affect more benefit months than the number of months in the 
period over which it is annualized or prorated. Except that, households 
which receive self-employment income from a farm operation monthly but 
incur irregular expenses to produce such self-employment farm income 
shall be given the option to annualize the self-employment farm income 
and expenses over a 12-month period.
    (ii) The State agency shall prorate contract income received over a 
period of less than one year and either prospectively or retrospectively 
budget such income. Such income shall not effect more benefit months 
than the number of months in the period over which it is prorated.
    (iii) Earned and unearned educational income shall be prorated over 
the period it is intended to cover in accordance with Sec.  
273.10(c)(3)(iii), and it shall be budgeted either prospectively or 
retrospectively. Such income shall not effect more benefit months than 
the number of months in the period over which it is prorated.
    (iv) The State agency shall budget deductible expenses prorated over 
two or more months, except medical expenses, either prospectively or 
retrospectively, provided That such deductions are not budgeted over 
more months than they are intended to cover, and the total amount 
deducted does not exceed the total amount of the expenses. Medical 
expenses shall be budgeted prospectively. The State agency shall 
continue to allow deductions for expenses incurred even if billed on 
other than a monthly basis unless the household reports a change in the 
expense. The State agency may average the child support expense and 
budget it prospectively or retrospectively.
    (v) The State agency shall budget income received on a recurring 
monthly or semimonthly basis for the month that it is intended to cover. 
The State

[[Page 766]]

agency shall not vary the budgeting of such income merely because it is 
received during another month as the result of changes in mailing cycles 
or pay dates, or because weekends or holidays result in an additional or 
missed payment.
    (vi) The State agency may budget interest income using one of the 
following methods in paragraphs (f)(2)(vi) (A), (B), or (C) of this 
section. The State agency shall either establish categories of interest 
to be handled by each of the methods or shall offer each household the 
option of which method to budget the interest income.
    (A) Actual interest income received in the budget month.
    (B) Prorated interest income calculated by dividing the amount of 
interest anticipated during the certification period by the number of 
months in the certification period.
    (C) An averaged amount adjusted for anticipated changes.
    (vii) For a new household member described under paragraph 
(f)(1)(iii)(B) of this section, the State agency shall consider the new 
member's income and deductible expenses prospectively until the new 
member's first month living with the household becomes the budget month.
    (viii) The options provided under paragraph (j)(1)(vii) of this 
section may affect the calculation of income and deductions.
    (g) Determining eligibility and allotments in the beginning months. 
The State agency shall use the prospective budgeting procedures of this 
paragraph for determining the allotments and eligibility of households 
in the MRRB system during this first month, or first and second month of 
participation. The State agency shall not apply the procedures of this 
paragraph to the month(s) following the month of termination resulting 
from a temporary one-month change.
    (1) Determining eligibility during the beginning months. The State 
agency shall determine eligibility prospectively in the beginning 
month(s).
    (2) Calculating allotments during the beginning months. the State 
agency shall calculate allotments prospectively in the beginning 
month(s).
    (3) The first months of retrospective budgeting following the 
beginning months. The State agency shall begin to base issuances to the 
household on retrospective budgeting during the first month for which 
the State's system can use the month of application as a budget month. 
In a one-month system, the first month for which the issuance is based 
on retrospective budgeting shall be the second month of participation. 
In a two-month system, the first month for which the issuance is based 
on retrospective budgeting shall be the third month of participation. If 
the State agency had been averaging income or converting weekly or 
biweekly income to a monthly amount in the beginning months, it may 
begin using the household's actual budget month income when the 
household becomes subject to retrospective budgeting. For purposes of 
this paragraph, any income received in either or both of the beginning 
months from a source which no longer provides income to the household 
(terminated income), which was included in the household's prospective 
budget, shall be disregarded when the beginning month becomes the budget 
month.
    (h) The monthly report form--(1) General. (i) The State agency shall 
give the household a reasonable period of time after close of the budget 
month to submit the monthly reports.
    (ii) The State agency shall require each household in the MRRB 
system to report on household circumstances on a monthly basis as a 
condition of continuing eligibility.
    (iii) The State agency shall provide an individual or agency unit 
which a household may contact to receive prompt answers about the 
completion of the form. A telephone number (toll free for households 
outside the local calling area) which a household may use to obtain 
further information shall also be available.
    (iv) The State agency shall ensure that households are informed 
about the availability and amount of the standard utility allowances, if 
the State agency offers them.
    (2) Monthly report form. The State agency's monthly report form 
shall meet the following requirements:

[[Page 767]]

    (i) Be written in clear, simple language;
    (ii) Meet the bilingual requirements described in Sec.  272.4(b) of 
this chapter;
    (iii) Specify the date by which the agency must receive the form and 
the consequences of a late or incomplete form, including whether the 
State agency shall delay payment if the form is not received by the 
specified date;
    (iv) Specify the verification which the household must submit with 
the form, in accordance with Sec.  273.21(i);
    (v) Identify the individual or agency unit available to assist in 
completing the form:
    (vi) Include a statement to be signed by a member of the household, 
indicating his or her understanding that the provided information may 
result in changes in the level of benefits, including reduction and 
termination;
    (vii) Include, in prominent and boldface lettering, an 
understandable description of the Act's civil and criminal penalties for 
fraud.
    (viii) If the form requests Social Security numbers, include a 
statement of the State agency's authority to require Social Security 
numbers (SSN's) (including the statutory citation, the title of the 
statute, and the fact that providing SSN's is mandatory), the purpose of 
requiring SSN's, the routine uses for SSN's, and the effect of not 
providing SSN's. This statement may be on the form itself or included as 
an attachment to the form.
    (3) Reported information. The State agency may determine the 
information relevant to eligibility and benefit determination to be 
included on the monthly report form except that the State agency shall 
not require households to monthly report medical expenses. Medical 
expenses may be reported in accordance with Sec.  273.10(d)(4).
    (4) Combined form. If the State agency uses a combined monthly 
report for food stamps and TANF, the State agency shall clearly indicate 
on the form that non-TANF food stamp households need not provide TANF-
only information.
    (i) Verification. Each month the household shall verify information 
for those items designated by the State agency. The State agency may 
designate that verification be submitted for any item that has changed 
or appears questionable. If the household voluntarily reports a change 
in its medical expenses, the State agency shall verify the change in 
accordance with Sec.  273.2(f)(8)(ii) before acting on it if the change 
would increase the household's allotment. In the case of a reported 
change that would decrease the household's allotment, or make the 
household ineligible, the State agency shall act on the change without 
requiring verification, though verification which is required by Sec.  
273.2(f)(8)(i) shall be obtained prior to the household's 
recertification.
    (j) State agency action on reports--(1) Processing. Upon receiving a 
monthly report, the State agency shall:
    (i) Review the report to ensure accuracy and completeness.
    (ii) Consider the report incomplete only if:
    (A) It is not signed by the head of the household, an authorized 
representative or a responsible member of the household;
    (B) It is not accompanied by verification required by the State 
agency on the monthly report;
    (C) It omits information required by the State agency on the monthly 
report necessary either to determine the household's eligibility or to 
compute the household's level of food stamp benefits.
    (iii) Determine those items which will require additional 
verification, in accordance with paragraph (i) of this section.
    (iv) Contact the household directly, and take action as needed, to 
obtain further information on specific items. These items include:
    (A) The effect of a reported change in resources on a household's 
total resources; and
    (B) The effect of a reported change in household composition or loss 
of a job or source of earned income on the applicability of the work 
registration requirement.
    (v) Notify the household, in accordance with paragraph (j)(3)(ii) of 
this section, of the need to submit a report, correct an incomplete or 
inaccurate report, or submit the necessary verification within the 
extension period.

[[Page 768]]

    (vi) Determine the household's eligibility by considering all 
factors, including income, in accordance with paragraphs (e) or (g) of 
this section.
    (vii) Determine the household's level of benefits in accordance with 
Sec.  273.10(e) based on the household composition determined in 
accordance with paragraph (f)(1) of this section. For those household 
members the following (except as provided in paragraph (f)(2) of this 
section) income and deductions shall be considered:
    (A) Earned and unearned income received in the corresponding budget 
month, including income that has been averaged in accordance with 
paragraph (f) of this section. The earned income of an elementary or 
secondary school student excluded in accordance with Sec.  273.9(c)(7) 
shall be excluded until the budget month following the budget month in 
which the student turns 18. The State agency has the option of 
converting to a regular monthly amount the income that a household 
receives weekly or biweekly. If the State agency elects to convert 
weekly or biweekly income for MRRB households, it shall do so for all 
households in its MRRB caseload. The State agency may convert or average 
income in the beginning months and use actual earned or unearned income 
received in the budget month following the beginning months of 
participation.
    (B) The PA grant paid in the corresponding budget month or the PA 
grant to be paid in the issuance month. If the State agency elects to 
use the PA grant to be paid in the issuance month, the State agency 
shall ensure that:
    (1) Any additional or corrective payments are counted, either 
prospectively or retrospectively; and
    (2) the State agency shall disregard income received in the budget 
month from a terminated source which results in an increase in the PA 
grant, provided the household has reported the termination of the income 
either in the monthly report for the budget month or in some other 
manner which, as determined by the State agency, allows the State agency 
sufficient time to process the change and affect the allotment in the 
issuance month.


A State agency which elects to use the PA grant to be paid in the 
issuance month shall implement mass changes in accordance with the 
procedures at Sec.  273.12(e)(2).
    (C) Deductions as billed or averaged from the corresponding budget 
month, including those shelter costs billed less often than monthly 
which the household has chosen to average.
    (viii) Issue benefits in accordance with part 274 of this chapter 
and on the time schedule set forth in paragraph (k) of this section.
    (ix) Provide specific information on how the State agency calculated 
the benefit level if it has changed since the preceding month, either 
with the issuance or in a separate notification.
    (2) Notices. (i) All notices regarding changes in a household's 
benefits shall meet the definition of adequate notice as defined in 
Sec.  271.2.
    (ii) The State agency shall notify a household of any change from 
its prior benefit level and the basis for its determination. If the 
State agency reduces, suspends or terminates benefits, it shall send the 
notice so the household receives it no later than either the date the 
resulting benefits are to be received or in place of the benefits.
    (iii) The State agency shall notify a household, in accordance with 
paragraph (j)(3)(iii), if its monthly report is late or incomplete, or 
further information is needed.
    (3) Incomplete filing. (i) If a household fails to file a monthly 
report, or files an incomplete report, by the specified filing date, the 
State agency shall give the household at least ten more days, from the 
date the State agency mails the notice to file a complete monthly 
report.
    (ii) The State agency shall notify the household within five days of 
the filing date:
    (A) That the monthly report is either overdue or incomplete;
    (B) What the household must do to complete the form;
    (C) If any verification is missing and the lack of that verification 
will adversely affect the household's allotment;
    (D) That the Social Security number of a new member must be 
reported, if

[[Page 769]]

the household has reported a new member but not the new member's Social 
Security number;
    (E) What the extended filing date is;
    (F) That the State agency will assist the household in completing 
the report.
    (iii) When a State agency requires verification for the item listed 
and the household does not provide the verification, the State agency 
shall take the following actions:
    (A) If the household does not verify earned income, the State agency 
shall regard the household's report as incomplete, take action in 
accordance with paragraphs (j)(3)(i) and (j)(3)(ii) of this section and, 
if appropriate, terminate the household in accordance with paragraph (m) 
of this section.
    (B) If the household is using its actual utility costs to establish 
its shelter cost deduction in accordance with Sec.  273.9(d) and it does 
not verify a change in its actual utility expenses, the State agency 
shall not allow a deduction for such costs.
    (C) If a household fails to verify a change in reported medical 
expenses in accordance with Sec.  273.2(f)(8), and that change would 
increase the household's allotment, the State agency shall not make the 
change. The State agency shall act on reported changes without requiring 
verification if the changes would decrease the household's allotment, or 
make the household ineligible.
    (D) If the household does not verify other items for which 
verification is required, the State agency shall:
    (1) Act on the reported change if it would decrease benefits.
    (2) Not act on the reported change if it would increase benefits.
    (E) If the household does not report or verify changes in child 
support, the State agency shall not allow a child support deduction.
    (k) Issuance of benefits--(1) Timely issuance. (i) For an eligible 
household which has filed a complete monthly report by the scheduled 
filing date, the State agency shall provide an opportunity to 
participate within the month following the budget month in a one-month 
system, or within the second month following the budget month in a two-
month system.
    (ii) The State agency shall provide each household with an issuance 
cycle so that the household receives its benefits at about the same time 
each month and has an opportunity to participate before the end of each 
issuance month.
    (2) Delayed issuance. (i) If an eligible household files a complete 
monthly report during its extension period, the State agency shall 
provide it with an opportunity to participate no later than ten days 
after its normal issuance date.
    (ii) If an eligible household which has been terminated for failure 
to file a complete report files a complete report after its extended 
filing date, but before the end of the issuance month, the State agency 
may choose to reinstate the household by providing it with an 
opportunity to participate. If the household has requested a fair 
hearing on the basis that a complete monthly report was filed, the State 
agency shall reinstate the household if a completed monthly report is 
filed before the end of the issuance month.
    (iii) If an eligible household files a complete report after the 
issuance month, the State agency shall not provide the household with an 
opportunity to participate for that month.
    (l) Other reporting requirements. (1) Information reported on the 
monthly report. The monthly report shall be the sole reporting 
requirement for information required to be included in the monthly 
report. Changes in household circumstances not subject to monthly 
reporting shall be reported in accordance with Sec.  273.12.
    (2) Households excluded from monthly reporting. Households which are 
excluded from monthly reporting shall report changes in accordance with 
Sec.  273.12.
    (m) Termination. (1) The State agency shall terminate a household's 
food stamp participation if the household:
    (i) Is ineligible for food stamps, unless suspended in accordance 
with paragraph (n) of this section:
    (ii) Fails to file a complete report by the extended filing date; or
    (iii) Fails to comply with a nonfinancial eligibility requirement, 
such as registering for employment.
    (2) The State agency shall issue a notice to the household which:

[[Page 770]]

    (i) Complies with the requirements of Sec.  271.2 for adequate 
notice;
    (ii) Informs the household of the reason for its termination;
    (iii) If the State agency allows reinstatement under paragraph 
(k)(2)(ii), explains how the household may be reinstated;
    (iv) Informs the household of its rights to request a fair hearing 
and to receive continued benefits. If termination is for failure to 
submit a monthly report and the household states that a monthly report 
has been filed, the notice must advise the household that a completed 
monthly report must be filed prior to the end of the issuance month as a 
condition for continued receipt of benefits.
    (3) The State agency shall issue the notice to the household so that 
it receives the notice no later than the household's normal or extended 
issuance date.
    (n) Suspension. The State agency may suspend a household's issuance 
in accordance with this paragraph. If the State agency does not choose 
this option, it shall instead terminate households in accordance with 
paragraph (m) of this section.
    (1) The State agency may suspend a household's issuance for one 
month if the household becomes temporarily ineligible due to a periodic 
increase in recurring income or other change not expected to continue in 
the subsequent month. The State agency may on a Statewide basis either 
suspend the household's certification prospectively for the issuance 
month or retrospectively for the issuance month corresponding to the 
budget month in which the noncontinuing circumstance occurs.
    (2) The State agency shall continue to supply monthly reports to the 
household for one month.
    (3) If the suspended household again becomes eligible, the State 
agency shall issue benefits on the household's normal issuance date.
    (4) If the suspended household does not become eligible after one 
month, the State agency shall terminate the household.
    (o) If a household has been terminated or suspended based on an 
anticipated change in circumstances, the State agency shall not count 
any noncontinuing circumstances which caused the prospective 
ineligibility when calculating the household's benefits retrospectively 
in a subsequent month.
    (p) Fair hearings--(1) Entitlement. All households participating in 
a MRRB system shall be entitled to fair hearings in accordance with 
Sec.  273.15.
    (2) Continuation of benefits. (i) Any household which requests a 
fair hearing and does not waive continuation of benefits, and is 
otherwise eligible for continuation of benefits, shall have its benefits 
continued until the end of the certification period or the resolution of 
the fair hearing, whichever is first. If the State agency did not 
receive a monthly report from the household by the extended filing date 
and the household states that a monthly report was submitted, the 
household is entitled to continued benefits, provided That a completed 
report is submitted no later than the last day of the issuance month.
    (ii) The State agency shall provide continued benefits no later than 
five working days from the day it receives the household's request.
    (iii) A household whose benefits have been continued shall file 
montly reports until the end of the certification period. If the fair 
hearing is with regard to termination for nonreceipt of the monthly 
report by the State agency, a completed monthly report for the month in 
question shall be submitted by the household no later than the last day 
of the issuance month.
    (iv) During the fair hearing period the State agency shall adjust 
allotments to take into account reported changes, except for the 
factor(s) on which the fair hearing is based.
    (q) Recertification--(1) Timeliness. The State agency shall 
recertify an eligible household which timely reapplies and provides it 
with an opportunity to participate in the household's normal issuance 
cycle.
    (2) Retrospective Recertification. (i) The State agency shall 
recertify the household using retrospective information to determine the 
household's benefit level for the first month of the new certification 
period.
    (ii) If the State agency is operating a two-month MRRB system, the 
State

[[Page 771]]

agency may delay reflecting information from the recertification 
interview in the household's eligibility and benefit level until the 
second month of the new certification period.
    (iii) The State agency shall recertify households according to one 
of the three options set forth in paragraphs (q) (3), (4), or (5) of 
this section.
    (3) Option One: Recertification form. (i) The State agency shall 
provide each household with a recertification form to obtain all 
necessary information about the household's circumstances for the budget 
month.
    (ii) The State agency shall mail the form to the household, along 
with a notice of expiration, in place of the monthly report form. The 
State agency shall either: Mail the recertification form along with the 
notice of expiration; use a recertification form which contains a notice 
of expiration; or mail the recertification form and the notice of 
expiration separately, as long as the forms are mailed at the same time.
    (iii) The household shall submit the form to the State agency in 
accordance with paragraph (h)(1)(i) of this section.
    (4) Option Two: Monthly report and addendum. (i) The State agency 
shall provide each household with a notice of expiration and monthly 
report form and an addendum to obtain all additional information 
necessary for recertification.
    (ii) The State agency shall either: Mail the monthly report form 
along with the notice of expiration; use a monthly report form which 
contains a notice of expiration; or mail the monthly report form and the 
notice of expiration separately, as long as the forms are mailed at the 
same time.
    (iii) The household shall submit the monthly report to the State 
agency in accordance with paragraph (h)(1)(i) of this section.
    (iv) The State agency shall deliver the recertification addendum to 
the household along with the monthly report form or obtain the necessary 
information from the household at the interview.
    (v) The household shall submit the addendum to the State agency no 
later than the time of the interview.
    (5) Option Three: Signed Statement. (i) The State agency shall 
recertify households based on the monthly report and the interview.
    (ii) At the interview, the State agency shall obtain all of the 
information not provided in the monthly report which is necessary for 
recertification.
    (iii) The State agency shall ensure that it has on file a statement 
signed by the appropriate household member that the household has 
applied for recertification.
    (6) Interview. (1) The State agency shall conduct a complete 
interview with a household member or an authorized representative.
    (ii) The State agency shall schedule the interview at any time 
during the last month of the old certification period.
    (iii) If the State agency schedules the interview for a date on or 
before the normal filing due date of the monthly report, the State 
agency shall permit the household member and authorized representative 
to bring the recertification form or monthly report to the interview.
    (r) Procedures for households that change their reporting and 
budgeting status. The State agency shall use one of the following 
procedures for households subject to change in reporting/budgeting 
status.
    (1) Households which become subject to MRRB. The State agency may 
change the reporting/budgeting status of households which become subject 
to monthly reporting at any time following the change in household 
circumstances which results in the change in the household's reporting/
budgeting status, subject to the following conditions:
    (i) The State agency shall provide the household with information 
provided to MRRB households under paragraph (c) of this section. If the 
State agency elects to implement the change during the certification 
period, it may omit the oral explanation of MRRB required under 
paragraph (c)(1).
    (ii) The State agency shall not require the household to submit a 
monthly report during any month in which the household was subject to 
the change reporting requirements of Sec.  273.12.
    (2) Households which are no longer subject to MRRB. The agency shall 
use one

[[Page 772]]

of the following procedures to remove households from the MRRB system.
    (i) Procedures for households exempt from MRRB. For any household 
which becomes exempt from MRRB under paragraph (b) of this section, the 
State agency shall notify the household within 10 days of the date the 
State agency becomes aware of the change that the household has become 
exempt from monthly reporting and is no longer required to file any 
future monthly reports and has also become exempt from retrospective 
budgeting and when the change in budgeting will go into effect. The 
State agency shall begin determining the household's benefits 
prospectively no later than the first issuance month for which a 
household has not submitted a monthly report for the budget month.
    (ii) Other households moving from MRRB to change reporting and 
prospective budgeting. When a household is no longer subject to MRRB 
under a State agency's system, the State agency may begin determining 
the household's benefits prospectively in any month following the month 
the State agency becomes aware of the changed circumstances which 
necessitate the need to change the household's reporting/budgeting 
status. If the State agency elects to change the household's reporting/
budgeting status prior recertification it shall provide the household 
with a notice explaining the change in the month prior to the month the 
change is effective. If the State agency elects to change the 
household's status at recertification it shall advise the household at 
the recertification interview that its reporting/budgeting status is 
being changed.
    (iii) Households moving from MRRB to retrospective budgeting and 
change reporting. If a household's status necessitates changing it from 
a monthly reporter to a change reporter while continuing to be budgeted 
retrospectively, the State agency may change the household's status at 
any time. If the State agency elects to change the household 
immediately, the State agency shall provide the household with a notice 
that it is no longer subject to monthly reporting. The notice shall 
include information about the household's reporting requirements under 
Sec.  273.12.
    (s) Implementation of Regulatory Changes. The State agency shall 
implement changes in regulatory provisions for households subject to 
MRRB prospectively based on the effective date and implementation time 
frame published in the Federal Register. Rules are effective as of the 
same date for all households regardless of the budgeting system.
    (t) Monthly reporting requirements for households residing on 
reservations. The following procedures shall be used for households 
which reside on reservations and are required to submit monthly reports:
    (1) Definition of a reservation. For purposes of this section, the 
term ``reservation'' shall mean the geographically defined area or areas 
over which a tribal organization exercises governmental jurisdiction. 
The term ``tribal organization'' shall mean the recognized governing 
body of an Indian tribe (including the tribally recognized intertribal 
organization of such tribes), as well as any Indian tribe, band, or 
community holding a treaty with a State government.
    (2) Benefit determination for missing reports. The State agency 
shall not delay, reduce, or suspend the allotment of a household that 
fails to submit a report by the issuance date.
    (3) Reinstatement. If a household is terminated for failing to 
submit a monthly report, the household shall be reinstated without being 
required to submit a new application if a monthly report is submitted no 
later than the last day of the month following the month the household 
was terminated.
    (4) Notices. (i) All notices regarding changes in a household's 
benefits shall meet the definition of adequate notice as defined in 
Sec.  271.2 of this chapter.
    (ii) If a household fails to file a monthly report by the specified 
filing date, the State agency shall notify the household within five 
days of the filing date:
    (A) That the monthly report is either overdue or incomplete;
    (B) What the household must do to complete the form;
    (C) If any verification is missing;

[[Page 773]]

    (D) That the Social Security number of a new member must be 
reported, if the household has reported a new member but not the new 
member's Social Security number;
    (E) What the extended filing date is;
    (F) That the State agency will assist the household in completing 
the report; and
    (G) That the household's benefits will be issued based on the 
previous month's submitted report without regard to any changes in the 
household's circumstances if the missing report is not submitted.
    (iii) Simultaneously with the issuance, the State agency shall 
notify a household, if its report has not been received, that the 
benefits being provided are based on the previous month's submitted 
report and that this benefit does not reflect any changes in the 
household's circumstances. This notice shall also advise the household 
that, if a complete report is not filed timely, the household will be 
terminated.
    (iv) If the household is terminated, the State agency shall send the 
notice so the household receives it no later than the date benefits 
would have been received. This notice shall advise the household of its 
right to reinstatement if a complete monthly report is submitted by the 
end of the month following termination.
    (5) Supplements and claims. If the household submits the missing 
monthly report after the issuance date but in the issuance month, the 
State agency shall provide the household with a supplement, if 
warranted. If the household submits the missing monthly report after the 
issuance date or the State agency becomes aware of a change that would 
have decreased benefits in some other manner, the State agency shall 
file a claim for any benefits overissued.

[48 FR 54965, Dec. 8, 1983]

    Editorial Note: For Federal Register citations affecting Sec.  
273.21, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



Sec.  273.22  [Reserved]



Sec.  273.23  Simplified application and standardized benefit projects.

    (a) General. This subpart establishes rules under which Simplified 
Application and Standardized Benefit Projects shall operate. State 
agencies and political subdivisions chosen as project operators may 
designate households containing members receiving TANF, SSI, or Medicaid 
benefits as project eligible. Project eligible households shall have 
their food stamp eligibility determined using simplified application 
procedures. Food stamp eligibility shall be determined using information 
contained in their TANF, or Medicaid application, or, in the case of 
SSI, on the State Data Exchange (SDX) tape, and any appropriate 
addendum. Project-eligible households shall be considered categorically 
food stamp resource eligible based on their eligibility for these other 
programs and shall be required to meet food stamp income eligibility 
standards. However, income definitions appropriate to the TANF, SSI or 
Medicaid programs shall be used instead of food stamp income definitions 
in determining eligibility. In addition, such households shall, as a 
condition of program eligibility, meet and/or fulfill all food stamp 
nonfinancial eligibility requirements. (Project-eligible households 
defined as categorically eligible in Sec.  273.2 (j) and (k) of these 
regulations are not required to meet the income eligibility standards.) 
To further simplify program administration, benefits provided to such 
households may be standardized by category of assistance and household 
size.
    (b) Program administration. (1) Simplified application and 
standardized benefit procedures are applicable in five States and five 
political subdivisions. For the purpose of this section, a political 
subdivision is a project area as defined in Sec.  271.2 of these 
regulations.
    (2) State agencies and political subdivisions seeking to operate a 
Simplified Application and Standardized Benefit Project shall submit 
Work Plans to FNS in accordance with the requirements of this section.

[[Page 774]]

    (3) FNS shall evaluate Work Plans according to the criteria set 
forth in the Simplified Application/Standardized Benefit Notice of 
Intent.
    (4) Political subdivisions shall submit their Work Plans to FNS 
through their respective State agencies for review and approval.
    (5) A State agency selected by FNS to operate a Simplified 
Application and Standardized Benefit Project shall include the Work Plan 
in its State Plan of Operations. A political subdivision chosen to 
operate a Simplified Application and Standardized Benefit Project shall 
assure that the responsible State agency include that political 
subdivision's project Work Plan in its own State Plan of Operations. The 
Work Plan shall be updated, as needed, to reflect changes in the benefit 
methodology, subject to prior FNS approval.
    (c) Contents of the work plan. The Work Plan submitted by each 
applicant shall contain the following information:
    (1) Background information on the proposed site's characteristics, 
current operating procedures, and a general description of the proposed 
procedures;
    (2) A description of the proposed project design, including the 
benefit methodology, households which will be project eligible, 
operational procedures, and the need for waivers;
    (3) An implementation and monitoring plan describing tasks, staffing 
and a timetable for implementation;
    (4) An estimate of project impacts including implementation costs 
and, on an annual basis, operating costs, administrative costs, error 
reduction, and benefit changes; and
    (5) A statement signed by the State official with authority to 
commit the State or political subdivisions to the project's operation.
    (d) Project-eligible households. Each operating agency shall decide 
which of the following categories of household shall be eligible to 
participate in the project.
    (1) Households all of whose members receive TANF benefits under part 
A of title IV of the Social Security Act;
    (2) Households all of whose members receive SSI benefits under title 
XVI of the Social Security Act;
    (3) Households all of whose members receive Medicaid benefits under 
title XIX of the Social Security Act;
    (4) Households each of whose members receive one or more of the 
following: TANF, SSI, or Medicaid benefits (multiple-benefit 
households); and
    (5) Households only some of whose members receive TANF, SSI, and/or 
Medicaid benefits (mixed households).
    (e) Determining Food Stamp Program eligibility. Under the Simplified 
Application and Standardized Benefit Project, project eligible 
households shall have their food stamp eligibility determined using the 
following criteria.
    (1) Certain households, at the operating agency's option, which 
contain members receiving TANF, SSI, or Medicaid benefits, shall be 
designated project eligible and need not make separate application for 
food stamp benefits. Once such households indicate in writing a desire 
to receive food stamps, their eligibility will be determined based on 
information contained in their application for TANF or Medicaid benefits 
or, in the case of SSI, on the State Data Exchange (SDX) tape. TANF or 
Medicaid applications may need to be modified, or be subject to an 
addendum in order to accommodate any additional information required by 
the operating agency.
    (2) The income definitions and resource requirements prescribed 
under Sec.  273.9 (b) and (c) and Sec.  273.8 are inapplicable to 
project-eligible households. Project-eligible households which have met 
the resource requirements of the TANF, SSI, and/or Medicaid programs 
shall be considered to have satisfied the food stamp resource 
requirements. Gross income less any allowed exclusions, as defined by 
the appropriate categorical aid program, shall be used to determine food 
stamp income eligibility (unless the project household is categorically 
income eligible as defined in Sec.  273.2 (j) and (k)) and benefit 
levels. Deemed income, as defined under TANF, SSI or Medicaid rules, 
shall be excluded to the extent that households with such income are 
part of the food stamp household providing the deemed income.
    (3) Project-eligible households which are not categorically income 
eligible

[[Page 775]]

shall meet the gross and net income standards prescribed in Sec.  
273.9(a). Net income shall be determined by subtracting from gross 
income either actual or standardized deduction amounts. If standardized 
deduction amounts are used, they may be initially determined using 
recent historical data on deductions claimed by such households. Such 
deductions must be updated, as necessary, on at least an annual basis. 
Such deductions shall include:
    (i) The current standard deduction for all households;
    (ii) An excess shelter deduction and a dependent care deduction for 
households not containing an elderly or disabled member;
    (iii) A dependent care deduction, an uncapped excess shelter 
deduction and a medical deduction for households containing a qualified 
elderly or disabled member; and
    (iv) A standardized or actual earned income deduction for households 
containing members with earned income.
    (4) All non-financial food stamp eligibility requirements shall be 
applicable to project-eligible households.
    (f) Benefit levels. (1) In establishing benefits for project 
eligible households, either the appropriate State standard of need 
(maximum aid payment) or gross income as determined for the appropriate 
categorical aid program plus the value of any monetary categorical 
benefits received, if any, may be used as the gross income amount. If 
mixed households are designated project eligible, procedures shall be 
developed to include as household income the income of those household 
members not receiving categorical aid.
    (2) If allotments are standardized, the average allotment for each 
category of household, by household size, shall be no less than average 
allotments would have been were the project not in operation.
    (3) Benefit methodologies shall be constructed to ensure that 
benefits received by households having higher than average allotments 
under normal program rules are not significantly reduced as a result of 
standardization.
    (4) Benefit methodologies shall be structured to ensure that 
decreases in household benefits are not reduced by more than $10 or 20%, 
whichever is less.
    (5) The methodology to be used in developing benefit levels shall be 
determined by the operating agency but shall be subject to FNS approval.
    (6) With FNS approval, operating agencies may develop an alternate 
methodology for standardizing allotments/deductions for specific sizes 
and categories of households where such size and category is so small as 
to make the use of average deductions and/or allotments impractical.
    (7) FNS may require operating agencies to revise their standardized 
allotments during the course of the project to reflect changes in items 
such as household characteristics, the Thrifty Food Plan, deduction 
amounts, the benefit reduction rate, or benefit levels in TANF or SSI. 
Such changes will be documented by revising the Work Plan amendment to 
the State Plan of Operations.
    (g) Household notification. All certified project-eligible 
households residing in the selected project sites shall be provided with 
a notice, prior to project commencement, informing them of the revised 
procedures and household requirements under the project. If household 
allotments are to be standardized, the notice shall also provide 
specific information on the value of the newly computed benefit and the 
formula used to calculate the benefit. The notice shall meet the 
requirements of a notice of adverse action as set forth in Sec.  
273.13(a)(2).
    (h) Application processing procedures. (1) The operating agency 
shall allow project-eligible households to indicate in writing their 
desire to receive food stamps. Such households shall be notified in 
writing, at the time such indication is made, that information contained 
in their TANF, SSI, or Medicaid application will be the basis of their 
food stamp eligibility determination. If mixed households are included 
in the project-eligible universe, the project operator shall develop a 
procedure to collect the necessary information on household members not 
receiving categorical aid.
    (2) The operating agency may use simplified application and 
standardized benefit procedures only for those

[[Page 776]]

households containing at least one member certified to receive either 
TANF, SSI, or Medicaid benefits. If simplified procedures are to be 
used, the State agency shall make all eligibility determinations for 
households jointly applying for food stamps and TANF, SSI, or Medicaid 
benefits within the 30-day food stamp processing period. If a 
household's eligibility for TANF, SSI, or Medicaid cannot be established 
within the 30-day period, normal food stamp application, certification, 
and benefit determination procedures shall be used and benefits shall be 
issued within 30 days if the household is eligible. Households which are 
jointly applying for TANF, SSI, or Medicaid, and which qualify for 
expedited service, shall be certified for food stamps using procedures 
prescribed at Sec.  273.2(i). However, if the State agency can process 
the application of an expedited service household for categorical 
assistance within the expedited period prescribed at Sec.  273.2(i), it 
may use simplified application and standardized benefit procedures to 
certify the household for food stamp benefits.
    (i) Regulatory requirements. (1) All Food Stamp Program regulations 
shall remain in effect unless they are expressly altered by the 
provisions of this section or the provisions contained within the 
approved SA/SB Work Plan.
    (2) Certification periods for mixed households. At the option of the 
operating agency, mixed households may be assigned certification periods 
of up to one year. Such households, if circumstances warrant, may be 
required to attend a face-to-face interview on a schedule which would 
conform to certification periods normally assigned such households as 
specified in Sec.  273.10(f). At the time of the interview, the 
household shall be required to complete a modified application and 
provide additional information in accordance with Sec.  273.2(f). If the 
household fails to comply with the interview review requirement or if 
information obtained indicates a revision in household eligibility or 
benefits, action will be taken in accordance withSec.  273.13, Notice of 
Adverse Action.
    (j) Quality control. (1) Project eligible households selected for 
quality control review shall be reviewed by the State agency using 
special procedures, based on project requirements, which have been 
developed by the State agency and approved by FNS.
    (2) The error rate(s) determined using the special quality control 
review procedures shall be included when determining the State agency's 
overall error rate.
    (k) Funding. Operating agencies shall be reimbursed for project 
costs at the rates prescribed in Sec.  277.4.
    (l) Evaluation. Each project site shall conduct a self-evaluation of 
the project's impact on benefits, administrative costs and 
participation. Such evaluation shall be conducted within three months of 
project implementation. The results of the self-evaluation shall be sent 
to FNS within six months of project implementation. The impact of the 
project on project-eligible households' error rates shall be reported on 
an annual basis in accordance with Sec.  273.23(m).
    (m) Reporting requirements. Operating agencies shall be required to 
prepare and submit to FNS an annual report on the error rate 
attributable to project-eligible households. The timing of such reports 
shall coincide with the due date for the annual quality control report 
prescribed in Sec.  275.21(d).
    (n) State agency monitoring. Monitoring shall be undertaken to 
ensure compliance with these regulations and the Work Plan submitted to 
and approved by FNS. Project monitoring shall be conducted in accordance 
with the appropriate sections of part 275, Performance Reporting System, 
of these regulations. At a minimum, onsite reviews of the Simplified 
Application and Standardized Benefit Project shall be conducted once 
within six months of the project's implementation and then in accordance 
with the Management Evaluation review schedule for the project area.
    (o) Termination. (1) FNS may terminate project operations for any 
reason and at any time on 60 days written notice to the administering 
State agency or political subdivision. State or local agencies may also 
choose to terminate their participation with 60 days written notice to 
FNS. In either such event, operating agencies shall be

[[Page 777]]

given sufficient time to return to normal operations in an orderly 
fashion.
    (2) If termination occurs, FNS may select another site for project 
operations. Such selection shall be based on either previously received 
project proposals or proposals received under a new solicitation.

[53 FR 26224, July 12, 1988]



Sec.  273.24  Time limit for able-bodied adults.

    (a) Definitions. For purposes of the food stamp time limit, the 
terms below have the following meanings:
    (1) Fulfilling the work requirement means:
    (i) Working 20 hours per week, averaged monthly; for purposes of 
this provision, 20 hours a week averaged monthly means 80 hours a month;
    (ii) Participating in and complying with the requirements of a work 
program 20 hours per week, as determined by the State agency;
    (iii) Any combination of working and participating in a work program 
for a total of 20 hours per week, as determined by the State agency; or
    (iv) Participating in and complying with a workfare program;
    (2) Working means:
    (i) Work in exchange for money;
    (ii) Work in exchange for goods or services (``in kind'' work); or
    (iii) Unpaid work, verified under standards established by the State 
agency.
    (iv) Any combination of paragraphs (a)(2)(i), (a)(2)(ii) and 
(a)(2)(iii) of this section.
    (3) Work Program means:
    (i) A program under the Workforce Investment Act (Pub. L. 105-220);
    (ii) A program under section 236 of the Trade Act of 1974 (19 U.S.C. 
2296); or
    (iii) An employment and training program, other than a job search or 
job search training program, operated or supervised by a State or 
political subdivision of a State that meets standards approved by the 
Governor of the State, including a program under Sec.  273.7(f). Such a 
program may contain job search or job search training as a subsidiary 
component as long as such component is less than half the requirement.
    (4) Workfare program means:
    (i) A program under Sec.  273.22; or
    (ii) A comparable program established by a State or political 
subdivision of a State.
    (b) General Rule. Individuals are not eligible to participate in the 
Food Stamp Program as a member of any household if the individual 
received food stamps for more than three countable months during any 
three-year period, except that individuals may be eligible for up to 
three additional countable months in accordance with paragraph (e) of 
this section.
    (1) Countable months. Countable months are months during which an 
individual receives food stamps for the full benefit month while not:
    (i) Exempt under paragraph (c) of this section;
    (ii) Covered by a waiver under paragraph (f) of this section;
    (iii) Fulfilling the work requirement as defined in paragraph (a)(1) 
of this section; or
    (iv) Receiving benefits that are prorated in accordance with Sec.  
273.10.
    (2) Good cause. As determined by the State agency, if an individual 
would have worked an average of 20 hours per week but missed some work 
for good cause, the individual shall be considered to have met the work 
requirement if the absence from work is temporary and the individual 
retains his or her job. Good cause shall include circumstances beyond 
the individual's control, such as, but not limited to, illness, illness 
of another household member requiring the presence of the member, a 
household emergency, or the unavailability of transportation.
    (3) Measuring the three-year period. The State agency may measure 
and track the three-year period as it deems appropriate. The State 
agency may use either a ``fixed'' or ``rolling'' clock. If the State 
agency chooses to switch tracking methods it must inform FNS in writing. 
With respect to a State, the three-year period:
    (i) Shall be measured and tracked consistently so that individuals 
who are similarly situated are treated the same; and
    (ii) Shall not include any period before the earlier of November 22, 
1996, or the date the State notified food stamp recipients of the 
application of Section

[[Page 778]]

824 of the Personal Responsibility and Work Opportunity Reconciliation 
Act of 1996 (Pub. L. 104-193).
    (4) Treatment of income and resources. The income and resources of 
an individual made ineligible under this paragraph (b) shall be handled 
in accordance with Sec.  273.11(c)(2).
    (5) Benefits received erroneously. If an individual subject to this 
section receives food stamp benefits erroneously, the State agency shall 
consider the benefits to have been received for purposes of this 
provision unless or until the individual pays it back in full.
    (6) Verification. Verification shall be in accordance with Sec.  
273.2(f)(1) and (f)(8).
    (7) Reporting. A change in work hours below 20 hours per week, 
averaged monthly, is a reportable change in accordance with Sec.  
273.12(a)(1)(viii). Regardless of the type of reporting system the State 
agency assigns to potential ABAWDs, the State agency must adhere to the 
statutory requirements of time-limited benefits for individuals who are 
subject to the work requirement. The State agency may opt to consider 
work performed in a job that was not reported according to the 
requirements of Sec.  273.12 ``work.''
    (c) Exceptions. The time limit does not apply to an individual if he 
or she is:
    (1) Under 18 or 50 years of age or older;
    (2) Determined by the State agency to be medically certified as 
physically or mentally unfit for employment. An individual is medically 
certified as physically or mentally unfit for employment if he or she:
    (i) Is receiving temporary or permanent disability benefits issued 
by governmental or private sources;
    (ii) Is obviously mentally or physically unfit for employment as 
determined by the State agency; or
    (iii) If the unfitness is not obvious, provides a statement from a 
physician, physician's assistant, nurse, nurse practitioner, designated 
representative of the physician's office, a licensed or certified 
psychologist, a social worker, or any other medical personnel the State 
agency determines appropriate, that he or she is physically or mentally 
unfit for employment.
    (3) Is a parent (natural, adoptive, or step) of a household member 
under age 18, even if the household member who is under 18 is not 
himself eligible for food stamps;
    (4) Is residing in a household where a household member is under age 
18, even if the household member who is under 18 is not himself eligible 
for food stamps;
    (5) Is otherwise exempt from work requirements under section 6(d)(2) 
of the Food Stamp Act, as implemented in regulations at Sec.  273.7(b); 
or
    (6) Is pregnant.
    (d) Regaining eligibility. (1) An individual denied eligibility 
under paragraph (b) of this section, or who did not reapply for benefits 
because he was not meeting the work requirements under paragraph (b) of 
this section, shall regain eligibility to participate in the Food Stamp 
Program if, as determined by the State agency, during any 30 consecutive 
days, he or she:
    (i) Worked 80 or more hours;
    (ii) Participated in and complied with the requirements of a work 
program for 80 or more hours;
    (iii) Any combination of work and participation in a work program 
for a total of 80 hours; or participated in and complied with a workfare 
program; or
    (iv) At State agency option, verifies that the he or she will meet 
one of the requirements in paragraphs (d)(1)(i), (d)(1)(ii), 
(d)(1)(iii), or (d)(1)(v) of this section, within the 30 days subsequent 
to application; or
    (v) Becomes exempt.
    (2) An individual regaining eligibility under paragraph (d)(1) of 
this section shall have benefits calculated as follows:
    (i) For individuals regaining eligibility by working, participating 
in a work program, or combining hours worked and hours participating in 
a work program, the State agency may either prorate benefits from the 
day the 80 hours are completed or from the date of application, or
    (ii) For individuals regaining eligibility by participating in a 
workfare program, and the workfare obligation is based on an estimated 
monthly allotment prorated back to the date of application, then the 
allotment issued must be prorated back to this date.

[[Page 779]]

    (3) There is no limit on how many times an individual may regain 
eligibility and subsequently maintain eligibility by meeting the work 
requirement.
    (e) Additional three-month eligibility. An individual who regained 
eligibility under paragraph (d) of this section and who is no longer 
fulfilling the work requirement as defined in paragraph (a) of this 
section is eligible for a period of three consecutive countable months 
(as defined in paragraph (b) of this section), starting on the date the 
individual first notifies the State agency that he or she is no longer 
fulfilling the work requirement, unless the individual has been 
satisfying the work requirement by participating in a work or workfare 
program, in which case the period starts on the date the State agency 
notifies the individual that he or she is no longer meeting the work 
requirement. An individual shall not receive benefits under this 
paragraph (e) more than once in any three-year period.
    (f) Waivers.
    (1) General. On the request of a State agency, FNS may waive the 
time limit for a group of individuals in the State if we determine that 
the area in which the individuals reside:
    (i) Has an unemployment rate of over 10 percent; or
    (ii) Does not have a sufficient number of jobs to provide employment 
for the individuals.
    (2) Required data. The State agency may submit whatever data it 
deems appropriate to support its request. However, to support waiver 
requests based on unemployment rates or labor force data, States must 
submit data that relies on standard Bureau of Labor Statistics (BLS) 
data or methods. A non-exhaustive list of the kinds of data a State 
agency may submit follows:
    (i) To support a claim of unemployment over 10 percent, a State 
agency may submit evidence that an area has a recent 12 month average 
unemployment rate over 10 percent; a recent three month average 
unemployment rate over 10 percent; or an historical seasonal 
unemployment rate over 10 percent; or
    (ii) To support a claim of lack of sufficient jobs, a State may 
submit evidence that an area: is designated as a Labor Surplus Area 
(LSA) by the Department of Labor's Employment and Training 
Administration (ETA); is determined by the Department of Labor's 
Unemployment Insurance Service as qualifying for extended unemployment 
benefits; has a low and declining employment-to-population ratio; has a 
lack of jobs in declining occupations or industries; is described in an 
academic study or other publications as an area where there are lack of 
jobs; has a 24-month average unemployment rate 20 percent above the 
national average for the same 24-month period. This 24-month period may 
not be any earlier than the same 24-month period the ETA uses to 
designate LSAs for the current fiscal year.
    (3) Waivers that are readily approvable. FNS will approve State 
agency waivers where FNS confirms:
    (i) Data from the BLS or the BLS cooperating agency that shows an 
area has a most recent 12 month average unemployment rate over 10 
percent;
    (ii) Evidence that the area has been designated a Labor Surplus Area 
by the ETA for the current fiscal year; or
    (iii) Data from the BLS or the BLS cooperating agency that an area 
has a 24 month average unemployment rate that exceeds the national 
average by 20 percent for any 24-month period no earlier than the same 
period the ETA uses to designate LSAs for the current fiscal year.
    (4) Effective date of certain waivers. In areas for which the State 
certifies that data from the BLS or the BLS cooperating agency show a 
most recent 12 month average unemployment rate over 10 percent; or the 
area has been designated as a Labor Surplus Area by the Department of 
Labor's Employment and Training Administration for the current fiscal 
year, the State may begin to operate the waiver at the time the waiver 
request is submitted. FNS will contact the State if the waiver must be 
modified.
    (5) Duration of waiver. In general, waivers will be approved for one 
year. The duration of a waiver should bear some relationship to the 
documentation provided in support of the waiver request. FNS will 
consider approving waivers for up to one year based on

[[Page 780]]

documentation covering a shorter period, but the State agency must show 
that the basis for the waiver is not a seasonal or short term 
aberration. We reserve the right to approve waivers for a shorter period 
at the State agency's request or if the data is insufficient. We reserve 
the right to approve a waiver for a longer period if the reasons are 
compelling.
    (6) Areas covered by waivers. States may define areas to be covered 
by waivers. We encourage State agencies to submit data and analyses that 
correspond to the defined area. If corresponding data does not exist, 
State agencies should submit data that corresponds as closely to the 
area as possible.
    (g) 15 percent exemptions. (1) For the purpose of establishing the 
15 percent exemption for each State agency, the following terms are 
defined:
    (i) Caseload means the average monthly number of individuals 
receiving food stamps during the 12-month period ending the preceding 
June 30.
    (ii) Covered individual means a food stamp recipient, or an 
applicant denied eligibility for benefits solely because he or she 
received food stamps during the 3 months of eligibility provided under 
paragraph (b) of this section, who:
    (A) Is not exempt from the time limit under paragraph (c) of this 
section;
    (B) Does not reside in an area covered by a waiver granted under 
paragraph (f) of this section;
    (C) Is not fulfilling the work requirements as defined in paragraph 
(a)(1) of this section; and
    (D) Is not receiving food stamp benefits under paragraph (e) of this 
section.
    (2) Subject to paragraphs (h) and (i) of this section, a State 
agency may provide an exemption from the 3-month time limit of paragraph 
(b) of this section for covered individuals. Exemptions do not count 
towards a State agency's allocation if they are provided to an 
individual who is otherwise exempt from the time limit during that 
month.
    (3) For each fiscal year, a State agency may provide a number of 
exemptions such that the average monthly number of exemptions in effect 
during the fiscal year does not exceed 15 percent of the number of 
covered individuals in the State, as estimated by FNS, based on FY 1996 
quality control data and other factors FNS deems appropriate, and 
adjusted by FNS to reflect changes in:
    (i) The State agency's caseload; and
    (ii) FNS's estimate of changes in the proportion of food stamp 
recipients covered by waivers granted under paragraph (f) of this 
section.
    (4) State agencies must not discriminate against any covered 
individual for reasons of age, race, color, sex, disability, religious 
creed, national origin, or political beliefs. Such discrimination is 
prohibited by this part, the Food Stamp Act, the Age Discrimination Act 
of 1975 (Public Law 94-135), the Rehabilitation Act of 1973 (Public Law 
93-112, section 504), and title VI of the Civil Rights Act of 1964 (42 
U.S.C. 2000d). Enforcement action may be brought under any applicable 
Federal law. Title VI complaints will be processed in accord with 7 CFR 
part 15.
    (h) Adjustments. FNS will make adjustments as follows:
    (1) Caseload adjustments. FNS will adjust the number of exemptions 
estimated for a State agency under paragraph (g)(2) of this section 
during a fiscal year if the number of food stamp recipients in the State 
varies from the State's caseload by more than 10 percent, as estimated 
by FNS.
    (2) Exemption adjustments. During each fiscal year, FNS will adjust 
the number of exemptions allocated to a State agency based on the number 
of exemptions in effect in the State for the preceding fiscal year.
    (i) If the State agency does not use all of its exemptions by the 
end of the fiscal year, FNS will increase the estimated number of 
exemptions allocated to the State agency for the subsequent fiscal year 
by the remaining balance.
    (ii) If the State agency exceeds its exemptions by the end of the 
fiscal year, FNS will reduce the estimated number of exemptions 
allocated to the State agency for the subsequent fiscal year by the 
corresponding number.
    (i) Reporting requirement. The State agency will track the number of 
exemptions used each month and report this number to the regional office 
on a quarterly basis as an addendum to the

[[Page 781]]

quarterly Employment and Training Report (Form FNS-583) required by 
Sec.  273.7(c)(8).
    (j) Other Program rules. Nothing in this section will make an 
individual eligible for food stamp benefits if the individual is not 
otherwise eligible for benefits under the other provisions of this part 
and the Food Stamp Act.

[Amdt. 379, 64 FR 48257, Sept. 3, 1999, as amended at 66 FR 4469, Jan. 
17, 2001; 67 FR 41618, June 19, 2002]



Sec.  273.25  Simplified Food Stamp Program.

    (a) Definitions. For purposes of this section:
    (1) Simplified Food Stamp Program (SFSP) means a program authorized 
under 7 U.S.C. 2035.
    (2) Temporary Assistance for Needy Families (TANF) means a State 
program of family assistance operated by an eligible State under its 
TANF plan as defined at 45 CFR 260.30.
    (3) Pure-TANF household means a household in which all members 
receive assistance under a State program funded under part A of title IV 
of the Social Security Act (42 U.S.C. 601 et seq.).
    (4) Mixed-TANF household means a household in which 1 or more 
members, but not all members, receive assistance under a State program 
funded under part A of title IV of the Social Security Act (42 U.S.C. 
601 et seq.).
    (5) Assistance under a State program funded under part A of title IV 
of the Social Security Act (42 U.S.C. 601 et seq.) means ``assistance'' 
as defined in regulations at 45 CFR 260.31.
    (b) Limit on benefit reduction for mixed-TANF households under the 
SFSP. If a State agency chooses to operate an SFSP and includes mixed-
TANF households in its program, the following requirements apply in 
addition to the statutory requirements governing the SFSP.
    (1) If a State's SFSP reduces benefits for mixed-TANF households, 
then no more than 5 percent of these participating households can have 
benefits reduced by 10 percent of the amount they are eligible to 
receive under the regular FSP and no mixed-TANF household can have 
benefits reduced by 25 percent or more of the amount it is eligible to 
receive under the regular FSP. Reductions of $10 or less will be 
disregarded when applying this requirement.
    (2) The State must include in its State SFSP plan an analysis 
showing the impact its program has on benefit levels for mixed-TANF 
households by comparing the allotment amount such households would 
receive using the rules and procedures of the State's SFSP with the 
allotment amount these households would receive if certified under 
regular Food Stamp Program rules and showing the number of households 
whose allotment amount would be reduced by 9.99 percent or less, by 10 
to 24.99 percent, and by 25 percent or more, excluding those households 
with reductions of $10 or less. In order for FNS to accurately evaluate 
the program's impact, States must describe in detail the methodology 
used as the basis for this analysis.
    (3) To ensure compliance with the benefit reduction requirement once 
an SFSP is operational, States must describe in their plan and have 
approved by FNS a methodology for measuring benefit reductions for 
mixed-TANF households on an on-going basis throughout the duration of 
the SFSP. In addition, States must report to FNS on a periodic basis the 
amount of benefit loss experienced by mixed-TANF households 
participating in the State's SFSP. The frequency of such reports will be 
determined by FNS taking into consideration such factors as the number 
of mixed-TANF households participating in the SFSP and the amount of 
benefit loss attributed to these households through initial or on-going 
analyses.
    (c) Application processing standards. Under statutory requirements, 
a household is not eligible to participate in an SFSP unless it is 
receiving TANF assistance. If a household is not receiving TANF 
assistance (payments have not been authorized) at the time of its 
application for the SFSP, the State agency must process the application 
using the regular Food Stamp Program requirements of Sec.  273.2, 
including processing within the 30-day regular or 7-day expedited time 
frame, and screening for and provision of expedited service if eligible. 
The State agency must

[[Page 782]]

determine under regular food stamp rules the eligibility and benefits of 
any household that it has found ineligible for TANF assistance because 
of time limits, more restrictive resource standards, or other rules that 
do not apply to food stamps.
    (d) Standards for shelter costs. Legislation governing the SFSP 
requires that State plans must address the needs of households with high 
shelter costs relative to their income. If a State chooses to 
standardize shelter costs under the SFSP, it must, therefore, use 
multiple standards that take into consideration households with high 
shelter costs versus those with low shelter costs. A State is prohibited 
from using a single standard based on average shelter costs for all 
households participating in an SFSP.
    (e) Opportunity for public comment. States must provide an 
opportunity for public input on proposed SFSP plans (with special 
attention to changes in benefit amounts that are necessary in order to 
ensure that the overall proposal not increase Federal costs) through a 
public comment period, public hearings, or meetings with groups 
representing participants' interests. Final approval will be given after 
the State informs the Department about the comments received from the 
public. After the public comment period, the State agency must inform 
the Department about the comments received from the public and submit 
its final SFSP plan for Departmental approval.

[Amdt. 388, 65 FR 70211, Nov. 21, 2000]



PART 274_ISSUANCE AND USE OF COUPONS--Table of Contents




Sec.
274.1 State agency issuance responsibility.
274.2 Providing benefits to participants.
274.3 Issuance systems.
274.4 Reconciliation and reporting.
274.5 [Reserved]
274.6 Replacement issuances to households.
274.7 Coupon management.
274.8 Responsibilities of coupon issuers, and bulk storage and claims 
          collection points.
274.9 Closeout of a coupon issuer.
274.10 Use of identification cards and redemption of coupons by eligible 
          households.
274.11 Issuance and inventory record retention, and forms security.
274.12 Electronic Benefit Transfer issuance system approval standards.

    Authority: 7 U.S.C. 2011-2036.

    Source: 54 FR 7004, Feb. 15, 1989, unless otherwise noted.

    Editorial Note: OMB control numbers relating to this part 274 are 
contained in Sec.  271.8.



Sec.  274.1  State agency issuance responsibility.

    (a) Basic issuance requirements. State agencies shall establish 
issuance and accountability systems which ensure that only certified 
eligible households receive benefits; that coupons are accepted, stored, 
and protected after delivery to receiving points within the State; that 
Program benefits are timely distributed in the correct amounts; and that 
coupon issuance and reconciliation activities are properly conducted and 
accurately reported to FNS.
    (b) Contracting or delegating issuance responsibilities. State 
agencies may assign to others such as banks, savings and loan 
associations, the Postal Service, community action and migrant service 
agencies, and other commercial businesses, the responsibility for the 
issuance and storage of food coupons. State agencies may permit 
contractors to subcontract assigned issuance responsibilities.
    (1) Any assignment of issuance functions shall clearly delineate the 
responsibilities of both parties. The State agency remains responsible, 
regardless of any agreements to the contrary, for ensuring that assigned 
duties are carried out in accordance with these regulations. In 
addition, the State agency is strictly liable to FNS for all losses of 
coupons, even if those losses are the result of the performance of 
issuance, security, or accountability duties by another party.
    (2) All issuance contracts shall follow procurement standards set 
forth in part 277.
    (3) The State agency shall not assign the issuance of coupons to any 
retail food firm unless the State agency provides evidence that such an 
arrangement is needed to maintain or increase the efficient and 
effective operation of the Program, as described below.

[[Page 783]]

    (i) Coupons may be issued inside or within a retail food store, if 
the issuance is performed by a bank, credit union or other financial 
organization independent of the retail food store.
    (ii) Coupons may be issued on-site by a retail food store under the 
following conditions:
    (A) The State agency adequately documents that unless the retail 
food store is permitted to issue coupons on-site there will be a 
hardship, not just an inconvenience, to recipients. The State agency 
shall contract directly with the retail food firm and shall provide 
oversight to such entity; or
    (B) In the absence of the hardship documentation, a retail food firm 
itself may perform issuance as a subcontractor to a bank, credit union 
or other independent financial organization, with strict oversight by 
the financial organization.
    (4) The State agency may contract with the U.S. Postal Service for 
the issuance of benefits. The Department and the Postal Service have 
signed an agreement which governs benefit issuance by the Postal 
Service. A State agency's contract with the Postal Service does not 
exempt the State agency from the requirement that it comply with these 
regulations. However, State agencies may negotiate contracts with the 
Postal Service on all terms and conditions as long as such provisions do 
not conflict with these regulations.
    (5) In project areas or parts of project areas where FNS has 
required a Photographic identification (Photo ID) system to be used, the 
State agency shall include in any contract or agreement with an issuing 
agent a provision establishing the agent's liability to the State agency 
for the face value of coupons issued in any authorization document 
transaction where the authorization document is found to have been 
stolen or otherwise not received by the household certified as eligible, 
if the cashier has not fulfilled the requirements contained in Sec.  
274.10. This same provision shall apply to issuance contracts in project 
areas or parts of project areas where FNS has granted a waiver or 
waivers of any provision(s) of the Photo ID requirements based on a 
determination that State agency alternatives will not compromise the 
security of the ID system.
    (c) State monitoring of coupon issuers. The State agency's 
accountability system shall include procedures for monitoring coupon 
issuers to assure that the day-to-day operations of all coupon issuers 
comply with these regulations, to identify and correct deficiencies, and 
to report violations of the Act or regulations to FNS.
    (1) The State agency shall conduct an onsite review of each coupon 
issuer and bulk storage point at least once every three years. All 
offices or units of a coupon issuer are subject to this review 
requirement. The State agency shall base each review on the specific 
activities performed by each coupon issuer or bulk storage point. A 
physical inventory of coupons shall be taken at each location and that 
count compared with perpetual inventory records and the monthly reports 
of the coupon issuer or bulk storage point. This review may be conducted 
at branch sites as well as the main offices of each issuer and bulk 
storage point that operates in more than one office. Except in unusual 
circumstances, the Postal Inspection Service will conduct onsite reviews 
of Postal Service issuance operations.
    (2) This review requirement may be fulfilled in part or in total by 
the performance reporting review system, part 275. The State agency may 
delegate this review responsibility to another unit of the State 
government or contract with an outside firm with expertise in auditing 
and accounting. State agencies may use the results of reviews of coupon 
issuers by independent audit or accounting firms as long as the food 
coupon issuance operations of the coupon issuer are included in the 
review.
    (d) Changes. The State agency shall inform FNS whenever a project 
area, issuance point, reconciliation point, replacement point, bulk 
storage reporting point or coupon shipment receiving point is created, 
relocated, or terminated. The State agency shall report the change at 
least 30 days prior to the effective date of the change. Initial 
notification may be made by telephone but the State agency shall confirm 
the information in writing as soon as possible.

[[Page 784]]

    (e) Advance planning documentation. State agencies must comply with 
the procurement requirements of part 277 for the acquisition, design, 
development, or installation of automated data processing (ADP) 
equipment. With certain exceptions detailed in part 277, State agencies 
must receive prior approval for the design and acquisition of ADP 
systems through submission of advance planning documents (APD's).



Sec.  274.2  Providing benefits to participants.

    (a) General. Each State agency is responsible for the timely and 
accurate issuance of benefits to certified eligible households in 
accordance with these regulations. Those households comprised of elderly 
or disabled members which have difficulty reaching issuance offices, and 
households which do not reside in a permanent dwelling or of a fixed 
mailing address shall be given assistance in obtaining their regular 
monthly benefits. State agencies shall assist these households by 
arranging for the mail issuance of coupons to them, by assisting them in 
finding authorized representatives who can act on their behalf, or by 
using other appropriate means.
    (b) Availability of benefits. All newly-certified households, except 
those that are given expedited service, shall be given an opportunity to 
participate no later than 30 calendar days following the date the 
application was filed. An opportunity to participate consists of 
providing households with coupons or authorization documents and having 
issuance facilities open and available for the households to obtain 
their benefits. State agencies must mail authorization documents or 
coupons in time to assure that the documents can be transacted, or the 
coupons spent after they are received but before the 30-day standard 
expires. A household has not been provided an opportunity to participate 
within the 30-day standard if the authorization document or benefits are 
mailed on the 29th or 30th day. Neither has an opportunity to 
participate been provided if the authorization document is mailed on the 
28th day but no issuance facility is open on the 30th day. For 
households entitled to expedited service, the State agency shall make 
benefits available to the household not later than the fifth calendar 
day following the date of application. Whatever system a State agency 
uses to ensure meeting this delivery standard shall be designed to allow 
a reasonable opportunity for redemption of ATPs no later than the fifth 
calendar day following the date of application.
    (c) Combined allotments. For those households which are to receive a 
combined allotment, the State agency shall provide the benefits for both 
months as an aggregate (combined) allotment, or as two separate 
allotments, with the same validity period, made available at the same 
time, in accordance with the timeframes specified in Sec.  273.2 of this 
chapter.
    (d) Ongoing households. All households shall be placed on an 
issuance schedule so that they receive their benefits on or about the 
same date each month. The date upon which a household receives its 
initial allotment after certification need not be the date that the 
household must receive its subsequent allotments.
    (1) State agencies that use direct-mail issuance shall stagger 
issuance over at least 10 days of the issuance month, and may stagger 
issuance over the entire issuance month. State agencies using a method 
other than direct-mail issuance may stagger issuance throughout the 
month, or for a shorter period. When staggering benefit delivery, 
however, State agencies shall not allow more than 40 days to elapse 
between the issuance of any two allotments provided to a household 
participating longer than two consecutive, complete months. Regardless 
of the issuance schedule used, the State agency shall adhere to the 
reporting requirements specified in Sec.  274.4.
    (2) Upon the request of the tribal organization that exercises 
governmental jurisdiction over a reservation, the State agency shall 
stagger the issuance of benefits for eligible households located on 
reservations for at least 15 days each month.
    (3) When a participating household is transferred from one issuance 
system or procedure to another issuance system or procedure, the State 
agency shall not permit more than 40 days to elapse between the last 
issuance under

[[Page 785]]

the previous system or procedure, and the first issuance under the new 
system or procedure. The 40-day requirement does not apply to instances 
in which actions by recipients, such as failure to submit a monthly 
report, disrupt benefits. Transfers include, but are not limited to, 
households being moved into or out of a staggered issuance procedure, 
households on a fluctuating schedule within a staggered system, and 
households being moved from a direct-mail issuance system to an 
authorization document system. If the State agency determines that more 
than 40 days may elapse between issuances, the State agency shall divide 
the new issuance into two parts, with one part being issued within the 
40-day period, and the second part, or supplemental issuance, being 
issued on the household's established issuance date in the new system or 
procedure. The supplemental issuance cannot provide the household more 
benefits than the household is entitled to receive.
    (4) Notwithstanding the above provisions, in months in which 
benefits have been suspended under the provisions of Sec.  271.7, State 
agencies may stagger issuance to certified households following the end 
of the suspension. In such situations, State agencies may, at their 
option, stagger issuance from the date issuance resumes through the end 
of the month or over a five-day period following the resumption of 
issuance, even if this results in benefits being issued after the end of 
the month in which the suspension occurred.
    (e) Issuance services. State agencies are responsible for 
determining the location and hours of operation of issuance services. In 
doing so, State agencies shall ensure that the issuance schedules set 
forth in paragraphs (b) and (c) of this section are met. In addition, 
issuance authorization documents, such as ATP cards, should be valid 
only in the geographic area within the State that is encompassed by the 
reconciliation system through which the issuance will be processed; 
however, the validity area may be extended within the State at the State 
agency's option. State agencies may also restrict the validity of these 
documents to smaller areas or particular issuance sites with minimal 
practicable inconvenience to affected households.
    (f) Issuance of coupons to households. The State agency shall issue 
coupon books in accordance with a table for coupon-book issuance 
provided by FNS, except as provided in paragraphs (e)(1), (e)(2), and 
(e)(3) of this section. The State agency shall issue the coupon books in 
consecutive serial number order whenever possible, starting with the 
lowest serial number in each coupon book denomination. The household 
member whose name appears on the ID card shall sign the coupon books; if 
more than one name appears, any named member may sign the books.
    (1) The State agency may deviate from the table if the specified 
coupon books are unavailable.
    (2) Exceptions from the table are authorized for blind and visually-
handicapped participants who request that all coupons be of one 
denomination. Recipients who have no fixed address (homeless), and 
residents of shelters for battered women and children, as defined in 
Sec.  271.2, and which are not authorized by FNS to redeem through 
wholesalers, may request that all or part of their coupons be of the $1 
denomination. State agencies are authorized to grant this request when 
feasible.
    (3) If a household is eligible for an allotment of $1, $3, or $5, 
the State agency shall adjust those allotments to $2, $4, or $6, 
respectively.
    (g) Issuance in rural areas. Unless the area is served by an 
electronic benefit transfer system, State agencies must use direct-mail 
issuance in any rural areas where the State agency determines that 
recipients face substantial difficulties in obtaining transportation in 
order to obtain their food stamp benefits by methods other than direct-
mail issuance. State agencies must report any exceptions to direct-mail 
issuance as specified under Sec.  272.3(a)(2) and (b)(2) of this 
chapter.

[54 FR 7004, Feb. 15, 1989, as amended at 54 FR 51351, Dec. 15, 1989; 60 
FR 20182, Apr. 25, 1995; 65 FR 70212, Nov. 21, 2000]



Sec.  274.3  Issuance systems.

    (a) System classification. State agencies may issue benefits to 
households through any of the following systems:

[[Page 786]]

    (1) An authorization document system that uses a document produced 
for each month's issuance. The intermediary document, such as an ATP, 
may be distributed on a monthly basis to each household and surrendered 
by the household to the coupon issuer, or provided monthly to issuers 
with either single household authorizations or multiple household 
authorizations on each (such as a computer-generated listing). For 
reconciliation and identification purposes, the authorization document 
shall contain the following:
    (i) Serial number;
    (ii) Case name and address;
    (iii) Case number;
    (iv) Allotment amount;
    (v) Benefit month or expiration date;
    (vi) Name of issuing project area; and,
    (vii) Space for signature of household member. An additional space 
for an authorized representative may be included.
    (2) A direct access system that directly accesses a master issuance 
file at the time that benefits are issued to households. This system 
shall use manual card access or an automated access to the master 
issuance file. Systems of this type include the manual Household 
Issuance Record (HIR) card system and on-line issuance terminals.
    (3) A mail issuance system that directly delivers coupons through 
the mail to households.
    (4) An on-line Electronic Benefit Transfer system in which food 
stamp benefits are stored in a central computer database and 
electronically accessed by households at the point-of-sale via reusable 
plastic cards.
    (5) An off-line Electronic Benefit Transfer system in which benefit 
allotments can be stored on a card or in a card access device and used 
to purchase authorized items at a point-of-sale terminal without real-
time authorization from a central processor.
    (b) Other systems. A State agency may develop an issuance system 
which cannot be readily categorized into one of the systems described in 
paragraph (a) of this section. FNS shall prescribe the reporting and 
reconciliation requirements which apply to that system.
    (c) Alternative benefit issuance system. (1) If the Secretary, in 
consultation with the Office of the Inspector General, determines that 
Program integrity would be improved by changing the issuance system of a 
State, the Secretary shall require the State agency to issue or deliver 
coupons using another method. The alternative method may be one of the 
methods described in paragraph (a) of this section, or the Secretary may 
require a State agency to issue, in lieu of coupons, reusable documents 
to be used as part of an automated data processing and information 
retrieval system and to be presented by, and returned to, recipients at 
retail food firms for the purpose of purchasing food. The determination 
of which alternative to use will be made by FNS after consultation with 
the State agency. The cost of conversion will be shared by the 
Department and the State agency in accordance with the cost accounting 
provision of part 277.
    (2) The cost of documents or systems which may be required as a 
result of a permanent alternative issuance system pursuant to this 
section shall not be imposed upon retail food firms participating in the 
Program.
    (d) System requirements. (1) The State agency shall establish a 
master issuance file which is a composite of the issuance records of all 
certified food stamp households. The State agency shall establish the 
master issuance file in a manner compatible with its system used for 
maintaining case record information and shall separate the information 
on the master issuance file into active and inactive case file 
categories. The master issuance file shall contain all the information 
needed to identify certified households, issue household benefits, 
record the participation activity for each household and supply all 
information necessary to fulfill the reporting requirements prescribed 
in Sec.  274.4.
    (i) The master issuance file shall be kept current and accurate. It 
shall be updated and maintained through the use of documents such as 
notices of change and controls for expired certification periods.
    (ii) Before entering a household's data on the master issuance file, 
the State agency shall review the master

[[Page 787]]

issuance file to ensure that the household is not currently 
participating in, or disqualified from, the Program. If an authorization 
document is issued under the expedited service requirements of 
Sec. Sec.  273.2(i) and 274.2(b), the State agency shall complete as 
much of the master issuance file review as possible prior to issuing the 
authorization document. Any uncompleted reviews shall be completed after 
issuance and appropriate corrective action shall be taken to recover 
overissuance.
    (2) State agencies should divide issuance responsibilities between 
at least two persons to prevent any single individual from having 
complete control over the authorization of issuances and the issuances 
themselves. Responsibilities to be divided include maintenance of 
inventory records, assembly of benefits and preparation of envelopes for 
mailing. If issuance functions in an office are handled by one person, a 
second-party review shall be made to verify coupon inventory, the 
reconciliation of the mail log, and the number of mailings prepared.
    (3) State agencies shall establish controls to prevent a household 
from concurrently receiving benefits through more than one issuance 
system.
    (4) State agencies shall clearly identify issuances in their 
accountability systems as initial, supplemental, replacement, or 
restored benefits.
    (5) State agencies shall establish a Statewide record of replacement 
issuances granted to households to prevent a household from receiving 
more than two countable replacement issuances as defined in Sec.  
274.6(b) in a six-month period.
    (6) State agencies which issue benefits by mail shall, at a minimum, 
use first class mail and sturdy nonforwarding envelopes or packages to 
send benefits to households.
    (e) Validity periods. (1) State agencies shall establish validity 
periods for issuances made in both authorization document and direct 
access systems. A validity period is the time frame during which a 
household may obtain benefits by transacting an authorization document, 
or receiving the benefits directly at an issuance point. Generally, the 
validity period coincides with the issuance month or the period of 
intended use, which may or may not be a calendar month. However, in 
instances in which authorization documents are distributed, or benefits 
become available for ongoing households late in the issuance month, the 
State agency shall extend the validity or availability period for either 
twenty (20) additional days, or until the end of the following issuance 
month, at the State agency's option. The State agency may also choose 
one of two dates which will initiate this extension of the validity or 
availability period. The State agency may choose to extend the period 
for authorization documents distributed or for benefits made available, 
on or after the 20th day of the issuance month or after the 15th day of 
the issuance month. Whichever date the State agency chooses to initiate 
the required extension, the State agency must use the date consistently 
for all extensions in this category. A household which does not transact 
its authorization document, or obtain the benefits directly from an 
issuance point during the issuance's validity period, shall lose its 
entitlement to the benefits, and the State agency shall not issue 
benefits to such a household for such a period.
    (2) State agencies experiencing excessive issuance losses may 
develop systems that have authorization documents that expire in shorter 
time frames than those set forth in paragraph (e) of this section. 
However, such systems shall include methods that allow households the 
opportunity to obtain their benefits for the full validity period of a 
month's issuance.

[54 FR 7004, Feb. 15, 1989, as amended at 54 FR 51351, Dec. 15, 1989; 57 
FR 11249, Apr. 1, 1992; 60 FR 20183, Apr. 25, 1995; Amdt. 390, 65 FR 
59110, Oct. 4, 2000]



Sec.  274.4  Reconciliation and reporting.

    (a) Reconciliation. State agencies shall account for all issuance 
through a reconciliation process. The manner in which this is done 
varies depending on the type of issuance system being used.
    (1) Described below are the required reconciliation procedures for 
each type of system.
    (i) In all issuance systems coupon issuers shall reconcile their 
issuances daily using daily tally sheets, cashiers' daily reports, tapes 
or printouts.

[[Page 788]]

    (ii) In systems where a record-for-issuance is used, all issuances 
authorized for the month shall be merged into one record-for-issuance at 
the end of each month. All issuances made during the month shall then be 
posted to the record-for-issuance. The record-for-issuance shall then be 
compared with the master issuance file. Findings from this comparison 
shall be reported on the Form FNS-46 as prescribed in paragraph (b)(2) 
of this section.
    (iii) In systems where no record-for-issuance is used, issuances 
made during each month shall be reconciled to the master issuance file. 
Findings from this reconciliation shall be reported on the Form FNS-46 
as prescribed in paragraph (b)(2) of this section.
    (iv) In addition to the reconciliation activity prescribed in the 
paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section, the 
following steps shall be followed in authorization document systems:
    (A) The State agency shall determine and verify the transacted value 
of authorized coupon issuances.
    (B) Any batches of transacted authorization documents that do not 
reconcile shall be maintained intact by the State agency until the 
discrepancy is resolved with the coupon issuer and/or a review of the 
case files.
    (C) The State agency shall compare all transacted authorization 
documents with the record-for-issuance or master issuance file as 
appropriate. Any documents that do not match with the record-for-
issuance or master issuance file shall be identified and reported as 
required in paragraph (b)(2) of this section.
    (b) Required reports. The State agency shall review and submit the 
following reports to FNS on a monthly basis:
    (1) Form FNS-250, Food Coupon Accountability Report.
    (i) This report, executed monthly by coupon issuers and bulk storage 
points, shall be signed by the coupon issuer or appropriate official, 
certifying that the information is true and correct to the best of that 
person's knowledge and belief.
    (ii) Coupon issuers and bulk storage points shall submit supporting 
documentation to the State agency which will allow verification of the 
monthly report. At a minimum, such documentation shall include documents 
supporting coupon shipments, transfers, issuances, and destruction.
    (iii) For those State agencies which use an authorization document 
issuance system, coupon issuers shall submit transacted authorization 
documents batched according to each day's activity in accordance with a 
schedule prescribed by the State agency, but not less often than 
monthly.
    (iv) All mail issuance activity, including the value of mail 
issuance replacements, shall be reported. Original allotments (first 
benefits issued for a particular month to an ongoing household) 
subsequently recovered by the issuance office during the current month 
shall be returned to inventory and noted on the mail issuance log. When 
the original allotment is returned to inventory and the replacement 
issuance is issued during the current month (month in which original 
benefits were issued), the ``replacement'' shall not be reported.
    (v) The Form FNS-250 shall be reviewed by the State agency for 
accuracy, completeness and reasonableness. The State agency shall attest 
to the accuracy of these reports and shall submit the reports so they 
will be received by FNS by the 45th day after the report month. Any 
revisions to the Form FNS-250 for a given month shall be submitted to 
FNS within 105 days after the end of the report month.
    (vi) FNS shall review each form, submitted through the State agency, 
for completeness, accuracy and reasonableness and shall reconcile 
inventory with shipping records, and shall review State agency 
verification of coupon issuer and bulk storage point monthly reports. 
FNS may supplement the above reviews by unannounced spot checks of 
inventory levels and coupon security arrangements at coupon issuers and 
at bulk storage points.
    (2) Form FNS-46, Issuance Reconciliation Report, shall be submitted 
by each State agency operating an issuance system. The report shall be 
prepared at the level of the State agency where the actual 
reconciliation of the record-for-issuance and master issuance file 
occurs.

[[Page 789]]

    (i) The State agency shall identify and report the number and value 
of all issuances which do not reconcile with the record-for-issuance 
and/or master issuance file. All unreconciled issuances shall be 
identified as specified on this reporting document.
    (ii) The report shall be received by FNS no later than 90 days 
following the end of the report month.
    (3) Form FNS-259, Food Stamp Mail Issuance Report.
    (i) Form FNS-259 reports shall be submitted by State agencies for 
each unit using a mail issuance system as specified in the Mail Issuance 
Loss Reporting Plan required in Sec.  272.2(d)(1)(iv). The State agency 
shall submit the Form FNS-259 reports so that they are received in FNS 
by the 45th day following the end of each quarter.
    (ii) The State agency shall verify the issuance by a comparison with 
issuance on the appropriate coupon issuer's Form FNS-250.
    (4) Form FNS-388, State Coupon Issuance and Participation Estimates.
    (i) State agencies shall telephone or transmit by computer the Form 
FNS-388 data and mail the reports to the FNS regional office no later 
than the 19th day of each month. When the 19th falls on a weekend or 
holiday, the Form FNS-388 data shall be reported by telephone or 
transmitted by computer and mailed on the first work day after the 19th. 
The Form FNS-388 report shall be signed by the person responsible for 
completing the report or a designated State agency official.
    (ii) The Form FNS-388 report shall provide Statewide estimated or 
actual totals of issuance and participation for the current and previous 
month, and actual or final participation totals for the second preceding 
month. In addition to the participation totals for the second preceding 
months of January and July, provided on the March and September reports, 
non-assistance (NA) and public assistance (PA) household and person 
participation breakdowns shall be provided. As an attachment to the 
March and September Form FNS-388 reports, State agencies shall provide 
project area breakdowns of the coupon issuance and NA/PA household and 
person participation data for the second preceding months of January and 
July.
    (iii) State agencies shall submit any proposed changes in their 
estimation procedures to be used in determining the Form FNS-388 data to 
the FNS regional office for review and comment. FNS shall monitor the 
accuracy of the estimated dollar value of coupons issued as reported on 
the Form FNS-388 against the Statewide total dollar value of coupons as 
reported by the issuance agents on the Form FNS-250, Food Stamp 
Accountability Report, for the corresponding month. FNS shall monitor 
the accuracy of the Statewide estimated number of households and persons 
participating as reported on the Form FNS-388 report against the 
Statewide actual total participation as reported on succeeding Form FNS-
388 reports and against the semiannual project area participation totals 
attached to the March and September Form FNS-388 reports. The FNS 
accuracy standards for the issuance and participation estimates are that 
estimates for the current month be within (+) or (-) four (4) percent of 
actual levels, and the estimates for the previous month be within (+) or 
(-) two (2) percent of actual levels. State agencies shall explain any 
unusual circumstances that cause coupon issuance and/or participation 
data to not meet these accuracy standards. If a State agency fails to 
meet these accuracy standards, FNS shall notify the State agency and 
assist the State agency in revising its estimating procedures to improve 
its reporting.
    (iv) A participating household is one that is certified and has 
been, or will be, issued benefits (whether or not the benefits are 
used), and households that have met the eligibility requirements, but 
will receive zero benefits.

[54 FR 7004, Feb. 15, 1989, as amended at 54 FR 51351, Dec. 15, 1989]



Sec.  274.5  [Reserved]



Sec.  274.6  Replacement issuances to households.

    (a) Providing replacement issuance. (1) Subject to the restrictions 
in paragraph (b) of this section, State agencies shall provide 
replacement issuances to

[[Page 790]]

a household when the household reports that:
    (i) Its authorization document was not received in the mail or was 
stolen from the mail, was stolen after receipt, was destroyed in a 
household misfortune, or was improperly manufactured or mutilated;
    (ii) Its coupons were not received in the mail, were stolen from the 
mail, were destroyed in a household misfortune, or were improperly 
manufactured or mutilated;
    (iii) Food purchased with food stamps was destroyed in a household 
misfortune; or
    (iv) It received a partial coupon allotment.
    (2) State agencies shall not provide replacement issuances to 
households when coupons are lost, stolen or misplaced after receipt, 
authorization documents are lost or misplaced after receipt, when 
authorization documents or coupons are totally destroyed after receipt 
in other than a disaster or misfortune, or when coupons sent by 
registered or certified mail are signed for by anyone residing with or 
visiting the household. In addition, replacement issuances shall not be 
made if the household or its authorized representative has not signed 
and returned the household statement required in paragraph (c) of this 
section, where applicable.
    (3) Where FNS has issued a disaster declaration and the household is 
eligible for disaster food stamp benefits under the provisions of part 
280, the household shall not receive both the disaster allotment and a 
replacement allotment for a misfortune.
    (4) In order for a replacement to be considered non-countable, the 
replacement must not result in a loss to the Program.
    (b) Replacement restrictions. (1) Replacement issuances shall be 
provided only if a household timely reports a loss orally or in writing, 
and provides a statement of nonreceipt if the original authorization 
document or allotment has not been returned to the State agency at the 
time of the request for replacement. The report will be considered 
timely if it is made to the State agency within 10 days of the date an 
authorization document is stolen from the household, or an authorization 
document, coupons, or food purchased with food stamps is destroyed in a 
household misfortune. In mail issuance (ATPs or coupons), the report 
must be made within the period of intended use, unless the original 
issuance was made after the 20th of the month, in which case the period 
of intended use is 20 days from original issuance, or the last day of 
the next month (State agency option).
    (2) The number of replacement issuances which a household may 
receive shall be limited as follows:
    (i) State agencies shall limit replacement issuances to a total of 
two countable replacements in six months for authorization documents or 
coupons not received in, or stolen from, the mail; authorization 
documents stolen after receipt; and partial coupon allotments. However, 
no limit shall be put on the number of replacements of partial 
allotments if the partial allotments were due to State agency error. 
Separate limits shall not apply for each of these types of loss.
    (ii) State agencies shall limit replacement issuances per household 
to two countable replacements in six months for authorization documents 
or coupons reported as destroyed in a household misfortune. This limit 
is in addition to the limit in paragraph (b)(2)(i) of this section.
    (iii) No limit on the number of replacements shall be placed on the 
replacement of authorization documents or coupons which were improperly 
manufactured or mutilated or food purchased with food stamp benefits 
which was destroyed in a household misfortune.
    (iv) The replacement issuance shall not be considered a countable 
replacement if:
    (A) The original or replacement issuance is returned or otherwise 
recouped by the State agency;
    (B) The original authorization document is not transacted;
    (C) The replacement authorization document is not transacted; or
    (D) The replacement is being issued due to a State agency issuance 
error.
    (3) Except for households certified under 7 CFR part 280, 
replacement issuances shall be provided in the

[[Page 791]]

amount of the loss to the household, up to a maximum of one month's 
allotment, unless the issuance includes restored benefits which shall be 
replaced up to their full value.
    (c) Household statement of nonreceipt. (1) Prior to issuing a 
replacement, the State agency shall obtain from a member of the 
household a signed statement attesting to the household's loss. This 
statement shall not be required if the reason for the replacement is 
that the original authorization document or coupons were improperly 
manufactured or mutilated, or if the original issuance has already been 
returned. The required statement may be mailed to the State agency if 
the household member is unable to come into the office because of age, 
handicap or distance from the office and is unable to appoint an 
authorized representative.
    (2) If the signed statement or affidavit is not received by the 
State agency within 10 days of the date of report, no replacement shall 
be made. If the 10th day falls on a weekend or holiday, and the 
statement is received the day after the weekend or holiday, the State 
agency shall consider the statement timely received.
    (3) The statement shall be retained in the case record. It shall 
attest to the nonreceipt, theft, loss or destruction of the original 
issuance and specify the reason for the replacement. It shall also state 
that the original or replacement issuance will be returned to the State 
agency if the original issuance is recovered by the household and that 
the household is aware of the penalties for intentional 
misrepresentation of the facts, including but not limited to, a charge 
of perjury for a false claim. In addition, the statement shall advise 
the household that:
    (i) The household may request to be placed on an alternate issuance 
system after one report of nonreceipt;
    (ii) After two reports in a six-month period of loss or theft prior 
to receipt, the household shall be placed on an alternate delivery 
system;
    (iii) After two reports in a six-month period of loss or theft prior 
to receipt and/or theft of an authorization document after receipt the 
State agency may delay or deny further replacements for such causes; and
    (iv) If the statement of nonreceipt is not signed and returned 
within ten (10) days of the date the loss was reported, the State agency 
shall not replace the coupons or authorization document.
    (d) Time limits for making replacements. (1) Replacement issuances 
shall be provided to households within 10 days after report of 
nondelivery or loss (15 days if issuance was by certified or registered 
mail) or within two (2) working days of receiving the signed household 
statement required in paragraph (c) of this section, whichever date is 
later.
    (i) Replacement of mutilated coupons shall be delayed until a 
determination of the value of the coupons can be made in accordance with 
paragraph (f)(3) of this section.
    (ii) If the household has already been issued the maximum allowable 
number of countable replacements, subsequent replacements shall be 
delayed until the agency has verified that the original issuance was 
returned or the original authorization document was not transacted. In a 
system using authorization documents, due to the time it takes to post 
and reconcile all authorization documents, it may not be known at the 
time of the replacement request whether prior replacements are countable 
replacements and, therefore, whether the household has reached its 
limit. In such cases, the allotment shall be restored when the State 
agency verifies that the limit on countable replacements has not been 
reached.
    (iii) The State agency shall deny or delay replacement issuances in 
cases in which available documentation indicates that the household's 
request for replacement appears to be fraudulent.
    (2) The household shall be informed of its right to a fair hearing 
to contest the denial or delay of a replacement issuance. Replacements 
shall not be made while the denial or delay is being appealed.
    (e) Replacing issuances lost in the mail or stolen prior to receipt 
by the household. State agencies shall comply with the following 
procedures in replacing issuances reported lost in the mail or stolen 
prior to receipt by the household:
    (1) Determine if the authorization documents or benefits were 
validly issued, if they were actually mailed, if

[[Page 792]]

sufficient time has elapsed for delivery or if they were returned in the 
mail. If a delivery of a partial allotment is reported, the State agency 
shall determine the value of the coupons not delivered and determine 
whether the report of receipt of a partial allotment is corroborated by 
evidence that the coupon loss was due to damage in the mail before 
delivery or by a discrepancy in the issuance unit's inventory;
    (2) Determine, to the extent possible, the validity of the request 
for a replacement. This includes determining whether the original 
issuance has been returned to the State agency and, in a system 
utilizing authorization documents, whether the original authorization 
document has been transacted and, if so, whether the recipient's 
signature on the authorization document matches the signature on the ID 
card. In a Photo ID area, the State agency shall determine if the ID 
serial number annotated on the authorization document matches the serial 
number on the recipient's ID card;
    (3) Issue a replacement in accordance with paragraphs (b), (c) and 
(d) of this section if the household is eligible;
    (4) Place the household on an alternate delivery system, if 
warranted, in accordance with paragraph (g) of this section; and
    (5) Take other action, such as correcting the address on the master 
issuance file, warranted by the reported nondelivery.
    (f) Replacing issuances after receipt by the household. Upon 
receiving a request for replacement of an issuance reported as stolen or 
destroyed after receipt by the household, the State agency shall 
determine if the issuance was validly issued. The State agency shall 
also comply with all applicable provisions in paragraphs (b), (c) and 
(d) of this section, as well as the following procedures for each type 
of replacement:
    (1) Prior to replacing an authorization document which was reported 
stolen after receipt by the household, the State agency shall determine, 
to the extent possible, the validity of the request for replacement. For 
example, the State agency may determine whether the original 
authorization document has been transacted and, if so, whether the 
signature on the original authorization document matches that on the 
household statement. In a Photo ID or serialized area, the State agency 
shall determine if the ID serial number annotated on the authorization 
document matches the serial number on the recipient's ID card. Any 
replacement which results in duplicate participation shall be considered 
a household error, and the replacement countable, when the ID serial 
number shown on the authorization document matches the serial number on 
the recipient's card, unless the ID card was reported lost or stolen 
prior to the replacement. The State agency may require households, on a 
case-by-case basis, to report the theft to a law enforcement agency and 
to provide verification of such report.
    (2) Prior to replacing destroyed coupons or authorization documents, 
or destroyed food that was purchased with food stamp benefits, the State 
agency shall determine that the destruction occurred in a household 
misfortune or disaster, such as, but not limited to, a fire or flood. 
This shall be verified through a collateral contact, documentation from 
a community agency including, but not limited to, the fire department or 
the Red Cross, or a home visit. The State agency shall provide 
replacements of coupons, authorization documents, and/or food in the 
actual amount of the loss, but not exceeding one month's allotment, 
unless the exception in paragraph (b)(3) of this section, applies.
    (3) Households cannot receive a replacement for coupons lost or 
stolen after receipt.
    (4) The State agency shall provide replacements for improperly 
manufactured or mutilated coupons or authorization documents as follows:
    (i) Coupons received by a household, and subsequently mutilated or 
found to be improperly manufactured shall be replaced in the amount of 
the loss to the household. State agencies shall replace mutilated 
coupons when three-fifths of a coupon is presented by the household. The 
State agency shall examine the improperly manufactured or mutilated 
coupons to determine the validity of the claim and the amount of coupons 
to be replaced. If the State agency can determine the value of the

[[Page 793]]

improperly manufactured or mutilated coupons, the State agency shall 
replace the unusable coupons in a dollar-for-dollar exchange. After 
exchanging the coupons and completing a Form FNS-135, Affidavit of 
Return or Exchange of Food Coupons, the State agency shall destroy the 
coupons in accordance with the procedures contained in Sec.  274.7(f). 
If the State agency cannot determine the value of the improperly 
manufactured or mutilated coupons, the State agency shall cancel the 
coupons by writing or stamping ``canceled'' across the face of the 
coupons and forward the coupons to FNS for a determination of the value 
by the U.S. Bureau of Engraving and Printing.
    (ii) Authorization documents received by a household and 
subsequently mutilated or found to be improperly manufactured shall be 
replaced only if they are identifiable. ``Identifiable'' means that the 
State agency is able to determine the amount of the issuance and that 
the authorization document was validly issued to the household within 
the last 30 days. For example, if the authorization document serial 
number is legible, the State agency can determine from the record-for-
issuance or manual authorization document log to which household the 
authorization document was issued, the date of issuance, and the amount. 
Similarly, if the case number and validity period are legible, the State 
agency may be able to determine to whom the authorization document was 
issued and the amount. If more than one authorization document was 
issued to the household and the State agency cannot determine which 
authorization document was mutilated, the replacement shall be issued in 
the lesser amount. Improperly manufactured or mutilated authorization 
documents shall be surrendered to the State agency.
    (g) Alternate issuance system for a household. The State agency 
shall offer to place a household in an alternate issuance system after 
the first report of nonreceipt, or when circumstances exist that 
indicate that the household may not receive its benefits through the 
normal issuance system, such as when a household has a history of 
reported nonreceipt of ATP's. After two requests for replacement of 
original or replacement ATP's reported as nondelivered in a six-month 
period, the State agency shall issue benefits to that household under an 
alternate issuance system. The two requests may be for either an 
original or a replacement ATP. The State agency shall keep the household 
on the alternate issuance system for the length of time the State agency 
determines to be necessary. The State agency may return the household to 
the regular issuance system if the State agency finds that the 
circumstances leading to the loss have changed and the risk of loss has 
lessened. The placement of a household on an alternate issuance system 
and the length of time the household is on this system is not subject to 
the fair hearing process.
    (h) Documentation and reconciliation of replacement issuances. (1) 
The State agency shall document in the household's case file each 
request for replacement, the date, the reason, and whether or not the 
replacement was provided. This information may be recorded exclusively 
on the household statement required in paragraph (c) of this section.
    (2) The State agency shall maintain, in readily-identifiable form, a 
record of the replacements granted to the household, the reason, the 
month, and whether the replacement was countable as defined in paragraph 
(b)(2)(iv) of this section. The record may be a case action sheet 
maintained in the case file, notations on the master issuance file, if 
readily accessible, or a document maintained solely for this purpose. At 
a minimum, the system shall be able to identify and differentiate among:
    (i) Authorization documents or coupons not received in, or stolen 
from, the mail, and authorization documents stolen after receipt; and
    (ii) Replacement issuances which are not subject to a replacement 
limit.
    (3) Upon completion of reconciliation in a system utilizing 
authorization documents, the State agency shall update the record 
required in paragraph (h)(2) of this section to indicate whether both 
the original and replacement authorization documents were transacted. If 
both were not transacted, the record shall clearly indicate that the

[[Page 794]]

replacement authorization document was not a countable replacement.
    (4) When a request for replacement is made late in an issuance 
month, the replacement will be issued in a month subsequent to the month 
in which the original authorization document was issued. All 
replacements shall be posted and reconciled to the month of issuance of 
the replacement and may be posted to the month of issuance of the 
original authorization document, so that all duplicate transactions may 
be identified.
    (i) Further action on replacement issuances. The State agency shall 
take the following further actions on replacements:
    (1) On at least a monthly basis, the State agency shall report to 
the appropriate office of the Postal Inspection Service all 
authorization documents reported as stolen or lost in the mail. The 
State agency shall assist the Postal Service during any investigation 
thereof and shall, upon request, supply the Postal Service with 
facsimiles of the original authorization document, if transacted, and 
the replacement authorization document and a copy of the nonreceipt 
statement.
    The State agency shall advise the Postal Service if the original 
authorization document is not transacted.
    (2) When a duplicate replacement authorization document is 
transacted, the State agency shall, at a minimum:
    (i) Compare the handwriting on the authorization documents to 
documents contained in the household's case file, including the 
nonreceipt statement;
    (ii) Establish a claim in accordance with Sec.  273.18, where it 
appears that the household has transacted, or caused both authorization 
documents to be transacted; and
    (iii) Refer the matter to the State agency's investigation unit, 
where indicated.

[54 FR 7004, Feb. 15, 1989, as amended at 54 FR 51351, Dec. 15, 1989; 56 
FR 63617, Dec. 4, 1991]



Sec.  274.7  Coupon management.

    (a) Coupon inventory management. State agencies shall establish 
coupon inventory management systems which ensure that coupons are 
requisitioned and inventories are maintained in accordance with the 
requirements of these regulations.
    (1) State agencies shall monitor the coupon inventories of coupon 
issuers and bulk storage points to ensure that inventories are neither 
excessive nor insufficient to meet the issuance needs and requirements. 
In determining reasonable inventory needs, State agencies shall 
consider, among other things, the ease and feasibility of resupplying 
such inventories from bulk storage points within the State. The 
inventory levels at coupon issuers and bulk storage points should not 
exceed a six-month supply, taking into account coupons on hand and on 
order.
    (2) State agencies shall establish accounting systems for monitoring 
the inventory activities of coupon issuers. State agencies shall review 
the Form FNS-250, from coupon issuers and bulk storage points, to 
determine the propriety and reasonableness of the inventories. Forms 
FNS-261, Advice of Shipment, Forms FNS-300, Advice of Transfer (or an 
approved State agency form), and reports of returned mail-issued 
coupons, reports of replacements of mail-issued coupons, reports of 
improperly manufactured or mutilated coupons, reports of shortage or 
overage of food coupon books and physical inventory controls shall be 
used by State agencies to assure the accuracy of monthly reports, 
issuers' compliance with required inventory levels, and the accuracy and 
reasonableness of coupon orders.
    (b) Coupon controls. State agencies shall establish control and 
security procedures to safeguard coupons that are similar to those used 
to protect currency. The exact nature of security arrangements will 
depend on State agency evaluation of local coupon issuance and storage 
facilities. These arrangements must permit the timely issuance of 
coupons while affording a reasonable degree of coupon security. The 
State agencies, as well as all persons or organizations acting on their 
behalf, shall:
    (1) Safeguard coupons from theft, embezzlement, loss, damage, or 
destruction;
    (2) Avoid unauthorized transfer, negotiation, or use of coupons;

[[Page 795]]

    (3) Avoid issuance and transfer of altered or counterfeit coupons; 
and
    (4) Promptly report in writing to FNS any loss, theft, or 
embezzlement of coupons.
    (c) Coupon requisitioning, shipping and transferring. (1) State 
agencies shall arrange for the ordering of coupons on the Form FNS-260, 
Requisition for Food Coupon Books, and the prompt verification and 
written acceptance of each coupon shipment. FNS shall be furnished with 
appropriate delivery hours and the names of the persons authorized to 
sign delivery acknowledgements.
    (2) FNS shall assess the reasonableness and propriety of food stamp 
requisitions submitted by State agencies based on prior inventory 
changes and shall notify the State agency of any adjustments made to 
requisitions.
    (3) FNS shall ship coupons, in such denominations as it may 
determine necessary, directly to State agency receiving points approved 
by FNS. FNS shall promptly advise the State agency in writing when 
coupons are shipped to receiving points using Form FNS-261, Advice of 
Shipment. Coupons shall be considered delivered to the State agency when 
FNS or its carrier has a signed receipt.
    (4) Once coupons have been accepted by receiving points within the 
State, any further movement of the coupons between coupon issuers and 
bulk storage points within the State is at the risk of the State agency. 
To minimize the risk of loss, coupons should be shipped by armored 
vehicle or some other method of transportation that affords the State 
agency the maximum security available.
    (5) In every instance when coupons are transported within a State, 
the person(s) transporting coupons shall:
    (i) Acknowledge in writing the receipt of the coupons;
    (ii) Provide as much protection for the coupons as is reasonable;
    (iii) Advise issuance supervisors of the routes to be taken, the 
shipment departure time and the estimated arrival time. This 
information, if in written form, may be destroyed after the coupons have 
been received.
    (d) Specimen coupons. FNS may provide upon written request, non-
negotiable specimen coupons to State agencies for the administration of 
the Program and enforcement of the rules, and to authorized food firms 
for the purpose of educating and training employees on Program 
operations.
    (1) The State agency or firm shall store specimen coupons in secure 
storage with access limited to authorized personnel. The State agency or 
firm should maintain a record of specimen coupons received.
    (2) Specimen coupons that are mutilated, improperly manufactured, or 
otherwise unusable, shall not be distributed by the State agency. Such 
coupons shall be destroyed by the State agency and the destruction shall 
be witnessed by two persons and noted on the perpetual inventory records 
maintained by the FNS regional offices for specimen coupons.
    (3) Specimen coupons shall not be issued to private individuals or 
firms for the purpose of collection or display.
    (e) Replacement and destruction of coupons and authorization 
documents by issuance points. (1) The State agency shall provide for the 
replacement to issuers of improperly manufactured or mutilated coupons 
as provided below. Replacement provisions pertaining to households are 
contained in Sec.  274.6.
    (i) The State agency shall examine the improperly manufactured or 
mutilated coupons to determine the validity of the claim and the amount 
of coupons to be replaced.
    (ii) If the State agency can determine the value of an improperly 
manufactured or mutilated coupon, the State agency shall replace the 
unusable coupon, dollar for dollar, when at least three-fifths of the 
coupon is presented by the issuer. After the exchange, the State agency 
shall destroy the unusable coupon in accordance with the procedures 
contained in paragraph (f) of this section.
    (iii) If the State agency cannot determine the value of the 
improperly manufactured or mutilated coupons, the State agency shall 
cancel the coupons by writing or stamping ``canceled'' across the face 
of the coupons and forward the coupons to FNS for a determination of the 
value by the U.S. Bureau of Engraving and Printing. The

[[Page 796]]

dollar amount shall be shown on the Form FNS-250 report.
    (2) The State agency shall void all authorization documents 
mutilated or otherwise rejected during the preparation process. The 
voided authorization documents shall either be filed for audit purposes 
or destroyed, provided destruction is witnessed by at least two persons 
and the State agency maintains a list of all destroyed authorization 
documents. Provisions pertaining to the replacement of authorized 
documents mutilated subsequent to receipt by a household are provided in 
Sec.  274.6.
    (f) Destruction of unusable coupons found in inventory or received 
as claim payments. (1) The State agency shall require coupon issuers, 
bulk storage points, and claims collection points to dispose of unusable 
coupons received from the manufacturer or received as payment for claims 
within 30 days after the close of the month in which unusable coupons 
shipped from the manufacturer are discovered, or are received from 
recipients as payment for claims. There is no dollar limit on the amount 
of coupons which may be disposed of by the State agency. Disposal shall 
be by one of the following two methods:
    (i) Sending unusable coupons to the State agency for destruction; or
    (ii) Holding the unusable coupons in secure storage pending 
examination and destruction by the State agency at the coupon issuance, 
bulk storage, or claims collection point.
    (2) Prior to the destruction of improperly manufactured or mutilated 
coupons or coupon books that were exchanged, or collected from 
households for claims, the State agency shall:
    (i) Verify that the coupons were improperly manufactured or 
mutilated.
    If one or more boxes of coupons were improperly manufactured, the 
State agency shall contact FNS prior to disposition for instructions on 
the disposition of the coupons. If FNS has not responded within the 30-
day time limit, the State agency shall destroy the box of coupons and 
document the manufacturing irregularity and the book numbers, and retain 
a copy of the State agency's request to FNS for permission to destroy.
    (ii) If either the coupon issuer or bulk storage point, or the State 
agency cannot determine whether coupons or coupon books were in fact 
improperly manufactured or cannot establish the value of the coupons 
involved, the State agency shall promptly forward a written statement of 
findings and the canceled coupon(s) or coupon book(s) to FNS for 
determination.
    (3) The State agency shall destroy the coupons and coupon books by 
burning, shredding, tearing, or cutting so they are not negotiable. Two 
State agency officials shall witness and certify the destruction and 
report the destruction information as follows:
    (i) The destruction of improperly manufactured, mutilated or 
exchanged coupons from coupon issuers and bulk storage points shall be 
reported on the Form FNS-471, Coupon Account and Destruction Report, and 
submitted with the Form FNS-250 for the appropriate month. For coupons 
received from recipients, a Form FNS-135 shall be completed and attached 
to the Form FNS-471.
    (ii) The destruction of coupons received from claims collection 
points that are the result of the payment of household claims shall be 
reported on the Form FNS-471 (with Form FNS-135 documentation) and 
submitted with the Form FNS-209, Status of Claims Against Households, 
for the appropriate rnonths. A State agency may consolidate its monthly 
Form FNS-471 for claims collection destruction reporting by providing 
one completed Form FNS-471 that reflects the total claims destruction 
figure for each month. However, the State agency must attach a breakdown 
which reports the required Form FNS-471 information for each reporting 
point. If a State agency chooses to submit a consolidated Form FNS-471, 
all individual Forms FNS-471 must be retained by the State agency for 
future review and audit purposes. The Form FNS-135 may not be 
consolidated, and all originals of that form must accompany a 
consolidated Form FNS-471.
    (g) Undeliverable or returned benefits. The State agency shall 
exercise the following security and controls for authorization documents 
and coupons

[[Page 797]]

that are undeliverable or returned during the valid issuance period. 
Forms FNS-471 and FNS-135 shall be completed by the State agencies, as 
appropriate.
    (1) Coupons which are in book form, complete, and with original and 
unsigned covers shall be returned to inventory and noted as such on the 
issuance log, and the Form FNS-250.
    (2) Authorization documents shall be recorded in the control log 
noting the serial number, household name and case number. The documents 
shall be kept in secure storage with limited access. The documents may 
be voided as long as households which report nondelivery are provided an 
immediate replacement.
    (h) Old series coupon exchange. Households which have old-series (no 
longer issued) coupons shall be entitled to a dollar-for-dollar exchange 
of old-series coupons for current series coupons. Households in 
possession of old-series coupons shall submit the coupons and a request 
for exchange to the State agency. State agencies may make direct 
exchange to claimants or request FNS to make the exchange. Forms FNS-471 
and FNS-135 shall be completed by the State agencies, as appropriate.

[54 FR 7004, Feb. 15, 1989, as amended at 54 FR 51351, Dec. 15, 1989]



Sec.  274.8  Responsibilities of coupon issuers, and bulk storage and 
claims collection points.

    (a) Receipt of coupons. Coupon issuers, and bulk storage and claims 
collection points shall promptly verify and acknowledge, in writing, the 
content of each coupon shipment or coupon transfer delivered to them and 
shall be responsible for the custody, care, control, and storage of 
coupons.
    (b) Inventory levels. Coupon issuers and bulk storage points shall 
maintain a proper level of coupon inventory not in excess of reasonable 
needs, taking into consideration the ease and feasibility of resupplying 
such coupon inventories. Such inventory levels should not exceed the 
six-month supply provided for in Sec.  274.7(a).
    (c) Monthly reporting. Coupon issuers, and bulk storage and claims 
collection points shall report monthly to FNS, through the State agency, 
using Form FNS-250, as provided in Sec.  274.4.
    (d) Supporting documentation. Coupon issuers and bulk storage points 
shall submit to the State agency supporting documentation which will 
allow verification of the monthly report as provided in Sec.  274.4. At 
a minimum, such documentation shall include documents supporting coupon 
shipments, transfers, and issuances. In those States using issuance 
systems with authorization documents, coupon issuers shall submit 
transacted authorization documents batched according to each day's 
activity, in accordance with the schedule prescribed by the State agency 
but, in any case, not less often than monthly.
    (e) Handling of improperly manufactured or mutilated coupons. Coupon 
issuers, and bulk storage and claims collection points shall cancel 
improperly manufactured or mutilated coupons or coupon books by writing 
or stamping ``canceled'' across the face of the coupon(s) and coupon 
book(s). Depending upon State agency policy, the coupon issuer or bulk 
storage point shall forward the coupons with the appropriate 
documentation (determined by the State agency) to the State agency, or 
hold the coupons in secure storage, pending examination and destruction 
by the State agency at the coupon issuer, bulk storage point or claims 
collection location. The documentation is not required if the State 
agency inspects the coupons at the issuance, storage or collection 
point. Additional requirements pertaining to the handling of these types 
of coupons by the State agency are provided in Sec.  274.7(e).



Sec.  274.9  Closeout of a coupon issuer.

    (a) Definition of responsibilities. Whenever the services of a 
coupon issuer or bulk storage point are terminated, the State agency 
shall perform the responsibilities described below. If a coupon issuer 
or bulk storage point has more than one functioning unit and one of 
these facilities is terminated, the coupon issuer or bulk storage point 
shall fulfill the responsibilities described in paragraphs (b) and (c) 
of this section. The coupon issuer or bulk storage point shall notify 
the State agency of the pending termination of any of its

[[Page 798]]

services prior to the actual termination. The State agency shall 
promptly notify FNS as provided in Sec.  274.1(d).
    (b) Closeout accountability. The State agency shall perform a 
closeout audit of a coupon issuer or bulk storage point within 30 days 
of termination of the issuance or storage point. The State agency shall 
report the findings of the audit to FNS immediately upon its completion. 
If the audit determines that the final Form FNS-250 is incorrect, the 
State agency shall promptly provide a corrected report to FNS.
    (c) Transfer of coupon inventory. (1) Prior to the transfer of 
coupon inventory to another coupon issuer or bulk storage point, the 
State agency shall perform an actual physical count of coupons on hand.
    (2) The State agency shall transfer the inventory to another coupon 
issuer or bulk storage point, preferably within the same project area. 
The transfer of coupons shall be properly reported and documented by 
both the point being terminated and the point receiving the inventory.
    (d) Maintenance of participant service. (1) At least 30 days before 
actual termination of a coupon issuer, the State agency shall notify 
project area participants of the impending closure. Notification shall 
include identification of alternative issuance locations and available 
public transportation. The State agency shall post notices at the 
offices of the coupon issuer of the impending closure and may use mass 
media or notices with allotments to advise participants about the 
expected closure of the issuance office.
    (2) If closure of the issuer will affect a substantial portion of 
the caseload or a specific geographic area, the State agency shall take 
whatever action is necessary to maintain participant service without 
interruption.
    (3) If a coupon issuer or bulk storage point is to be closed for 
noncompliance with contractual requirements and alternative issuance 
facilities or systems are not readily available, the State agency may 
continue to use the coupon issuer or bulk storage point for a limited 
time. In this situation, the State agency shall perform weekly onsite 
reconciliations of coupon issuance. The State agency shall continue to 
actively seek other issuance or storage alternatives.



Sec.  274.10  Use of identification cards and redemption of coupons by 
eligible households.

    (a) General provisions. State agencies shall issue an ID card to 
each certified household as proof of Program eligibility. Upon request, 
the household or the authorized representative, shall present the 
household's ID card at issuance points, retail food stores or meal 
services in order to transact the allotment authorization or when 
exchanging benefits for eligible food. The household member or members 
whose name(s) appear on the ID card shall sign the coupon books issued 
to the household.
    (1) All ID cards shall be issued in the name of the household member 
who is authorized to receive the household's issuance. In areas not 
designated by FNS as requiring Photo ID cards, the ID card shall contain 
space for the name and signature of the household member to whom the 
coupon allotment is to be issued and for any authorized representatives 
designated by the household. Section 274.5(b) provides further 
requirements pertaining to emergency authorized representatives. Any 
person listed on the ID card shall sign the ID card before that person 
can use it to obtain benefits. If the household does not name an 
authorized representative, the State agency shall void that area of the 
ID card to prevent names and signatures being entered at a later date. 
The ID card may be serially numbered.
    (2) The State agency shall limit issuance of ID cards to the time of 
initial certification, with replacements made only in instances of loss, 
mutilation, destruction, changes in the person authorized to obtain 
coupons, or when the State agency determines that new ID cards are 
needed to keep the photographs up-to-date or if the State agency changes 
its ID card format or system. Whenever possible, the State agency shall 
collect the ID card that it is replacing.
    (3) The State agency shall place an expiration date on all temporary 
ID cards, and on the regular ID cards

[[Page 799]]

issued to households certified for delivered meals for a specific 
period, and to homeless households certified for restaurant meals.
    (4) Specially-marked ID cards shall be issued in the following 
circumstances:
    (i) Eligible household members 60 years of age or over or members 
who are housebound, physically handicapped, or otherwise disabled to the 
extent that they are unable to adequately prepare all their meals, and 
their spouses, may use coupons to purchase meals prepared for and 
delivered to them by a nonprofit meal delivery service authorized by 
FNS. Any household eligible for and interested in using delivered meal 
services shall have its ID card marked with the letter ``M''.
    (ii) Eligible household members 60 years of age or over and their 
spouses, or those receiving SSI and their spouses, may use coupons 
issued to them to purchase meals prepared especially for them at 
communal dining facilities authorized by FNS for that purpose. Any 
household eligible for and interested in using communal dining 
facilities in those States or project areas where restaurants are 
authorized to accept food stamps, shall have its ID card marked with the 
letters ``CD''. In areas where restaurants are not authorized to accept 
food stamps, the State or project area may mark such ID's with the 
letters ``CD''.
    (iii) Eligible homeless households may use food stamp benefits to 
purchase meals from restaurants authorized by FNS for such purpose. Any 
homeless household eligible for, and interested in, using restaurants in 
those areas where restaurants are authorized to accept food stamp 
benefits shall have a specially-marked ID card. The State agency shall 
provide samples of specially-marked ID cards to authorized restaurants.
    (iv) Eligible households residing in areas of Alaska determined by 
FNS as areas where access to retail food stores is difficult and which 
rely substantially on hunting and fishing for subsistence may use all or 
any part of the coupons issued to purchase hunting and fishing equipment 
such as nets, hooks, rods, harpoons and knives, but may not use coupons 
to purchase firearms, ammunition, and other explosives. Any household 
residing in a remote section of Alaska which has been determined by FNS 
to be an area in which food coupons may be used to purchase hunting and 
fishing equipment shall have its ID card marked with the letters ``HF''.
    (5) ID cards delivered to households by mail shall not be mailed in 
the same envelope with authorization documents or coupons.
    (b) Photo ID cards. (1) Photo ID cards shall be issued in those 
project areas or portions thereof with 100,000 or more food stamp 
participants, except for those project areas serviced entirely by mail 
issuance or an Electronic Benefit Transfer system, or where FNS, in 
consultation with the Office of the Inspector General, approves a State 
agency's request for an exemption. FNS shall respond to a State agency's 
request for exemption within 30 days of its receipt of the request.
    (i) FNS shall evaluate the January participation data reported as an 
attachment to the March Form FNS-388 report. Based on the evaluation, 
FNS shall notify State agencies at the beginning of each fiscal year of 
any areas that either require or no longer require the use of Photo ID 
cards. In cases where an entire State is a single project area, FNS 
shall consult with the State agency to determine whether Photo IDs 
should be required in any specific parts of the project area. At the 
conclusion of this consultation, FNS shall inform the State agency 
whether the use of Photo IDs will be mandated in any parts of the State 
agency, based on the need to protect Program integrity, and the cost-
effectiveness of Photo ID cards.
    (ii) In cases where a project area serves between 100,000 and 
110,000 participants, FNS shall inform the State agency in which the 
project area is located that it is prepared to mandate the use of Photo 
IDs in the project area. FNS shall also inform the State agency that it 
will not mandate use of Photo ID's if, within 30 days of being notified 
by FNS that Photo ID's must be used, the State agency demonstrates to 
FNS that participation in the project areas has fallen below the 100,000 
participant level in the recent

[[Page 800]]

past, or justifies to FNS why participation is likely to fall below that 
level during the next year.
    (2) FNS may, at any time, in consultation with the Office of the 
Inspector General, designate project areas or portions thereof with less 
than 100,000 participants as requiring the use of Photo ID cards if, in 
reviewing such factors as the level of duplicate issuances and results 
of management evaluation reviews, the Department determines that the 
issuance of Photo ID cards in such areas would be justified.
    (3) A State agency may request that FNS require that Photo IDs be 
mandated throughout either the entire State or specified project areas. 
FNS shall respond to such requests within 30 days of the request and, if 
the request is not approved, FNS shall justify its reasons for the 
disapproval to the State agency.
    (4) In project areas where issuance of Photo ID cards is mandatory, 
the State agency shall issue a Photo ID card at the time of 
certification to each eligible household except those listed in Sec.  
274.10(b)(4). Households exempt from mandated Photo ID cards shall be 
issued ID cards which meet the specifications in paragraph (d) of this 
section except that in lieu of a photograph, the State agency shall 
annotate the cards to show an exception was granted to the household and 
that the ID card is valid. The following households are exempt from the 
Photo ID requirement:
    (i) Households certified by out-of-office interviews as specified in 
Sec.  273.2(e)(2). However, the State agency shall replace the non-Photo 
ID card issued to such households with a Photo ID card when the 
appropriate household member or authorized representative visits the 
certification office. The State agency shall not require any member of 
such a household to visit the office exclusively for the purpose of 
issuing a Photo ID card;
    (ii) Household members whose religion does not allow them to be 
photographed. The State agency shall require such a household to provide 
a signed statement to the effect that the members' religious beliefs do 
not allow them to be photographed;
    (iii) Households entitled to expedited service if the State agency's 
Photo ID card system is incapable of producing a Photo ID card in time 
for the household to participate as required by Sec.  273.2(i). A Photo 
ID card shall be issued to the household prior to issuance of the 
household's next allotment;
    (iv) Households certified under the SSA-food stamp joint processing 
rules in Sec.  273.2(k). State agencies shall not require such 
households to obtain Photo IDs as long as they continue to be certified 
for food stamps at SSA offices. However, a household shall obtain a 
Photo ID if a household member or authorized representative reports to a 
food stamp office for recertification; and,
    (v) Residents of drug/alcohol treatment and rehabilitation programs.
    (5) In addition to the general provisions in paragraph (a) of this 
section, Photo ID cards shall include the photograph of the person who 
will receive the household's issuance; i.e., who will either transact 
the household's authorization document or pick up the household's 
allotment. A Photo ID card shall be signed by only the person pictured 
on the card, who may be the household member or authorized 
representative. Only the person photographed may obtain the household's 
coupons. All Photo ID card formats are subject to FNS approval.
    (6) Photo ID cards shall be serially numbered and laminated after 
they are signed by the person whose photograph appears on the card. ID 
cards shall also include a color photograph of the person designated by 
the household to obtain coupons and the household's case number or other 
identifying information.
    (7) A Photo ID card used to receive benefits under a welfare or 
public assistance program may be adapted for food stamp purposes if it 
meets the specifications contained in this section and can be annotated 
to indicate food stamp eligibility.
    (8) The State agency shall provide a household with a reasonable 
opportunity to obtain a food stamp Photo ID card in any project area 
where its use is mandated.

[[Page 801]]

    (i) A household required to have a Photo ID card shall not 
participate until such time as a household member or a designated 
authorized representative obtains such a card. If a designated 
authorized representative does not obtain the required Photo ID, the 
household may designate a household member or another authorized 
representative to be photographed.
    (ii) If the person whose photograph appears on the ID is unable to 
travel to the issuance point to obtain a particular allotment, the 
household may use the emergency authorized representative procedures 
provided in Sec.  274.5 and in paragraph (c) of this section.
    (9) State agencies which have the capability may develop systems to 
issue more than one household member a Photo ID card. These systems 
shall ensure that the safeguards provided by Photo ID cards, as 
specified in this section, are maintained.
    (10) If a mutilated or altered Photo ID card is presented at the 
issuance point, the household shall obtain a replacement Photo ID card 
prior to issuance.
    (11) A household shall be entitled to unobtained benefits, lost as a 
result of being unable to obtain a particular allotment, if the issuance 
month elapses between the time the household requested a replacement 
Photo ID card and the delivery of that card to the household.
    (12) FNS may waive one or more of the requirements in this section 
if a State agency can demonstrate to FNS that its alternate ID card or 
system will provide adequate safeguards against fraudulent and/or 
duplicate issuances.
    (c) Emergency authorized representative and recipient 
identification. State agencies shall develop a method by which a 
household may designate an emergency authorized representative to obtain 
the household's allotment when none of the persons specified on the ID 
is available.
    (1) At a minimum, the method developed by the State agency shall 
require a document with the signature of the emergency authorized 
representative as well as a place for the household member named on the 
ID card to sign designating the emergency authorized representative and 
attesting to the signature of the emergency authorized representative. 
The designation may be on the ID card or authorization document or a 
separate form. The household shall not be required to travel to a food 
stamp office to execute an emergency designation. The emergency 
authorized representative may present a separately written and signed 
statement from the head of the household or his or her spouse, 
authorizing the issuance of the certified household's food stamps to the 
authorized representative. The emergency representative shall sign the 
written statement from the household and present the statement and the 
household ID card to obtain the allotment. A separate written 
designation is required each time an emergency representative is 
authorized.
    (2) In any issuance system, the cashier shall compare the signatures 
on the issuance document and on the ID card. If they do not match, 
issuance shall not be made.
    (i) If the household is required by these regulations to present a 
Photo ID card, coupons shall be issued only when the person presenting 
the authorization document or requesting the coupons is pictured on the 
ID card. The cashier shall write the serial number of the Photo ID card 
on the authorization or issuance document.
    (ii) If the Photo ID card appears to be mutilated or altered, the 
issuing agent shall not issue the coupons, but shall require the 
household to obtain a replacement ID card from the State agency.
    (d) Eligible food. A household member should sign each coupon book 
issued to the household. The coupons may be used only by the household, 
or other persons the household selects, to purchase eligible food for 
the household, which includes, for certain households residing in 
certain designated areas of Alaska, the purchase of hunting and fishing 
equipment with coupons. Uncanceled and unendorsed coupons of $1 
denomination, returned as change by authorized retail food stores, may 
be presented as payment for eligible food.

[[Page 802]]

All other detached coupons may be accepted only if accompanied by the 
coupon book which bears the same serial number as the detached coupons. 
It is the right of the household or the authorized representative to 
detach the coupons from the book.
    (e) Meals-on-wheels. Eligible household members 60 years of age or 
over or members who are housebound, physically handicapped, or otherwise 
disabled to the extent that they are unable to adequately prepare all 
their meals, and their spouses, may use coupons to purchase meals 
prepared for and delivered to them by a nonprofit meal delivery service 
authorized by FNS.
    (f) Residents of certain institutions. (1) Members of eligible 
households who are narcotics addicts or alcoholics and who regularly 
participate in a drug or alcoholic treatment and rehabilitation program 
may use coupons to purchase food prepared for them during the course of 
such program by a private nonprofit organization or institution or a 
publicly operated community mental health center which is authorized by 
FNS to redeem the coupons through wholesalers in accordance with Sec.  
278.1, or which redeems coupons at retail food stores as the authorized 
representative of participating households in accordance with Sec.  
278.2(g).
    (2) Eligible residents of a group living arrangement may use coupons 
issued to them to purchase meals prepared especially for them at a group 
living arrangement which is authorized by FNS to redeem coupons at 
wholesalers in accordance with Sec.  278.1, or which redeems coupons at 
retail food stores as the authorized representative of participating 
households in accordance with Sec.  278.2(g).
    (3) Residents of shelters for battered women and children as defined 
in s271.2 may use their coupons to purchase meals prepared especially 
for them at a shelter which is authorized by FNS in accordance with 
Sec.  278.1 to redeem at wholesalers, or which redeems at retailers as 
the authorized representative of participating household in accordance 
with Sec.  278.2(g).
    (g) Homeless food stamp households. Homeless food stamp households 
may use their food stamp benefits to purchase prepared meals from 
authorized homeless meal providers.
    (h) Use of ID cards. Upon request, the household or the authorized 
representative shall present the household's ID card to the retail food 
store or meal service when exchanging food coupons for eligible food.
    (i) Prior payment prohibition. Coupons shall not be used to pay for 
any eligible food purchased prior to the time at which the coupons are 
presented to authorized retail food stores or meal services. Neither 
shall coupons be used to pay for any eligible food in advance of the 
receipt of food, except when prior payment is for food purchased from a 
nonprofit cooperative food purchasing venture.
    (j) Cash change. When change in an amount less than $1 is required 
in a coupon transaction, the household shall receive the change in cash 
not to exceed 99 cents. However, in the case of homeless food stamp 
households, neither cash change nor credit slips shall be returned for 
coupons used for the purchase of prepared meals from authorized homeless 
meal providers. Such meal providers may use uncancelled and unmarked $1 
coupons which were previously accepted for meals served to food stamp 
recipients when change is required for $5 and $10 coupons. However, in 
the case of homeless food stamp households, neither cash change nor 
credit slips shall be returned for food stamps used for the purchase of 
prepared meals from authorized public and private nonprofit homeless 
meal providers. Such meal providers may use the lowest denomination 
coupons that are uncancelled and unmarked for making change in food 
stamp transactions. Restaurants which are authorized by FNS under Sec.  
278.1 to provide meals to homeless food stamp recipients shall return 
cash change to such recipients in food stamp transactions when the 
amount of change due is less than one dollar. If change of one dollar or 
more is due, uncancelled and unmarked one dollar coupons shall also be 
used for change.

[54 FR 7004, Feb. 15, 1989, as amended at 54 FR 51352, Dec. 15, 1989; 57 
FR 11249, Apr. 1, 1992; 61 FR 53600, Oct. 15, 1996]

[[Page 803]]



Sec.  274.11  Issuance and inventory record retention, and forms security.

    (a) Availability of records. The State agency shall maintain 
issuance, inventory, reconciliation, and other accountability records 
for a period of three years as specified in Sec.  272.1(f) of this 
chapter. This period may be extended at the written request of FNS.
    (1) Issuance, inventory, reconciliation, and other accountability 
records shall include all Agency, State, and local forms involved in the 
State agency's receipt, storage, handling, issuance, and destruction of 
coupons completed by contract agents or any other individuals or 
entities involved in issuance or inventory, as well as those completed 
by the State agency.
    (2) In lieu of the records themselves, easily retrievable microfilm, 
microfiche, or computer tapes which contain the required information may 
be maintained.
    (b) Control of issuance documents. The State agency shall control 
all issuance documents which establish household eligibility while the 
documents are transferred and processed within the State agency. The 
State agency shall use numbers, batching, inventory control logs, or 
similar controls from the point of initial receipt through the issuance 
and reconciliation process. The State agency shall also ensure the 
security and control of authorization documents in transit from the 
manufacturer to the State agency.
    (c) Accountable documents. (1) HIR cards, authorization documents, 
and mandated Photo ID cards shall be considered accountable documents. 
The State agency shall provide the following minimum security and 
control procedures for these documents:
    (i) Preprinted serial numbers;
    (ii) Secure storage;
    (iii) Access limited to authorized personnel;
    (iv) Bulk inventory control records;
    (v) Subsequent control records maintained through the point of 
issuance or use, and
    (vi) Periodic review and validation of inventory controls and 
records by parties not otherwise involved in maintaining control 
records.
    (2) For notices of change which initiate, update or terminate the 
master issuance file, and blank ID cards, the State agency shall, at a 
minimum, provide secure storage and shall limit access to authorized 
personnel.

[54 FR 7004, Feb. 15, 1989, as amended at 60 FR 20183, Apr. 25, 1995]



Sec.  274.12  Electronic Benefit Transfer issuance system approval standards.

    (a) General. This section establishes rules for the approval, 
implementation and operation of Electronic Benefit Transfer (EBT) 
systems for the Food Stamp Program as an alternative to issuing food 
stamp coupons. By October 1, 2002, State agencies must have EBT systems 
implemented statewide, unless the Secretary provides a waiver for a 
State agency that faces unusual barriers to implementing an EBT system. 
In general, these rules apply to both on-line and off-line EBT systems, 
unless stated otherwise herein, or unless FNS determines otherwise for 
off-line systems during the system planning and development process.
    (b) Program administration. (1) The State food stamp agency shall 
submit Planning and Implementation Advanced Planning Documents (APDs) 
for FNS approval in accordance with the requirements of Sec.  277.18 of 
this chapter and this section. The State agency shall implement EBT 
systems in a pilot area prior to expansion Statewide or to other project 
areas. The areas of pilot operation and full-scale operation shall be 
identified in the Planning APD when submitted to FNS for approval.
    (2) The State agency shall be responsible for the coordination and 
management of the EBT system. The Secretary may suspend or terminate 
some or all EBT system funding or withdraw approval of the EBT system 
from the State agency upon a finding that the State agency or its 
contracted representative has failed to comply with the requirements of 
this section and/or Sec.  277.18 of this chapter.
    (3) All EBT systems within a State must follow a singular EBT APD 
and system architecture submitted by the State agency. Multiple EBT 
designs will be acceptable only if: such designs can be fully justified 
by the State agency; the system differences are

[[Page 804]]

transparent to participating households that move within the State; 
operating costs are the same or lower; and the ability of the different 
systems to readily communicate (transaction interchange) with one 
another.
    (4) The State agency must provide written approval of the Planning 
and Implementation APDs from other participating Federal agencies or 
indicate that approval is being sought simultaneously from participating 
Federal agencies. The State agency shall indicate how it plans to 
incorporate additional programs into the EBT system if it anticipates 
the addition of other public assistance programs concurrent with or 
after implementation of the Food Stamp Program EBT system. The State 
agency shall also consult with the State agency officials responsible 
for administering the Special Supplemental Nutrition Program for Women, 
Infants and Children (WIC) prior to submitting the Planning APD for FNS 
approval.
    (c) Pilot project approval requirements--(1) EBT Planning APD. The 
State agency shall comply with the two-stage approval process for APDs 
in submitting an EBT system proposal to FNS for approval. In addition to 
the requirements for a Planning APD specified under Sec.  277.18(d)(1) 
of this chapter, the State agency shall commit itself to provide the 
following as part of the project planning activities to FNS for 
approval:
    (i) Pilot project site and expanded site descriptions. At a minimum, 
the proposed pilot project site and expanded site descriptions shall 
include the geographical boundaries, average number and characteristics 
of food stamp program participants and households, the number and type 
of authorized food retailers and authorized retailers bordering the 
pilot and expanded areas, the food stamp redemption patterns of food 
retailers, the status of commercial POS deployment and the estimated 
number of checkout lanes that will require POS equipment; and
    (ii) A description of major contacts. A description of initial 
contacts the State agency has made in the proposed pilot area among food 
retailers, financial institutions and households or their 
representatives that may be affected by implementation of the EBT 
system. Written commitments from the retail grocer community (including 
supermarket chains, independent retailers, and convenience stores) and 
participating financial institutions in the pilot area shall be provided 
along with other documentation that demonstrates the willingness to 
support the proposed EBT system within the pilot area and expanded 
system area. The State agency shall submit evidence of contacts with 
recipient organizations and others.
    (2) EBT Implementation APD. The EBT Implementation APD shall include 
the completed documents required under Sec.  277.18 of this chapter for 
Implementation APDs, where appropriate. In addition, EBT Implementation 
APDs shall include the detailed pilot project site description and 
expanded site description, as described in this paragraph. Also, the 
State agency shall commit to completing and submitting the following 
documents for FNS approval and obtaining such approval prior to issuance 
of benefits to eligible households in the pilot project area:
    (i) A Functional Demonstration Plan. The functional demonstration 
plan shall include:
    (A) The schedule, procedures, and test data for performing the 
functional requirements prescribed in paragraph (e) of this section in 
combination with the system components described by the approved System 
Design;
    (B) The procedures for performing the functional demonstration, each 
participant's responsibility during the demonstration, and procedures 
for collecting data to evaluate system functionality. The Department 
reserves the right to participate and conduct independent testing as 
necessary during the Functional Demonstration.
    (ii) A functional demonstration report. Upon the completion of the 
functional requirements demonstration test, the State agency shall 
submit a Functional Demonstration report. The report shall summarize the 
activities, describe

[[Page 805]]

major problems encountered and proposed solutions, and provide the 
timetable for completing any system revisions. Resolution of any 
problems identified during the functional demonstration shall be 
completed prior to advancing towards the acceptance test.
    (iii) An acceptance test plan. The Acceptance Test Plan for the 
pilot project shall describe the methodology to be utilized to verify 
that the EBT system complies with Food Stamp Program requirements and 
System Design specifications. At a minimum, the Acceptance Test Plan 
shall address:
    (A) The types of testing to be performed;
    (B) The organization of the test team and associated 
responsibilities, test database generation, test case development, test 
schedule, and the documentation of test results. Acceptance testing 
shall include functional requirements testing, error condition handling 
and destructive testing, security testing, recovery testing, controls 
testing, stress and throughput performance testing, and regression 
testing;
    (C) A ``what-if'' component shall also be included to permit the 
opportunity for observers and participants to test possible scenarios in 
a free-form manner.
    (D) The Department reserves the right to participate and conduct 
independent testing as necessary during the Acceptance testing and 
appropriate events during system design, development, implementation and 
operation.
    (iv) An acceptance test report. The State agency shall provide a 
separate report after the completion of the acceptance test. The report 
shall summarize the activities, describe any discrepancies, describe the 
proposed solutions to discrepancies, and the timetable for their 
retesting and completion. In addition, the report shall contain the 
State agency's recommendations regarding implementation of the EBT 
system in the pilot site.
    (v) A prototype food retailer agreement. The State agency shall 
enter an agreement with each food retailer that complies with the 
requirements of paragraph (g)(6) of this section.
    (vi) A pilot project implementation plan. The pilot project 
implementation plan shall include the following:
    (A) A description of the tools, procedures, detailed schedules, and 
resources needed to implement the pilot project;
    (B) The equipment acquisition and installation requirements, 
ordering schedules, and system and component testing;
    (C) A phase-in strategy which permits a measured and orderly 
transition to EBT. In describing this strategy, the plan shall address 
training schedules that avoid disruption of normal shopping patterns and 
operations of participating households and food retailers. Training of 
food stamp households, State agency personnel and retailers and/or their 
trainers shall be coordinated with the installation of equipment in 
retail stores;
    (D) A description of on-going tasks associated with fine-tuning the 
system and making any corrective actions necessary to meet contractual 
requirements. The description shall also address those tasks associated 
with on-going training, document updates, equipment maintenance, on-site 
support and system adjustments, as needed to meet Food Stamp Program 
requirements; and,
    (E) A plan for orderly phase-out of the pilot project if it is 
demonstrated during the pilot project operations that the system is not 
acceptable.
    (vii) A contingency plan. The State agency shall submit a written 
contingency plan for FNS approval. The contingency plan shall contain 
information regarding the back-up issuance system that will be activated 
in the event of an emergency shut-down which results in short-term or 
extended system inaccessibility, or total discontinuation of EBT system 
operations. The contingency plan shall be incorporated into the State 
system security plan after FNS approval as prescribed at Sec.  277.18(p) 
of this chapter.
    (3) EBT Implementation APD Budget. The Implementation APD budget 
shall be prepared and submitted for FNS approval in accordance with the 
requirements of paragraph (k) of this section and Sec.  277.18(d)(2) of 
this chapter.
    (4) Pilot project reporting. (i) A quarterly report containing the 
following information delineated by month shall be provided to FNS by 
the end of the month following each Federal fiscal

[[Page 806]]

quarter. The quarterly report shall contain, at a minimum:
    (A) A summary, by task, of major completed activities and scheduled 
activities for the upcoming period.
    (B) The number of active cases for each month;
    (C) The number and dollar amount of food stamp purchases in total 
and by store ID;
    (D) The number and dollar amount of food stamp reversals, in total 
and by store ID;
    (E) The total number and dollar amount of manual sales authorized;
    (F) The total number and dollar amount of issuances posted to EBT 
accounts during the month, delineated by public assistance Food Stamp 
households and non-public assistance Food Stamp households;
    (G) Total number and dollar amount of grocer credits during 
settlement (by day of month);
    (H) Total number of retailers added to or deleted from the system as 
defined under part 278 of this chapter;
    (I) Number and dollar amount of food stamp benefits converted to 
coupons;
    (J) Total number of Food Stamp Program balance inquiries, by type of 
device such as Automated Teller Machines, POS terminals or Audio 
Response Units (ARUs) or hotline telephone numbers;
    (K) Total number of rejected transactions, grouped by reasons (e.g., 
invalid PIN, insufficient funds, invalid transaction type for device, 
etc.);
    (L) The number of access cards issued by the type of case (new, 
recertification, replacement for loss, damage or theft);
    (M) Number of client calls and grocer calls to the ARU or hotline 
number;
    (N) The average number of transactions by type;
    (O) Average dollar value of purchases per case-month;
    (P) Transactions utilized per day as a percentage of transactions 
through the system each month;
    (Q) Problems encountered, their status, actions taken by the State 
agency and any support needed from FNS to resolve them; and
    (R) Anticipated delays, reasons for the delays, and corrective 
actions planned or taken that require an amendment to the Project Work 
Plan. The Project Work Plan shall be updated and submitted with each 
quarterly report.
    (ii) The State agency shall submit APD Updates as prescribed in 
Sec.  277.18 of this chapter and paragraph (d) of this section.
    (5) Cost analysis. (i) The State agency shall be responsible for 
conducting a cost analysis comparing the actual EBT pilot project costs 
to the costs of the EBT system operations projected in the 
Implementation APD and the costs of the coupon issuance system being 
replaced.
    (ii) The cost analysis may be conducted by State agency staff or by 
an independent contractor. The cost analysis shall represent the costs 
of the pilot as costs per case-month.
    (iii) The State agency shall report in the cost analysis all start-
up costs that shall be amortized under the issuance cap for the EBT 
system. At a minimum, the State agency shall identify:
    (A) The labor hours and costs by job category for each unit (e.g., 
the Food Stamp Program Section, the financial assistance section, the 
EBT project section, etc.) of the State and local agencies and for each 
vendor;
    (B) The direct costs for each agency and vendor. The line items to 
be included are computer usage (CPU, disk storage, tapes, printing), the 
equipment amortization/lease and maintenance (excluding POS hardware), 
telecommunications installations, recurring telecommunications, benefit 
card stock and equipment, supplies, printing and reproduction, travel, 
postage, Automated Clearinghouse and wire transfer fees, in addition to 
other direct costs.
    (iv) The State agency shall report the per case-month operating 
costs of the EBT and the coupon systems. Case-month costs shall be 
calculated by determining the average monthly issuance cost per system 
divided by the average monthly food stamp caseload issued benefits for 
the most recent four fiscal quarters or the most recent fiscal year. 
These costs shall be reported by function. The functions include: 
authorizing access to benefits; delivering benefits; crediting 
retailers; managing retailer participation; and reconciling

[[Page 807]]

and monitoring the issuance system. For each function the State agency 
shall report the information specified in paragraphs (c)(5)(iii) (A) and 
(B) of this section.
    (v) The State agency shall report benefit loss per case month. For 
coupon losses the State agency shall utilize data from Form FNS-250 Food 
Coupon Accountability Report, Form FNS-259 Food Stamp Mail Issuance 
Report, and Form FNS-46 Issuance Reconciliation Report. Data from actual 
EBT system losses shall be included as a separate line in the cost 
analysis report.
    (vi) EBT operational costs shall be measured after the EBT pilot 
project system has operated for a minimum of three months with the full 
caseload in the pilot area. The cost analysis shall be submitted to FNS 
after completion of the period of pilot operations with the full 
caseload.
    (vii) The State agency shall measure any residual coupon costs 
resulting from households within the demonstration site that have not 
been converted to EBT, households from outside of the site that shop at 
stores within the pilot project area; and households leaving the pilot 
project area. If the State agency proposes to operate EBT on less than a 
statewide basis for an indefinite period of time, costs for the combined 
coupon and EBT systems shall be reported and compared to the coupon 
system costs.
    (d) Expansion requirements. After a minimum of three months of pilot 
project operation with the full pilot caseload, the State agency may 
decide to expand the EBT system. If expansion is selected, the State 
agency shall submit an APD Update to request FNS approval to implement 
and operate the EBT system in areas beyond the pilot area. The APD 
Update shall contain the following:
    (1) A proposed expansion budget for FNS' review and approval;
    (2) An Implementation Plan. At a minimum, the Expansion 
Implementation Plan shall address:
    (i) The requirements of paragraphs (c)(2)(vi) (A) through (D) of 
this section as applied to the expansion activities; and,
    (ii) The names, titles, addresses, and telephone numbers of the 
persons responsible for coordinating expansion activities;
    (3) A description of any necessary system design changes, including 
software modifications and/or modifications of equipment configurations. 
The design changes shall be documented within the ADP Update or provided 
to FNS for approval separately upon completion;
    (4) An assessment of the effects the EBT pilot project had, if any, 
on program participation during the pilot operation; and,
    (5) A revised Contingency Plan as required in paragraph (c)(7) of 
this section to address the expanded scope of the system.
    (e) Cost neutrality. To receive full Federal reimbursement for food 
stamp administrative costs, the State agency must operate its EBT system 
in a cost-neutral manner, whereby the Federal cost of issuing benefits 
in the State after implementation of the EBT system does not exceed the 
Federal cost of delivering coupon benefits under the previous coupon 
issuance system. The issuance cost cap is expressed in terms of a cost 
per case month derived by dividing the annual total cost of issuance by 
the total number of households issued food stamp benefits during the 
year the costs were incurred. In determining its coupon issuance cap, 
the State agency shall use either: the National Coupon Issuance Cap, as 
determined by FNS, or calculate a State Coupon Issuance Cap based on the 
State agency's statewide issuance costs under the coupon issuance 
system. FNS will not reimburse the State agency for any costs incurred 
above the approved coupon issuance cap.
    (1) The National Coupon Issuance Cap is a case-month issuance 
amount, as calculated by FNS.
    (2) A State Coupon Issuance Cap is a case-month issuance amount, as 
calculated by the State agency based on guidance provided by FNS. The 
State agency must provide narrative explanations and satisfactory 
supporting documentation to clarify each cost item, its relationship to 
the coupon issuance function, and how it was calculated. All issuance 
costs included in

[[Page 808]]

the State coupon issuance cap must have been charged to the Federal 
government and are subject to validation by FNS.
    (3) The State agency shall submit its State coupon issuance cap or 
indicate it has opted to use the National Coupon Issuance Cap as part of 
the Implementation APD process. The State coupon issuance cap must be 
approved by FNS prior to implementation of the pilot, and shall be 
effective from the first date benefits are issued to households through 
the EBT system during the pilot project.
    (4) Each State agency's approved State issuance coupon cap and the 
National Coupon Issuance Cap will be adjusted each Federal fiscal year 
based on the percentage change in the most recently published Gross 
Domestic Product Implicit Price Deflator Index (GDP Price Deflator) 
calculated from the percentage change in the index between the first 
quarter of the current calendar year and the first quarter of the 
previous year, as published each June by the Bureau of Economic 
Analysis.
    (5) The determination of cost neutrality will be assessed on a 
prospective basis; that is, FNS will make a determination whether the 
EBT system will be cost neutral based on a comparison of the coupon 
issuance costs to the projected costs of the EBT system. The State 
agency may choose how they determine coupon issuance costs either 
according to paragraph (e)(1) or paragraph (e)(2) of this section. After 
approval of its coupon cost cap, the State agency shall submit to FNS an 
analysis, completed according to FNS guidance, comparing the coupon 
issuance costs to the projected EBT costs over the contract period for 
system operation which defines the life of the system. If the State 
agency uses the National Coupon Issuance Cap, Statewide cost projections 
for issuance costs after EBT implementation must include all contract 
costs and all other direct EBT issuance costs. If the State agency 
develops their own State issuance cost cap, Statewide cost projections 
for issuance costs after EBT implementation must include all of the 
direct EBT costs, and projections for all categories of allocated costs 
which were included in the coupon cost cap calculation using the same 
allocation methodology as in the cost cap calculation.
    (i) EBT planning costs are to be excluded from the cost neutrality 
assessment and shall include costs attributed to the preparation of the 
Planning APD, all activities leading to the development of the EBT 
implementation plan, and the completion of the documentation contained 
in the FNS approved Implementation APD.
    (ii) The cost neutrality assessment must include pre-issuance costs, 
which can include system design, development and start-up costs, and 
operations costs. The operations phase is defined as beginning with the 
first EBT issuance in the pilot area.
    (iii) If the comparison demonstrates the proposed system will cost 
less than the coupon issuance system, no further measurement will be 
required for the life of the system unless there is a substantial 
increase in EBT costs requiring prior approval as described in Sec.  
277.18 (c)(2)(ii)(C) of this chapter and the submittal of an 
Implementation APD Update as outlined in the FNS Handbook 901 (APD 
Handbook).
    (iv) Any State agency that cannot demonstrate cost neutrality 
prospectively will be required to track EBT costs throughout the life of 
the system according to FNS guidance, and reimburse FNS for any excess 
at the end of the defined system life.
    (6) The State agency is required to provide an updated cost 
neutrality assessment for all subsequent EBT systems developed or 
implemented, incorporating the revised costs of the new system.
    (f) Functional requirements. The State agency shall ensure that the 
EBT system is capable of performing the following functional 
requirements prior to implementation:
    (1) Authorizing household benefits. (i) Issuing and replacing EBT 
cards to eligible households;
    (ii) Permitting eligible households to select a personal 
identification number (PINs) at least four digits in length;
    (iii) Establishing benefit cards and accounts with the central 
computer database;

[[Page 809]]

    (iv) Maintaining the master household issuance record file data and 
current authorization information;
    (v) Training households and other users in system usage;
    (vi) Authorizing benefit delivery;
    (vii) Posting benefits to each household's account for regular and 
supplemental issuances;
    (viii) Providing households with access to information on benefit 
availability;
    (ix) Ensuring the privacy of household data and providing benefit 
and data security;
    (x) Inventorying and securing accountable documents; and
    (xi) Zeroing out benefit accounts and other account authorization 
activity.
    (2) Providing food benefits to households. (i) Verifying the 
identity of authorized households or authorized household 
representatives at issuance terminals or POS;
    (ii) Verifying the PIN and/or PIN offset, primary account number 
(PAN), terminal identification number and retailer identification 
number;
    (iii) Determining the sufficiency of the household's account balance 
in order to debit or credit household benefit accounts at the point-of-
sale;
    (iv) Sending messages authorizing or rejecting purchases;
    (v) Providing back-up purchase procedures when the system is 
unavailable;
    (vi) Ensuring that benefits are available and carried over from 
month-to-month.
    (vii) Converting EBT benefits to coupons in accordance with 
paragraph (f)(6) of this section; and
    (viii) Responding to issuance problems in a timely manner.
    (3) Crediting retailers and financial institutions for redeemed 
benefits. (i) Verifying electronic transactions flowing to or from 
participating retailers' bank accounts;
    (ii) Creating and maintaining a file containing the individual 
records of EBT transactions;
    (iii) Totalling all credits accumulated by each retailer;
    (iv) Providing balance information to retailers or third party 
processors from individual POS terminals, as needed;
    (v) Providing each retailer information on total deposits in the 
system on a daily basis;
    (vi) Preparing a daily tape in a National Automated Clearinghouse 
format or other process approved by FNS with information on benefits 
redeemed for each retailer and in summary;
    (vii) Transmitting the automated clearinghouse (ACH) tape to a 
financial institution for transmission through the ACH or other method 
approved by FNS;
    (viii) Transferring the information on the ACH tape or other process 
approved by FNS containing daily redemption activity of each retailer to 
the FNS Minneapolis Computer Support Center at least once weekly. 
Transmittal may be by tape, disc, remote job entry or other means 
acceptable to FNS.
    (4) Managing retailer participation. The State agency shall:
    (i) Convey retailer authorization information provided by FNS to the 
system operator using the Retailer Electronic Benefit Transfer (EBT) 
Data Exchange (REDE) system. The State agency must access the REDE files 
to ensure that the FNS retailer files used to authorize valid EBT Food 
Stamp transactions are updated on a daily basis. Follow-up on actions 
taken regarding any disqualification or withdrawal by an authorized food 
retailer from the Food Stamp Program must occur within two business days 
after receipt;
    (ii) Add newly authorized food retail stores or third party 
processors to the EBT system as prescribed under paragraph (g)(1)(ii) of 
this section.
    (iii) Ensure that only currently authorized retailers can access the 
system;
    (iv) Monitor food retailers to ensure that equipment deployment 
complies with paragraph (g)(4) of this section;
    (v) Ensure that equipment and supplies are maintained in working 
order for retail stores equipped by the State agency or its contractor. 
Equipment shall be replaced or repaired within 24 hours;
    (vi) Ensure that retail store employees are trained in system 
operation prior to implementation. Such training

[[Page 810]]

shall include the provision of appropriate written and program specific 
materials;
    (vii) Provide a mechanism for compliance investigations which 
permits authorized invetigators to have access to the system in order to 
conduct investigations of program abuse and alleged violations.
    (g) Household participation--(1) Transaction limits. No minimum 
dollar amount per transaction nor maximum limit on the number of 
transactions shall be established. In addition, no transaction fees 
shall be imposed on food stamp households utilizing the EBT system to 
access their benefits.
    (2) Access to balances. Households shall be permitted to determine 
their food stamp account balances without making a purchase or standing 
in a checkout line. The State agency shall ensure that the EBT system is 
capable of providing a transaction history for a period of up two 
calendar months to households upon request.
    (3) Transaction receipts. Households shall be provided printed 
receipts at the time of transaction. At a minimum this information 
shall:
    (i) State the date, merchant's name and location, transaction type, 
transaction amount and remaining balance for the food stamp account;
    (ii) Comply with the requirements of 12 CFR part 205 (Regulation E) 
in addition to the requirements of this section; and
    (iii) Identify the food stamp household member's account number (the 
PAN) or a coded transaction number. The household's name shall not 
appear on the receipt except when a signature is required when utilizing 
a manual transaction voucher.
    (4) Issuance of benefits. State agencies shall establish an 
availability date for household access to their benefits and inform 
households of this date.
    (i) The State agency may make adjustments to benefits posted to 
household accounts after the posting process is complete but prior to 
the availability date for household access in the event benefits are 
erroneously posted.
    (ii) A State agency shall make adjustments to an account to correct 
an auditable, out-of-balance settlement condition that occurs during the 
redemption process as a result of a system error. A system error is 
defined as an error resulting from a malfunction at any point in the 
redemption process: from the system host computer, to the switch, to the 
third party processors, to a store's host computer or point of sale 
(POS) device. These adjustments may occur after the availability date 
and may result in either a debit or credit to the household.
    (A) Client-initiated adjustments. The State agency must act on all 
requests for adjustments made by client households within 90 calendar 
days of the error transaction. The State agency has 10 business days 
from the date the household notifies it of the error to investigate and 
reach a decision on an adjustment and move funds into the client 
account. This timeframe also applies if the State agency or entity other 
than the household discovers a system error that requires a credit 
adjustment to the household. Business days are defined as calendar days 
other than Saturdays, Sundays, and Federal holidays.
    (B) Retailer-initiated adjustments. The State agency must act upon 
all adjustments to debit a household's account no later than 10 business 
days from the date the error occurred, by placing a hold on the 
adjustment balance in the household's account. If there are insufficient 
benefits to cover the entire adjustment, a hold shall be placed on any 
remaining balance that exists, with the difference being subject to 
availability only in the next future month. The household shall be 
given, at a minimum, adequate notice in accordance with Sec.  273.13 of 
this chapter. The notice must be sent at the time the initial hold is 
attempted on the household's current month's remaining balance, clearly 
state the full adjustment amount, and advise the household that any 
amount still owing is subject to collection from the household's next 
future month's benefits.
    (1) The household shall have 90 days from the date of the notice to 
request a fair hearing.
    (2) Should the household dispute the adjustment and request a 
hearing within 10 days of the notice, a provisional credit must be made 
to the household's account by releasing the hold on the

[[Page 811]]

adjustment balance within 48 hours of the request by the household, 
pending resolution of the fair hearing. If no request for a hearing is 
made within 10 days of the notice, the hold is released on the 
adjustment balance, and this amount is credited to the retailer's 
account. If there are insufficient funds available in the current month 
to cover the full adjustment amount, the hold may be maintained and 
settled at one time after the next month's benefits become available.
    (iii) The appropriate management controls and procedures for 
accessing benefit accounts after the posting shall be instituted to 
ensure that no unauthorized adjustments are made in accordance with 
paragraph (f)(7)(iii) of this section.
    (5) Issuance and replacement of cards or PINs. (i) The State agency 
shall permit food stamp households to select their Personal 
Identification Number (PIN). PIN assignment procedures shall not be 
permitted.
    (ii) The State agency shall replace EBT cards within two business 
days following notice by the household to the State agency. The State 
may request a waiver from the Department to allow a longer replacement 
time.
    (iii) The State agency shall ensure that a duplicate account is not 
established which would permit households to access more than one 
account in the system.
    (iv) An immediate hold shall be placed on accounts at the time 
notice is received from a household regarding the need for card or PIN 
replacement. The State agency shall implement a reporting system which 
is continually operative. Once a household reports that their EBT card 
has been lost or stolen, the State agency shall assume liability for 
benefits subsequently drawn from the account and replace any lost or 
stolen benefits to the household. The State agency or its agent shall 
maintain a record showing the date and time of all reports by households 
that their card is lost or stolen.
    (v) The State agency may impose a replacement fee by reducing the 
monthly allotment of the household receiving the replacement card; 
however, the fee may not exceed the cost to replace the card. If the 
State agency intends to collect the fee by reducing the monthly 
allotment, it must follow FNS reporting procedures for collecting 
program income. State agencies currently operating EBT systems must 
inform FNS of their proposed collection operations. State agencies in 
the process of developing an EBT system must include the procedure for 
collection of the fee in their system design document. All plans must 
specify how the State agency intends to account for card replacement 
fees and include identification of the replacement threshold, frequency, 
and circumstances in which the fee shall be applicable. State agencies 
may establish good cause policies that provide exception rules for cases 
where replacement card fees will not be collected.
    (6) Benefit conversion. (i) Households leaving an EBT State must be 
able to use their electronic benefits upon relocation. States must 
provide a means for a client to be able to use their benefits upon 
relocation. A State agency may convert electronic benefits to paper 
coupons if a household is relocating to a State that is not 
interoperable and where electronic benefits are not portable from the 
household's current State of residence, or assist clients in finding an 
authorized retail location where out-of-State electronic benefits can be 
used. At State agency option, a household entering an EBT area may be 
required to spend any remaining food coupons prior to utilizing the EBT 
system to access their benefits. Conversion shall occur within one 
business day following notice to the State agency by the household when 
inventories of food coupons are stored at local agency locations. 
Conversion shall occur within three business days if the State maintains 
coupon inventories in a central location.
    (ii) Requests for conversions to food coupons solely for purposes of 
shopping outside the pilot area shall be prohibited. However, the State 
agency may allow benefits in an EBT account to be converted to coupons 
for short-term absences from the EBT system area for family emergencies 
or similar isolated occurrences.
    (iii) Splitting food stamp benefits between food coupons and an 
electronic

[[Page 812]]

benefit access card at the time of issuance shall not be permitted.
    (iv) At State agency option, a limit may be imposed on the number of 
conversions per household that may occur annually for the purposes 
prescribed under paragraph (f)(6)(ii) of this section. A limit on 
conversions to food coupons shall not be imposed on households moving 
from the EBT area.
    (v) The State agency shall develop procedures for conversion 
whenever a household has left a State. These procedures shall not 
conflict with mailing restrictions regarding Authorization to 
Participate documents or other authorizing documents.
    (vi) The State agency shall round EBT benefits remaining in an 
account down to the nearest dollar amount suitable for coupon issuance. 
The State agency shall require the household to spend any remaining 
balance that cannot be converted to food coupons. If a household fails 
to spend the remaining benefits within one week after conversion occurs, 
the State agency shall expunge the benefits from the account and report 
the adjustment to the Department.
    (7) Stale account handling. Stale benefit accounts are those food 
stamp benefit accounts which are not accessed for three months or 
longer.
    (i) If EBT accounts are inactive for three months or longer, the 
State agency may store such benefits off-line.
    (A) Benefits stored off-line shall be made available upon 
reapplication or re-contact by the household;
    (B) The State agency shall attempt to notify the household of this 
action before storage of the benefits off-line and describe the steps 
necessary to bring the benefits back on-line;
    (ii) The State agency shall expunge benefits that have not been 
accessed by the household after a period of one year. Issuance reports 
shall reflect the adjustment to the State agency issuance totals to 
comply with monthly issuance reporting requirements prescribed under 
Sec.  274.4 of this part.
    (iii) Procedures shall be established to permit the appropriate 
managers to adjust benefits that have already been posted to a benefit 
account prior to the household accessing the account; or, after an 
account has become dormant or the household has not used the funds which 
remain after conversion. The procedures shall also be applicable to 
removing stale accounts for off-line storage of benefits or when the 
benefits are expunged. Whenever benefits are expunged or stored off-
line, the State agency shall document the date, amount of the benefits 
and storage location in the household case file.
    (8) Timely benefit availability. The State agency shall ensure that 
the EBT system complies with the expedited service benefit delivery 
standard and the normal application processing standards prescribed by 
Sec.  273.2 and Sec.  274.2 of this chapter.
    (9) Access to retail stores. The EBT system shall provide for 
minimal disruption of access to and service in retail stores by eligible 
households. The EBT system shall not result in a significant increase in 
the cost of food or cost of transportation to authorized food retail 
stores for food stamp households. Checkout lanes equipped with POS 
devices shall be made available to Food Stamp households during all 
retail store hours of operation.
    (10) Household training. The State agency shall provide training to 
each household prior to implementation and as needed during ongoing 
operation of the EBT system. Training functions for an EBT system may be 
incorporated into certification procedures. At a minimum, the household 
training shall include:
    (i) Content which will familiarize each household with the 
provisions of paragraphs (f)(1) through (f)(9) of this section;
    (ii) Hands-on experience for each household in the use of the EBT 
equipment necessary to access benefits and obtain balance information;
    (iii) Notification to the household of the procedures for manual 
transactions and re-presentation;
    (iv) The appropriate utilization and security of the Personal 
Identification Number;
    (v) Each household's responsibilities for reporting loss or damage 
to the EBT card and who to report them to, both during and outside 
business hours.

[[Page 813]]

Information on a 24 hour hotline telephone number shall be provided to 
each household during training;
    (vi) Written materials and/or other information, including the 
specific rights to benefits in an EBT system, shall be provided as 
prescribed under 7 CFR 272.4(b) for bilingual households and for 
households with disabilities. Written materials shall be prepared at an 
educational reading level suitable for food stamp households;
    (vii) Information on the signs or other appropriate indicators 
located in checkout lanes that enable the household to identify lanes 
equipped to accept EBT cards.
    (viii) Disclosure information regarding adjustments and a 
household's rights to notice, fair hearings, and provisional credits. 
The disclosure must also state where to call to dispute an adjustment 
and request a fair hearing. State agencies that have already implemented 
EBT shall have one year in which to grandfather adjustment disclosure 
into their training materials.
    (h) Retailer participation. (1) All authorized retailers must be 
afforded the opportunity to participate in the EBT system. An authorized 
food retailer shall not be required to participate in an EBT system.
    (i) Retailers who do not have immediate access to telephones at the 
time of purchase shall be accommodated by an alternative system (e.g., 
manual vouchers with preliminary or delayed telephone verification) for 
redeeming food sales to eligible food stamp customers. These retailers 
include stationary food stores which opt to make home deliveries to food 
stamp households, house-to-house trade routes which operate on standing 
orders from customers, e.g. milk and bread delivery routes, food buying 
cooperatives authorized to participate as well as other food retailers 
authorized under Sec.  278.1 of this chapter. Prior to delivery or upon 
returning to the store, the retailer shall telephone the EBT central 
computer or hotline number to log the transaction and obtain an 
authorization number. If authorization cannot be obtained before or at 
the time of purchase, the retailer assumes the risk for sufficient 
benefits being available in the household's account. Any alternate 
method cannot be burdensome on either the household or the retailer, and 
it must include acceptable privacy and security features. Such systems 
shall only be available to retailers that cannot be equipped with a POS 
terminal at the time of sale.
    (ii) Newly authorized retailers shall have access to the EBT system 
within two weeks after the receipt of the FNS authorization notice. 
However, whenever a retailer chooses to employ a third party processor 
to drive its terminals or elects to drive its own terminals, access to 
the system shall be accomplished within a 30 day period or a mutually 
agreed upon time to enable the third party interface specifications and 
any State required functional certification to be performed by the State 
agency and/or its contractor. The FNS field office shall notify each new 
retailer at the time of application for authorization that an EBT system 
is operating in their store location(s). The field office shall also 
notify the State agency in a timely manner when a retailer is authorized 
to participate in the Food Stamp Program.
    (2) Authorized retailers shall not be required to pay costs 
essential to and directly attributable to EBT system operations as long 
as the equipment or services are provided by the State agency or its 
contractor and are utilized solely for the Food Stamp Program. In 
addition, if Food Stamp Program equipment is deployed under contract to 
the State agency, the State agency may, with USDA approval, share 
appropriate costs with retailers if the equipment is also utilized for 
commercial purposes.
    (3) The State agency shall ensure that a sufficient number of 
authorized food retailers have agreed to participate throughout the area 
in which the EBT system will operate to ensure that eligible food stamp 
households will not suffer a significant reduction in their choice of 
retail food stores and that a sufficient number of retail food stores 
serving minority language populations are participating.
    (4) The EBT system shall be implemented and operated in a manner 
that maintains equal treatment for food stamp households in accordance 
with Sec.  278.2(b) of this chapter. The following

[[Page 814]]

requirements for the equal treatment of food stamp households shall 
directly apply to EBT systems:
    (i) Retailers shall not establish special checkout lanes which are 
only for food stamp households or welfare customers. If special lanes 
are designated for the purpose of accepting other electronic debit or 
credit cards and/or other payment methods such as checks, food stamp 
customers with EBT cards may also be assigned to such lanes as long as 
other commercial customers are assigned there as well.
    (ii) POS terminals shall be deployed as follows in EBT systems 
requiring food stamp households to participate:
    (A) For an authorized food retail store with food stamp benefit 
redemption amounting to 15 percent or more of total food sales, all 
checkout lanes shall be equipped;
    (B) For an authorized food retail store with Food Stamp benefit 
redemptions representing less than 15 percent of total food sales, 
supermarkets shall, at a minimum, receive one terminal for every $11,000 
in monthly redemption activity up to the number of lanes per store. All 
other food retailers shall receive one terminal for every $8,000 in 
monthly redemption activity up to the number of lanes per store. 
However, a State agency may utilize an alternative deployment formula 
that permits equipment deployment at higher levels than required by this 
paragraph up to the number of lanes in each store. The State agency 
shall review terminal deployment on a yearly basis and shall be 
authorized to remove excess terminals if actual redemption activity 
warrants a reduction.
    (C) For newly authorized food retailers and authorized food 
retailers bordering the EBT system area, the State agency and food 
retailer shall negotiate a mutually agreed level of terminal deployment 
up to the number of lanes per store. The State agency may consult with 
the appropriate FNS field office in order to determine the previous food 
stamp redemption activity that could be utilized in determining the 
initial number of terminals to deploy in newly authorized retailers or 
border stores. The State agency shall examine household shopping 
patterns in the EBT operating area in order to establish the needs for 
border store equipment. The need to deploy equipment outside the State 
is limited to neighboring States that are not interoperable due to 
exemptions for technological barriers or temporary waivers. State 
agencies will also need to make accommodations for border stores in 
interoperable States that are deemed necessary for client access. To do 
so, State agencies must ensure that procedures are in place to process 
manual vouchers in instances when the system is down or for those 
retailers that do not have POS equipment. Redemption information shall 
remain confidential.
    (D) Any food retailer shall be able to submit further evidence that 
it warrants additional terminals after the initial POS terminals are 
deployed. Food stamp households may also submit evidence to the State 
agency that additional POS terminals are needed.
    (5) The State agency shall ensure that the EBT system provides 
credits to the financial institution holding the accounts for retailers 
or third party processors within two business days of the daily cut-over 
period for retailer settlement. The cut-over period is the time of day 
established by the system in which a transaction day is established for 
settlement and reconciliation.
    (6) The State agency shall enter into an agreement with each 
authorized food retailer. The retailer agreement shall describe the 
terms and conditions of participation in the Food Stamp EBT system. At a 
minimum, the agreement shall:
    (i) Describe all terms and conditions with respect to equipment 
ownership, lease arrangements, handling and maintenance for which the 
State agency and merchant are liable;
    (ii) Describe the agreed upon procedures and policies for 
participation and withdrawal from the EBT system;
    (iii) Comply with all Food Stamp Program regulations with respect to 
retailer participation in the program and treatment of Food Stamp 
Program households. This shall include specific requirements with 
respect to the deployment of terminals and the identification of 
checkout lanes for food stamp customers;

[[Page 815]]

    (iv) Delineate the liabilities during system downtime and the 
associated responsibilities of each party with respect to the use of 
off-line and/or manually entered data, paper vouchers, and re-presented 
vouchers.
    (i) Performance and technical standards. The State agency shall 
ensure that EBT systems comply with Point of Sale (POS) technical 
standards established by the American National Standards Institute 
(ANSI) or International Organization for Standardization (ISO) where 
applicable. This includes the draft EBT ISO 8583 Processor Interface 
Technical Specifications contained in the ANSI standards, which 
delineates a standard message format for retailers and third parties. In 
addition, the State agency shall ensure that the EBT system meets 
performance and technical standards in the areas of system processing 
speeds, system availability and reliability, system security, system 
ease-of-use, minimum card and terminal requirements, performance 
bonding, and a minimum transaction set. With prior written approval from 
FNS, the State agency may utilize the prevailing industry performance 
standards in its region in lieu of those identified in this section. The 
standards shall be included in all requests for proposals and contracts.
    (1) System processing speeds. (i) For leased line systems, 98 
percent of EBT transactions shall be processed within 10 seconds or less 
and all EBT transactions shall be processed within 15 seconds. Leased 
line systems rent telecommunications carriers specifically to connect to 
the central authorizing computer. For dial-up systems, 95 percent of the 
EBT transactions shall be processed within 15 seconds or less and all 
EBT transactions shall be processed within 20 seconds or less. Dial-up 
systems utilize existing telecommunications lines to dial up and connect 
to the central computer at the time of the transaction. Processing 
response time shall be measured at the POS terminal from the time the 
`enter' or `send' key is pressed to the receipt and display of 
authorization or disapproval information. Third party processors, as 
defined in paragraph (h)(5) of this section, shall be required by the 
State agency to comply with the same processing response times required 
of the primary processor.
    (ii) The EBT system shall provide reports, as determined by the 
State agency, that document transaction processing response time and the 
number and type of problematic transactions that could not be processed 
within the standard response time.
    (2) System availability and reliability. (i) The EBT system central 
computer shall be available 99.9 percent of scheduled up-time, 24 hours 
a day, seven days per week. Scheduled up-time shall mean the time the 
database is available for transactions excluding scheduled downtime for 
routine maintenance. The total system, including the system's central 
computer, any network or intermediate processing facilities and 
cardholder authorization processors, shall be available 98 percent of 
scheduled up-time, 24 hours per day, 7 days per week. Scheduled downtime 
for routine maintenance shall occur during non-peak transaction periods. 
State certification procedures shall determine whether intermediate 
processing facilities and cardholder authorization processors are 
capable of complying with system availability standards prescribed 
herein prior to permitting the interface with the central computer 
system.
    (ii) The system central computer shall permit no more than 2 
inaccurate EBT transactions for every 10,000 EBT transactions processed. 
The transactions to be included in measuring system accuracy shall 
include all types of food stamp transactions permitted at POS terminals 
and processed through the host computer, manual transactions entered 
into the system, credits to household accounts, and funds transfers to 
retailer accounts.
    (iii) Reconciliation reports and other information regarding 
problematic transactions shall be made available to the State agency by 
the system operator, individual retailers, households or financial 
institutions as appropriate. Reports on problematic transactions, 
including inaccurate transactions shall be delineated by the source of 
the problem such as card failure, POS terminal failure, interruption

[[Page 816]]

of telecommunications, or other component failure. Errors shall be 
resolved in a timely manner.
    (3) System security. As an addition to or component of the Security 
Program required of Automated Data Processing systems prescribed under 
Sec.  277.18(p) of this chapter, the State agency shall ensure that the 
following EBT security requirements are established:
    (i) Storage and control measures to control blank unissued EBT cards 
and PINs, and unused or spare POS devices;
    (ii) Measures to ensure communication access control. Communication 
controls shall include the transmission of transaction data and issuance 
information from point-of-sale terminals to work-stations and terminals 
at the data processing center. The following specific security measures 
shall be included, as appropriate, in the system design documentation, 
operating procedures or the State agency Security Program:
    (A) Computer hardware controls that ensure acceptance of data from 
authorized terminals only. These controls shall include the use of 
mechanisms such as retailer identification codes, terminal identifiers 
and user identification codes, and/or other mechanisms and procedures 
recognized by the industry;
    (B) Software controls, placed at either the terminal or central 
computer or both, that establish separate control files containing lists 
of authorized retailers, terminal identifying codes, and user access and 
identification codes. EBT system software controls shall include 
separate checks against the control files in order to validate each 
transaction prior to authorization and limiting the number of 
unsuccessful PIN attempts that can be made utilizing standard industry 
practices before the card is deactivated;
    (C) Communications network security that utilizes the Data 
Encryption Standard algorithm to encrypt the PIN, at a minimum, from the 
point of entry. Other security may include authentication codes and 
check-sum digits, in combination with data encoded on the magnetic 
stripe such as the PIN and/or PIN offset, to ensure data security during 
electronic transmission. Any of the network security measures may be 
utilized together or separately and may be applied at the terminal or 
central computer as indicated in the approved system design to ensure 
communications control;
    (D) Manual procedures that provide for secure access to the system 
with minimal risk to household or retailer accounts. Manual procedures 
may include the utilization of manager identification codes in obtaining 
telephonic authorization from the central computer system; requirements 
for separate entry with audio response unit verification and 
authorization number; and/or the utilization of 24 hour hotline 
telephone numbers to authorize transactions.
    (iii) Message validation shall include but shall not be limited to:
    (A) Message format checks for completeness of the message, correct 
order of data, existence of control characters, number and size of data 
fields and appropriate format standards as specified in the approved 
system design;
    (B) Range checks for acceptable date fields, number and valid 
account numbers, purchase and refund upper limitations in order to 
prevent and control damage to the system accounts;
    (C) Reversals of messages that are not fully processed and recorded.
    (iv) Administrative and operational procedures shall ensure that:
    (A) Functions affecting an account balance are separated or dually 
controlled during processing and when requesting Federal reimbursement 
through a concentrator bank under the provisions of paragraph (i) of 
this section. These functions may include but are not limited to the set 
up of accounts, transmittal of funds to and from accounts, access to 
files to change account records, and transmittal of retailer deposits to 
the ACH network or other means approved by FNS for crediting retailer 
bank accounts;
    (B) Passwords, identity codes or other security procedures must be 
utilized by State agency or local personnel and at data processing 
centers;
    (C) Software programming changes shall be dual controlled to the 
extent possible;

[[Page 817]]

    (D) System operations functions shall be segregated from 
reconciliation duties;
    (v) A separate EBT security component shall be incorporated into the 
State agency Security Program for Automated Data Processing (ADP) 
systems where appropriate and as prescribed under Sec.  277.18(p) of 
this chapter. The periodic risk analyses required by the Security 
Program shall address the following items specific to an EBT system:
    (A) EBT system vulnerability to theft and unauthorized use;
    (B) Completeness and timeliness of the reconciliation system;
    (C) Vulnerability to tampering with or creating household accounts;
    (D) Erroneous posting of issuances to household accounts;
    (E) Manipulation of retailers' accounts such as creation of false 
transactions or intrusion by unauthorized computer users;
    (F) Capability to monitor systematic abuses at POS terminals such as 
debits for a complete allotment, excessive manual issuances, and 
multiple manual transactions at the same time. Such monitoring may be 
accomplished through the use of exception reporting;
    (G) Tampering with information on the ACH tape or similar 
information utilized in a crediting method approved by FNS; and,
    (H) The availability of a complete audit trail. A complete audit 
trail shall, at a minimum, be able to provide a complete transaction 
history of each individual system activity that affects an account 
balance. The audit trail shall include the tracking of issuances from 
the Master File and Issuance File, network transactions from point-of-
sale terminals to EBT central computer database and system file updates.
    (vi) The State agency shall incorporate the contingency plan 
approved by FNS prior to pilot implementation and subsequently updated 
as part of the Expansion Implementation Plan into the Security Program.
    (4) System ease-of-use. (i) For all system users, the State agency 
shall ensure that the system:
    (A) Minimizes the number of separate steps required to complete a 
transaction;
    (B) Minimizes the number of codes or commands needed to make use of 
the system;
    (C) Makes available clear and comprehensive account balance 
information with a minimum number of actions necessary;
    (D) Provides training and instructions for all system users 
especially those persons with disabilities;
    (E) Makes available prompts on POS terminals or balance only 
terminals, where appropriate;
    (F) Identifies procedures for problem resolution;
    (G) Provides reasonable accommodation for the needs of households 
with disabilities in keeping with the Americans with Disabilities Act of 
1990.
    (ii) In addition to the requirements of paragraph (h)(4)(i) of this 
section, the State agency shall ensure that retailers utilizing the EBT 
system:
    (A) Have available manual backup procedures;
    (B) Can obtain timely information on daily credits to their banks;
    (C) Have available deposit information in a format readily 
comparable to information maintained in the store; and
    (D) Have available instructions on resolving problems with equipment 
and retailer accounts.
    (5) Third party processors. Third party processors are financial 
institutions, cardholder authorization processors other than the party 
with which the State agency has contracted for EBT services, and food 
retailers driving their own terminals that are capable of relaying 
electronic transactions to a central database computer for 
authorization. The State agency shall afford retailers the opportunity 
to use third party processors and shall provide interface specifications 
and certification standards in order for the third party processor to 
participate in the EBT system.
    (i) In order to participate in a Food Stamp Program EBT system, a 
third party processor must be able to meet all third party interface 
specifications and certification standards associated with this section. 
The State agency shall publish the third party interface specifications 
prior to implementation of the EBT system to enable third

[[Page 818]]

party processors to access the database. Third party processors shall 
undergo functional and acceptance tests as specified by the State 
agency;
    (ii) Third party processors shall be liable for transactions until 
the transaction has been electronically accepted by the contracted 
vendor or an intermediate processing facility;
    (iii) The State agency shall ensure that third party processors and 
food retailers driving their own terminals comply with this section and 
all applicable Food Stamp Program regulations.
    (6) Minimum card requirements. (i) The State agency shall ensure 
that the following information is printed on the card:
    (A) The address of the office where a card can be returned if found 
or no longer in use;
    (B) The statement of nondiscrimination which reads as follows: 
``This is an equal opportunity program. If you believe that you have 
been the victim of discrimination in your efforts to receive food stamp 
benefits because of your race, color, national origin, age, sex, 
disability, religious belief, or political beliefs, write immediately to 
the Administrator, Food and Nutrition Service, 3101 Park Center Drive, 
Alexandria, Virginia 22302.'' In lieu of printing the required 
information on the EBT card, the State agency shall provide each 
household a card jacket or sleeve containing the nondiscrimination 
statement.
    (ii) FNS reserves the right to require State agencies to place a 
Department logo on the EBT card and/or sleeves or jackets.
    (iii) EBT cards and/or sleeves or jackets shall not contain the name 
of any State or local official. EBT informational materials shall not 
indicate association with any political party or other political 
affiliation.
    (iv) State agencies may require the use of a photograph of one or 
more household members on the card. If the State agency does require the 
EBT cards to contain a photo, it must establish procedures to ensure 
that all appropriate household members or authorized representatives are 
able to access benefits from the account as necessary.
    (7) POS terminals. POS terminals shall meet the following 
requirements:
    (i) Balance information shall not be displayed on the screen of the 
POS terminal except for balance-only inquiry terminals;
    (ii) PINs shall not be displayed at the terminal; and
    (iii) PIN encryption shall occur from the point of entry in a manner 
which prevents the unsecured transmission between any point in the 
system.
    (8) Performance bonding. The State agency may require a performance 
bond in accordance with Sec.  277.8 of this chapter or utilize other 
contractual clauses it deems necessary to enforce the requirements of 
this section.
    (9) Minimum transaction set. At a minimum, the State agency shall 
ensure that the EBT system, including third party processors and 
retailers driving their own terminals, is capable of providing for 
authorizing or rejecting purchases, refunds or customer credits, voids 
or cancellations, key entered transactions, balance inquiries and 
settlement or close-out transactions. The system must be capable of 
completing this transaction set across State borders nationwide in 
accordance with standards specified in paragraph (h)(10) of this 
section.
    (10) Interoperability. State agencies must adopt uniform standards 
to facilitate interoperability and portablilty nationwide. The term 
``interoperability'' means the EBT system must enable a coupon issued in 
the form of an EBT card to be redeemed in any State. The term 
``portablity'' means the EBT system must enable a coupon issued in the 
form of an EBT card to be used in any State by a household to purchase 
food at a retail food store or a wholesale food concern approved under 
the Food Stamp Act of 1977. The standards must include the following:
    (i) EBT system connectivity. State agencies are responsible for 
establishing telecommunications links, transaction switching facilities 
and any other arrangements with other State agencies necessary for the 
routing of interoperable transactions to such other State EBT 
authorization

[[Page 819]]

systems. State agencies are also responsible for facilitating the 
settlement of such interoperable transactions and the handling of 
adjustments. These connections need not be direct connections between 
State authorization systems but may be facilitated through agreements 
and linkages with other designated agents or third party processors. All 
State agencies must agree to the timing and disposition of disputes, 
error resolution, and adjustments in accordance with Department 
regulations at Sec.  273.13(a), Sec.  273.15(k) and paragraph (f) of 
this section. State agencies or their designated agents must draw funds 
from State food stamp accounts for food stamp benefits transacted by 
that State's food stamp recipients, regardless of where benefits were 
transacted.
    (ii) Message format. Each authorization system must use the 
International Organization for Standards (ISO) 8583 message format, 
modified for EBT, in a version mutually agreed to between the 
authorization agent and the party connected for all transactions. Each 
authorization system must process each financial transaction as a single 
message financial transaction, except for pre-authorized transactions 
and reversals, processed as paired transactions.
    (iii) Card Primary Account Number (PAN) Requirements. Track 2 on 
each card shall contain the PAN. Each Government entity must obtain an 
Issuer Identification Number (IIN) from the American Banker's 
Association (ABA). The IIN should be included as the first six digits of 
the Primary Account Number. The PAN must comply with International 
Organization for Standards (ISO) 7812, Identification Cards--Numbering 
System and Registration Procedures for Issuer Identifiers. Each State 
agency must be responsible for generating, updating, and distributing 
IIN files of all States to each retailer, processor, or acquirer that is 
directly connected to the State's authorization system. Each terminal 
operator that uses a routing table for routing acquired transactions 
must, within seven calendar days of receiving an IIN routing table 
update, modify its routing tables to reflect the updated routing 
information.
    (iv) Third Party Processor Requirements. Each Third Party Processor 
or terminal operator must have primary responsibility and liability for 
operating the telecommunications and processing system (including 
software and hardware) through which transactions initiated at POS 
terminals it owns, operates, controls or for which it has signed an 
agreement to accept EBT transactions, are processed and routed, directly 
or indirectly, to the appropriate State authorization system. Each 
terminal operator must maintain the necessary computer hardware and 
software to interface either directly with a State authorization system 
or with a third party service provider to obtain access to one or more 
State authorization systems. Each terminal operator must establish a 
direct or indirect telecommunications connection for the routing of 
transactions to the State authorization system or to a processor 
directly or indirectly connected to the State authorization system.
    (v) REDE File. The State agency must ensure that their EBT system 
verifies FNS retailer numbers for all interstate transactions against 
the National REDE file of all FNS EBT retailers to validate these 
transactions.
    (11) Waivers. The State agency may request a waiver from the 
Department for a temporary exemption from compliance with the 
requirements for interoperability and portability, as found in this 
section, if they can adequately demonstrate that: (1) There are unusual 
technological barriers to the implementation of interoperability; and 
(2) it is in the best interest of the FSP to grant the waiver. All 
waivers must specify a date by which the State agency will achieve 
interoperability and portability.
    (j) Concentrator bank responsibilities. The concentrator bank shall 
be a Federally insured financial institution or other entity acceptable 
to the Federal Reserve which has the capability to take retailer credits 
and/or debits, obtained from the EBT system operator, and transmit them 
to the ACH network operated by the Federal Reserve or through another 
process for crediting retailers approved by FNS. Transmittal shall be by 
tape or on-line in a

[[Page 820]]

format suitable for the Automated Clearinghouse (ACH) or as approved by 
FNS.
    (1) The minimum functions of the concentrator bank are:
    (i) Preparing a daily ACH tape or other crediting process approved 
by FNS with information on benefits redeemed and creditable to each 
retailer;
    (ii) Transferring the ACH tape or other crediting process approved 
by FNS to the Federal Reserve or other entity approved by FNS;
    (iii) Initiating and accepting reimbursement from the appropriate 
U.S. Treasury account via the Payment Management System of the U.S. 
Department of Health and Human Services (HHS) or other payment process 
approved by FNS. At the option of FNS, the State agency may designate 
another entity as the initiator of reimbursement for food stamp 
redemptions provided the entity is acceptable to FNS and HHS;
    (iv) Cooperating in the reconciliation of discrepancies and error 
resolution when necessary.
    (2) With the approval of FNS, another procedure, other than the ACH 
system, may be utilized to credit retailer accounts and/or debit FNS' 
account, if it meets the needs of FNS and the EBT system.
    (3) The State agency shall be liable for any errors in the creation 
of the ACH tape or its transmission. The State agency may transfer the 
liability associated with creation of the ACH tape, its transmission or 
another crediting process approved by FNS as appropriate to the EBT 
system operator or the concentrator bank. Appropriate system security 
administrative and operational procedures shall be instituted in 
accordance with paragraph (h)(3) of this section.
    (k) Reconciliation, management reporting, examinations and audits. 
The EBT system shall provide reports and documentation pertaining to the 
following:
    (1) Reconciliation. Reconciliation shall be conducted and records 
kept as follows:
    (i) Reconciliation of benefits posted to household accounts on the 
central computer against benefits on the Issuance Authorization File;
    (ii) Reconciliation of individual household account balances against 
account activities on a daily basis;
    (iii) Reconciliation of each individual retail store's food stamp 
transactions per POS terminal and in total to deposits on a daily basis;
    (iv) Verification of retailer's credits against deposit information 
entered into the ACH network;
    (v) Reconciliation of total funds entered into, exiting from, and 
remaining in the system each day;
    (vi) Maintenance of audit trails that document the full cycle of 
issuance from benefit allotment posting to the State issuance 
authorization file through posting to point-of-sale transactions at 
retailers through settlement of retailer credits.
    (2) Management reports. The State agency shall require the EBT 
system to provide reports that enable the State agency to manage the 
system. The reports shall be available to the State agency or FNS as 
requested on a timely basis and consist of:
    (i) Information on how the system operates relative to its 
performance standards, the incidence, type and cause of system problems, 
and utilization patterns.
    (ii) Information regarding transactions and other information 
specified by FNS during system development which is necessary to conduct 
compliance investigations. At a minimum exception reports shall be able 
to isolate transaction data by individual retailers and households. 
Exception reports shall be provided to the appropriate FNS Compliance 
Branch Area office on a quarterly basis. The Compliance Officer in 
Charge (COIC) shall be permitted to require that the reports be made 
available on either a more or less frequent basis.
    (3) Pilot project reports. The State agency shall provide quarterly 
reports as described in paragraph (c)(4) of this section during the 
pilot project.
    (4) Program reporting. When benefits are initially issued through an 
EBT system, the State agency shall report as required by FNS in Sec.  
274.4 and in accordance with the FNS instructions specific to EBT 
issuances.
    (5) Examinations and audits.

[[Page 821]]

    (i) The state agency must obtain an examination by an independent 
auditor of the transaction processing of the State EBT service provider 
regarding the issuance, redemption, and settlement of Food Stamp Program 
benefits. The examination must be done at least annually and the report 
must be completed ninety days after the examination period ends. 
Subsequent examinations must cover the entire period since the previous 
examination. Examinations must follow the American Institute of 
Certified Public Accountants (AICPA) Statement on Auditing Standards No. 
70, Service Organizations (SAS No. 70), requirements for reports on 
controls placed in operation and tests of the operating effectiveness of 
the controls.
    (ii) The examination report must include a list of all States whose 
systems operate under the same control environment. Auditors conducting 
the examination must follow EBT guidance contained in the Office of 
Management and Budget (OMB) Circular A-133 Compliance Supplement to the 
extent the guidelines refer to FSP benefits. (For availability of OMB 
Circulars referenced in this section, see 5 CFR 1310.3.)
    (iii) The State agency must retain a copy of the SAS No.70 
examination report.
    (iv) The State agency shall respond to written requests from the 
Food and Nutrition Service (FNS), USDA Office of the Inspector General 
(OIG), or the General Accounting Office (GAO) for completed SAS No.70 
examination reports by providing the report within thirty days of 
receipt of the written request.
    (v) The State agency shall respond to written requests from FNS, 
OIG, or GAO to view auditor's workpapers from SAS No. 70 reports by 
arranging to have workpapers made available within thirty days of 
receipt of the written request.
    (vi) FNS and the USDA OIG shall rely on SAS No. 70 reports on EBT 
transaction processing services provided by contractors to the State. 
FNS and USDA OIG reserve the right to conduct other reviews or audits if 
necessary.
    (vii) EBT services provided directly by the State are not subject to 
SAS No. 70 examination requirements of this section but remain subject 
to the single audit requirements at 7 CFR 277.7 and the Office of 
Management and Budget Circular A-133.
    (l) Federal Financial Participation. (1) The cost of administering 
statewide benefit issuance after implementation of the EBT system shall 
be funded at the regular Federal financial participation rate up to the 
level of the current coupon issuance costs, as prescribed in paragraph 
(c)(3) of this section.
    (2) Enhanced funding for coupon issuance activities that a State 
agency incurs on Indian Reservations shall be accommodated within the 
issuance cap.
    (3) The State agency shall comply with the provisions set forth 
under 7 CFR 277.18 and appendix A of 7 CFR 277.18 in determining and 
claiming allowable costs for the EBT system.
    (4) Access to system documentation, including cost records of 
contractors or subcontractors shall be made available and incorporated 
into contractual agreements in accordance with Sec.  277.18(k) of this 
chapter.
    (5) The State agency shall adjust the issuance cap, once the cap is 
approved by FNS, as follows:
    (i) The food stamp case load utilized in estimating annual budgetary 
needs under the cap shall be adjusted quarterly by the number of cases 
actually issued benefits through the EBT system and the coupon issuance 
systems operating within the State. Quarterly costs adjusted by the 
number of food stamp cases actually issued benefits during the quarter 
shall accumulate by each Federal fiscal quarter until the close of the 
fiscal period to which it applies;
    (ii) The annual issuance cap adjustment shall be based on the 
percentage change in the Gross National Product Implicit Price Deflator 
index (GNP price deflator). The index is reported monthly by the U.S. 
Department of Commerce, Bureau of Economic Analysis. The percentage 
change shall be calculated from the percentage change in the index 
between the first quarter of the current calendar year and the first 
quarter of the previous year. This data will be made available to State

[[Page 822]]

agencies by FNS from the June report published by the Bureau of Economic 
Analysis. The case-month cap for subsequent Federal fiscal years shall 
be obtained by revising the previous year's cap based on the most recent 
inflation information for that period. The State agency shall then 
multiply the revised issuance cap from the prior year by the percentage 
change in inflation indicated by the most recent GNP price deflator;
    (iii) The yearly amortized cost associated with pre-operational 
costs (i.e., design, development) shall be determined at the end of the 
assignment period established in accordance with paragraph (c)(3)(iv) of 
this section and assigned retroactively to the case-month costs of each 
prior year of operation. If such assignment puts the State agency over 
the issuance cap of all prior years of operation, claims shall be made 
as appropriate.
    (6) State agencies may receive one hundred percent federal funding 
for the costs they incur for switching and settling all food stamp 
interstate transactions. For purposes of this section, the term 
``switching'' means the routing of an interstate transaction that 
consists of transmitting the details of a transaction electronically 
recorded through the use of an EBT card in one State to the issuer of 
the card that is in another State; and the term ``settling'' means 
movement, and reporting such movement, of funds from an EBT card issuer 
located in one to a retail food store, or wholesale food concern, that 
is located in another State, to accomplish an interstate transaction. 
The total amount of one hundred percent funding available annually is 
limited to $500,000 nationwide. Once the $500,000 limitation is 
exceeded, federal financial participation reverts to the standard fifty 
percent program reimbursement rate and procedure. In order to qualify 
for this funding, the State agency must:
    (i) Adhere to the standard of interoperability and portability 
adopted by a majority of State agencies for interoperability costs 
incurred for the period from February 11, 2000 through September 30, 
2002;
    (ii) Meet standards of interoperability and portability under 
paragraphs (e) and (h) of this section for costs incurred after 
September 30, 2002;
    (iii) Sign and submit, in each fiscal year for which the State 
agency requests enhanced funding, an Interoperability Funding Agreement 
to comply with the administrative procedures established by the 
Department. The State agency must submit the signed agreement to the 
Department before the end of the fiscal year in which costs are incurred 
in order to qualify for payment for that fiscal year, and
    (iv) Submit requests for payment on a quarterly basis after the end 
of the quarter in which interoperability costs are incurred, in 
accordance with the Department's administrative procedures. Requests for 
payments shall be due February 15 (for the period October through 
December), May 15 (January through March), August 15 (April through 
June), and November 15 (July through September). Requests for payment 
submitted after the required date for a quarter shall not be considered 
until the following quarter, when such requests for payments are 
scheduled to be processed.
    (m) Re-presentation. The State agency shall ensure that a manual 
purchase system is available for use during times when the EBT system is 
inaccessible.
    (1) Under certain circumstances, when a manual transaction occurs 
due to the inaccessibility of the host computer and the transaction is 
rejected because insufficient funds are available in a household's 
account, the State agency may permit the re-presentation of the 
transaction during subsequent months. At the State agency's option, re-
presentation may be permitted within the EBT system as follows:
    (i) Re-presentation of manual vouchers when there are insufficient 
funds in the EBT account to cover the manual transaction may be 
permitted only under the following circumstances:
    (A) The manual transaction occurred because the host computer was 
down and authorization was obtained by the retailer for the transaction; 
or
    (B) The manual transaction occurred because telephone lines were 
down.
    (ii) Re-presentation of manual vouchers shall not be permitted when 
the EBT card, magnetic stripe, PIN pad,

[[Page 823]]

card reader, or POS terminal fails and telephone lines are operational. 
Manual transactions shall not be utilized to extend credit to a 
household via re-presentation when the household's account balance is 
insufficient to cover the planned purchase.
    (iii) The State agency may debit the benefit allotment of a 
household following the insufficient funds transaction in either of two 
ways:
    (A) Any amount which equals at least $10 or up to 10% of the 
transaction. This amount will be deducted monthly until the total 
balance owed is paid-in-full. State agencies may opt to re-present at a 
level that is less than the 10% maximum, however, this lesser amount 
must be applied to all households.
    (B) $50 in the first month and the greater of $10 or 10% of the 
allotment in subsequent months until the total balance owed is paid-in-
full. If the monthly allotment is less than $50, the State shall debit 
the account for $10.
    (2) The State agency shall establish procedures for determining the 
validity of each re-presentation and subsequent procedures authorizing a 
debit from a household's monthly benefit allotment. The State agency may 
ask households to voluntarily pay the amount of a re-presented 
transaction or arrange for a faster schedule of payment than identified 
in paragraph (l)(1)(iii) of this section.
    (3) The State agency shall ensure that retailers provide notice to 
households at the time of the manual transaction that re-presentation 
may occur if there are insufficient benefits in the account to cover the 
transaction. The statement shall be printed on the paper voucher or on a 
separate sheet of paper. The State agency shall also provide notice to 
the household prior to the month when a benefit allotment is reduced 
when a re-presentation is necessary. Notice shall be provided to the 
household for each insufficient transaction that is to be re-presented 
in a future month. The notice shall be provided prior to the month it 
occurs and shall state the amount of the reduction in the benefit 
allotment.
    (4) The Department shall not accept liability under any 
circumstances for the overissuance of benefits due to the utilization of 
manual vouchers, including those situations when the host computer is 
inaccessible or telecommunications lines are not functioning. However, 
the State agency, in consultation with authorized retailers and with the 
mutual agreement of the State agency's vendor, if any, may accept 
liability for manual purchases within a specified dollar limit. Costs 
associated with liabilities accepted by the State agency shall not be 
reimbursable.
    (5) The State agency shall be strictly liable for manual 
transactions that result in excess deductions from a household's 
account.
    (n) Ownership rights and procurement requirements. (1) The State 
agency shall comply with the software and automated data processing 
equipment ownership rights prescribed under Sec.  277.13 and Sec.  
277.18(l) of this chapter.
    (2) The State agency shall comply with the procurement standards 
prescribed under Sec.  277.18(j) of this chapter. Under service 
agreements, the procurement of equipment and services which will be 
utilized in a Food Stamp EBT system shall be conducted in accordance 
with the provisions set forth under Sec.  277.18(f) of this chapter.

[57 FR 11249, Apr. 1, 1992; 57 FR 44791, Sept. 29, 1992; Amdt. 378, 64 
FR 48938, Sept. 9, 1999; 65 FR 10678, Feb. 29, 2000; Amdt. 385, 65 FR 
33439, May 24, 2000; Amdt. 378, 65 FR 41325, July 5, 2000; Amdt. 384, 65 
FR 49724, Aug. 15, 2000; Amdt. 390, 65 FR 59110, Oct. 4, 2000; Amdt. 
384, 68 FR 37697, June 25, 2003]



PART 275_PERFORMANCE REPORTING SYSTEM--Table of Contents




                        Subpart A_Administration

Sec.
275.1 General scope and purpose.
275.2 State agency responsibilities.
275.3 Federal monitoring.
275.4 Record retention.

              Subpart B_Management Evaluation (ME) Reviews

275.5 Scope and purpose.
275.6 Management units.
275.7 Selection of sub-units for review.
275.8 Review coverage.
275.9 Review process.

[[Page 824]]

                 Subpart C_Quality Control (QC) Reviews

275.10 Scope and purpose.
275.11 Sampling.
275.12 Review of active cases.
275.13 Review of negative cases.
275.14 Review processing.

                 Subpart D_Data Analysis and Evaluation

275.15 Data management.

                       Subpart E_Corrective Action

275.16 Corrective action planning.
275.17 State corrective action plan.
275.18 Project area/management unit corrective action plan.
275.19 Monitoring and evaluation.

     Subpart F_Responsibilities for Reporting on Program Performance

275.20 ME review schedules.
275.21 Quality control review reports.
275.22 Administrative procedure.

                      Subpart G_Program Performance

275.23 Determination of State agency program performance.

    Authority: 7 U.S.C. 2011-2036.

    Editorial Note: OMB control numbers relating to this part 275 are 
contained in Sec.  271.8.



                        Subpart A_Administration



Sec.  275.1  General scope and purpose.

    (a) Under the Food Stamp Act, each State agency is responsible for 
the administration of the Food Stamp Program in accordance with the Act, 
Regulations, and the State agency's plan of operation. To fulfill the 
requirements of the Act, each State agency shall have a system for 
monitoring and improving its administration of the program. The State 
agency is also responsible for reporting on its administration to FNS. 
These reports shall identify program deficiencies and the specific 
administrative action proposed to meet the program requirements 
established by the Secretary. If it is determined, however, that a State 
has failed without good cause to meet any of the program requirements 
established by the Secretary, or has failed to carry out the approved 
State plan of operation, the Department shall suspend and/or disallow 
from the State such funds as are determined to be appropriate in 
accordance with part 276 of this chapter.
    (b)(1) The Food Stamp Act authorizes the Secretary to pay each State 
agency an amount equal to 50 percent of all administrative costs 
involved in each State agency's operation of the program. The Act 
further authorizes the Secretary to increase the percentage share if:
    (i) The State agency's payment error rate is less than or equal to 
5.90 percent, and
    (ii) The State agency's negative case error rate is less than the 
national weighted mean negative case error rate for the prior fiscal 
year.
    (2) If a State agency qualifies for an increased percentage share, 
the amount of increase will be an additional percentage point for each 
full tenth of a percentage point by which the payment error rate is less 
than six percent, up to a maximum of 60 percent of administrative costs. 
Those State agencies not receiving the increased share of funding shall 
develop and implement corrective action plans to reduce payment errors. 
Corrective action shall be completed as required in subpart E of this 
section.

[Amdt. 160, 45 FR 15898, Mar. 11, 1980, as amended by Amdt. 266, 52 FR 
3407, Feb. 4, 1987; Amdt. 328, 56 FR 60051, Nov. 27, 1991]



Sec.  275.2  State agency responsibilities.

    (a) Establishment of the performance reporting system. (1) The State 
agency shall establish a continuing performance reporting system to 
monitor program administration and program operations. The method for 
establishing each component of the system is identified and explained in 
subparts B through F of this part. The components of the State agency's 
performance reporting system shall be:
    (i) Data collection through management evaluation (ME) reviews and 
quality control (QC) reviews;
    (ii) Analysis and evaluation of data from all sources;
    (iii) Corrective action planning;
    (iv) Corrective action implementation and monitoring; and
    (v) Reporting to FNS on program performance.

[[Page 825]]

    (2) The State agency must ensure corrective action is effected at 
the State and project area levels.
    (b) Staffing standards. The State agency shall employ sufficient 
State level staff to perform all aspects of the Performance Reporting 
System as required in this part of the regulations. The staff used to 
conduct QC reviews shall not have prior knowledge of either the 
household or the decision under review. Where there is prior knowledge, 
the reviewer must disqualify her/himself. Prior knowledge is defined as 
having:
    (1) Taken any part in the decision that has been made in the case; 
(2) any discussion of the case with staff who participated in the 
decision; or (3) any personal knowledge of or acquaintance with persons 
in the case itself. To ensure no prior knowledge on the part of QC or ME 
reviewers, local project area staff shall not be used to conduct QC or 
ME reviews; exceptions to this requirement concerning local level staff 
may be granted with prior approval from FNS. However, local personnel 
shall not, under any circumstances, participate in ME reviews of their 
own project areas.

[Amdt. 160, 45 FR 15898, Mar. 11, 1980, as amended by Amdt. 266, 52 FR 
3407, Feb. 4, 1987]



Sec.  275.3  Federal monitoring.

    The Food and Nutrition Service shall conduct the review described in 
this section to determine whether a State agency is operating the Food 
Stamp Program and the Performance Reporting System in accordance with 
program requirements. The Federal reviewer may consolidate the 
scheduling and conduct of these reviews to reduce the frequency of entry 
into the State agency. FNS regional offices will conduct additional 
reviews to examine State agency and project area operations, as 
considered necessary to determine compliance with program requirements. 
FNS shall notify the State agency of any deficiencies detected in 
program or system operations. Any deficiencies detected in program or 
system operations which do not necessitate long range analytical and 
evaluative measures for corrective action development shall be 
immediately corrected by the State agency. Within 60 days of receipt of 
the findings of each review established below, State agencies shall 
develop corrective action addressing all other deficiencies detected in 
either program or system operations and shall ensure that the State 
agency's own corrective action plan is amended and that FNS is provided 
this information at the time of the next formal semiannual update to the 
State agency's Corrective Action Plan, as required in Sec.  275.17.
    (a) Reviews of State Agency's Administration/Operation of the Food 
Stamp Program. FNS shall conduct an annual review of certain functions 
performed at the State agency level in the administration/operation of 
the program. FNS will designate specific areas required to be reviewed 
each fiscal year.
    (b) Reviews of State Agency's Management Evaluation System. FNS will 
review each State agency's management evaluation system on a biennial 
basis; however, FNS may review a State agency's management evaluation 
system on a more frequent basis if a regular review reveals serious 
deficiencies in the ME system. The ME review will include but not be 
limited to a determination of whether or not the State agency is 
complying with FNS regulations, an assessment of the State agency's 
methods and procedures for conducting ME reviews, and an assessment of 
the data collected by the State agency in conducting the reviews.
    (c) Validation of State Agency error rates. FNS shall validate each 
State agency's payment error rate and underissuance error rate, as 
described in Sec.  275.23(c), during each annual quality control review 
period. Federal validation reviews shall be conducted by reviewing 
against the Food Stamp Act and the regulations, taking into account any 
FNS-authorized waivers to deviate from specific regulatory provisions. 
FNS must validate the State agency's negative case error rate, as 
described in Sec.  275.23(d), when the State agency's payment error rate 
for an annual review period appears to entitle it to an increased share 
of Federal administrative funding for that period as outlined in Sec.  
277.4(b)(2) of this chapter, and its reported negative case error rate 
for that period is less than two percentage

[[Page 826]]

points above the national weighted mean negative case error rate for the 
prior fiscal year. However, this requirement will not preclude the 
Federal review of any negative case for other reasons as determined 
appropriate by FNS. Any deficiencies detected in a State agency's QC 
system shall be included in the State agency's corrective action plan. 
The findings of validation reviews shall be used as outlined in Sec.  
275.23(e)(6).
    (1) Payment error rate. The validation review of each State agency's 
payment error rate shall consist of the following actions:
    (i) FNS will select a subsample of a State agency's completed active 
cases, as follows:
    (A) For State agencies that determine their active sample sizes in 
accordance with Sec.  275.11(b)(1)(ii), the Federal review sample for 
completed active cases is determined as follows:

------------------------------------------------------------------------
                                              Federal subsample target
  Average monthly reviewable caseload (N)             (n[min])
------------------------------------------------------------------------
31,489 and over...........................  n[min]=400
10,001 to 31,488..........................  n[min]=.011634 N+33.66
10,000 and under..........................  n[min]=150
------------------------------------------------------------------------

    (B) For State agencies that determine their active sample sizes in 
accordance with Sec.  275.11(b)(1)(iii), the Federal review sample for 
completed active cases is determined as follows:

------------------------------------------------------------------------
                                              Federal subsample target
  Average monthly reviewable caseload (N)             (n[min])
------------------------------------------------------------------------
60,000 and over...........................  n[min]=400
10,001 to 59,999..........................  n[min]=.005 N+100
10,000 and under..........................  n[min]=150
------------------------------------------------------------------------

    (C) In the above formula, n' is the minimum number of Federal review 
sample cases which must be selected when conducting a validation review, 
except that FNS may select a lower number of sample cases if:
    (1) The State agency does not report a change in sampling procedures 
associated with a revision in its required sample size within 10 days of 
effecting the change; and/or
    (2) The State agency does not complete the number of case reviews 
specified in its approved sampling plan.
    (D) The reduction in the number of Federal cases selected will be 
equal to the number of cases that would have been selected had the 
Federal sampling interval been applied to the State agency's shortfall 
in its required sample size. This number may not be exact due to random 
starts and rounding.
    (E) In the above formula, N is the State agency's minimum active 
case sample size as determined in accordance with Sec.  275.11(b)(1).
    (ii) FNS Regional Offices will conduct case record reviews to the 
extent necessary to determine the accuracy of the State agency's 
findings using the household's certification records and the State 
agency's QC records as the basis of determination. The FNS Regional 
Office may choose to verify any aspects of a State agency's QC findings 
through telephone interviews with participants or collateral contacts. 
In addition, the FNS Regional Office may choose to conduct field 
investigations to the extent necessary.
    (iii) Upon the request of a State agency, the appropriate FNS 
Regional Office will assist the State agency in completing active cases 
reported as not completed due to household refusal to cooperate.
    (iv) FNS will also review the State agency's sampling procedures, 
estimation procedures, and the State agency's system for data management 
to ensure compliance with Sec.  275.11 and Sec.  275.12.
    (v) FNS validation reviews of the State agency's active sample cases 
will be conducted on an ongoing basis as the State agency reports the 
findings for individual cases and supplies the necessary case records. 
FNS will begin the remainder of each State agency's validation review as 
soon as possible after the State agency has supplied the necessary 
information regarding its sample and review activity.
    (2) Underissuance error rate. The validation review of each State 
agency's underissuance error rate shall occur as a result of the Federal 
validation of the State agency's payment error rate as outlined in 
paragraph (c)(1) of this section.
    (3) Negative case error rate. The validation review of each State 
agency's negative case error rate shall consist of the following 
actions:
    (i) FNS will select a subsample of a State agency's completed 
negative cases, as follows:

[[Page 827]]



------------------------------------------------------------------------
    Average monthly reviewable negative       Federal subsample target
               caseload (N)                           (n[min])
------------------------------------------------------------------------
5,000 and over............................  n[min]=160
501 to 4,999..............................  n[min]=.0188 N+65.7
Under 500.................................  n[min]=75
------------------------------------------------------------------------

    (A) In the above formula, n' is the minimum number of Federal review 
sample cases which must be selected when conducting a validation review, 
except that FNS may select a lower number of sample cases if:
    (1) The State agency does not report a change in sampling procedures 
associated with a revision in its required sample size within 10 days of 
effecting the change; and/or
    (2) The State agency does not complete the number of case reviews 
specified in its approved sampling plan.
    (B) The reduction in the number of Federal cases selected will be 
equal to the number of cases that would have been selected had the 
Federal sampling interval been applied to the State agency's shortfall 
in its required sample size. This number may not be exact due to random 
starts and rounding.
    (C) In the above formula, N is the State agency's minimum negative 
case sample size as determined in accordance with Sec.  275.11(b)(2).
    (ii) FNS Regional Offices will conduct case record reviews to the 
extent necessary to determine whether the household case record 
contained sufficient documentation to justify the State agency's QC 
findings of the correctness of the State agency's decision to deny, 
suspend or terminate a household's participation.
    (iii) FNS will also review each State agency's negative case 
sampling and review procedures against the provisions of Sec. Sec.  
275.11 and 275.13.
    (iv) FNS will begin each State agency's negative sample case 
validation review as soon as possible after the State agency has 
supplied the necessary information, including case records and 
information regarding its sample and review activity.
    (4) Arbitration. (i) Whenever the State agency disagrees with the 
FNS regional office concerning individual QC case findings and the 
appropriateness of actions taken to dispose of an individual case, the 
State agency may request that the dispute be arbitrated on a case-by-
case basis by an FNS Arbitrator, subject to the following limitations.
    (A) The State agency may only request arbitration when the State 
agency's and FNS regional office's findings or disposition of an 
individual QC case disagree.
    (B) The arbitration review shall be limited to the point(s) within 
the Federal findings or disposition that the State agency disputes. 
However, if the arbitrator in the course of the review discovers a 
mathematical error in the computational sheet, the arbitration shall 
correct the error while calculating the allotment.
    (ii) The FNS Arbitrator(s) shall be an individual or individuals who 
are not directly involved in the validation effort.
    (iii) With the exception of the restrictions contained in paragraph 
(c)(4)(iii), for an arbitration request to be considered, it must be 
received by the appropriate FNS regional office within 20 calendar days 
of the date of receipt by the State agency of the regional office case 
findings. In the event the last day of this time period falls on a 
Saturday, Sunday, or Federal or State holiday, the period shall run to 
the end of the next work day. The State agency shall be restricted in 
its eligibility to request arbitration of an individual case if that 
case was not disposed of and the findings reported in accordance with 
the timeframes specified in Sec.  275.21(b)(2). For each day late that a 
case was disposed of and the findings reported, the State agency shall 
have one less day to request arbitration of the case.
    (iv) When the State agency requests arbitration, it shall submit all 
required documentation to the appropriate FNS regional office addressed 
to the attention of the FNS Arbitrator. The FNS regional office QC staff 
may submit an explanation of the Federal position regarding a case to 
the FNS Arbitrator.
    (A) A complete request is one that contains all information 
necessary for the arbitrator to render an accurate, timely decision.
    (B) If the State agency's request is not complete the arbitrator 
shall make a decision based solely on the available documents.

[[Page 828]]

    (v) The FNS Arbitrator shall have 20 calendar days from the date of 
receipt of a State agency's request for arbitration to review the case 
and make a decision.
    (5) Household cooperation. Households are required to cooperate with 
Federal QC reviewers. Refusal to cooperate shall result in termination 
of the household's eligibility. The Federal reviewer shall follow the 
procedures in Sec.  275.12(g)(1)(ii) in order to determine whether a 
household is refusing to cooperate with the Federal QC reviewer. If the 
Federal reviewer determines that the household has refused to cooperate, 
as opposed to failed to cooperate, the household shall be reported to 
the State agency for termination of eligibility.
    (d) Assessment of Corrective Action. (1) FNS will conduct will 
conduct a comprehensive annual assessment of a State agency's corrective 
action process by compiling all information relative to that State 
agency's corrective action efforts, including the State agency's system 
for data analysis and evaluation. The purpose of this assessment and 
review is to determine if: identified deficiencies are analyzed in terms 
of causes and magnitude and are properly included in either the State or 
Project Area/Management Unit corrective action plan; the State agency is 
implementing corrective actions according to the appropriate plan; 
target completion dates for reduction or elimination of deficiencies are 
being met; and, corrective actions are effective. In addition, FNS will 
examine the State agency's corrective action monitoring and evaluative 
efforts. The assessment of corrective action will be conducted at the 
State agency, project area, and local level offices, as necessary.
    (2) In addition, FNS will conduct on-site reviews of selected 
corrective actions as frequently as considered necessary to ensure that 
State agencies are implementing proposed corrective actions within the 
timeframes specified in the State agency and/or Project Area/Management 
Unit corrective action plans and to determine the effectiveness of the 
corrective action. The on-site reviews will provide State agencies and 
FNS with a mechanism for early detection of problems in the corrective 
action process to minimize losses to the program, participants, or 
potential participants.

[Amdt. 160, 45 FR 15898, Mar. 11, 1980, as amended by Amdt. 237, 47 FR 
57669, Dec. 28, 1982; Amdt. 260, 49 FR 6303, Feb. 17, 1984; Amdt. 266, 
52 FR 3407, Feb. 4, 1987; 53 FR 1604, Jan. 21, 1988; 54 FR 23951, June 
5, 1989; Amdt. 309, 55 FR 1672, Jan. 18, 1990; Amdt. 328, 56 FR 60051, 
Nov. 27, 1991; Amdt. 366, 62 FR 29658, June 2, 1997; Amdt. 373, 64 FR 
38294, July 16, 1999; 68 FR 59523, Oct. 16, 2003]



Sec.  275.4  Record retention.

    (a) The State agency shall maintain Performance Reporting System rec 
ords to permit ready access to, and use of, these records. Performance 
Reporting System records include information used in data analysis and 
evalution, corrective action plans, corrective action monitoring records 
in addition to ME review records and QC review records as explained in 
paragraphs (b) and (c) of this section. To be readily accessible, system 
records shall be retained and filed in an orderly fashion. Precautions 
should be taken to ensure that these records are retained without loss 
or destruction for the 3-year period required by these regulations. 
Information obtained on individual households for Performance Reporting 
System purposes shall be safeguarded in accordance with FNS policies on 
disclosure of information for the Food Stamp Program.
    (b) ME review records consist of thorough documentation of review 
findings, sources from which information was obtained, procedures used 
to review Food Stamp Program requirements including sampling techniques 
and lists, and ME review plans. The State agency must submit documented 
evidence of review findings to the FNS Regional Office upon request for 
purposes of evaluating State corrective action plans.
    (c) QC review records consist of Forms FNS-380, Worksheet for 
Integrated TANF, Food Stamps and Medicaid Quality Control Reviews, FNS-
380-1, Integrated Review Schedule, FNS-245, Negative Quality Control 
Review Schedule, and Form FNS-248, Status of Sample Selection and 
Completion; other materials supporting the review decision; sample 
lists; sampling

[[Page 829]]

frames; tabulation sheets; and reports of the results of all quality 
control reviews during each review period.

[Amdt. 160, 45 FR 15898, Mar. 11, 1980, as amended by Amdt. 260, 49 FR 
6304, Feb. 17, 1984; Amdt. 262, 49 FR 50597, Dec. 31, 1984]



              Subpart B_Management Evaluation (ME) Reviews



Sec.  275.5  Scope and purpose.

    (a) Objectives. Each State agency shall ensure that project areas 
operate the Food Stamp Program in accordance with the Act, regulations, 
and FNS-approved State Plan of Operation. To ensure compliance with 
program requirements, ME reviews shall be conducted to measure 
compliance with the provisions of FNS regulations. The objectives of an 
ME review are to:
    (1) Provide a systematic method of monitoring and assessing program 
operations in the project areas;
    (2) Provide a basis for project areas to improve and strengthen 
program operations by identifying and correcting deficiencies; and
    (3) Provide a continuing flow of information between the project 
areas, the States, and FNS, necessary to develop the solutions to 
problems in program policy and procedures.
    (b) Frequency of review. (1) State agencies shall conduct a review 
once every year for large project areas, once every two years for medium 
project areas, and once every three years for small project areas, 
unless an alternate schedule is approved by FNS. The most current and 
accurate information on active monthly caseload available at the time 
the review schedule is developed shall be used to determine project area 
size.
    (2) A request for an alternate review schedule shall be submitted 
for approval in writing with a proposed schedule and justification. In 
any alternate schedule, each project area must be reviewed at least once 
every three years. Approval of an alternate schedule is dependent upon a 
State agency's justification that the project areas that will be 
reviewed less frequently than required in paragraph (b)(1) of this 
section are performing adequately and that previous reviews indicate few 
problems or that known problems have been corrected. FNS retains the 
authority for approving any alternate schedule and may approve a 
schedule in whole or in part. Until FNS approval of an alternate 
schedule is obtained, the State agency shall conduct reviews in 
accordance with paragraph (b)(1) of this section.
    (3) FNS may require the State agency to conduct additional on-site 
reviews when a serious problem is detected in a project area which could 
result in a substantial dollar or service loss.
    (4) State agencies shall also establish a system for monitoring 
those project areas' operations which experience a significant influx of 
migratory workers during such migrations. This requirement may be 
satisfied by either scheduling ME reviews to coincide with such 
migrations or by conducting special reviews. As part of the review the 
State agency shall contact local migrant councils, advocate groups, or 
other organizations in the project area to ensure that migrants are 
receiving the required services.

[Amdt. 160, 45 FR 15900, Mar. 11, 1980, as amended by Amdt. 262, 49 FR 
50597, Dec. 31, 1984; Amdt. 266, 52 FR 3408, Feb. 4, 1987]



Sec.  275.6  Management units.

    (a) Establishment of management units. For the purpose of ME 
reviews, State agencies may, subject to FNS approval, establish 
``management units'' which are different from project areas designated 
by FNS for participation in the program. For example, State-established 
welfare districts, regions or other administrative structures within a 
State may be so designated. Management units can be designated as either 
large, medium, or small for purposes of frequency of review. However, 
establishment of management units solely for the purpose of reducing the 
frequency of review will not be approved by FNS.
    (b) FNS approval of management units. State agencies shall submit 
requests for establishment of management units to FNS, which shall have 
final authority for approval of such units as well as any changes in 
those previously approved by FNS.

[[Page 830]]

    (1) The following minimum criteria must be met prior to requesting 
FNS approval:
    (i) The proposed management unit must correspond with existing 
State-established welfare districts, regions, or other administrative 
structures; and
    (ii) The unit must have supervisory control over Food Stamp Program 
operations within that geographic area and have authority for 
implementation of corrective action.
    (2) In submitting the request for FNS approval, the State agency 
shall include the following information regarding the proposed 
management unit:
    (i) That the proposed management unit meets the minimum criteria 
described in paragraphs (b)(1) (i) and (ii) of this section;
    (ii) Geographic coverage, including the names of the counties/
project areas within the unit and the identification (district or region 
number) and location (city) of the office which has supervisory control 
over the management unit;
    (iii) Food Stamp Program participation, including the number of 
persons and number of households;
    (iv) The number of certification offices;
    (v) The number of issuance units;
    (vi) The dollar value of allotments issued as reflected in the most 
recent available data; and
    (vii) Any other relevant information.

[Amdt. 160, 45 FR 15900, Mar. 11, 1980; 45 FR 23637, Apr. 8, 1980, as 
amended by Amdt. 266, 52 FR 3408, Feb. 4, 1987]



Sec.  275.7  Selection of sub-units for review.

    (a) Definition of sub-units. Sub-units are the physical locations of 
organizational entities within project areas responsible for operating 
various aspects of the Food Stamp Program, exclusive of Post Offices 
which may issue coupons. Sub-units shall be classified based upon 
functional responsibility as one or more of the following.
    (1) Certification office. Any sub-unit which has the responsibility 
for accepting applications, conducting interviews, determining 
eligibility, maintaining (or having easy access to) casefiles, and 
transmitting information to the data management unit shall be designated 
as a certification office.
    (2) Issuance office. Any sub-unit which has the responsibility for 
issuing coupons to participating households and storing coupons shall be 
designated as an issuance office.
    (3) Data management unit (DMU). Any sub-unit which has the 
responsibility for maintaining the household issuance record (HIR) 
masterfile shall be designated as a DMU.
    (4) Bulk storage point. Any sub-unit which has the responsibility 
for accepting and storing supplies of coupons prior to shipment to 
issuance sites shall be designated as a bulk storage point.
    (5) Reporting point. Any sub-unit which has the responsibility for 
preparation and submittal of Form FNS-250 for more than one issuance 
unit shall be designated as a reporting point, regardless of whether or 
not the unit actually issues coupons.
    (b) Reviewing Issuance Offices and Bulk Storage Points. The issuance 
office and bulk storage point review required by Sec.  274.1(c)(2) of 
this chapter may be satisfied through the ME review system.
    (c) Combined responsibilities. (1) When a sub-unit has more than one 
of the areas of functional responsibility specified in paragraph (a) of 
this section, it shall be included in each applicable classification and 
if selected for review, all functions performed shall be examined. For 
example, if a sub-unit has an organizational entity which certifies 
households and also has an entity which regularly issues coupons, the 
sub-unit shall be designated as both a certification and an issuance 
office. Thus, in an HIR issuance system, sub-units designated as 
issuance offices would usually also be designated as DMU's since the HIR 
masterfile is usually maintained at the issuance site in this system.
    (2) Certain sub-units shall not be designated as having combined 
responsibilities, even though they may perform certain functions related 
to more than one of the areas. For example, coupon issuers must maintain 
a level of coupon inventory to ensure that participants' needs are met 
on a daily basis but do not supply other issuance

[[Page 831]]

sites with bulk supplies of coupons. Such a sub-unit would not be 
classified as a bulk storage point. Certification offices may issue 
coupons in emergency situations or to meet the requirements of expedited 
service but do not routinely issue coupons to households under standard 
certifications. In these and similar situations, the sub-unit would be 
classified based upon its primary function exclusively. However, when 
any sub-unit is selected, all program requirements specified in Sec.  
275.8 which the sub-unit has responsibility for, shall be reviewed.
    (d) Itinerant issuance and certification points. Units which certify 
households and/or issue coupons as satellites of a central sub-unit 
shall not be classified as independent sub-units. Units may be 
identified as itinerant when they do not operate on a regular basis, 
retain certification records, store coupons, transmit information 
directly to the DMU and/or develop FNS-250 reports independently. 
Examples of such units include mobile units, short term or seasonal 
operations, and units which may operate on a regular basis but do not 
meet the criteria for a sub-unit described in paragraph (a) of this 
section. However, when a sub-unit is selected for review which acts as a 
parent unit for itinerant service points, at least one itinerant point 
per sub-unit shall be reviewed if operational at the time of the review.
    (e) Selection of Sub-units for Review. State agencies shall select a 
representative number of sub-units of each category for on-site review 
in order to determine a project area's compliance with program 
standards.

[Amdt. 160, 45 FR 15900, Mar. 11, 1980; 45 FR 23638, Apr. 8, 1980; 45 FR 
46784, July 11, 1980, as amended by Amdt. 266, 52 FR 3408, Feb. 4, 1987]



Sec.  275.8  Review coverage.

    (a) During each review period, State agencies shall review the 
national target areas of program operation specified by FNS. FNS will 
notify State agencies of the minimum program areas to be reviewed at 
least 90 days before the beginning of each annual review period, which 
is the Federal fiscal year. FNS may add additional areas during the 
review period if deemed necessary. The FNS headquarters office will add 
national target areas during the review period only for deficiencies of 
national scope. State agencies have 60 days in which to establish a plan 
schedule for such reviews.
    (b) State agencies shall be responsible for reviewing each national 
target area or other program requirement based upon the provisions of 
the regulations governing the Food Stamp Program and the FNS-approved 
Plan of Operation. If FNS approves a State agency's request for a waiver 
from a program requirement, any different policy approved by FNS would 
also be reviewed. When, in the course of a review, a project area is 
found to be out of compliance with a given program requirement, the 
State agency shall identify the specifics of the problem including: the 
extent of the deficiency, the cause of the deficiency, and, as 
applicable, the specific procedural requirements the project area is 
misapplying.

[Amdt. 266, 52 FR 3408, Feb. 4, 1987, as amended by Amdt. 356, 59 FR 
29713, June 9, 1994]



Sec.  275.9  Review process.

    (a) Review procedures. State agencies shall review the program 
requirements specified for review in Sec.  275.8 of this part using 
procedures that are adequate to identify problems and the causes of 
those problems. As each project area's operational structure will 
differ, State agencies shall review each program requirement applicable 
to the project area in a manner which will best measure the project 
area's compliance with each program requirement.
    (b) ME review plan. (1) State agencies shall develop a review plan 
prior to each ME review. This review plan shall specify whether each 
project area is large, medium, or small and shall contain:
    (i) Identification of the project area to be reviewed, program areas 
to be reviewed, the dates the review will be conducted, and the period 
of time that the review will cover;
    (ii) Information secured from the project area regarding its 
caseload and organization;
    (iii) Identification of the certification offices, issuance offices, 
bulk storage points, reporting points, and

[[Page 832]]

data management units selected for review and the techniques used to 
select them;
    (iv) Identification of whether the State agency is using the ME 
review to monitor coupon issuers and bulk storage points as discussed 
Sec.  274.1(c)(2). At State agency option it may also indicate whether 
the State agency is using the ME review process to perform non-
discrimination reviews; and
    (v) A description of the review method(s) the State agency plans to 
use for each program area being reviewed.
    (2) ME review plans shall be maintained in an orderly fashion and be 
made available to FNS upon request.
    (c) Review methods. (1) State agenices shall determine the method of 
reviewing the program requirements associated with each program area. 
For some areas of program operation it may be necessary to use more than 
one method of review to determine if the project area is in compliance 
with program requirements. The procedures used shall be adequate to 
identify any problems and the causes of those problems.
    (2) State agencies shall ensure that the method used to review a 
program requirement does not bias the review findings. Bias can be 
introduced through leading questions, incomplete reviews, incorrect 
sampling techniques, etc.
    (d) Review worksheet. (1) State agencies shall use a review 
worksheet to record all review findings. For each sub-unit reviewed the 
State agency shall, on the worksheet, identify:
    (i) The sub-unit being reviewed;
    (ii) Each program requirement reviewed in the sub-unit;
    (iii) The method used to review each program requirement;
    (iv) A description of any deficiency detected;
    (v) The cause(s) of any deficiency detected, if known;
    (vi) The number of casefiles and/or program records selected and 
examined within the sub-unit, identification of those selected (record 
case number, household name, etc.), the proportion which were not 
subject to review, as well as the method used to select the sample;
    (vii) Where applicable, the numerical extent of any deficiency 
detected through examination of program rec ords; and
    (viii) Any pertinent comments concerning the sub-unit's operation.
    (2) State agencies shall promptly forward review findings to the 
appropriate State office for analysis, evaluation, and corrective action 
planning. Review worksheets shall be retained in an orderly fashion and 
made available to FNS upon request.

[Amdt. 160, 45 FR 15900, Mar. 11, 1980; 45 FR 25375, Apr. 15, 1980, as 
amended by Amdt. 266, 52 FR 3409, Feb. 4, 1987; Amdt. 356, 59 FR 29713, 
June 9, 1994]



                 Subpart C_Quality Control (QC) Reviews



Sec.  275.10  Scope and purpose.

    (a) As part of the Performance Reporting System, each State agency 
is responsible for conducting quality control reviews. For food stamp 
quality control reviews, a sample of households shall be selected from 
two different categories: Households which are participating in the Food 
Stamp Program (called active cases) and households for which 
participation was denied, suspended or terminated (called negative 
cases). Reviews shall be conducted on active cases to determine if 
households are eligible and receiving the correct allotment of food 
stamps. The determination of whether the household received the correct 
allotment will be made by comparing the eligibility data gathered during 
the review against the amount authorized on the master issuance file. 
Reviews of negative cases shall be conducted to determine whether the 
State agency's decision to deny, suspend or terminate the household, as 
of the review date, was correct. Quality control reviews measure the 
validity of food stamp cases at a given time (the review date) by 
reviewing against the Food Stamp Program standards established in the 
Food Stamp Act and the Regulations, taking into account any FNS 
authorized waivers to deviate from specific regulatory provisions. FNS 
and the State agency shall analyze findings of the reviews to determine 
the incidence and dollar amounts of errors, which will determine the 
State agency's liability for payment errors and eligibility for enhanced

[[Page 833]]

funding in accordance with the Food Stamp Act of 1977, as amended, and 
to plan corrective action to reduce excessive levels of errors for any 
State agency that is not entitled to enhanced funding.
    (b) The objectives of quality control reviews are to provide:
    (1) A systematic method of measuring the validity of the food stamp 
caseload;
    (2) A basis for determining error rates;
    (3) A timely continuous flow of information on which to base 
corrective action at all levels of administration; and
    (4) A basis for establishing State agency liability for errors that 
exceed the National standard and State agency eligibility for enhanced 
funding.
    (c) The review process is the activity necessary to complete reviews 
and document findings of all cases selected in the sample for quality 
control reviews. The review process shall consist of: (1) Case 
assignment and completion monitoring; (2) case reviews; (3) supervisory 
review of completed worksheets and schedules; and (4) transmission of 
completed worksheets and schedules to the State agency for centralized 
data compilation and analysis.

[Amdt. 149, 44 FR 45893, Aug. 3, 1979, as amended by Amdt. 260, 49 FR 
6304, Feb. 17, 1984; 54 FR 7016, Feb. 15, 1989; Amdt. 328, 56 FR 60051, 
Nov. 27, 1991; Amdt. 373, 64 FR 38294, July 16, 1999]



Sec.  275.11  Sampling.

    (a) Sampling plan. Each State agency shall develop a quality control 
sampling plan which demonstrates the integrity of its sampling 
procedures.
    (1) Content. The sampling plan shall include a complete description 
of the frame, the method of sample selection, and methods for estimating 
characteristics of the population and their sampling errors. The 
description of the sample frames shall include: source, availability, 
accuracy, completeness, components, location, form, frequency of 
updates, deletion of cases not subject to review, and structure. The 
description of the methods of sample selection shall include procedures 
for: estimating caseload size, overpull, computation of sampling 
intervals and random starts (if any), stratification or clustering (if 
any), identifying sample cases, correcting over-or undersampling, and 
monitoring sample selection and assignment. A time schedule for each 
step in the sampling procedures shall be included. If appropriate, the 
sampling plan shall include a description of its relationship, to other 
Federally-mandated quality control samples (e.g., Temporary Assistance 
for Needy Families or Medicaid).
    (2) Criteria. Sampling plans proposing non-proportional integrated 
sampling, or other alternative designs shall document compliance with 
the approval criteria in paragraph (b)(4) of this section. All sampling 
plans shall:
    (i) Conform to principles of probability sampling;
    (ii) Specify and explain the basis for the sample sizes chosen by 
the State agency;
    (iii) If the State agency has chosen an active sample size as 
specified in paragraph (b)(1)(iii) of this section, include a statement 
that, whether or not the sample size is increased to reflect an increase 
in participation as discussed in paragraph (b)(3) of this section, the 
State agency will not use the size of the sample chosen as a basis for 
challenging the resulting error rates.
    (iv) If the State agency has chosen a negative sample size as 
specified in paragraph (b)(2)(ii) of this section, include a statement 
that, whether or not the sample size is increased to reflect an increase 
in negative actions as discussed in paragraph (b)(3) of this section, 
the State agency will not use the size of the sample chosen as a basis 
for challenging the resulting error rates.
    (3) Design. FNS generally recommends a systematic sample design for 
both active and negative samples because of its relative ease to 
administer, its validity, and because it yields a sample proportional to 
variations in the caseload over the course of the annual review period. 
(To obtain a systematic sample, a State agency would select every kth 
case after a random start between 1 and k. The value of k is dependent 
upon the estimated size of the universe and the sample size.) A State 
agency may, however, develop an alternative sampling design better 
suited for its particular situation. Whatever the design, it must 
conform

[[Page 834]]

to commonly acceptable statistical theory and application (see paragraph 
(b)(4) of this section).
    (4) FNS review and approval. The State agency shall submit its 
sampling plan to FNS for approval as a part of its State Plan of 
Operation in accordance with Sec.  272.2(e)(4). In addition, all 
sampling procedures used by the State agency, including frame 
composition, construction, and content shall be fully documented and 
available for review by FNS.
    (b) Sample size. There are two samples for the food stamp quality 
control review process, an active case sample and a negative case 
sample. The size of both these samples is based on the State agency's 
average monthly caseload during the annual review period. Costs 
associated with a State agency's sample sizes are reimbursable as 
specified in Sec.  277.4.
    (1) Active cases. (i) All active cases shall be selected in 
accordance with standard procedures, and the review findings shall be 
included in the calculation of the State agency's payment error and 
underissuance error rates.
    (ii) Unless a State agency chooses to select and review a number of 
active cases determined by the formulas provided in paragraph 
(b)(1)(iii) of this section and has included in its sampling plan the 
reliability certification required by paragraph (a)(2)(iii) of this 
section, the minimum number of active cases to be selected and reviewed 
by a State agency during each annual review period shall be determined 
as follows:

------------------------------------------------------------------------
                                             Minimum annual sample size
  Average monthly reviewable caseload (N)                (n)
------------------------------------------------------------------------
60,000 and over...........................  n=2400
10,000 to 59,999..........................  n=300+[0.042(N-10,000)]
Under 10,000..............................  n=300
------------------------------------------------------------------------

    (iii) A State agency which includes in its sampling plan the 
statement required by paragraph (a)(2)(iii) of this section may 
determine the minimum number of active cases to be selected and reviewed 
during each annual review period as follows:

------------------------------------------------------------------------
                                             Minimum annual sample size
  Average monthly reviewable caseload (N)                (n)
------------------------------------------------------------------------
60,000 and over...........................  n=1020
12,942 to 59,999..........................  n=300+[0.0153(N-12,941)]
Under 12,942..............................  n=300
------------------------------------------------------------------------

    (iv) In the formulas in paragraphs (b)(1)(ii) and (iii) of this 
section n is the required active case sample size. This is the minimum 
number of active cases subject to review which must be selected each 
review period. Also in the formulas, N is the average monthly 
participating caseload subject to quality control review (i.e., 
households which are included in the active universe defined in 
paragraph (e)(1) of this section) during the annual review period.
    (2) Negative cases.
    (i) Unless a State agency chooses to select and review a number of 
negative cases determined by the formulas provided in paragraph 
(b)(2)(ii) of this section and has included in its sampling plan the 
reliability certification required by paragraph (a)(2)(iv) of this 
section, the minimum number of negative cases to be selected and 
reviewed by a State agency during each annual review period shall be 
determined as follows:

------------------------------------------------------------------------
    Average monthly reviewable negative      Minimum annual sample size
               caseload (N)                              (n)
------------------------------------------------------------------------
5,000 and over............................  n=800
500 to 4,999..............................  n=150+[0.144(N-500 )]
Under 500.................................  n=150
------------------------------------------------------------------------

    (ii) A State agency which includes in its sampling plan the 
statement required by paragraph (a)(2)(iv) of this section may determine 
the minimum number of negative cases to be selected and reviewed during 
each annual review period as follows:

------------------------------------------------------------------------
    Average monthly reviewable negative      Minimum annual sample size
               caseload (N)                              (n)
------------------------------------------------------------------------
5,000 and over............................  n=680
684 to 4,999..............................  n=150+[ 0.1224(N-683 )]
Under 684.................................  n=150
------------------------------------------------------------------------

    (iii) In the formulas in this paragraph (b)(2), n is the required 
negative sample size. This is the minimum number of negative cases 
subject to review which must be selected each review period.
    (iv) In the formulas in this paragraph (b)(2), N is the average 
monthly number of negative cases which are subject to quality control 
review (i.e., households which are part of the negative

[[Page 835]]

universe defined in paragraph (e)(2) of this section) during the annual 
review period.
    (3) Unanticipated changes. Since the average monthly caseloads (both 
active and negative) must be estimated at the beginning of each annual 
review period, unanticipated changes can result in the need for 
adjustments to the sample size. FNS shall not penalize a State agency 
that does not adjust its sample size if the actual caseload during a 
review period is less than 20 percent larger than the estimated caseload 
initially used to determine sample size. If the actual caseload is more 
than 20 percent larger than the estimated caseload, the larger sample 
size appropriate for the actual caseload will be used in computing the 
sample completion rate.
    (4) Alternative designs. The active and negative sample size 
determinations assume that State agencies will use a systematic or 
simple random sample design. State agencies able to obtain results of 
equivalent reliability with smaller samples and appropriate design may 
use an alternative design with FNS approval. To receive FNS approval, 
proposals for any type of alternative design must:
    (i) Demonstrate that the alternative design provides payment error 
rate estimates with equal-or-better predicted precision than would be 
obtained had the State agency reviewed simple random samples of the 
sizes specified in paragraphs (b)(1) and (b)(2) of this section.
    (ii) Describe all weighting, and estimation procedures if the sample 
design is non-self-weighted, or uses a sampling technique other than 
systematic sampling.
    (iii) Demonstrate that self-weighting is actually achieved in sample 
designs claimed to be self-weighting.
    (c) Sample selection. The selection of cases for quality control 
review shall be made separately for active and negative cases each month 
during the annual review period. Each month each State agency shall 
select for review approximately one-twelfth of its required sample, 
unless FNS has approved other numbers of cases specified in the sampling 
plan.
    (1) Substitutions. Once a household has been identified for 
inclusion in the sample by a predesigned sampling procedure, 
substitutions are not acceptable. An active case must be reviewed each 
time it is selected for the sample. If a household is selected more than 
once for the negative sample as the result of separate and distinct 
instances of denial, suspension or termination, it shall be reviewed 
each time.
    (2) Corrections. Excessive undersampling must be corrected during 
the annual review period. Excessive oversampling may be corrected at the 
State agency's option. Cases which are dropped to compensate for 
oversampling shall be reported as not subject to review. Because 
corrections must not bias the sample results, cases which are dropped to 
compensate for oversampling must comprise a random subsample of all 
cases selected (including those completed, not completed, and not 
subject to review). Cases which are added to the sample to compensate 
for undersampling must be randomly selected from the entire frame in 
accordance with the procedures specified in paragraphs (b), (c)(1), and 
(e) of this section. All sample adjustments must be fully documented and 
available for review by FNS.
    (d) Required sample size. A State agency's required sample size is 
the larger of either the number of cases selected which are subject to 
review or the number of cases chosen for selection and review according 
to paragraph (b) of this section.
    (e) Sample frame. The State agency shall select cases for quality 
control review from a sample frame. The choice of a sampling frame shall 
depend upon the criteria of timeliness, completeness, accuracy, and 
administrative burden. Complete coverage of the sample universes, as 
defined in paragraph (f) of this section, must be assured so that every 
household subject to quality control review has an equal or known chance 
of being selected in the sample. Since the food stamp quality control 
review process requires an active and negative sample, two corresponding 
sample frames are also required.
    (1) Active cases. The frame for active cases shall list all 
households which were: (i) Certified prior to, or during,

[[Page 836]]

the sample month; and (ii) issued benefits for the sample month, except 
for those households excluded from the universe in paragraph (f)(1) of 
this section. State agencies may elect to use either a list of certified 
eligible households or a list of households issued an allotment. If the 
State agency uses a list of certified eligible households, those 
households which are issued benefits for the sample month after the 
frame has been compiled shall be included in a supplemental list. If the 
State agency uses an issuance list, the State agency shall ensure that 
the list includes those households which do not actually receive an 
allotment because the entire amount is recovered for repayment of an 
overissuance in accordance with the allotment reduction procedures in 
Sec.  273.18.
    (2) Negative cases. The frame for negative cases shall list:
    (i) All households whose applications for food stamp benefits were 
denied by an action in the sample month or effective for the sample 
month except those excluded from the universe in paragraph (f)(2) of 
this section. If a household is subject to more than one denial action 
in a single sample month, each action shall be listed separately in the 
sample frame; and
    (ii) All households whose food stamp benefits were suspended or 
terminated by an action in the sample month or effective for the sample 
month except those excluded from the universe in paragraph (f)(2) of 
this section.
    (3) Unwanted cases. A frame may include cases for which information 
is not desired (e.g., households which have been certified but did not 
actually participate during the sample month). When such cases cannot be 
eliminated from the frame beforehand and are selected for the sample, 
they must be accounted for and reported as being not subject to review 
in accordance with the provisions in Sec. Sec.  275.12(g) and 275.13(e).
    (f) Sample universe. The State agency shall ensure that its active 
and negative case frames accurately reflect their sample universes. 
There are two sample universes for the food stamp quality control review 
process, an active case universe and a negative case universe. The 
exceptions noted below for both universes are households not usually 
amenable to quality control review.
    (1) Active cases. The universe for active cases shall include all 
households certified prior to, or during, the sample month and receiving 
food stamps for the sample month, except for the following:
    (i) A household in which all the members had died or had moved out 
of the State before the review could be undertaken or completed;
    (ii) A household receiving food stamps under a disaster 
certification authorized by FNS;
    (iii) A household which is under investigation for intentional 
Program violation, including a household with a pending administrative 
disqualification hearing;
    (iv) A household appealing an adverse action when the review date 
falls within the time period covered by continued participation pending 
the hearing; or
    (v) A household receiving restored benefits in accordance with Sec.  
273.17 but not participating based upon an approved application. Other 
households excluded from the active case universe during the review 
process are identified in Sec.  275.12(g).
    (2) Negative cases. The universe for negative cases shall include 
all households whose applications for food stamps were denied or whose 
food stamp benefits were suspended or terminated by an action in the 
sample month except the following:
    (i) A household which had its case closed due to expiration of the 
certification period;
    (ii) A household denied food stamps under a disaster certification 
authorized by FNS;
    (iii) A household which withdrew an application prior to the 
agency's determination;
    (iv) A household which is under active investigation for Intentional 
Program Violation;
    (v) A household which was denied, but subsequently certified within 
the normal 30 day processing standard, using the same application form;
    (vi) A household which was suspended or terminated but the 
suspension or termination did not result in a break

[[Page 837]]

in participation that is the result of deliberate State agency action. 
There would be no break in participation if the household is authorized 
to receive its full allotment in the month for which the suspension or 
termination was effective other than continuation of benefits pending a 
fair hearing. Pro rated benefits are not considered to be a full 
allotment;
    (vii) A household which has been sent a notice of pending status but 
which was not actually denied participation;
    (viii) A household which was terminated for failure to file a 
complete monthly report by the extended filing date, but reinstated when 
it subsequently filed the complete report before the end of the issuance 
month;
    (ix) Other households excluded from the negative case universe 
during the review process as identified in Sec.  275.13(e).
    (g) Demonstration projects/SSA processing. Households correctly 
classified for participation under the rules of an FNS-authorized 
demonstration project which FNS determines to significantly modify the 
rules for determining households' eligibility or allotment level, and 
households participating based upon an application processed by Social 
Security Administration personnel shall be included in the selection and 
review process. They shall be included in the universe for calculating 
sample sizes and included in the sample frames for sample selection as 
specified in paragraphs (b) through (e) of this section. In addition, 
they shall be included in the quality control review reports as 
specified in Sec.  275.21(e) and included in the calculation of a State 
agency's completion rate as specified in Sec.  275.23(e)(6). However, 
all results of reviews of active and negative demonstration project/SSA 
processed cases shall be excluded from the determination of State 
agencies' active and negative case error rates, payment error rates, and 
underissuance error rates as described in Sec.  275.23(c). The review of 
these cases shall be conducted in accordance with the provisions 
specified in Sec. Sec.  275.12(h) and 275.13(f).

[Amdt. 260, 49 FR 6304, Feb. 17, 1984; 49 FR 14495, Apr. 12, 1984, as 
amended by Amdt. 262, 49 FR 50598, Dec. 31, 1984; Amdt. 266, 52 FR 3409, 
Feb. 4, 1987; Amdt. 328, 56 FR 60051, Nov. 27, 1991; Amdt. 366, 62 FR 
29658, June 2, 1997; Amdt.373, 64 FR 38295, July 16, 1999; 68 FR 59523, 
Oct. 16, 2003]



Sec.  275.12  Review of active cases.

    (a) General. A sample of households which were certified prior to, 
or during, the sample month and issued food stamp benefits for the 
sample month shall be selected for quality control review. These active 
cases shall be reviewed to determine if the household is eligible and, 
if eligible, whether the household is receiving the correct allotment. 
The determination of a household's eligibility shall be based on an 
examination and verification of all elements of eligibility (i.e., basic 
program requirements, resources, income, and deductions). The elements 
of eligibility are specified in Sec. Sec.  273.1 and 273.3 through 
273.9. The verified circumstances and the resulting benefit level 
determined by the quality control review shall be compared to the 
benefits authorized by the State agency as of the review date. When 
changes in household circumstances occur, the reviewer shall determine 
whether the changes were reported by the participant and handled by the 
agency in accordance with the rules set forth in Sec. Sec.  273.12, 
273.13 and 273.21, as appropriate. For active cases, the review date 
shall always fall within the sample month, either the first day of a 
calendar or fiscal month or the day of certification, whichever is 
later. The review of active cases shall include: a household case record 
review; a field investigation, except as provided in paragraph (b) of 
this section; the identification of any variances; an error analysis; 
and the reporting of review findings.
    (b) Household case record review. The reviewer shall examine the 
household case record to identify the specific

[[Page 838]]

facts relating to the household's eligibility and basis of issuance. If 
the reviewer is unable to locate the household case record, the reviewer 
shall identify as many of the pertinent facts as possible from the 
household issuance record. The case record review shall include all 
information applicable to the case as of the review month, including the 
application and worksheet in effect as of the review date. Documentation 
contained in the case record can be used as verification if it is not 
subject to change and applies to the sample month. If during the case 
record review the reviewer can determine and verify the household's 
ineligibility the review can be terminated at that point, provided that 
if the determination is based on information not obtained from the 
household then the correctness of that information must be confirmed as 
provided in paragraph (c)(2) of this section. The reviewer shall utilize 
information obtained through the case record review to complete column 
(2) of the Integrated Worksheet, Form FNS-380, and to tentatively plan 
the content of the field investigation.
    (c) Field investigation. A full field investigation shall be 
conducted for all active cases selected in the sample month except as 
provided in paragraph (b) of this section. A full field investigation 
shall include a review of any information pertinent to a particular case 
which is available through the State Income and Eligibility Verification 
System (IEVS) as specified in Sec.  272.8. If during the field 
investigation the reviewer determines and verifies the household's 
ineligibility, the review can be terminated at that point, provided that 
if the determination is based on information not obtained from the 
household then the correctness of that information must be confirmed as 
provided in paragraph (c)(2) of this section. In Alaska an exception to 
this requirement can be made in those isolated areas not reachable by 
regularly scheduled commercial air service, automobile, or other public 
transportation provided one fully documented attempt to contact the 
household has been made. Such cases may be completed through casefile 
review and collateral contact. The field investigation will include 
interviews with the head of household, spouse, or authorized 
representative; contact with collateral sources of information; and any 
other materials and activity pertinent to the review of the case. The 
scope of the review shall not extend beyond the examination of household 
circumstances which directly relate to the determination of household 
eligibility and basis of issuance status. The reviewer shall utilize 
information obtained through the field investigation to complete column 
(3) of the Integrated Worksheet, Form FNS-380.
    (1) Personal interviews. Personal interviews shall be conducted in a 
manner that respects the rights, privacy, and dignity of the 
participants. Prior to conducting the personal interview, the reviewer 
shall notify the household that it has been selected, as part of an 
ongoing review process, for review by quality control, and that a 
personal face-to-face interview will be conducted in the future. The 
method of notifying the household and the specificity of the 
notification shall be determined by the State agency, in accordance with 
applicable State and Federal laws. The personal interview may take place 
at the participant's home, at an appropriate State agency certification 
office, or at a mutually agreed upon alternative location. The State 
agency shall determine the best location for the interview to take 
place, but would be subject to the same provisions as those regarding 
certification interviews at Sec.  273.2(e)(2) of this chapter. Those 
regulations provide that an office interview must be waived under 
certain hardship conditions. Under such hardship conditions the quality 
control reviewer shall either conduct the personal interview with the 
participant's authorized representative, if one has been appointed by 
the household, or with the participant in the participant's home. Except 
in Alaska, when an exception to the field investigation is made in 
accordance with this section, the interview with the participant may not 
be conducted by phone. During the personal interview with the 
participant, the reviewer shall:
    (i) Explore with the head of the household, spouse, authorized 
representative, or any other responsible

[[Page 839]]

household member, household circumstances as they affect each factor of 
eligibility and basis of issuance;
    (ii) Establish the composition of the household;
    (iii) Review the documentary evidence in the household's possession 
and secure information about collateral sources of verification; and
    (iv) Elicit from the participant names of collateral contacts. The 
reviewer shall use, but not be limited to, these designated collateral 
contacts. If required by the State, the reviewer shall obtain consent 
from the head of the household to secure collateral information. If the 
participant refuses to sign the release of information form, the 
reviewer shall explain fully the consequences of this refusal to 
cooperate (as contained in paragraph (g)(1)(ii) of this section), and 
continue the review to the fullest extent possible.
    (2) Collateral contacts. The reviewer shall obtain verification from 
collateral contacts in all instances when adequate documentation was not 
available from the participant. This second party verification shall 
cover each element of eligibility as it affects the household's 
eligibility and coupon allotment. The reviewer shall make every effort 
to use the most reliable second party verification available (for 
example, banks, payroll listings, etc.), in accordance with FNS 
guidelines, and shall thoroughly document all verification obtained. If 
any information obtained by the QC reviewer differs from that given by 
the participant, then the reviewer shall resolve the differences to 
determine which information is correct before an error determination is 
made. The manner in which the conflicting information is resolved shall 
include recontacting the participant unless the participant cannot be 
reached. When resolving conflicting information reviewers shall use 
their best judgement based on the most reliable data available and shall 
document how the differences were resolved.
    (d) Variance identification. The reviewer shall identify any element 
of a basic program requirement or the basis of issuance which varies 
(i.e., information from review findings which indicates that policy was 
applied incorrectly and/or information verified as of the review date 
that differs from that used at the most recent certification action). 
For each element that varies, the reviewer shall determine whether the 
variance was State agency or participant caused. The results of these 
determinations shall be coded and recorded in column (5) of the 
Integrated Worksheet, Form FNS-380.
    (1) Variances included in error analysis. Except for those variances 
in an element resulting from one of the situations described in 
paragraph (d)(2) of this section, any variance involving an element of 
eligibility or basis of issuance shall be included in the error 
analysis. Such variances shall include but not be limited to those 
resulting from a State agency's failure to take the disqualification 
action related to SSN's specified in Sec.  273.6(c), and related to work 
requirements, specified in Sec.  273.7(f).
    (2) Variances excluded from error analysis. The following variances 
shall be excluded from the determination of a household's eligibility 
and basis of issuance for the sample month:
    (i) Any variance resulting from the nonverified portion of a 
household's gross nonexempt income where there is conclusive 
documentation (a listing of what attempts were made to verify and why 
they were unsuccessful) that such income could not be verified at the 
time of certification because the source of income would not cooperate 
in providing verification and no other sources of verification were 
available. If there is no conclusive documentation as explained above, 
then the reviewer shall not exclude any resulting variance from the 
error determination. This follows certification policy outlined in Sec.  
273.2(f)(1)(i).
    (ii) Any variance in cases certified under expedited certification 
procedures resulting from postponed verification of an element of 
eligibility as allowed under Sec.  273.2(i)(4)(i). Verification of gross 
income, deductions, resources, household composition, alien status, or 
tax dependency may be postponed for cases eligible for expedited 
certification. However, if a case certified under expedited procedures 
contains a variance as a result of a residency deficiency, a mistake in 
the basis of issuance computation, a

[[Page 840]]

mistake in participant identification, or incorrect expedited income 
accounting, the variance shall be included in the error determination. 
This exclusion shall only apply to those cases which are selected for QC 
review in the first month of participation under expedited 
certification.
    (iii) Any variance subsequent to certification in an element of 
eligibility or basis of issuance which was not reported and was not 
required to have been reported as of the review date. The elements 
participants are required to report and the time requirements for 
reporting are specified in Sec. Sec.  273.12(a) and 273.21(h) and (i), 
as appropriate. If, however, a change in any element is reported, and 
the State agency fails to act in accordance with Sec. Sec.  273.12(c) 
and 273.21(j), as appropriate, any resulting variance shall be included 
in the error determination.
    (iv) Any variance in deductible expenses which was not provided for 
in determining a household's benefit level in accordance with Sec.  
273.2(f)(3)(i)(B). This provision allows households to have their 
benefit level determined without providing for a claimed expense when 
the expense is questionable and obtaining verification may delay 
certification. If such a household subsequently provides the needed 
verification for the claimed expense and the State agency does not 
redetermine the household's benefits in accordance with Sec.  273.12(c), 
any resulting variance shall be included in the error determination.
    (v) Any variance resulting from use by the State agency of 
information concerning households or individuals from an appropriate 
Federal source, provided that such information is correctly processed by 
the State agency. An appropriate Federal source is one which verifies: 
Income that it provides directly to the household; deductible expenses 
for which it directly bills the household; or other household 
circumstances which it is responsible for defining or establishing. To 
meet the provisions for correct processing, the eligibility worker must 
have appropriately acted on timely information. In order to be timely, 
information must be the most current that was available to the State 
agency at the time of the eligibility worker's action.
    (vi) Two variances relating to the Immigration and Naturalization 
Service's (INS) Systematic Alien Verification for Entitlements (SAVE) 
Program.
    (A) A variance based on a verification of alien documentation by 
INS. The reviewer shall exclude such variance only if the State agency 
properly used SAVE and the State agency provides the reviewer with:
    (1) The alien's name;
    (2) The alien's status; and
    (3) Either the Alien Status Verification Index (ASVI) Query 
Verification Number or the INS Form G-845, as annotated by INS.
    (B) A variance based on the State agency's wait for the response of 
INS to the State agency's request for official verification of the 
alien's documentation. The reviewer shall exclude such variance only if 
the State agency properly used SAVE and the State agency provides the 
reviewer with either:
    (1) The date of request, if the State agency was waiting for an 
automated response; or
    (2) A copy of the completed Form G-845, if the State agency was 
waiting for secondary verification from INS.
    (vii) Subject to the limitations provided in paragraphs 
(d)(2)(vii)(A) through (d)(2)(vii)(F) of this section any variance 
resulting from application of a new Program regulation or implementing 
memorandum (if one is sent to advise State agencies of a change in 
Federal law, in lieu of regulations during the first 120 days from the 
required implementation date.
    (A) When a regulation allows a State agency an option to implement 
prior to the required implementation date, the date on which the State 
agency chooses to implement may, at the option of the State, be 
considered to be the required implementation date for purposes of this 
provision. The exclusion period would be adjusted to begin with this 
date and end on the 120th day that follows. States choosing to implement 
prior to the required implementation date must notify the appropriate 
FNS Regional Office, in writing, prior to implementation that they wish 
the 120 day variance exclusion to commence

[[Page 841]]

with actual implementation. Absent such notification, the exclusionary 
period will commence with the required implementation date.
    (B) A State agency shall not exclude variances which occur prior to 
the States implementation.
    (C) A State agency which did not implement until after the exclusion 
period shall not exclude variances under this provision.
    (D) Regardless of when the State agency actually implemented the 
regulation, the variance exclusion period shall end on the 120th day 
following the required implementation date, including the required 
implementation date defined in paragraph (d)(2)(vii)(A) of this section.
    (E) For purposes of this provision, implementation occurs on the 
effective date of State agency's written statewide notification to its 
eligibility workers.
    (F) This variance exclusion applies to changes occasioned by final 
regulations or interim regulations. In the case of a final regulation 
issued following an interim regulation, the exclusion applies only to 
significant changes made to the earlier interim regulation. A 
significant change is one which the final regulation requires the State 
agency to implement on or after publication of a final rule.
    (viii) Any variance resulting from incorrect written policy that a 
State agency acts on that is provided by a Departmental employee 
authorized to issue Food Stamp Program policy and that the State agency 
correctly applies. For purposes of this provision, written Federal 
policy is that which is issued in regulations, notices, handbooks, 
category three and four Policy Memoranda under the Policy Interpretation 
Response System, and regional policy memoranda issued pursuant to these. 
Written Federal policy is also a letter from the Food and Nutrition 
Service to a State agency which contains comments on the State agency's 
food stamp manual or instructions.
    (ix) Any variance in a child support deduction which was the result 
of an unreported change subsequent to the most recent certification 
action shall be excluded from the error determination.
    (3) Other findings. Findings other than variances made during the 
review which are pertinent to the food stamp household or the case 
record may be acted on at the discretion of the State agency. Examples 
of such findings are: an incorrect age of a household member which is 
unrelated to an element of eligibility; an overdue subsequent 
certification; no current application on file; insufficient 
documentation; incorrect application of the verification requirements 
specified in part 273; and deficiencies in work registration procedural 
requirements. Such deficiencies include: inadequate documentation of 
each household member's exempt status; work registration form for each 
nonexempt household member not completed at the time of application and 
every six months thereafter; and the household not advised of its 
responsibility to report any changes in the exempt status of any 
household member.
    (e) Error analysis. The reviewer shall analyze all appropriate 
variances in completed cases, in accordance with paragraph (d) of this 
section, which are based upon verified information and determine whether 
such cases are either eligible, eligible with a basis of issuance error, 
or ineligible. The review of an active case determined ineligible shall 
be considered completed at the point of the ineligibility determination. 
For households determined eligible, the review shall be completed to the 
point where the correctness of the basis of issuance is determined, 
except in the situations outlined in paragraph (g) of this section. In 
the event that a review is conducted of a household which is receiving 
restored or retroactive benefits for the sample month, the portion of 
the allotment which is the restored or retroactive benefit shall be 
excluded from the determination of the household's eligibility and/or 
basis of issuance. A food stamp case in which a household member(s) 
receives public assistance shall be reviewed in the same manner as all 
other food stamp cases, using income as received. The determination of a 
household's eligibility and the correctness of the basis of issuance 
shall be determined based on data entered on the

[[Page 842]]

computation sheet as well as other information documented on other 
portions of the Integrated Worksheet, Form FNS-380, as appropriate.
    (f) Reporting of review findings. All information verified to be 
incorrect during the review of an active case shall be reported to the 
State agency for appropriate action on an individual case basis. This 
includes information on all variances in elements of eligibility and 
basis of issuance in both error and nonerror cases. In addition, the 
reviewer shall report the review findings on the Integrated Review 
Schedule, Form FNS-380-1, in accordance with the following procedures:
    (1) Eligibility errors. If the reviewer determines that a case is 
ineligible, the occurrence and the total allotment issued in the sample 
month shall be coded and reported. Whenever a case contains a variance 
in an element which results in an ineligibility determination and there 
are also variances in elements which would cause a basis of issuance 
error, the case shall be treated as an eligibility error. The reviewer 
shall also code and report any variances that directly contributed to 
the error determination. In addition, if the State agency has chosen to 
report information on all variances in elements of eligibility and basis 
of issuance, the reviewer shall code and report any other such variances 
which were discovered and verified during the course of the review.
    (2) Basis of issuance errors. If the reviewer determines that food 
stamp allotments were either overissued or underissued to eligible 
households in the sample month, in an amount exceeding $25.00, the 
occurrence and the amount of the error shall be coded and reported. The 
reviewer shall also code and report any variances that directly 
contributed to the error determination. In addition, if the State agency 
has chosen to report information on all variances in elements of 
eligibility and basis of issuance, the reviewer shall code and report 
any other such variances which were discovered and verified during the 
course of the review.
    (3) Automated Federal Information Exchange System Errors. Variances 
resulting from the use by the State agency of information received from 
automated Federal information exchange systems, which are excluded in 
accordance with Sec.  275.12(d)(2)(v), shall be coded and reported as 
variances. They shall not, however, be used in determining a State's 
error rates.
    (g) Disposition of case reviews. Each case selected in the sample of 
active cases must be accounted for by classifying it as completed, not 
completed, or not subject to review. These case dispositions shall be 
coded and recorded on the Integrated Review Schedule, Form FNS-380-1.
    (1) Cases reported as not complete. Active cases shall be reported 
as not completed if the household case record cannot be located and the 
household itself is not subsequently located; if the household case 
record is located but the household cannot be located unless the 
reviewer attempts to locate the household as specified in this 
paragraph; or if the household refuses to cooperate, as discussed in 
this paragraph. All cases reported as not complete shall be reported to 
the State agency for appropriate action on an individual case basis. 
Without FNS approval, no active case shall be reported as not completed 
solely because the State agency was unable to process the case review in 
time for it to be reported in accordance with the timeframes specified 
in Sec.  275.21(b)(2).
    (i) If the reviewer is unable to locate the participant either at 
the address indicated in the case record or in the issuance record and 
the State agency is not otherwise aware of the participant's current 
address, the reviewer shall attempt to locate the household by 
contacting at least two sources which the State agency determines are 
most likely to be able to inform the reviewer of the household's current 
address. Such sources include but are not limited to:
    (A) The local office of the U.S. Postal Service;
    (B) The State Motor Vehicle Department;
    (C) The owner or property manager of the residence at the address in 
the case record; and
    (D) Any other appropriate sources based on information contained in 
the

[[Page 843]]

case record, such as public utility companies, telephone company, 
employers, or relatives. Once the reviewer has attempted to locate the 
household and has documented the response of each source contacted, if 
the household still cannot be located and the State agency has 
documented evidence that the household did actually exist, the State 
agency shall report the active case as not subject to review. In these 
situations documented evidence shall be considered adequate if it either 
documents two different elements of eligibility or basis of issuance, 
such as a copy of a birth certificate for age and pay status for income; 
or documents the statement of a collateral contact indicating that the 
household did exist. FNS Regional Offices will monitor the results of 
the contacts which State agencies make in attempting to locate 
households.
    (ii) If a household refuses to cooperate with the quality control 
reviewer and the State agency has taken other administrative steps to 
obtain that cooperation without obtaining it, the household shall be 
notified of the penalities for refusing to cooperate with respect to 
termination and reapplication, and of the possibility that its case will 
be referred for investigation for willful misrepresentation. If a 
household refuses to cooperate after such notice, the reviewer may 
attempt to complete the case and shall report the household's refusal to 
the State agency for termination of its participation without regard for 
the outcome of that attempt. For a determination of refusal to be made, 
the household must be able to cooperate, but clearly demonstrate that it 
will not take actions that it can take and that are required to complete 
the quality control review process. In certain circumstances, the 
household may demonstrate that it is unwilling to cooperate by not 
taking actions after having been given every reasonable opportunity to 
do so, even though the household or its members do not state that the 
household refuses to cooperate. Instances where the household's 
unwillingness to cooperate in completing a quality control review has 
the effect of a refusal to cooperate shall include the following:
    (A) The household does not respond to a letter from the reviewer 
sent Certified Mail-Return Receipt Requested within 30 days of the date 
of receipt;
    (B) The household does not attend an agreed upon interview with the 
reviewer and then does not contact the reviewer within 10 days of the 
date of the scheduled interview to reschedule the interview; or
    (C) The household does not return a signed release of information 
statement to the reviewer within 10 days of either agreeing to do so or 
receiving a request from the reviewer sent Certified Mail-Return Receipt 
Requested. However, in these and other situations, if there is any 
question as to whether the household has merely failed to cooperate, as 
opposed to refused to cooperate, the household shall not be reported to 
the State agency for termination.
    (2) Cases not subject to review. Active cases which are not subject 
to review, if they have not been eliminated in the sampling process, 
shall be eliminated in the review process. In addition to cases listed 
in Sec.  275.11(f)(1), these shall include:
    (i) Death of all members of a household if they died before the 
review could be undertaken or completed;
    (ii) The household moved out of State before the review could be 
undertaken or completed;
    (iii) The household, at the time of the review, is under active 
investigation for intentional Food Stamp Program violation, including a 
household with a pending administrative disqualification hearing;
    (iv) A household receiving restored benefits in accordance with 
Sec.  273.17 but not participating based upon an approved application 
for the sample month;
    (v) A household dropped as a result of correction for oversampling;
    (vi) A household participating under disaster certification 
authorized by FNS for a natural disaster;
    (vii) A case incorrectly listed in the active frame;
    (viii) A household appealing an adverse action when the review date 
falls within the time period covered by continued participation pending 
the hearing;

[[Page 844]]

    (ix) A household that did not receive benefits for the sample month; 
or
    (x) A household that still cannot be located after the reviewer has 
attempted to locate it in accordance with paragraph (g)(1)(i) of this 
section.
    (h) Demonstration projects/SSA processing. Households correctly 
classified for participation under the rules of a demonstration project 
which establishes new FNS-authorized eligibility criteria or modifies 
the rules for determining households' eligibility or allotment level 
shall be reviewed following standard procedures provided that FNS does 
not modify these procedures to reflect modifications in the treatment of 
elements of eligibility or basis of issuance in the case of a 
demonstration project. If FNS determines that information obtained from 
these cases would not be useful, then they may be excluded from review. 
A household whose most recent application for participation was 
processed by Social Security Administration personnel shall be reviewed 
following standard procedures. This includes applications for 
recertification, provided such an application is processed by the SSA as 
allowed in Sec.  273.2(k)(2)(ii).

[Amdt. 260, 49 FR 6306, Feb. 17, 1984; 49 FR 14495, Apr. 12, 1984, as 
amended by Amdt. 264, 51 FR 7207, Feb. 28, 1986; Amdt. 295, 52 FR 29658, 
Aug. 11, 1987; 53 FR 39443, Oct. 7, 1988; 53 FR 44172, Nov. 2, 1988; 
Amdt. 324, 55 FR 48834, Nov. 23, 1990; Amdt. 362, 61 FR 54292, Oct. 17, 
1996; Amdt. 366, 62 FR 29659, June 2, 1997; Amdt. 373, 64 FR 38296, July 
16, 1999; 67 FR 41619, June 19, 2002]



Sec.  275.13  Review of negative cases.

    (a) General. A sample of households whose applications for food 
stamp benefits were denied or whose food stamp benefits were suspended 
or terminated by an action in the sample month or effective for the 
sample month shall be selected for quality control review. These 
negative cases shall be reviewed to determine whether the State agency's 
decision to deny, suspend, or terminate the household, as of the review 
date, was correct. Depending on the characteristics of individual State 
systems, the review date for negative cases could be the date of the 
agency's decision to deny, suspend, or terminate program benefits, the 
date on which the decision is entered into the computer system, the date 
of the notice to the client, or the date the negative action becomes 
effective. However, State agencies must consistently apply the same 
definition for review date to all sample cases of the same 
classification. The review of negative cases shall include a household 
case record review; an error analysis; and the reporting of review 
findings, including procedural problems with the action regardless of 
the validity of the decision to deny, suspend or terminate.
    (b) Household case record review. The reviewer shall examine the 
household case record and verify through documentation in it whether the 
reason given for the denial, suspension, or termination is correct or 
whether the denial, suspension, or termination is correct for any other 
reason documented in the casefile. When the case record alone does not 
prove ineligibility, the reviewer may attempt to verify the element(s) 
of eligibility in question by telephoning either the household and/or a 
collateral contact(s). Through the review of the household case record, 
the reviewer shall complete the household case record sections and 
document the reasons for denial, suspension or termination on the 
Negative Quality Control Review Schedule, Form FNS-245.
    (c) Error analysis. (1) A negative case shall be considered correct 
if the reviewer is able to verify through documentation in the household 
case record or collateral contact that a household was correctly denied, 
suspended or terminated from the program. Whenever the reviewer is 
unable to verify the correctness of the State agency's decision to deny, 
suspend or terminate a household's participation through such 
documentation or collateral contact, the negative case shall be 
considered incorrect.
    (2) The reviewer shall exclude a variance when the State agency 
erroneously denied, suspended or terminated a household's participation 
based on an erroneous verification of alien documentation by the 
Immigration and Nationalization Services (INS) Systematic Alien 
Verification for Entitlements (SAVE) Program. The reviewer shall exclude 
the variance only if the State agency properly used SAVE, and

[[Page 845]]

the State agency provides the reviewer with:
    (i) The alien's name;
    (ii) The alien's status; and
    (iii) Either the Alien Status Verification Index (ASVI) Query 
Verification Number or the INS Form G-845, as annotated by INS.
    (d) Reporting of review findings. When a negative case is incorrect, 
this information shall be reported to the State agency for appropriate 
action on an individual case basis, such as recomputation of the coupon 
allotment and restoration of lost benefits. In addition, the reviewer 
shall code and record the error determination on the Negative Quality 
Control Review Schedule, Form FNS-245.
    (e) Disposition of case review. Each case selected in the sample of 
negative cases must be accounted for by classifying it as completed, not 
completed, or not subject to review. These case dispositions shall be 
coded and recorded on the Negative Quality Control Review Schedule, Form 
FNS-245.
    (1) Cases reported as not complete. Negative cases shall be reported 
as not completed if the reviewer, after all reasonable efforts, is 
unable to locate the case record. In no event, however, shall any 
negative case be reported as not completed solely because the State 
agency was unable to process the case review in time for it to be 
reported in accordance with the timeframes specified in Sec.  
275.21(b)(2), without prior FNS approval. This information shall be 
reported to the State agency for appropriate action on an individual 
case basis.
    (2) Cases not subject to review. Negative cases which are not 
subject to review, if they have not been eliminated in the sampling 
process, shall be eliminated in the review process. In addition to cases 
listed in Sec.  275.11(f)(2), these shall include:
    (i) A household which was dropped as a result of a correction for 
oversampling;
    (ii) A household which was listed incorrectly in the negative frame.
    (f) Demonstration projects/SSA processing. A household whose 
application has been denied or whose participation has been suspended or 
terminated under the rules of an FNS-authorized demonstration project 
shall be reviewed following standard procedures unless FNS provides 
modified procedures to reflect the rules of the demonstration project. 
If FNS determines that information obtained from these cases would not 
be useful, then these cases may be excluded from review. A household 
whose application has been processed by SSA personnel and is 
subsequently denied participation shall be reviewed following standard 
procedures.

[Amdt. 260, 49 FR 6309, Feb. 17, 1984, as amended at 53 FR 39443, Oct. 
7, 1988; Amdt. 373, 64 FR 38296, July 16, 1999]



Sec.  275.14  Review processing.

    (a) General. Each State agency shall use FNS handbooks, worksheets, 
and schedules in the quality control review process.
    (b) Handbooks. The reviewer shall follow the procedures outlined in 
the Quality Control Review Handbook, FNS Handbook 310, to conduct 
quality control reviews. In addition, the sample of active and negative 
cases shall be selected in accordance with the sampling techniques 
described in the Quality Control Sampling Handbook, FNS Handbook 311.
    (c) Worksheets. The Integrated Review Worksheet, Form FNS-380, shall 
be used by the reviewer to record required information from the case 
record, plan and conduct the field investigation, and record findings 
which contribute to the determination of eligibility and basis of 
issuance in the review of active cases. In some instances, reviewers may 
need to supplement Form FNS-380 with other forms. The State forms for 
appointments, interoffice communications, release of information, etc., 
should be used when appropriate.
    (d) Schedules. Decisions reached by the reviewer in active case 
reviews shall be coded and recorded on the Integrated Review Schedule, 
Form FNS-380-1. Such active case review findings must be substantiated 
by information recorded on the Integrated Review Worksheet, Form FNS-
380. In negative case reviews, the review findings shall be coded and 
recorded on the Negative Quality Control Review Schedule, Form FNS-245, 
and supplemented as

[[Page 846]]

necessary with other documentation substantiating the findings.

[Amdt. 260, 49 FR 6310, Feb. 17, 1984, as amended by Amdt. 262, 49 FR 
50598, Dec. 31, 1984]



                 Subpart D_Data Analysis and Evaluation



Sec.  275.15  Data management.

    (a) Analysis. Analysis is the process of classifying data, such as 
by areas of program requirements or use of error-prone profiles, to 
provide a basis for studying the data and determining trends including 
significant characteristics and their relationships.
    (b) Evaluation. Evaluation is the process of determining the 
cause(s) of each deficiency, magnitude of the deficiency, and geographic 
extent of the deficiency, to provide the basis for planning and 
developing effective corrective action.
    (c) Each State agency must analyze and evaluate at the State and 
project area levels all management information sources available to:
    (1) Identify all deficiencies in program operations and systems;
    (2) Identify causal factors and their relationships;
    (3) Identify magnitude of each deficiency, where appropriate (This 
is the frequency of each deficiency occurring based on the number of 
program records reviewed and where applicable, the amount of loss either 
to the program or participants or potential participants in terms of 
dollars. The State agency shall include an estimate of the number of 
participants or potential participants affected by the existence of the 
deficiency, if applicable);
    (4) Determine the geographic extent of each deficiency (e.g., 
Statewide/individual project area or management unit); and,
    (5) Provide a basis for management decisions on planning, 
implementing, and evaluating corrective action.
    (d) In the evaluation of data, situations may arise where the State 
agency identifies the existence of a deficiency, but after reviewing all 
available management information sources sufficient information is not 
available to make a determination of the actual causal factor(s), 
magnitude, or geographic extent necessary for the development of 
appropriate corrective action. In these situations, the State agency 
shall be responsible for gathering additional data necessary to make 
these determinations. This action may include, but is not limited to, 
conducting additional full or partial ME reviews in one or more project 
areas/management units or discussions with appropriate officials.
    (e) Deficiencies identified from all management information sources 
must be analyzed and evaluated together to determine their causes, 
magnitude, and geographic extent. Causes indicated and deficiencies 
identified must be examined to determine if they are attributable to a 
single cause and can be effectively eliminated by a single action. 
Deficiencies and causes identified must also be compared to the results 
of past corrective action efforts to determine if the new problems arise 
from the causal factors which contributed to the occurrence of 
previously identified deficiencies.
    (f) Data analysis and evaluation must be an ongoing process to 
facilitate the development of effective and prompt corrective action. 
The process shall also identify when deficiencies have been eliminated 
through corrective action efforts, and shall provide for the 
reevaluation of deficiencies and causes when it is determined that 
corrective action has not been effective.
    (g) Identification of High Error Project Areas/Counties/Local 
Offices. FNS may use quality control information to determine which 
project areas/counties/local offices have reported payment error rates 
that are either significantly greater than the State agency average or 
greater than the national error standard of the Program. When FNS 
notifies a State agency that a ``high error'' area exists, the State 
agency shall ensure that corrective action is developed and reported in 
accordance with the provisions of Sec.  275.17. If FNS identifies a 
``high error'' locality which a State agency has previously identified 
as error-prone and taken appropriate action, no further State agency 
shall be required. If a State agency's corrective action plan fails to 
address problems in FNS-identified ``high error'' areas, FNS may require 
a State

[[Page 847]]

agency to implement new or modified cost-effective procedures for the 
certification of households.

[Amdt. 160, 45 FR 15909, Mar. 11, 1980, as amended by Amdt. 266, 52 FR 
3409, Feb. 4, 1987; Amdt. 320, 55 FR 6240, Feb. 22, 1990]



                       Subpart E_Corrective Action



Sec.  275.16  Corrective action planning.

    (a) Corrective action planning is the process by which State 
agencies shall determine appropriate actions to reduce substantially or 
eliminate deficiencies in program operations and provide responsive 
service to eligible households.
    (b) The State agency and project area(s)/management unit(s), as 
appropriate, shall implement corrective action on all identified 
deficiencies. Deficiencies requiring action by the State agency or the 
combined efforts of the State agency and the project area(s)/management 
unit(s) in the planning, development, and implementation of corrective 
action are those which:
    (1) Result from a payment error rate of 6 percent or greater 
(actions to correct errors in individual cases, however, shall not be 
submitted as part of the State agency's corrective action plan);
    (2) Are the cause for non-entitlement to enhanced funding for any 
reporting period (actions to correct errors in individual cases however, 
shall not be submitted as part of the State agency's corrective action 
plan);
    (3) Are the causes of other errors/deficiencies detected through 
quality control, including error rates of 1 percent or more in negative 
cases (actions to correct errors in individual cases, however, shall not 
be submitted as part of the State agency's corrective action plan);
    (4) Are identified by FNS reviews, GAO audits, contract audits, or 
USDA audits or investigations at the State agency or project area level 
(except deficiencies in isolated cases as indicated by FNS); and,
    (5) Result from 5 percent or more of the State agency's QC sample 
being coded ``not complete'' as defined in Sec.  275.12(g)(1) of this 
part. This standard shall apply separately to both active and negative 
samples.
    (6) Result in under issuances, improper denials, or improper 
terminations of benefits to eligible households where such errors are 
caused by State agency rules, practices or procedures.
    (c) The State agency shall ensure that appropriate corrective action 
is taken on all deficiencies including each case found to be in error by 
quality control reviews and those deficiencies requiring corrective 
action only at the project area level. Moreover, when a substantial 
number of deficiencies are identified which require State agency level 
and/or project area/management unit corrective action, the State agency 
and/or project area/management unit shall establish an order of priority 
to ensure that the most serious deficiencies are addressed immediately 
and corrected as soon as possible. Primary factors to be considered when 
determining the most serious deficiencies are:
    (1) Magnitude of the deficiency as defined in Sec.  275.15(c)(3) of 
this part;
    (2) Geographic extent of the deficiency (e.g., Statewide/project 
area or management unit);
    (3) Anticipated results of corrective actions; and
    (4) High probability of errors occurring as identified through all 
management evaluation sources.
    (d) In planning corrective action, the State agency shall coordinate 
actions in the areas of data analysis, policy development, quality 
control, program evaluation, operations, administrative cost management, 
civil rights, and training to develop appropriate and effective 
corrective action measures.

[Amdt. 160, 45 FR 15909, Mar. 11, 1980, as amended by Amdt. 169, 46 FR 
7263, Jan. 23, 1981; Amdt. 262, 49 FR 50598, Dec. 31, 1984; Amdt. 266, 
52 FR 3409, Feb. 4, 1987; Amdt. 328, 56 FR 60052, Nov. 27, 1991; 68 FR 
59523, Oct. 16, 2003]



Sec.  275.17  State corrective action plan.

    (a) State agencies shall prepare corrective action plans addressing 
those deficiencies specified in Sec.  275.16(b) requiring action by the 
State agency or the combined efforts of the State agency and the project 
area(s)/management unit(s). This corrective action plan is an open-ended 
plan and shall remain in

[[Page 848]]

effect until all deficiencies in program operations have been reduced 
substantially or eliminated. State agencies shall provide updates to 
their corrective action plans through regular, semiannual updates. These 
semiannual updates shall be received by FNS by May 1st and November 1st 
respectively. Such updates must contain:
    (1) Any additional deficiencies identified since the previous 
corrective action plan update;
    (2) Documentation that a deficiency has been corrected and is 
therefore being removed from the plan; and
    (3) Any changes to planned corrective actions for previously 
reported deficiencies.
    (b) Content. State corrective action plans shall contain, but not 
necessarily be limited to, the following, based on the most recent 
information available:
    (1) Specific description and identification of each deficiency;
    (2) Source(s) through which the deficiency was detected;
    (3) Magnitude of each deficiency, if appropriate, as defined in 
Sec.  275.15(c)(3) of this part;
    (4) Geographic extent of the deficiency (e.g., Statewide/project 
area or management unit--specific project areas in which the deficiency 
occurs);
    (5) Identification of causal factor(s) contributing to the 
occurrence of each deficiency;
    (6) Identification of any action already completed to eliminate the 
deficiency;
    (7) For each deficiency, an outline of actions to be taken, the 
expected outcome of each action, the target date for each action, and 
the date by which each deficiency will have been eliminated; and
    (8) For each deficiency, a description of the manner in which the 
State agency will monitor and evaluate the effectiveness of the 
corrective action in eliminating the deficiency.
    (c) FNS will provide technical assistance in developing corrective 
action plans when requested by State agencies.
    (d) State agencies will be held accountable for the efficient and 
effective operation of all areas of the program. FNS is not precluded 
from issuing a warning as specified in part 276 because a deficiency is 
included in the State agency's corrective action plan.

[Amdt. 160, 45 FR 15909, Mar. 11, 1980, as amended by Amdt. 266, 52 FR 
3409, Feb. 4, 1987]



Sec.  275.18  Project area/management unit corrective action plan.

    (a) The State agency shall ensure that corrective action plans are 
prepared at the project area/management unit level, addressing those 
deficiencies not required to be included in the State corrective action 
plan. State agencies may elect to prepare these plans for or in 
cooperation with the project area. These project area/management unit 
corrective action plans shall be open-ended and shall remain in effect 
until all deficiencies in program operations have been reduced 
substantially or eliminated. Any deficiencies detected through any 
source not previously reported to the State agency which require 
incorporation into the Project Area/Management Unit Corrective Action 
Plan shall be submitted to the State agency within 60 days of 
identification. As deficiencies are reduced substantially or eliminated, 
the project area/management unit shall notify the State agency in 
writing. The project area/management unit shall be responsible for 
documenting why each deficiency is being removed from the Plan. The 
removal of any deficiency from the Plan will be subject to State agency 
and FNS review and validation.
    (b) Content. Project area/management unit corrective action plans 
shall contain all the information necessary to enable the State agency 
to monitor and evaluate the corrective action properly. Also, State 
agencies shall establish requirements for project area/management units 
in planning, implementing and reporting corrective action to assist the 
State agency's efforts to fulfill its responsibilities for determining 
which deficiencies must be addressed in the State corrective action 
plan. States should consider requiring project area/management unit 
plans to include the following, based on the most recent information 
available:
    (1) Specific description and identification of each deficiency;
    (2) Source(s) through which the deficiency was detected;

[[Page 849]]

    (3) Magnitude of each deficiency, if appropriate, as defined in 
Sec.  275.15(c)(3) of this part;
    (4) Geographic extent of the deficiency (throughout the project 
area/management unit or only in specific offices);
    (5) Identification of causal factor(s) contributing to the 
occurrence of each deficiency;
    (6) Identification of any action already completed to eliminate the 
deficiency;
    (7) For each deficiency, an outline of actions to be taken, the 
expected outcome of each action, the target date for each action, the 
date by which each deficiency will have been eliminated; and
    (8) For each deficiency, a description of the manner in which the 
project area/management unit will monitor and evaluate the effectiveness 
of the corrective action in eliminating the deficiency.

[Amdt. 160, 45 FR 15909, Mar. 11, 1980]



Sec.  275.19  Monitoring and evaluation.

    (a) The State agency shall establish a system for monitoring and 
evaluating corrective action at the State and project area levels. 
Monitoring and evaluation shall be an ongoing process to determine that 
deficiencies are being substantially reduced or eliminated in an 
efficient manner and that the program provides responsive service to 
eligible households.
    (b) The State agency shall ensure that corrective action on all 
deficiencies identified in the State Corrective Action Plan and Project 
Area/Management Unit Corrective Action Plan is implemented and achieves 
the anticipated results within the specified time frames. The State 
agency shall monitor and evaluate corrective action at the State and 
project levels through a combination of reports, field reviews, and 
examination of current data available through program management tools 
and other sources.
    (c) In instances where the State agency and/or the project area/
management unit determines that the proposed corrective action is not 
effective in reducing substantially or eliminating deficiencies, the 
State agency and/or the project area/management unit shall promptly 
reevaluate the deficiency, causes, and the corrective action taken, and 
develop and implement new corrective actions.

[Amdt. 160, 45 FR 15909, Mar. 11, 1980]



     Subpart F_Responsibilities for Reporting on Program Performance



Sec.  275.20  ME review schedules.

    (a) Each State agency shall submit its review schedule to the 
appropriate FNS regional office at least 60 days prior to the beginning 
of the next year's review period (the Federal fiscal year). These 
schedules must ensure that all project areas/management units will be 
reviewed within the required time limits. Each schedule shall identify 
the project areas/management units in each classification and list each 
project area to be reviewed by month or by quarter. A State agency may 
submit a request to use an alternate review schedule at any time. The 
alternate schedule shall not be effective until approved by FNS in 
accordance with Sec.  275.5(b)(2).
    (b) State agencies shall notify the appropriate FNS regional office 
of all changes in review schedules.

[Amdt. 266, 52 FR 3410, Feb. 4, 1987]



Sec.  275.21  Quality control review reports.

    (a) General. Each State agency shall submit reports on the 
performance of quality control reviews in accordance with the 
requirements outlined in this section. These reports are designed to 
enable FNS to monitor the State agency's compliance with Program 
requirements relative to the Quality Control Review System. Every case 
selected for review during the sample month must be accounted for and 
reflected in the appropriate report(s).
    (b) Individual cases. The State agency shall report the review 
findings on each case selected for review during the sample month. For 
active cases, the State agency shall submit the edited findings of the 
Integrated Review Schedule, Form FNS-380-1. For negative cases, the 
State agency shall submit a summary report which is produced from the 
edited findings on individual cases which are coded on the

[[Page 850]]

Negative Quality Control Review Schedule, Form FNS-245. The review 
findings shall be reported as follows:
    (1) The State agency shall input and edit the results of each active 
and negative case into the FNS supplied computer terminal and transmit 
the data to the host computer. For State agencies that do not have FNS 
supplied terminals, the State agency shall submit the results of each QC 
review in a format specified by FNS. Upon State agency request, FNS will 
consider approval of a change in the review results after they have been 
reported to FNS.
    (2) The State agency shall dispose of and report the findings of 90 
percent of all cases selected in a given sample month so that they are 
received by FNS within 75 days of the end of the sample month. All cases 
selected in a sample month shall be disposed of and the findings 
reported so that they are received by FNS within 95 days of the end of 
the sample month.
    (3) The State agency shall supply the FNS Regional Office with 
individual household case records and the pertinent information 
contained in the individual case records, or legible copies of that 
material, as well as legible hard copies of individual Forms FNS-380, 
FNS-380-1, and FNS-245 or other FNS-approved report forms, within 10 
days of receipt of a request for such information.
    (4) For each case that remains pending 95 days after the end of the 
sample month, the State agency shall immediately submit a report that 
includes an explanation of why the case has not been disposed of, 
documentation describing the progress of the review to date, and the 
date by which it will be completed. If FNS determines that the above 
report does not sufficiently justify the case's pending status, the case 
shall be considered overdue. Depending upon the number of overdue cases, 
FNS may find the State agency's QC system to be inefficient or 
ineffective and suspend and/or disallow the State agency's Federal share 
of administrative funds in accordance with the provisions of Sec.  
276.4.
    (c) Monthly status. The State agency shall report the monthly 
progress of sample selection and completion on the Form FNS-248, Status 
of Sample Selection and Completion or other format specified by FNS. 
This report shall be submitted to FNS so that it is received no later 
than 105 days after the end of the sample month. Each report shall 
reflect sampling and review activity for a given sample month.
    (d) Annual results. The State agency shall annually report the 
results of all quality control reviews during the review period. For 
this report, the State agency shall submit the edited results of all QC 
reviews on the Form FNS-247, Statistical Summary of Sample Distribution 
or other format specified by FNS. This report shall be submitted to FNS 
so that it is received no later than 105 days from the end of the annual 
review period. Every case selected in the active or negative sample must 
be accounted for and reported to FNS, including cases not subject to 
review, not completed, and completed.
    (e) Demonstration projects/SSA processing. The State agency shall 
identify the monthly status of active and negative demonstration 
project/SSA processed cases (i.e., those cases described in Sec.  
275.11(g)) on the Form FNS-248, described in paragraph (c) of this 
section. In addition, the State agency shall identify the annual results 
of such cases on the Form FNS-247, described in paragraph (d) of this 
section.

[Amdt. 260, 49 FR 6310, Feb. 17, 1984, as amended by Amdt. 262, 49 FR 
50598, Dec. 31, 1984; Amdt. 266, 52 FR 3410, Feb. 4, 1987]



Sec.  275.22  Administrative procedure.

    Reports on program performance are intended to provide the State an 
opportunity to determine compliance with program requirements, identify 
and resolve emerging problems, and assess the effectiveness of actions 
that have been taken to correct existing problems. States' reports 
enable FNS to assess the nationwide status of eligibility and basis of 
issuance determinations, to ensure State compliance with Federal 
requirements, to assist States in improving and strengthening their 
programs, and to develop Federal policies. Reports must be submitted in 
duplicate to the appropriate FNS Regional Office

[[Page 851]]

according to the time frames established in Sec. Sec.  275.20, 275.21, 
and 275.22 of this part.

[Amdt. 160, 45 FR 15911, Mar. 11, 1980. Redesignated at 52 FR 3410, Feb. 
4, 1987]



                      Subpart G_Program Performance



Sec.  275.23  Determination of State agency program performance.

    (a) FNS shall determine the efficiency and effectiveness of a 
State's administration of the Food Stamp Program by measuring:
    (1) State compliance with the standards contained in the Food Stamp 
Act, regulations, and the State Plan of Operation; and
    (2) State efforts to improve program operations through corrective 
action.
    (b) This determination shall be made based on:
    (1) Reports submitted to FNS by the State;
    (2) FNS reviews of State agency operations;
    (3) State performance reporting systems and corrective action 
efforts; and
    (4) Other available information such as Federal audits and 
investigations, civil rights reviews, administrative cost data, 
complaints, and any pending litigation.
    (c) State agency error rates. FNS shall estimate each State agency's 
error rates based on the results of quality control review reports 
submitted in accordance with the requirements outlined in Sec.  275.21. 
The State agency's active case error, payment error, underissuance 
error, and negative case error rates shall be estimated as follows:
    (1) Active case error rate. The active case error rate shall include 
the proportion of active sample cases which were reported as ineligible 
or as receiving an incorrect allotment (as described in Sec.  275.12(e)) 
based upon certification policy as set forth in part 273.
    (2) Payment error rate. (i) For fiscal years prior to Fiscal Year 
1986, the payment error rate shall include the value of the allotments 
overissued, including overissuances to ineligible cases, for those cases 
included in the active error rate.
    (ii) For Fiscal Year 1986 and subsequent fiscal years, the payment 
error rate shall include the value of the allotments overissued, 
including those to ineligible cases, and the value of allotments 
underissued for those cases included in the active error rate.
    (3) Underissuance error rate. Prior to Fiscal Year 1986, the 
underissuance error rate shall include the value of the allotments 
reported as underissued for those cases included in the active case 
error rate.
    (4) Negative case error rate. The negative case error rate shall be 
the proportion of negative sample cases which were reported as having 
been eligible at the time of denial, suspension or termination (as 
described in Sec.  275.13(c)) based upon certification policy as set 
forth in part 273.
    (5) Demonstration projects/SSA processing. The reported results of 
reviews of active and negative demonstration project/SSA processed 
cases, as described in Sec.  275.11(g), shall be excluded from the 
estimate of the active case error rate, payment error rate, 
underissuance error rate, and negative case error rate.
    (d) Federal enhanced funding. (1) Before making enhanced funding 
available to a State agency, as described in Sec.  277.4(b), FNS will:
    (i) Validate the State agency's estimated payment error rate, 
underissuance error rate, and negative case error rate, as provided for 
in Sec.  275.3(c);
    (ii) Ensure that the sampling techniques used by the State agency 
are FNS-approved procedures, as established in Sec.  275.11; and
    (iii) Validate the State agency's quality control completion rate to 
ensure that all of the minimum required sample cases, of both active and 
negative quality control samples, have been completed. This completion 
standard is applied separately to the active and negative case samples, 
and the State agency's estimated payment and underissuance error rates 
will be adjusted separately, if necessary, to account for those required 
cases not completed, in accordance with the procedures described in 
paragraph (e)(6)(iii) of this section for adjustment of the payment 
error rate.

[[Page 852]]

    (2) After validation and any necessary adjustment of estimated error 
rates:
    (i) A State agency with a combined payment error rate and 
underissuance error rate of less than five percent for an annual review 
period for Fiscal Year 1983 through Fiscal Year 1985, or a payment error 
rate of less than five percent for an annual review period for Fiscal 
Year 1986 through Fiscal Year 1988, shall be eligible for a 60 percent 
Federally funded share of administrative costs, provided that the State 
agency's negative case error rate for that period is less than the 
national weighted mean negative case error rate for the prior fiscal 
year;
    (ii) Beginning with Fiscal Year 1989, a State agency with a payment 
error rate less than or equal to 5.90 percent and with a negative case 
error rate less than the national weighted mean negative case rate for 
the prior fiscal year will have its Federally funded share of 
administrative costs increased by one percentage point to a maximum of 
60 percent for each full one-tenth of a percentage point by which the 
payment error rate is less than six percent.
    (3) State agencies entitled to enhanced funding shall receive the 
additional funding on a retroactive basis only for the review period in 
which their error rates are less than the levels described in paragraph 
(d)(2) of this section.
    (e) State agencies' liabilities for payment error rates. (1) At the 
end of each fiscal year, each State agency's payment error rate over the 
entire fiscal year will be computed, as described in paragraph (e)(6) of 
this section, and evaluated to determine whether the payment error rate 
goals established in the following paragraphs have been met.
    (2) State agencies' liabilities for payment error--Fiscal Year 1992 
through Fiscal Year 2002. Each State agency that fails to achieve its 
payment error rate goal during a fiscal year shall be liable as 
specified in the following paragraphs.
    (i) For Fiscal Year 1992 through Fiscal Year 2002, FNS shall 
announce a national performance measure within 30 days following the 
completion of the case review and the arbitration processes for the 
fiscal year. The national performance measure is the sum of the products 
of each State agency's payment error rate times that State agency's 
proportion of the total value of national allotments issued for the 
fiscal year using the most recent issuance data available at the time 
the State agency is notified of its payment error rate. Once announced, 
the national performance measure for a given fiscal year will not be 
subject to change.
    (ii) For any fiscal year in which a State agency's payment error 
rate exceeds the national performance measure for the fiscal year, the 
State agency shall pay or have its share of administrative funding 
reduced by an amount equal to the product of:
    (A) The value of all allotments issued by the State agency in the 
fiscal year; multiplied by
    (B) The lesser of--
    (1) The ratio of the amount by which the payment error rate of the 
State agency for the fiscal year exceeds the national performance 
measure for the fiscal year, to the national performance measure for the 
fiscal year, or
    (2) One; multiplied by
    (C) The amount by which the payment error rate of the State agency 
for the fiscal year exceeds the national performance measure for the 
fiscal year.
    (3) Establishment of payment error rates and liability. For Fiscal 
Year 2003 and subsequent years, FNS shall announce a national 
performance measure not later than June 30 after the end of the fiscal 
year. The national performance measure is the sum of the products of 
each State agency's error rate times that State agency's proportion of 
the total value of national allotments issued for the fiscal year using 
the most recent issuance data available at the time the State agency is 
notified of its payment error rate. Once announced, the national 
performance measure for a given fiscal year will not be subject to 
change. The national performance measure announced under this paragraph 
(e)(3) is not subject to administrative or judicial review. Liability 
for payment shall be established for Fiscal Year 2004 and beyond 
whenever there is a 95 percent statistical probability that, for the 
second or

[[Page 853]]

subsequent consecutive fiscal year, a State agency's payment error rate 
exceeds 105 percent of the national performance measure. The amount of 
the liability shall be equal to the product of:
    (i) The value of all allotments issued by the State agency in the 
(second or subsequent consecutive) fiscal year; multiplied by
    (ii) The difference between the State agency's payment error rate 
and 6 percent; multiplied by
    (iii) 10 percent.
    (4) Relationship to warning process and negligence. (i) States' 
liability for payment error rates as determined above are not subject to 
the warning process of Sec.  276.4(d).
    (ii) FNS shall not determine negligence (as described in Sec.  
276.3) based on the overall payment error rate for issuances to 
ineligible households and overissuances to eligible households in a 
State or political subdivision thereof. FNS may only establish a claim 
under Sec.  276.3 for dollar losses from failure to comply, due to 
negligence on the part of the State agency (as defined under Sec.  
276.3), with specific certification requirements. Thus, FNS will not use 
the results of States' QC reviews to determine negligence.
    (iii) Whenever a State is assessed for an excessive payment error 
rate, the State shall have the right to request an appeal in accordance 
with procedures set forth in part 283 of this chapter. While FNS may 
determine a State to be liable for dollar loss under the provisions of 
this section and the negligence provisions of Sec.  276.3 of this 
chapter for the same period of time, FNS shall not bill a State for the 
same dollar loss under both provisions. If FNS finds a State liable for 
dollar loss under both the QC liability system and the negligence 
provisions, FNS shall adjust the billings to ensure that two claims are 
not made against the State for the same dollar loss.
    (5) Good cause--(i) Events. When a State agency with otherwise 
effective administration exceeds the tolerance level for payment errors 
as described in this section, the State agency may seek relief from 
liability claims that would otherwise be levied under this section on 
the basis that the State agency had good cause for not achieving the 
payment error rate tolerance. State agencies desiring such relief must 
file an appeal with the Department's Administrative Law Judge (ALJ) in 
accordance with the procedures established under part 283 of this 
chapter. The five unusual events described below are considered to have 
a potential for disputing program operations and increasing error rates 
to an extent that relief from a resulting liability or increased 
liability is appropriate. The occurrence of an event(s) does not 
automatically result in a determination of good cause for an error rate 
in excess of the national performance measure. The State agency must 
demonstrate that the event had an adverse and uncontrollable impact on 
program operations during the relevant period, and the event caused an 
uncontrollable increase in the error rate. Good cause relief will only 
be considered for that portion of the error rate/liability attributable 
to the unusual event. The following are unusual events which State 
agencies may use as a basis for requesting good cause relief and 
specific information that must be submitted to justify such requests for 
relief:
    (A) Natural disasters such as those under the authority of the 
Stafford Act of 1988 (Pub. L. 100-707), which amended the Disaster 
Relief Act of 1974 (Pub. L. 93-288) or civil disorders that adversely 
affect program operations.
    (1) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (i) The nature of the disaster(s) (e.g. a tornado, hurricane, 
earthquake, flood, etc.) or civil disorder(s)) and evidence that the 
President has declared a disaster;
    (ii) The date(s) of the occurrence;
    (iii) The date(s) after the occurrence when program operations were 
affected;
    (iv) The geographic extent of the occurrence (i.e. the county or 
counties where the disaster occurred);
    (v) The proportion of the food stamp caseload whose management was 
affected;

[[Page 854]]

    (vi) The reason(s) why the State agency was unable to control the 
effects of the disaster on program administration and errors;
    (vii) The identification and explanation of the uncontrollable 
nature of errors caused by the event (types of errors, geographic 
location of the errors, time period during which the errors occurred, 
etc.).
    (viii) The percentage of the payment error rate that resulted from 
the occurrence and how this figure was derived; and
    (ix) The degree to which the payment error rate exceeded the 
national performance measure in the subject fiscal year.
    (2) The following criteria and methodology will be used to assess 
and evaluate good cause in conjunction with the appeals process, and to 
determine that portion of the error rate/liability attributable to the 
uncontrollable effects of a disaster or civil disorder: Geographical 
impact of the disaster; State efforts to control impact on program 
operations; the proportion of food stamp caseload affected; and/or the 
duration of the disaster and its impact on program operations. 
Adjustments for these factors may result in a waiver of all, part, or 
none of the error rate liabilities for the applicable period. As 
appropriate, the waiver amount will be adjusted to reflect States' 
otherwise effective administration of the program based upon the degree 
to which the error rate exceeds the national performance measure. For 
example, a reduction in the amount may be made when a State agency's 
recent error rate history indicates that even absent the events 
described, the State agency would have exceeded the national performance 
measure in the review period.
    (3) If a State agency has provided insufficient information to 
determine a waiver amount for the uncontrollable effects of a natural 
disaster or civil disorder using factual analysis, the waiver amount 
shall be evaluated using the following formula and methodology which 
measures both the duration and intensity of the event: Duration will be 
measured by the number of months the event had an adverse impact on 
program operations. Intensity will be a proportional measurement of the 
issuances for the counties affected to the State's total issuance. This 
ratio will be determined using issuance figures for the first full month 
immediately preceding the disaster. This figure will not include 
issuances made to households participating under disaster certification 
authorized by FNS and already excluded from the error rate calculations 
under Sec.  275.12(g)(2)(vi). ``Counties affected'' will include 
counties where the disaster/civil disorder occurred, and any other 
county that the State agency can demonstrate had program operations 
adversely impacted due to the event (such as a county that diverted 
significant numbers of food stamp certification or administrative 
staff). The amount of the waiver of liability will be determined using 
the following linear equation: Ia/Ib x [M/12 or Mp/18] x L, where Ia is 
the issuance for the first full month immediately preceding the unusual 
event for the county affected; Ib is the State's total issuance for the 
first full month immediately preceding the unusual event; M/12 is the 
number of months in the subject fiscal year that the unusual event had 
an adverse impact on program operations; Mp/18 is the number of months 
in the last half (April through September) of the prior fiscal year that 
the unusual event had an adverse impact on program operations; L is the 
total amount of the liability for the fiscal year. Mathematically this 
formula could result in a waiver of more than 100% of the liability, 
however, no more than 100% of a State's liability will be waived for any 
one fiscal year. Under this approach, unless the State agency can 
demonstrate a direct uncontrollable impact on the error rate, the 
effects of disasters or civil disorders that ended prior to the second 
half of the prior fiscal year will not be considered.
    (B) Strikes by State agency staff necessary to determine Food Stamp 
Program eligibility and process case changes.
    (1) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (i) Which workers (i.e. eligibility workers, clerks, data input 
staff, etc.)

[[Page 855]]

and how many (number and percentage of total staff) were on strike or 
refused to cross picket lines;
    (ii) The date(s) and nature of the strike (i.e., the issues 
surrounding the strike);
    (iii) The date(s) after the occurrence when program operations were 
affected;
    (iv) The geographic extent of the strike (i.e. the county or 
counties where the strike occurred);
    (v) The proportion of the food stamp caseload whose management was 
affected;
    (vi) The reason(s) why the State agency was unable to control the 
effects of the strike on program administration and errors;
    (vii) Identification and explanation of the uncontrollable nature of 
errors caused by the event (types of errors, geographic location of the 
errors, time period during which the errors occurred, etc.);
    (viii) The percentage of the payment error rate that resulted from 
the strike and how this figure was derived; and
    (ix) The degree to which the payment error rate exceeded the 
national performance measure in the subject fiscal year.
    (2) The following criteria shall be used to assess, evaluate and 
respond to claims by the State agency for a good cause waiver of 
liability in conjunction with the appeals process, and to determine that 
portion of the error rate/liability attributable to the uncontrollable 
effects of the strike: Geographical impact of the strike; State efforts 
to control impact on program operations; the proportion of food stamp 
caseload affected; and/or the duration of the strike and its impact on 
program operations. Adjustments for these factors may result in a waiver 
of all, part, or none of the error rate liabilities for the applicable 
period. For example, the amount of the waiver might be reduced for a 
strike that was limited to a small area of the State. As appropriate, 
the waiver amount will be adjusted to reflect States' otherwise 
effective administration of the program upon the degree to which the 
error rate exceeded the national performance measure.
    (3) If a State agency has provided insufficient information to 
determine a waiver amount for the uncontrollable effects of a strike 
using factual analysis, a waiver amount shall be evaluated by using the 
formula described in paragraph (e)(5)(i)(A) of this section. Under this 
approach, unless the State agency can demonstrate a direct 
uncontrollable impact on the error rate, the effects of strikes that 
ended prior to the second half of the prior fiscal year will not be 
considered.
    (C) A significant growth in food stamp caseload in a State prior to 
or during a fiscal year, such as a 15 percent growth in caseload. 
Caseload growth which historically increases during certain periods of 
the year will not be considered unusual or beyond the State agency's 
control.
    (1) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (i) The amount of growth (both actual and percentage);
    (ii) The time the growth occurred (what month(s)/year);
    (iii) The date(s) after the occurrence when program operations were 
affected;
    (iv) The geographic extent of the caseload growth (i.e. Statewide or 
in which particular counties);
    (v) The impact of caseload growth;
    (vi) The reason(s) why the State agency was unable to control the 
effects of caseload growth on program administration and errors;
    (vii) The percentage of the payment error rate that resulted from 
the caseload growth and how this figure was derived; and
    (viii) The degree to which the error rate exceeded the national 
performance measure in the subject fiscal year.
    (2) The following criteria and methodology shall be used to assess 
and evaluate good cause in conjunction with the appeals process, and to 
determine that portion of the error rate/liability attributable to the 
uncontrollable effects of unusual caseload growth: Geographical impact 
of the caseload growth; State efforts to control impact on program 
operations; the proportion of food stamp caseload affected; and/or the 
duration of the caseload growth and its impact on program

[[Page 856]]

operations. Adjustments for these factors may result in a waiver of all, 
part, or none of the error rate liabilities for the applicable period. 
As appropriate, the waiver amount will be adjusted to reflect States' 
otherwise effective administration of the program based upon the degree 
to which the error rate exceeded the national performance measure. For 
example, a reduction in the amount may be made when a State agency's 
recent error rate history indicates that even absent the events 
described, the State agency would have exceeded the national performance 
measure in the review period. Under this approach, unless the State 
agency can demonstrate a direct uncontrollable impact on the error rate, 
the effects of caseload growth that ended prior to the second half of 
the prior fiscal year will not be considered.
    (3) If the State agency has provided insufficient information to 
determine a waiver amount for the uncontrollable effects of caseload 
growth using factual analysis, the waiver amount shall be evaluated 
using the following five-step calculation:
    (i) Step 1, determine the average number of households certified to 
participate statewide in the Food Stamp Program for the base period 
consisting of the twelve consecutive months ending with March of the 
prior fiscal year;
    (ii) Step 2, determine the percentage of increase in caseload growth 
from the base period (Step 1) using the average number of households 
certified to participate statewide in the Food Stamp Program for any 
twelve consecutive months in the period beginning with April of the 
prior fiscal year and ending with June of the current fiscal year;
    (iii) Step 3, determine the percentage the error rate for the 
subject fiscal year, as calculated under paragraph (e)(2)(i) of this 
section, exceeds the national performance measure determined in 
accordance with paragraph (e)(2)(i) of this section;
    (iv) Step 4, divide the percentage of caseload growth increase 
arrived at in step 2 by the percentage the error rate for the subject 
fiscal year exceeds the national performance measure as determined in 
step 3; and
    (v) Step 5, multiply the quotient arrived at in step 4 by the 
liability amount for the current fiscal year to determine the amount of 
waiver of liability.
    (4) Under this methodology, caseload growth of less than 15% and/or 
occurring in the last three months of the subject fiscal year will not 
be considered. Mathematically this formula could result in a waiver of 
more than 100% of the liability however, no more than 100% of a State's 
liability will be waived for any one fiscal year.
    (D) A change in the Food Stamp Program or other Federal or State 
program that has a substantial adverse impact on the management of the 
Food Stamp Program of a State. Requests for relief from errors caused by 
the uncontrollable effects of unusual program changes other than those 
variances already excluded by Sec.  275.12(d)(2)(vii) will be considered 
to the extent the program change is not common to all States.
    (1) When submitting a request for good cause relief based on unusual 
changes in the Food Stamp or other Federal or State programs, the State 
agency shall provide the following information:
    (i) The type of change(s) that occurred;
    (ii) When the change(s) occurred;
    (iii) The nature of the adverse effect of the changes on program 
operations and the State agency's efforts to mitigate these effects;
    (iv) Reason(s) the State agency was unable to adequately handle the 
change(s);
    (v) Identification and explanation of the uncontrollable errors 
caused by the changes (types of errors, geographic location of the 
errors, time period during which the errors occurred, etc.);
    (vi) The percentage of the payment error rate that resulted from the 
adverse impact of the change(s) and how this figure was derived; and
    (vii) The degree to which the payment error rate exceeded the 
national performance measure in the subject fiscal year.
    (2) The following criteria will be used to assess and evaluate good 
cause in conjunction with the appeals process, and to determine that 
portion of the

[[Page 857]]

error rate/liability attributable to the uncontrollable effects of 
unusual changes in the Food Stamp Program or other Federal and State 
programs; State efforts to control impact on program operations; the 
proportion of food stamp caseload affected; and/or the duration of the 
unusual changes in the Food Stamp Program or other Federal and State 
programs and the impact on program operations. Adjustments for these 
factors may result in a waiver of all, part, or none of the error rate 
liabilities for the applicable period. As appropriate, the waiver amount 
will be adjusted to reflect States' otherwise effective administrative 
of the program based upon the degree to which the error rate exceeded 
the national performance measure.
    (E) A significant circumstance beyond the control of the State 
agency. Requests for relief from errors caused by the uncontrollable 
effect of the significant circumstance other than those specifically set 
forth in paragraphs (e)(5)(i)(A) through (e)(5)(i)(D) of this section 
will be considered to the extent that the circumstance is not common to 
all States, such as a fire in a certification office.
    (1) When submitting a request for good cause relief based on 
significant circumstances, the State agency shall provide the following 
information:
    (i) The significant circumstances that the State agency believes 
uncontrollably and adversely affected the payment error rate for the 
fiscal year in question;
    (ii) Why the State agency had no control over the significant 
circumstances;
    (iii) How the significant circumstances had an uncontrollable and 
adverse impact on the State agency's error rate;
    (iv) Where the significant circumstances existed (i.e. Statewide or 
in particular counties);
    (v) When the significant circumstances existed (provide specific 
dates whenever possible);
    (vi) The proportion of the food stamp caseload whose management was 
affected;
    (vii) Identification and explanation of the uncontrollable errors 
caused by the event (types of errors, geographic location of the errors, 
time period during which the errors occurred, etc.);
    (viii) The percentage of the payment error rate that was caused by 
the significant circumstances and how this figure was derived; and
    (ix) The degree to which the payment error rate exceeded the 
national performance measure in the subject fiscal year.
    (2) The following criteria shall be used to assess and evaluate good 
cause in conjunction with the appeals process, and to determine that 
portion of the error rate/liability attributable to the uncontrollable 
effects of a significant circumstance beyond the control of the State 
agency, other than those set forth in paragraph (e)(5)(i)(E) of this 
section: Geographical impact of the significant circumstances; State 
efforts to control impact on program operations; the proportion of food 
stamp caseload affected; and/or the duration of the significant 
circumstances and the impact on program operations. Adjustments for 
these factors may result in a waiver of all, part, or none of the error 
rate liabilities for the applicable period. As appropriate, the waiver 
amount will be adjusted to reflect States' otherwise effective 
administration of the program based upon the degree to which the error 
rate exceeded the national performance measure.
    (ii) Adjustments. When good cause is found under the criteria in 
paragraphs (e)(5)(i)(A) through (e)(5)(i)(E) of this section, the waiver 
amount may be adjusted to reflect States' otherwise effective 
administration of the program based upon the degree to which the error 
rate exceeds the national performance measure.
    (iii) Evidence. When submitting a request to the ALJ for good cause 
relief, the State agency shall include such data and documentation as is 
necessary to support and verify the information submitted in accordance 
with the requirements of paragraph (e)(5) of this section so as to fully 
explain how a particular significant circumstance(s) uncontrollable 
affected its payment error rate.
    (iv) Finality. The initial decision of the ALJ concerning good cause 
shall constitute the final determination for

[[Page 858]]

purposes of judicial review without further proceedings as established 
under the provisions of Sec.  283.17 and Sec.  283.20 of this chapter.
    (6) Determination of payment error rates. As specified in Sec.  
275.3(c), FNS will validate each State agency's estimated payment error 
rate through rereviewing the State agency's active case sample and 
ensuring that its sampling, estimation, and data management procedures 
are correct.
    (i) Once the Federal case reviews have been completed and all 
differences with the State agency have been identified, FNS shall 
calculate regressed error rates using the following linear regression 
equations.
    (A) y1'=y1+b1(X1-
x1), where y1' is the average value of allotments 
overissued to eligible and ineligible households; y1 is the 
average value of allotments overissued to eligible and ineligible 
households in the rereview sample according to the Federal finding, 
b1 is the estimate of the regression coefficient regressing 
the Federal findings of allotments overissued to eligible and ineligible 
households on the corresponding State agency findings, x1 is 
the average value of allotments overissued to eligible and ineligible 
households in the rereview sample according to State agency findings, 
and X1 is the average value of allotments overissued to 
eligible and ineligible households in the full quality control sample 
according to State agency's findings. In stratified sample designs 
Y1, X1, and x1 are weighted averages 
and b1 is a combined regression coefficient in which stratum 
weights sum to 1.0 and are proportional to the estimated stratum 
caseloads subject to review.
    (B) y2'=y2+b2(X2-
x2), where y2' is the average value of allotments 
underissued to households included in the active error rate, 
y2 is the average value of allotments underissued to 
participating households in the rereview sample according to the Federal 
finding, b2 is the estimate of the regression coefficient 
regressing the Federal findings of allotments underissued to 
participating households on the corresponding State agency findings, 
x2 is the average value of allotments underissued to 
participating households in the rereview sample according to State 
agency findings, and X2 is the average value of allotments 
underissued to participating households in the full quality control 
sample according to the State agency's findings. In stratified sample 
designs y2, X2, and x2 are weighted 
averages and b1 is a combined regression coefficient in which 
stratum weights sum to 1.0 and are proportional to the estimated stratum 
caseloads subject to review.
    (C) The regressed error rates are given by 
r1'=y1'/u, yielding the regressed overpayment 
error rate, and r2'=y2'/u, yielding the regressed 
underpayment error rate, where u is the average value of allotments 
issued to participating households in the State agency sample.
    (D) After application of the adjustment provisions of paragraph 
(e)(6)(iii) of this section, the adjusted regressed payment error rate 
shall be calculated to yield the State agency's payment error rate for 
use in the reduced and enhanced funding determinations described in 
paragraphs (d) and (e) of this section. Prior to Fiscal Year 1986, the 
adjusted regressed payment error rate is given by r1''. For 
Fiscal Year 1986 and after, the adjusted regressed payment error rate is 
given by r1''+r2''.
    (ii) If FNS determines that a State agency has sampled incorrectly, 
estimated improperly, or has deficiencies in its QC data management 
system, FNS will correct the State agency's payment error rate based 
upon a correction to that aspect of the State agency's QC system which 
is deficient. If FNS cannot accurately correct the State agency's 
deficiency, FNS will assign the State agency a payment error rate based 
upon the best information available. After consultation with the State 
agency, this assigned payment error rate will then be used in the above 
described liability determination and in determinations for enhanced 
funding under paragraph (d) of this section. State agencies shall have 
the right to appeal assignment of an error rate in this situation in 
accordance with the procedures of part 283.
    (iii) Should a State agency fail to complete 98 percent of its 
required sample size, FNS shall adjust the State

[[Page 859]]

agency's regressed error rates using the following equations:
    (A) r1''=r1'+2(1-C)S1, where 
r1'' is the adjusted regressed overpayment error rate, 
r1' is the regressed overpayment error rate computed from the 
formula in paragraph (e)(6)(i)(C) of this section, C is the State 
agency's rate of completion of its required sample size expressed as a 
decimal value, and S1 is the standard error of the State 
agency sample overpayment error rate. If a State agency completes all of 
its required sample size, then r1''=r1'.
    (B) r2''=r2'+2(1-C)S2, where 
r2'' is the adjusted regressed underpayment error rate, 
r2' is the regressed underpayment error rate computed from 
the formula in paragraph (e)(6)(i)(C) of this section, C is the State 
agency's rate of completion of its required sample size expressed as a 
decimal value, and S2 is the standard error of the State 
agency sample underpayment error rate. If a State agency completes all 
of its required sample size, then r2''=r2'.
    (7) FNS Timeframes. The case review process and the arbitration of 
all difference cases shall be completed by May 31 following the end of 
the fiscal year. FANS shall determine and announce the national average 
payment error rate for the fiscal year by June 30 following the end of 
the fiscal year. At the same time FNS shall notify all State agencies of 
their individual payment error rates and payment error rate liabilities, 
if any. FNS shall provide a copy of each State agency's notice to its 
respective chief executive officer and legislature. FNS shall initiate 
collection action on each claim for such liabilities before the end of 
the fiscal year following the reporting period in which the claim arose 
unless an administrative appeal relating to the claim is pending. Such 
appeals include requests for good cause waivers and administrative and 
judicial appeals pursuant to Section 14 of the Food Stamp Act. While the 
amount of a State's liability may be recovered through offsets to their 
letter of credit as identified in Sec.  277.16(c) of this chapter, FNS 
shall also have the option of billing a State directly or using other 
claims collection mechanisms authorized under the Federal Claims 
Collection Act, depending upon the amount of the State's liability. FNS 
is not bound by the timeframes referenced in this subparagraph in cases 
where a State fails to submit QC data expeditiously to FNS and FNS 
determines that, as a result, it is unable to calculate a State's 
payment error rate and payment error rate liability within the 
prescribed timeframe.
    (8) Interest charges. (i) To the extent that a State agency does not 
pay a claim established under paragraphs (e)(2) and (e)(3) of this 
section within 30 days from the date on which the bill for collection 
(after a determination on any request for a waiver for good cause) is 
received by the State agency, the State agency shall be liable for 
interest on any unpaid portion of such claim accruing from the date on 
which the bill for collection was received by the State agency. This 
situation applies unless the State agency appeals the claim under part 
283 of the regulations. If the State agency agrees to pay the claim 
through reduction in Federal financial participation for administrative 
costs, this agreement shall be considered to be paying the claim. If the 
State agency appeals such claim (in whole or in part), the interest on 
any unpaid portion of the claim shall accrue from the date of the 
decision on the administrative appeal, or from a date that is one year 
after the date the bill is received, whichever is earlier, until the 
date the unpaid portion of the payment is received.
    (ii) If the State agency pays such claim (in whole or in part) and 
the claim is subsequently overturned through administrative or judicial 
appeal, any amounts paid by the State agency above what is actually due 
shall be promptly returned with interest, accruing from the date the 
payment was received until the date the payment is returned.
    (iii) Any interest assessed under this paragraph shall be computed 
at a rate determined by the Secretary based on the average of the bond 
equivalent of the weekly 90-day Treasury bill auction rates during the 
period such interest accrues. The bond equivalent is the discount rate 
(i.e., the price the bond is actually sold for as opposed to its face 
value) determined by the weekly auction (i.e., the difference between 
the

[[Page 860]]

discount rate and face value) converted to an annualized figure. The 
Secretary shall use the investment rate (i.e., the rate for 365 days) 
compounded in simple interest for the period for which the claim is not 
paid. Interest billings shall be made quarterly with the initial billing 
accruing from the date the interest is first due. Because the discount 
rate for Treasury bills is issued weekly, the interest rate for State 
agency claims shall be averaged for the appropriate weeks.
    (9) Suspension and waiver of liabilities for investments in program 
management activities. In connection with the settlement of all or a 
portion of a QC liability for FY 1986 through Fiscal Year 2002 QC review 
periods, the Department may suspend and subsequently waive all or part 
of a State agency's payment error rate liability claim based on the 
State agency's offsetting investment in program management activities 
intended to reduce errors measured by the QC system. A State agency may 
submit a request to the Department for review of planned investments in 
program management activities intended to reduce error rates as part of 
a proposed settlement of all or a portion of a QC liability at any time 
during the QC liability claim process.
    (i) The State agency's investment plan activity or activities must 
meet the following conditions to be accepted by the Department:
    (A) The activity or activities must be directly related to error 
reduction in the ongoing program, with specific objectives regarding the 
amount of error reduction, and type of errors that will be reduced. The 
costs of demonstration, research, or evaluation projects under sections 
17 (a) through (c) of the Act will not be accepted. The State agency may 
direct the investment plan to a specific project area or implement the 
plan on a statewide basis. In addition, the Department will allow an 
investment plan to be tested in a limited area, as a pilot project, if 
the Department determines it to be appropriate. A request by the State 
agency for a waiver of existing rules will not be acceptable as a 
component of the investment plan. The State agency must submit any 
waiver request through the normal channels for approval and receive 
approval of the request prior to including the waiver in the investment 
plan. Waivers that have been approved for the State agency's use in the 
ongoing operation of the program may continue to be used.
    (B) The program management activity must represent a new or 
increased expenditure. The proposed activity must also represent an 
addition to the minimum program administration required by law for State 
agency administration including corrective action. Therefore, basic 
training of eligibility workers or a continuing corrective action from a 
Corrective Action Plan shall not be acceptable. The State agency may 
include a previous initiative in its plan; however, the State agency 
would have to demonstrate that the initiative is entirely funded by 
State money, represents an increase in spending and there are no 
remaining Federal funds earmarked for the activity.
    (C) Investment activities must be funded in full by the State 
agency, without any matching Federal funds until the entire investment 
amount agreed to is spent. Amounts spent in excess of the settlement 
amount included in the plan may be subject to Federal matching funds.
    (ii) The request shall include:
    (A) A statement of the amount of money that is a quality control 
liability claim that is to be offset by investment in program 
improvements;
    (B) A detailed description of the planned program management 
activity;
    (C) Planned expenditures, including time schedule and anticipated 
cost breakdown;
    (D) Anticipated impact of the activity, identifying the types of 
errors expected to be affected;
    (E) Documentation that the funds would not replace expenditures 
already earmarked for an ongoing effort; and
    (F) A statement that the expenditures are not simply a reallocation 
of resources.
    (iii) The State's and the Department's agreement to settle all, 
part, or none of the QC liability claim under this paragraph is final 
and not subject to further appeal within the Department. An agreement to 
settle all or

[[Page 861]]

part of a State agency's QC liability claim will result in suspension of 
the claim for the specified amount, pending the State's satisfactory 
completion of the initiative or action taken by the Department under the 
provisions of paragraph (e)(9)(vi) of this section.
    (iv) The State agency shall submit modifications to the plan to the 
Department for approval, prior to implementation. Expenditures made 
prior to approval by the Department may not be used in offsetting the 
liability.
    (v) Each State agency which has all or part of a claim suspended 
under this provision shall submit periodic documented reports according 
to a schedule in its approved investment plan. At a minimum, these 
reports shall contain:
    (A) A detailed description of the expenditure of funds, including 
the source of funds and the actual goods and services purchased or 
rented with the funds;
    (B) A detailed description of the actual activity; and
    (C) An explanation of the activity's effect on errors, including an 
explanation of any discrepancy between the planned effect and the actual 
effect.
    (vi) Any funds that the State agency's reports do not document as 
spent as specified in the investment plan may be withdrawn by the 
Department from the reduction in QC liability. Before the reduction is 
withdrawn, the State agency will be provided an opportunity to provide 
the missing documentation.
    (vii) If the reduction in QC liability is withdrawn, the Department 
shall charge interest on the funds not spent according to the plan, in 
accordance with section 602 of the Hunger Prevention Act of 1988, which 
amended section 13(a)(1) of the Food Stamp Act of 1977.
    (viii) The Department's determination to withdraw a reduction in QC 
liability is not appealable within the Department.
    (10) Resolution of liabilities for FY 2003 and beyond. FNS may: 
waive all or a portion of the liability; require the State agency to 
reinvest up to 50 percent of the liability in activities to improve 
program administration, which new investment money shall not be matched 
by Federal funds; designate up to 50 percent of the liability as ``at-
risk'' for repayment if a liability is established based on the State 
agency's payment error rate for the subsequent fiscal year; or assert 
any combination of these options. Once FNS establishes its proposed 
liability resolution plan, the amount assigned as at-risk is not subject 
to settlement negotiation between FNS and the State agency and may not 
be reduced unless an appeal decision revises the total dollar liability. 
FNS and the State shall settle any waiver amount or reinvestment amount 
before the end of the fiscal year in which the liability amount is 
determined unless an administrative appeal relating to the claim is 
pending. If a State agency appeals its liability determination, if the 
State agency began required reinvestment activities prior to an appeal 
determination, and if the liability amount is reduced to $0 through the 
appeal, FNS shall pay to the State agency an amount equal to 50 percent 
of the new investment amount that was included in the liability amount 
subject to the appeal. If FNS wholly prevails on a State agency's 
appeal, FNS will require the State agency to invest all or a portion of 
the amount designated for reinvestment during the appeal to be 
reinvested or to be repaid to the Federal government.

[Amdt. 160, 45 FR 15912, Mar. 11, 1980, as amended by Amdt. 260, 49 FR 
6311, Feb. 17, 1984; Amdt. 262, 49 FR 50598, Dec. 31, 1984. Redesignated 
and amended at 52 FR 3410, Feb. 4, 1987; Amdt. 295, 52 FR 29659, Aug. 
11, 1987; Amdt. 328, 56 FR 60052, Nov. 27, 1991; Amdt. 325, 57 FR 2828, 
Jan. 24, 1992; Amdt. 327, 57 FR 44486, Sept. 28, 1992; 57 FR 47163, Oct. 
14, 1992; Amdt. 348, 59 FR 34561, July 6, 1994; ; Amdt. 366, 62 FR 
29659, June 2, 1997; Amdt. 373, 64 FR 38297, July 16, 1999; 68 FR 59524, 
Oct. 16, 2003]



PART 276_STATE AGENCY LIABILITIES AND FEDERAL SANCTIONS--Table of Contents




Sec.
276.1 Responsibilities and rights.
276.2 State agency liabilities.
276.3 Negligence or fraud.
276.4 Suspension/disallowance of administrative funds.
276.5 Injunctive relief.
276.6 Good cause.
276.7 Administrative review process.

    Authority: 7 U.S.C. 2011-2036.

[[Page 862]]


    Editorial Note: OMB control numbers relating to this part 276 are 
contained in Sec.  271.8.



Sec.  276.1  Responsibilities and rights.

    (a) Responsibilities. (1) State agencies shall be responsible for 
establishing and maintaining secure control over coupons and cash for 
which the regulations designate them accountable. Except as otherwise 
provided in these regulations, any shortages or losses of coupons and 
cash shall strictly be a State agency liability and the State agency 
shall pay to FNS, upon demand, the amount of the lost or stolen coupons 
or cash, regardless of the circumstances.
    (2) State agencies shall be responsible for preventing losses or 
shortages of Federal funds in the issuance of benefits to households 
participating in the Program. FNS shall strictly hold State agencies 
liable for all losses, thefts and unaccounted shortages that occur 
during issuance, unless otherwise specified. Issuance functions begin 
with the State agency's creation of a record-for-issuance to generate 
each month's issuances from the master issuance file. Shortages or 
losses which result from any functions that occur prior to the creation 
of the record-for-issuance are subject to either paragraph (a)(3) of 
this section or subpart C--Quality Control (QC) Reviews, of part 275--
Performance Reporting System.
    (3) State agencies shall be responsible for preventing losses of 
Federal funds in the certification of households for participation in 
the Program. If FNS makes a determination that there has been negligence 
or fraud on the part of a State agency in the certification of 
households for participation in the Program, FNS is authorized to bill 
the State agency for an amount equal to the amount of coupons issued as 
a result of the negligence or fraud.
    (4) State agencies shall be responsible for efficiently and 
effectively administering the Program by complying with the provisions 
of the Act, the regulations issued pursuant to the Act, and the FNS-
approved State Plan of Operation. A determination by FNS that a State 
agency has failed to comply with any of these provisions may result in 
FNS seeking injunctive relief to compel compliance and/or a suspension 
or disallowance of the Federal share of the State agency's 
administrative funds. FNS has the discretion to determine in each 
instance of noncompliance, whether to seek injunctive relief or to 
suspend or disallow administrative funds. FNS may seek injunctive relief 
and suspend or disallow funds simultaneously or in sequence.
    (b) Rights. State agencies may appeal all claims brought against 
them by FNS and shall be afforded an administrative review by a designee 
of the Secretary as provided in Sec.  276.7. State agencies may seek 
judicial review of any final administrative determination made by the 
Secretary's designee, as provided in Sec.  276.7(j).

[54 FR 7016, Feb. 15, 1989]



Sec.  276.2  State agency liabilities.

    (a) General provisions. Notwithstanding any other provision of this 
subchapter, State agencies shall be responsible to FNS for any financial 
losses involved in the acceptance, storage and issuance of coupons. All 
coupon issuance shall be documented, and the State agency shall make 
available to the Department all primary documentation (or secondary, if 
the primary has been inadvertently destroyed) when required to do so. 
State agencies shall pay to FNS, upon demand, the amount of any such 
losses.
    (b) Coupon shortages, losses, unauthorized issuances, overissuances 
and undocumented issuances. (1) State agencies shall be strictly liable 
for:
    (i) Coupon shortages and losses that occur any time after coupons 
have been accepted by receiving points within the State and that occur 
during storage or the movement of coupons between bulk storage point 
issuers and claims collection points within the State;
    (ii) Losses resulting from authorization documents lost in transit 
from a manufacturer to the State agency and untransacted authorization 
documents lost in transit from an issuer to the State agency; and
    (iii) The value of coupons overissued and coupons issued without 
authorization, except for those duplicate issuances in the correct 
amount that are the result of replacement issuances made in accordance 
with Sec.  274.6. Overissuances and unauthorized

[[Page 863]]

issuances for which State agencies are liable include, but are not 
limited to: Single unmatched issuances, duplicates made that are not in 
accordance with Sec.  274.6, and transacted authorization documents that 
are altered, counterfeit, from out-of-State or expired (including those 
unsigned by the designated household member and/or not date stamped by 
the issuer).
    (2) Coupon shortages and/or losses for which State agencies shall be 
held strictly liable include, but are not limited to, the following:
    (i) Thefts;
    (ii) Embezzlements;
    (iii) Cashier errors (e.g., errors by the personnel of issuance 
offices in the counting of coupon books);
    (iv) Coupons lost in natural disasters if a State agency cannot 
provide reasonable evidence that the coupons were destroyed and not 
redeemed;
    (v) Issuances which cannot be supported by the required 
documentation;
    (vi) Issuances made to households not currently certified;
    (vii) Issuance loss during an official investigation, unless the 
investigation was reported directly to FNS prior to the loss; and
    (viii) Unexplained causes.
    (3) State agencies shall submit written reports on significant 
losses unless those losses were investigated by the Office of the 
Inspector General, USDA.
    (4) A State agency shall be held strictly liable for mail issuance 
losses that are in excess of the tolerance level that corresponds to the 
preselected reporting unit. Each State agency shall select one of the 
three following units annually and report the selection as provided in 
Sec. Sec.  272.2(a)(2) and 272.2(d)(1)(iii). Where reporting units issue 
less than $300,000 in mail issuance in a quarter, the State agency shall 
be liable for all losses in excess of $1,500 for the quarter.
    (i) If a State agency elects to report and have liabilities based on 
an existing county or project area level of mail issuance, then the 
State agency shall be strictly liable to FNS for the value of all mail 
issuance losses in excess of five-tenths (.5) percent of the dollar 
value of each reporting unit's quarterly mail issuance. This level shall 
be used if the State agency does not designate one of the three levels 
herein by May 15, 1989, and by August 15 in years thereafter.
    (ii) If a State agency elects to report and have liabilities based 
on an existing administrative level higher than the county or project 
area provided in paragraph (b)(4)(i) of this section, but lower than the 
Statewide level of mail issuance provided in paragraph (b)(4)(iii) of 
this section, then the State agency shall be strictly liable to FNS for 
the value of all mail issuance losses in excess of thirty-five hundreths 
(.35) percent per quarter of the dollar value of each reporting unit's 
quarterly mail issuance. State agencies shall not create new 
administrative units for the sole purpose of reporting mail issuance 
losses.
    (iii) If a State agency elects to report and have liabilities based 
on a State level of mail issuance, then the State agency shall be 
strictly liable to FNS for the value of all mail issuance losses in 
excess of thirty hundreths (.30) percent per quarter of the dollar value 
of each State agency's total quarterly mail issuance.
    (iv) FNS reserves the right to make all determinations on reporting 
requirements and on administrative divisions within the State for the 
purpose of determining and assessing liability for mail issuance losses. 
FNS also reserves the right to revise such determinations as necessary. 
Revisions will be communicated to State agencies by FNS. The liability 
assessment will be based on the revised reporting requirement for the 
next full fiscal quarter.
    (v) For the purpose of this section, ``mail issuance'' means all 
original coupon issuances distributed through the mail. ``Mail loss'' 
means all replacements of mail issuances except for replacements of 
returned mail issuances.
    (vi) The State agency's liability shall be computed using data from 
Form FNS-259, Food Stamp Mail Issuance Report, or alternative reporting 
document accepted in advance by FNS and the State agency, which is 
submitted for the quarter for the particular reporting unit agreed to by 
FNS and the State agency, as provided in Sec. Sec.  272.2(a)(2) and 
272.2(d)(1)(iii).

[[Page 864]]

    (5) State agencies shall be held strictly liable for the following 
overissuances:
    (i) The value of overissued coupons issued as a result of a State 
agency's failure to comply with a directive issued by FNS in accordance 
with the provisions of Sec.  271.7, to reduce, suspend or cancel 
allotments;
    (ii) The value of coupons overissued by the State agency as a result 
of a court order or settlement agreement of a court suit which was not 
reported to FNS in accordance with the provisions of Sec.  272.4(e); and
    (iii) The value of coupons overissued as a result of a State agency 
entering into an out-of-court settlement of a court suit, the terms of 
which violate Federal laws or regulations.
    (6) Coupon shortages and losses shall be determined from the Form 
FNS-250, Food Coupon Accountability Report and its supporting documents 
and from the Form FNS-46, Issuance System Reconciliation Report. Losses 
of Federal moneys resulting from overissuances shall be determined from 
sources such as audits, Performance Reporting System Reviews, Federal 
reviews, investigations and explanatory reports prepared by the State 
agency.
    (7) State agencies shall be held strictly liable for overissuances 
resulting from Electronic Benefit Transfer system errors and 
unauthorized account activities. Such overissuances shall include but 
not be limited to: Overissuances to household accounts that are accessed 
and used by households, replacement benefits to a household's account 
due to unauthorized use of the benefits in a household's account, 
benefits drawn from an EBT account after the household has reported that 
the EBT card is lost or stolen to the State or its agent, overdraft 
situations due to the use of manual back-up procedures approved by the 
State agency, overcredits to a retailer account and transfer of funds to 
an illegitimate account.
    (c) Cash Losses. State agencies are liable to FNS for cash losses 
when money collected by State agencies from recipient claims has been 
lost, stolen or otherwise not remitted to FNS in accordance with the 
provision of Sec.  273.18(h). The amount of such losses shall be 
determined from the sources outlined in paragraph (6) of this section.
    (d) State agency payment to FNS. State agencies shall be billed for 
the exact amount of losses specified in this section. If a State agency 
fails to pay the billing, FNS shall offset the amount of loss from the 
State agency's Letter of Credit in accordance with Sec.  277.16(c).

[54 FR 7016, Feb. 15, 1989, as amended at 54 FR 51351, Dec. 15, 1989; 57 
FR 11259, Apr. 1, 1992; 57 FR 44791, Sept. 29, 1992; Amdt. 342, 59 FR 
2733, Jan. 19, 1994; Amdt. 388, 65 FR 64589, Oct. 30, 2000]



Sec.  276.3  Negligence or fraud.

    (a) General. If FNS determines that there has been negligence or 
fraud on the part of the State agency in the certification of applicant 
households, the State agency shall, upon demand, pay to FNS a sum equal 
to the amount of coupons issued as a result of such negligence or fraud.
    (b) Negligence provisions. (1) FNS may determine that a State agency 
has been negligent in the certification of applicant households if a 
State agency disregards Food Stamp Program requirements contained in the 
Food Stamp Act, the regulations issued pursuant to the Act, the FNS-
approved State Plan of Operation and a loss of Federal funds results or 
a State agency implements procedures which deviate from food stamp 
requirements contained in the Food Stamp Act, the food stamp 
regulations, the FNS-approved State Plan of Operation without first 
obtaining FNS approval, and the implementation of the procedures results 
in a loss of Federal funds.
    (2) In computing amounts of losses of Federal funds due to 
negligence, FNS may use actual, documented amounts or amounts which have 
been determined through the use of statistically valid projections. When 
a statistically valid projection is used, the methodology will include a 
95 percent, one-sided confidence level.
    (3) FNS will base its determinations of negligence on information 
drawn from any of a number of sources. These information sources 
include, but are not limited to, State and Federal Performance Reporting 
reviews, State and Federal audits and investigations,

[[Page 865]]

State corrective action plans and any required reports.
    (4) Failure by the State agency to remit payment upon demand, within 
the specified time period, may result in FNS recovering the lost funds 
through offsets to the State agency's Letter of Credit, in accordance 
with Sec.  277.16(c).
    (c) Fraud provisions. For purposes of this subsection, the term 
fraud shall mean the wrongful acquisition or issuance of food coupons by 
the State agency or its officers, employees or agents, including 
issuance agents, through false representation or concealment of material 
facts. State agencies shall be liable to FNS for the amount of loss of 
Federal funds as a result of fraud. Failure by the State agency to remit 
payment on demand by FNS, within the time period specified, may result 
in offsets to the Letter of Credit in accordance with Sec.  277.16(c).

[Amdt. 168, 45 FR 77263, Nov. 21, 1980, as amended by Amdt. 262, 49 FR 
50598, Dec. 31, 1984; Amdt. 356, 59 FR 29713, June 9, 1994]



Sec.  276.4  Suspension/disallowance of administrative funds.

    (a) General provisions. (1) FNS shall make determinations of the 
efficiency and effectiveness of State agencies' administration of the 
Food Stamp Program in accordance with the provisions of Sec.  275.25. 
When making such determinations, FNS shall use all information that is 
available relating to State agencies' administration of the Program. 
This information includes, but is not limited to, information received 
from Performance Reporting System reviews, Federal reviews, audits, 
investigations, corrective action plans, financial management reviews, 
and the public.
    (2) FNS may determine a State agency's administration of the Program 
to be inefficient or ineffective if the State agency fails to comply 
with the food stamp requirements established by the Food Stamp Act, the 
regulations issued pursuant to the Act, or the FNS-approved State Plan 
of Operation.
    (3) If FNS determines that a State agency's administration of the 
Program is inefficient or ineffective, FNS may warn the State agency 
that a suspension and/or disallowance of administrative funds is being 
considered. After a State agency receives a warning, FNS may either 
suspend or disallow administrative funds or take both actions in 
sequence, depending on the statement in the warning.
    (b) Suspension. A suspension of funds is an action by FNS to 
temporarily withhold all or a portion of the Federal share of one or 
more of the cost categories of a State agency's budget for 
administration of the Food Stamp Program. Suspensions of funds shall 
remain in effect until FNS determines that a State agency has taken 
adequate corrective action to correct the problem causing the 
suspension, in which event the suspension will be rescinded, or until 
FNS decides to disallow the suspended funds. FNS shall suspend funds in 
accordance with Sec.  277.16.
    (c) Disallowance. (1) A disallowance of funds is an action by FNS in 
which reimbursement is denied for otherwise reimbursable administrative 
costs claimed by a State agency in one or more of the cost categories of 
a State agency's budget for Program administration.
    (2) In accordance with Sec.  277.16, FNS has the option of 
disallowing funds in another cost category, or all or a portion of the 
entire Letter of Credit if the disallowance is based on a finding that 
the State agency failed to take a required action. FNS may disallow 
funds after previously suspending such funds or may disallow funds 
immediately following the expiration of the formal warning under the 
conditions specified in paragraph (e) of this section.
    (d) Warning process. Prior to taking action to suspend or disallow 
Federal funds, except those funds which are disallowed when a State 
agency fails to adhere to the cost principles of part 277 and appendix 
A, FNS shall provide State agencies with written advance notification 
that such action is being considered. If a State agency does not respond 
to such an advance notification to the satisfaction of FNS, FNS shall 
provide the State agency with a formal warning of the possibility of 
suspension or disallowance action. However, when a State agency fails to 
meet the objectives in a corrective action plan, FNS may omit the 
advance

[[Page 866]]

notification and immediately issue a formal warning.
    (1) Advance notification. Immediately upon becoming aware that a 
deficiency or deficiencies in a State agency's administration of the 
Program may warrant the suspension and/or disallowance of Federal funds, 
FNS shall advise the State agency in writing of the deficiency and shall 
provide a specific period of time for correction of such deficiency or 
deficiencies. The time period allowed the State agency for corrective 
action will vary according to the nature of the deficiency.
    (2) Formal warning. FNS shall issue a formal warning to a State 
agency if the State fails to correct to the satisfaction of FNS the 
deficiencies noted in an advance notification within the time specified 
in the advance notification. FNS may also issue a formal warning to a 
State agency without first issuing an advance notification if a State 
agency fails to comply with a corrective action plan.
    (i) Formal warnings shall include the following information:
    (A) Specific descriptions of the deficiencies, explaining how the 
State agency is out of compliance with Program requirements;
    (B) A Statement as to whether Federal funds will be suspended, 
disallowed or both, if appropriate;
    (C) The amount of Federal funds that will be suspended and/or 
disallowed or an estimate of the amount if actual cost are unavailable; 
and
    (D) A statement of FNS' willingness to assist State agencies is 
resolving the deficiencies.
    (ii) A State agency shall have 30 days from receipt of a formal 
warning to submit evidence that it is in compliance or to submit a 
corrective action proposal, including the date the State agency will be 
in compliance.
    (iii) When the deficiency cannot be corrected within 30 days of 
receipt of a formal warning but the State agency submits an acceptable 
plan for correcting the deficiency, FNS shall hold the formal warning in 
abeyance pending completion of the actions contained in the plan within 
the time specified in the plan.
    (iv) FNS shall cancel a formal warning when the State agency submits 
evidence that shows, to the satisfaction of FNS, that the deficiency has 
been eliminated.
    (e) Suspension/disallowance of funds. The Administrator of FNS shall 
notify State agencies in writing by certified mail or through personal 
service that administrative funds are being suspended or disallowed. 
Such action may occur when any of the following situations arise:
    (1) A State agency fails to respond to the deficiencies cited in a 
formal warning within 30 days of receiving the warning;
    (2) The response by a State agency to the deficiencies cited in a 
formal warning is unsatisfactory to FNS; or
    (3) A State agency fails to meet the commitments it made in its 
corrective action proposal and a formal warning had been held in 
abeyance pending completion of that corrective action.
    (f) Appeals. After FNS has taken action to disallow Federal funds 
the State agency may request an appeal in accordance with the procedures 
specified in Sec.  276.7.

[Amdt. 168, 45 FR 77263, Nov. 21, 1980, as amended by Amdt. 266, 52 FR 
3410, Feb. 4, 1987]



Sec.  276.5  Injunctive relief.

    (a) General. If FNS determines that a State agency has failed to 
comply with the Food Stamp Act, the regulations issued pursuant to the 
Act, or the FNS-approved State Plan of Operations, the Secretary may 
seek injunctive relief against the State agency to require compliance. 
The Secretary may request injunctive relief concurrently with negligence 
billings and sanctions against State agencies affecting administrative 
funds.
    (b) Requesting injunctive relief. Prior to seeking injunctive relief 
to require compliance, FNS shall notify the State agency of the 
determination of noncompliance and provide the State agency with a 
specific period of time to correct the deficiency. The Secretary shall 
have the discretion to determine the time periods State agencies will 
have to correct deficiencies. If the State agency does not correct the 
failure within the specified time period and the Department decides to 
seek injunctive relief, the Secretary shall

[[Page 867]]

refer the matter to the Attorney General with a request that injunctive 
relief be sought to require compliance.

[Amdt. 168, 45 FR 77263, Nov. 21, 1980]



Sec.  276.6  Good cause.

    (a) When a State agency has failed to comply with provisions of the 
Act, the regulations issued pursuant to the Act, or the FNS-approved 
State Plan of Operation, and, thus, is subject to the suspension/
disallowance and injunctive relief provisions in Sec. Sec.  276.4 and 
276.5, FNS may determine that the State had good cause for the 
noncompliance. FNS shall evaluate good cause in these situations on a 
case-by-case basis, based on any one of the following criteria:
    (1) Natural disasters or civil disorders that adversely affect 
Program operations;
    (2) Strikes by State agency staff;
    (3) Change in the Food Stamp Program or other Federal or State 
programs that result in a substantial adverse impact upon a State 
agency's management of the Program; and
    (4) Any other circumstances in which FNS determines good cause to 
exist.
    (b) If FNS determines that food cause existed for a State agency's 
failure to comply with required provisions and standards, FNS shall not 
suspend or disallow administrative funds nor seek injunctive relief to 
compel compliance with the provisions and standards.

[Amdt. 168, 45 FR 77263, Nov. 21, 1980]



Sec.  276.7  Administrative review process.

    (a) General. (1) Whenever FNS asserts a claim against a State 
agency, the State agency may appeal the claim by requesting an 
administrative review. FNS claims that may be appealed are billings 
resulting from financial losses involved in the acceptance, storage, and 
issuance of coupons (Sec.  276.2), billings based on charges of 
negligence or fraud (Sec.  276.3), and disallowances of Federal funds 
for State agency failures to comply with the Food Stamp Act, 
regulations, or the FNS-approved State Plan of Operations (Sec.  276.4).
    (2) A State agency aggrieved by a claim shall have the option of 
requesting a hearing to present its position in addition to a review of 
the record and any written submission presented by the State agency. 
Unless circumstances warrant differently, hearings of appeals of 
negligence claims and disallowances of Federal funds shall be before an 
Appeals Board and hearings of appeals of other claims shall be before a 
single hearing official. In any case, the people reviewing the claim 
shall be people who were not involved in the decision to file the claim.
    (b) Notice of claim. FNS shall provide a notice by certified mail or 
personal service when asserting claims against State agencies.
    (c) Filing an appeal. A State agency aggrieved by claims asserted 
against it may file written appeals with the Secretary, U.S. Department 
of Agriculture, c/o the Executive Secretary, State Food Stamp Appeals 
Board, Food and Nutrition Service, USDA, Washington, DC 20250, 
requesting an opportunity to present information in support of its 
position. The State agency shall attach a copy of the FNS claim to its 
appeal. Appeals must be filed with the Executive Secretary or postmarked 
within 10 days of the date of delivery of the notice of claim. If the 
State agency does not appeal within the prescribed 10-day period, the 
FNS decision on the claim shall be final. No extension shall be granted 
in the time allowed for filing an appeal.
    (d) Computation of time. In computing any period of time prescribed 
or allowed under these procedures, the day of delivery of any notice of 
action, acknowledgment, or reply shall not be included. The last day of 
the period so computed shall be included unless it is a Saturday, Sunday 
or Federal or State holiday. In that case, the period runs until the end 
of the next day which is not a Saturday, Sunday or Federal or State 
holiday.
    (e) Stay of administrative action. With one exception, the filing of 
a timely appeal and request for administrative review shall 
automatically stay the action of FNS to collect the claim asserted 
against the State agency until a decision is reached on the 
acceptability of the appeal, and in the case of an acceptable appeal, 
until a final determination has been issued. The exceptions to this 
provision are those claims that are asserted against State agencies due 
to State agency failure to

[[Page 868]]

comply with an order to reduce, suspend or cancel benefits in accordance 
with Sec.  271.7. In situations where a State agency does not reduce, 
suspend or cancel benefits as directed and FNS takes action to disallow 
administrative funds or bill the State agency, the disallowance and/or 
billing shall remain in effect during the review process. Should the 
Appeals Board uphold the State agency, all disallowed funds and/or funds 
collected as a result of the billing shall be restored to the State 
agency promptly.
    (f) Acknowledging an appeal. Upon receipt of an appeal and request 
for administrative review, the Executive Secretary shall provide the 
State agency with a written acknowledgment of the appeal, including a 
statement of whether or not the appeal is timely and can be accepted. A 
copy of each acknowledgment shall be provided to FNS. The acknowledgment 
of a timely and acceptable appeal and request for administrative review 
shall also include a copy of Secretary's Memorandum No. 2003, Revised, 
``State Food Stamp Appeals Board,'' and the identity of the Appeals 
Board member(s) designated by the Secretary to review the claim.
    (g) Submitting additional information. (1) State agencies shall have 
30 days from their request for an appeal to submit five sets of the 
following information to the Executive Secretary of the Appeals Board:
    (i) A clear, concise identification of the issue or issues in 
dispute;
    (ii) The State agency's position with respect to the issue or issues 
in dispute;
    (iii) The pertinent facts and reasons in support of the State 
agency's position with respect to the issue or issues in dispute;
    (iv) All pertinent documents, correspondence and records which the 
State agency believes are relevant and helpful toward a more thorough 
understanding of the issue or issues in dispute;
    (v) The relief sought by the State agency;
    (vi) The identity of the person(s) presenting the State agency's 
position when a hearing is involved; and
    (vii) A list of prospective State agency witnesses when a hearing is 
involved.
    (2) At the request of the Executive Secretary, FNS shall promptly 
submit five complete sets of all documents, correspondence and records 
compiled by FNS in support of its claim.
    (3) The Executive Secretary shall provide each person hearing an 
appeal and FNS with a complete set of the State agency information when 
it is received. The Executive Secretary shall also provide each person 
hearing an appeal and the State agency with a complete set of the 
information supplied by FNS when it is received.
    (h) Scheduling and conducting hearings. When a hearing is afforded, 
the Appeals Board or hearing official has up to 60 days from receipt of 
the State agency's information, outlined in paragraph (g) of this 
section, to schedule and conduct the hearing. The Executive Secretary 
shall advise the State agency of the time, date and location of the 
hearing at least 10 days in advance of the hearing. The State agency is 
solely responsible for ensuring the attendance of all State agency 
witnesses at the hearing.
    (1) A hearing is an informal proceeding designed to permit the State 
agency an opportunity to present its position before a neutral third 
party. Because the final determination is subject to judicial review and 
trial de novo, the Appeals Board and hearing official shall not be bound 
by the rules of civil procedure applicable in the court or by the 
adjudicatory requirements of the Administrative Procedures Act.
    (2) The Appeals Board Chairman, his designee or the hearing official 
is the presiding officer at the hearing. The presiding officer shall 
have full authority to ensure a fair and impartial proceeding, avoid 
delays, maintain order and decorum, receive evidence, examine witnesses, 
and otherwise regulate the course of the hearing. The State agency may 
represent itself at the hearing or be represented by counsel.
    (3) The Appeals Board or hearing official shall receive into 
evidence the oral testimony of State agency witnesses and any documents 
which are relevant and material. Neither the Department

[[Page 869]]

nor FNS is required to present witnesses at the hearing. However, the 
Department and FNS shall make staff available to provide any information 
or clarification requested by the Appeals Board or hearing official. 
Under no circumstances shall the Department or FNS introduce new 
evidence at the hearing. Departmental and FNS staff, as well as State 
agency witnesses, shall be subject to examination by the Appeals Board 
or hearing official. Departmental and FNS staff shall not be subject to 
cross-examination by State agency representative or counsel. Likewise, 
State agency witnesses shall not be subject to cross-examination by 
Departmental or FNS staff. Each side shall be permitted to make a 
closing statement to the Appeals Board or hearing official upon 
completion of the taking of evidence and testimony.
    (4) FNS and the State agency shall have the opportunity to submit 
additional written information to the Appeals Board or hearing official 
within 10 days after the close of the hearing. No new factual material 
may be introduced except as it directly relates to evidence or testimony 
presented at the hearing. Five complete sets of such information must be 
filed with the Executive Secretary or postmarked prior to the expiration 
of the 10-day deadline for it to be considered.
    (5) An official verbatim transcript of each hearing shall be kept on 
file in the Office of the Executive Secretary for public inspection. A 
copy shall be furnished to FNS and the State agency. Anyone wishing to 
purchase a copy may make arrangements to do so with the commercial 
reporting service involved.
    (i) Final determination. (1) When a hearing is afforded, a final 
determination shall be made within 30 days of the hearing, and the final 
determination shall take effect 30 days after delivery of the notice of 
this final decision to the State agency. When a hearing is not held, a 
final determination shall be made within 30 days after receipt of the 
State agency's information. The final determination shall take effect 30 
days after delivery of the notice of the final decision to the State 
agency.
    (2) The Appeals Board or hearing official shall either uphold the 
claim, deny the claim, or adjust the claim downward in such amounts and 
for such reasons as the Appeals Board or hearing official shall 
determine and declare. The final determination is not subject to 
reconsideration.
    (j) Judicial review. State agencies aggrieved by the final 
determination may obtain judicial review and trial de novo by filing a 
complaint against the United States within 30 days after the date of 
delivery of the final determination, requesting the court to set aside 
the final determination. The final determination shall remain in effect 
during the period the judicial review or any appeal therefrom is pending 
unless the court temporarily stays such administrative action after a 
showing that irreparable injury will occur absent a stay and that the 
State agency is likely to prevail on the merits of the case.
    (k) Extension of time. (1) No extension of time shall be permitted a 
State agency in which to file an initial request for an administrative 
review. All other requests from the State agency or from FNS for the 
extension of any deadline contained in Sec.  276.7 of these regulations 
or imposed by the Appeals Board or hearing official shall be granted 
only for good cause shown and only when received by the Executive 
Secretary before the expiration of the particular deadline involved. All 
requests for an extension shall be in writing. Filing a request for an 
extension stops the running of the prescribed period of time. When a 
request for an extension is granted, the requester shall be notified in 
writing of the amount of additional time granted. When a request is 
denied for being untimely or for cause, the requester shall be notified 
and the prescribed period of time shall resume from the date of denial.
    (2) The Appeals Board or hearing official may grant itself such 
additional time as it may reasonably require to complete any of its 
assigned responsibilities. If the Appeals Board or hearing official does 
find it necessary to grant itself an extension of time, the Executive 
Secretary shall notify all parties in writing.

[Amdt. 168, 45 FR 77263, Nov. 21, 1980, as amended by Amdt. 274, 51 FR 
18752, May 21, 1986; Amdt. 356, 59 FR 29714, June 9, 1994]

[[Page 870]]



PART 277_PAYMENTS OF CERTAIN ADMINISTRATIVE COSTS OF STATE AGENCIES--Table of Contents




Sec.
277.1 General purpose and scope.
277.2 Definitions.
277.3 Budgets and budget revision procedures.
277.4 Funding.
277.5 Methods of payment.
277.6 Standards for financial management systems.
277.7 Cash depositories.
277.8 Bonding and insurance.
277.9 Administrative costs principles.
277.10 Program income.
277.11 Financial reporting requirements.
277.12 Retention and custody of records.
277.13 Property.
277.14 Procurement standards.
277.15 [Reserved]
277.16 Suspension, disallowance and program closeout.
277.17 Audit requirements.
277.18 Establishment of an Automated Data Processing (ADP) and 
          Information Retrieval System.

Appendix A to Part 277--Principles for Determining Costs Applicable to 
          Administration of the Food Stamp Program by State Agencies

    Authority: 7 U.S.C. 2011-2036.

    Source: Amdt. 188, 45 FR 85702, Dec. 30, 1980, unless otherwise 
noted.

    Editorial Note: OMB control numbers relating to this part 277 are 
contained in Sec.  271.8.



Sec.  277.1  General purpose and scope.

    (a) Purpose. This part establishes uniform requirements for the 
management of administrative funds provided to State agencies and sets 
forth principles for claiming costs of activities paid with 
administrative funds under the Food Stamp Program, and the Food 
Distribution Program and Food Stamp Program on Indian Reservations.
    (b) Scope and applicability. Upon compliance with the provisions of 
this part, payments to State agencies will be made for cost(s) incurred 
for administration of the Food Stamp Program and for administration of 
the Food Distribution Program on Indian Reservations. To ensure maximum 
practical uniformity, deviation(s) by a State agency from this part may 
be authorized only when necessary to meet program objectives, to 
conserve program funds, or when essential to the public interest. 
However, any deviations from this part must be authorized by the 
Administrator of FNS.



Sec.  277.2  Definitions.

    For the purpose of this part the term:
    Accrued expenditures means the charges incurred by the State agency 
during a given period for liabilities incurred, benefits received or for 
goods and services used during this period.
    Accrued income means the net value of earnings during a given period 
resulting from services and goods provided whether or not payment has 
been realized.
    Acquisition cost refers to nonexpendable personal property acquired 
by purchase and means the net invoice price of the property including 
any attachments, accessories or auxiliary apparatus necessary to make 
the property usable for the purpose for which it was acquired. Ancillary 
charges such as taxes, duty, protection in-transit insurance, freight or 
installation shall be included in or excluded from acquisition cost in 
accordance with the State agency's regular accounting practices.
    Approval or authorization by FNS means documentation evidencing 
consent prior to incurring specific costs.
    Applicable credits refer to those receipts or reduction of 
expenditure-type transactions which offset or reduce expense items 
allocable to programs as direct or indirect costs. Examples of such 
transactions are: Purchase discounts; rebates or allowances; recoveries 
or indemnities on losses; sale of publications, equipment, and scrap; 
income from personal or incidental services; and adjustments of 
overpayments or erroneous charges.
    Disbursements refers to the transfer of funds by the state agency to 
pay for Program costs resulting from purchased or expired goods and 
services.
    Expendable personal property means all tangible personal property 
other than nonexpendable property.
    Program funds means money, or property provided in lieu of money, 
paid for or furnished by FNS to a State agency.
    Funds available to the State agency may include contributions from 
third parties including other Federal agencies.

[[Page 871]]

    In-kind contributions refers to the value of noncash contributions. 
Only when authorized by Federal legislation may property purchased with 
Federal funds be considered as a State agency's in-kind contribution. 
In-kind contributions may be for the value of real and/or nonexpendable 
personal property or the value of goods and services provided 
specifically to the project or program.
    Nonexpendable personal property means tangible personal property 
having a useful life of more than one year and an acquisition cost of 
more than $300 per unit. A State agency may use its own definition of 
nonexpendable personal property provided that such definition would at 
least include all tangible personal property as defined herein.
    Obligations are the amounts of orders placed, contracts awarded, 
services received, and similar transactions during a given period which 
require payment.
    Offset means a method to recover funds due FNS through use of the 
Letter of Credit system. Recovery is accomplished by accounting 
adjustments to increase Federal funds on hand or disbursed.
    OMB means the Office of Management and Budget.
    Personal property means property of any kind except real property. 
It may be tangible (having physical existence) or intangible (having no 
physical existence) such as patents, inventions and copyrights.
    Program means both the Food Stamp Program and the Food Distribution 
Program on Indian Reservations.
    Program closeout means the process by which FNS determines that all 
applicable administrative and financial processes have been completed by 
the State agency and FNS terminates the program in the affected project 
area or areas.
    Project costs are allowable costs as set forth in this part.
    Real property means land, land improvements, structure and 
appurtenances thereto, excluding movable machinery and equipment.
    State agency means the organization as defined in 7 CFR 271.1.
    State agency costs means the State agency outlays from its funds 
available for program administration. Unless authorized by Federal 
legislation, costs charged to other Federal grants or to other Federal 
contracts may not be considered as State agency costs reimbursable under 
this authority.
    Subagency means the organization or person to which a State agency 
makes any payment for acquisition of goods, materials or services for 
use in administering the program and which is accountable to the State 
agency for the use of funds provided.
    Terms and conditions means legal requirements imposed by the Federal 
Government under statute, regulations, contracts, agreements or 
otherwise.
    Unliquidated obligation represents the amount of obligations not yet 
paid.
    Unobligated balance means the portion of the Federal funds 
authorized less all allowable costs and unpaid obligations of the State 
agency.



Sec.  277.3  Budgets and budget revision procedures.

    The preparation, content, submittal, and revision requirements for 
the State Food Stamp Program Budget shall be as specified in Sec.  
272.2. The application for funds and budget requirements for the Food 
Distribution Program on Indian Reservations shall be as specified in 
Sec.  283.9. State agencies must submit a budget to FNS as part of the 
State Plan each fiscal year. Upon approval of the budget by FNS, 
administrative funds will be provided.



Sec.  277.4  Funding.

    (a) General. This section sets allowable cost standards for 
activities of State agencies in administering the Food Stamp Program and 
Food Distribution Program on Indian Reservations.
    (b) Federal reimbursement rate. The base percentage for Federal 
payment shall be 50 percent of State agencies' allowable Food Stamp 
Program administrative costs. This rate includes reimbursement for food 
stamp informational activities but not for recruitment activities. 
Recruitment activities are those activities designed to persuade an 
individual who has made an informed choice not to apply for food

[[Page 872]]

stamps to change his or her decision and apply.
    (1) A State agency's federally funded share of Food Stamp Program 
administrative costs shall be increased when its error rate, as 
determined through the quality control process described in part 275, 
meets certain standards.
    (i) For the period beginning October 1, 1982, through September 30, 
1988, a State agency with a payment error rate of five percent or less 
in the corresponding fiscal year shall have its federally funded share 
of Program administrative costs increased to 60 percent, provided that 
the State agency's negative case error rate is less than the national 
weighted mean negative case rate for the fiscal year prior to the period 
of enhanced funding.
    (ii) For the period beginning October 1, 1988, and review periods 
thereafter, a State agency with a payment error rate less than or equal 
to 5.90 percent and with a negative case error rate less than the 
National weighted mean negative case error rate for the prior fiscal 
year shall have its Federally funded share of Food Stamp Program 
administrative costs increased by one percentage point to a maximum of 
60 percent for each full one-tenth of a percentage point by which the 
payment error rate is less than six percent.
    (2) Funding of demonstration projects approved by FNS will be at a 
rate agreed to by FNS in accordance with the requirements outlined in 
part 282.
    (3) The reimbursement of administrative costs to State agencies 
administering the program on Indian reservations shall be in accordance 
with the requirements of parts 281 and 283.
    (4) For the period beginning October 1, 1980, a State agency's 
federally funded share of Food Stamp Program administrative costs shall 
be increased to 65 percent when the State agency's cumulative allotment 
error rate is less than five percent; provided that the State agency's 
negative case error rate is less than the national weighted mean 
negative case error rate for the 6-month period of enhanced funding. 
This provision shall not apply to any period after the April through 
September 1982 period.
    (5) For the period beginning October 1, 1980, a State agency's 
federally funded share of Food Stamp Program administrative costs shall 
be increased to 60 percent when the State agency's cumulative allotment 
error rate is less than eight percent; provided that the State agency's 
negative case error rate is less than the national weighted mean 
negative case error rate for the 6-month period of enhanced funding. 
This provision shall not apply to any period after the April through 
September 1982 period.
    (6) For the 6-month period beginning October 1, 1980, a State agency 
with a 25 percent or greater reduction in its cumulative allotment error 
rate from one 6-month period to the comparable period of the next fiscal 
year shall be entitled to a 55 percent federally funded share of Food 
Stamp Program administrative costs; provided that, effective with the 6-
month period beginning October 1, 1981, the State agency's negative case 
error rate is less than the national weighted mean negative case error 
rate for the period of enhanced funding. This provision shall not apply 
to any period after the April through September 1982 period.
    (7) Beginning October 1982, the federally funded share of 
administrative costs, as identified in paragraph (b) of this section may 
be decreased based upon its payment error rate as described in Sec.  
275.23. The rates of Federal funding for the activities identified in 
paragraphs (b)(2) and (b)(3) of this section shall not be reduced based 
upon the agency's payment error rate.
    (8) Employment and training program grants, as outlined in Sec.  
273.7(d) shall be 100 percent federally-funded.
    (c) Matching costs. State agency costs for Federal matching funds 
may consist of:
    (1) Charges reported on a cash or accrual basis by the State agency 
as project costs.
    (2) Project costs financed with cash contributed or donated to the 
State agency by other non-Federal public agencies and institutions.
    (3) Project costs represented by services and real or personal 
property donated by other non-Federal public agencies and institutions.

[[Page 873]]

    (d) All cash or in-kind contributions except as provided in 
paragraph (e) of this section shall be allowable as part of the State 
agency's share of program costs when such contributions:
    (1) Are verifiable;
    (2) Are not contributed for another federally-assisted program, 
unless authorized by Federal legislation;
    (3) Are necessary and reasonable for accomplishment of project 
objectives;
    (4) Are charges that would be allowable under this part;
    (5) Are not paid by the Federal Government under another assistance 
agreement unless authorized under the other agreement and its subject 
laws and regulations; and
    (6) Are in the approved budget.
    (e) The value of services rendered by volunteers or the value of 
goods contributed by third parties, exclusive of the State and Federal 
agencies, are unallowable for reimbursement purposes under the Food 
Stamp Program. The value of services rendered by volunteers shall be 
allowable only to meet any matching administrative costs requirements 
for the Food Distribution Program on Indian Reservations.
    (f) The expenses (e.g. travel, lodging, meals) of persons working 
with volunteer or nonprofit organizations which receive training and 
assistance pursuant to Sec.  272.4(d)(2) are not allowable.
    (g) Investigations of authorized retail or wholesale food concerns 
when performed in coordination with the USDA Office of Inspector General 
and FNS shall be funded at the 50 percent Federal reimbursement rate.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 201, 47 FR 
25498, June 11, 1982; Amdt. 260, 49 FR 6313, Feb. 17, 1984; Amdt. 281, 
51 FR 47397, Dec. 31, 1986; 53 FR 39443, Oct. 7, 1988; Amdt. 316, 54 FR 
24531, June 7, 1989; Amdt. 328, 56 FR 60053, Nov. 27, 1991; Amdt. 342, 
59 FR 2733, Jan. 19, 1994; Amdt. 316, 59 FR 16096, Apr. 6, 1994; Amdt. 
385, 65 FR 33440, May 24, 2000; Amdt. 388, 65 FR 70212, Nov. 21, 2000; 
67 FR 41619, June 19, 2002]



Sec.  277.5  Methods of payment

    (a) This section sets forth FNS methods for authorizing funds for 
State agencies.
    (b) The ``Letter of Credit'' (LOC) (SF-1193A) is the document by 
which an official of FNS authorizes a State agency to draw funds from 
the United States Treasury. This shall be the preferred method of 
payment for State agencies which receive at least $120,000 per year and 
meet the requirements prescribed in OMB Circular A-102, Attachment J.
    (c) State agencies shall request payment(s) by submitting Request 
for Payment on Letter of Credit and Status of Funds Report (Treasury 
Form SF-183) to the appropriate United States Treasury Regional 
Disbursing Office with a copy to FNS.
    (d) State agencies not meeting the requirements for the LOC method 
of payment or failing to meet LOC reporting requirements, including 
those requiring adjustments to cash balances to liquidate amounts owed 
to FNS, shall be provided funds by Treasury check in accordance with the 
provisions of Department of the Treasury Circular 1075.
    (e) Payments for proper charges incurred by State agencies will not 
be withheld unless such payments are suspended or disallowed pursuant to 
Sec.  277.16. When a payment is withheld, payment adjustments will be 
made in accordance with Sec.  277.16. When FNS collects an indebtedness, 
whether due to a disallowance or an offset for amounts which the State 
agency has been billed but which it has failed to pay without cause 
acceptable to FNS, FNS shall provide reasonable notice to the State 
agency, and shall require appropriate accounting adjustment to cash 
balances for which the State agency is accountable to the Federal 
government to liquidate the indebtedness.



Sec.  277.6  Standards for financial management systems.

    (a) General. This section prescribes standards for financial 
management systems in administering program funds by the State agency 
and its sub agencies or contractors.
    (b) Responsibilities. Financial management systems for program funds 
in the State agency shall provide for:
    (1) Accurate, current, and complete disclosure of the financial 
results of program activities in accordance with Federal reporting 
requirements.
    (2) Records which identify the source and application of funds for 
FNS or State agency activities supporting the

[[Page 874]]

administration of the Program. These records shall show authorizations, 
obligations, unobligated balances, assets, liabilities, outlays and 
income of the State agency, its sub- agencies and agents.
    (3) Records which identify unallowable costs and offsets resulting 
from FNS or other determinations as specified in Sec.  277.16 and the 
disposition of these amounts. Accounting procedures must be in effect to 
prevent a State agency from claiming these costs under ongoing program 
administrative cost reports.
    (4) Effective control and accountability by the State agency for all 
program funds, property, and other assets acquired with program funds. 
State agencies shall adequately safeguard all such assets and shall 
assure that they are used solely for program authorized purposes unless 
disposition has been made in accordance with Sec.  277.13.
    (5) Controls which minimize the time between the receipt of Federal 
funds from the United States Treasury and their disbursement for program 
costs. In the Letter of Credit system, the State agency shall make 
drawdowns from the U.S. Treasury through a U.S. Treasury Regional 
Disbursing Office as nearly as possible to the time of making the 
disbursements.
    (6) Procedures to determine the reasonableness, allowability, and 
allocability of costs in accordance with the applicable provisions 
prescribed in appendix A to this part.
    (7) Support and source documents for costs.
    (8) An audit trail including identification of time periods, initial 
and summary accounts, cost determination and allocation procedures, cost 
centers or other accounting procedures to support any costs claimed for 
program administration.
    (9) Periodic audits by qualified individuals who are independent of 
those who maintain Federal program funds as prescribed in Sec.  277.17.
    (10) Methods to resolve audit findings and recommendations and to 
follow up on corrective or preventive actions.
    (c) The standards in Sec.  277.6(b) apply to subagencies or 
contractors involved with program funding.



Sec.  277.7  Cash depositories.

    (a) The term ``cash depositories'' refers to banks or other 
institutions which maintain accounts where Food Stamp Program funds are 
deposited and from which withdrawals are made to meet administrative 
costs of the State agency.
    (b) State agencies are encouraged to use minority owned banks to 
expand opportunities for minority enterprises.
    (c) FNS shall not:
    (1) Require physical segregation in a cash depository of program 
funds from other State agency funds.
    (2) Establish any eligibility requirements for cash depositories in 
which program funds are deposited by the State agency.



Sec.  277.8  Bonding and insurance.

    (a) General. In administering FNS program funds, State agencies 
shall observe their regular requirements and practices with respect to 
bonding and insurance. FNS will not impose additional bonding and 
insurance requirements, including fidelity bonding, above those normally 
required by the State agency.
    (b) Loan guarantees. FNS makes no guarantee of any loan or payment 
of money borrowed by a State agency for administering the program. State 
agencies shall not make any assurances to any lender or contractor that 
FNS will furnish funds for loan payments.



Sec.  277.9  Administrative costs principles.

    (a) This section prescribes specific policies and procedures 
governing State agencies for funding under this part.
    (b) The incremental cost of certifying TANF households for Food 
Stamp Program benefits are allowable costs for FNS reimbursement.
    (c) When costs for administering the program are claimed for 
reimbursement, the audit trail must identify the specific activities, 
locations, or time periods as defined in this section.
    (1) Direct cost. Allowable direct costs may be charged to the Food 
Stamp Program at the 50 percent or higher funding level as specified in 
this part.

[[Page 875]]

    (2) Indirect cost. Allowable indirect costs may also be claimed at 
the 50 percent or higher reimbursement funding level as specified in 
this part and appendix A.
    (3) Direct and indirect costs claimed for program cost reimbursement 
must be incurred for the time periods, the activities or for the 
locations for which the rates are approved by FNS.
    (d) All State agency Cost Allocation Plans for determining the costs 
of administering the program must be approved by the cognizant Federal 
agency. All Cost Allocation Plans involving program funds shall be 
submitted to FNS for review.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 385, 65 FR 
33440, May 24, 2000]



Sec.  277.10  Program income.

    (a) Program income is gross income resulting from activities 
financed with program funds. Such earnings exclude interest income but 
include income from service fees, usage or rental fees, sale of assets 
purchased with program funds, and royalties on patents and copyrights.
    (b) Interest earned on advances of program administrative funds 
shall be remitted to FNS except for interest earned on advances to 
States or instrumentalities of a State as provided by the 
Intergovernmental Cooperation Act of 1968 (Pub. L. 90-577) and advances 
to tribal organizations under the Indian Self-Determination Act 
(sections 102 through 104).
    (c) Income resulting from the sale of real and personal property 
whose acquisition cost was borne in whole or in part with Program funds 
shall be remitted to FNS or applied to the Federal share of current 
program costs in accordance with Sec.  277.13. All other sales proceeds 
will be handled in accordance with Sec.  277.13.
    (d) Unless there is a prior agreement between FNS and the State 
agency, the State agency shall have no obligation to FNS with respect to 
royalties received from copyrights or patents produced as a result of 
activities financed with program administrative funds.
    (e) Any other income earned under activities supported by program 
administrative funds may be retained by the State agency if they are 
deducted from the gross program administrative costs for the purposes of 
determining net costs and FNS's share of net cost.
    (f) State agencies shall record the receipt and expenditure of 
revenues such as taxes, special assessments, levies, fines, etc., as a 
part of program fund transactions when such revenues are specifically 
earmarked for program fund projects.



Sec.  277.11  Financial reporting requirements.

    (a) General. This section prescribes requirements for the State 
agencies to report financial information to FNS.
    (b) Authorized forms and instructions. (1) Only forms specified by 
this part, or other forms authorized by FNS, may be used for obtaining 
financial information from State agencies for the program.
    (2) All instructions for use in connection with the form specified 
in Sec.  277.11(c) shall be followed. FNS may prescribe supplementary 
instructions.
    (3) State agencies shall submit the original and two copies of forms 
required by this section unless FNS approves a waiver of this 
requirement.
    (4) The forms and instructions in this part shall be available to 
the State agency and to the public upon request to FNS Regional Offices 
as set out in Sec.  271.6(b).
    (c) Financial status report--(1) Form. State agencies shall use the 
standard Financial Status Report (Form SF-269) to report program costs.
    (2) Freqency. The report (Form SF-269) shall be required quarterly.
    (3) Exceptions. Those State agencies that receive payments under the 
U.S. Treasury check system shall submit to FNS a Quarterly Report of 
Federal Cash Transactions (Form SF-272).
    (4) Due dates. Quarterly reports shall be due April 30 (for the 
period January through March), July 30 (April through June), October 30 
(July through September), January 30 (October through December). Final 
reports are due December 30 for all completed Federal fiscal years 
(October 1 through September 30) or 90 days after termination of Federal 
financial support. Requests from

[[Page 876]]

State agencies for extension of reporting due dates may be approved, if 
necessary.
    (d) Time limit for State agencies to file claims. (1) After the 
deadline in paragraph (c)(4) of this section for the final SF-269 
report, State agencies shall use the form specified by FNS as needed 
within three years of the end of the Federal fiscal year to amend a 
prior expenditure report pertaining to such Federal fiscal year. The 
three-year reporting deadline may be extended by FNS if litigation, an 
audit, or a claim is unresolved at the end of the three-year period. The 
reporting form shall be used to amend prior expenditure reports, and to 
request reimbursement for any additional funding due, or to pay back to 
FNS any inadvertent prior overclaim. Requests for reimbursement will 
only be honored if the claim is filed within the timeframe in paragraph 
(d)(2) of this section. FNS reserves the right to bill State agencies 
for amounts due FNS resulting from an overclaim, even if no reporting 
form has been submitted.
    (2) Subject to the availability of funds from the appropriation for 
the year in which the expenditure was incurred, FNS may reimburse State 
agencies for an allowable expenditure only if the State agency files a 
claim with FNS for that expenditure within two years after the calendar 
quarter in which the State agency (or local agency) incurred the cost. 
FNS will consider non-cash expenditures such as depreciation to have 
been made in the quarter the expenditure was recorded in the accounting 
records of the State agency in accordance with generally accepted 
accounting principles.
    (3) For Automated Data Processing (ADP) expenditures approved under 
Sec.  277.18(c), subject to the availability of funds and required FNS 
approval related to the Advance Planning Document, FNS may reimburse 
State agencies for allowable expenditures at the appropriate rate in 
effect at the time the equipment or service was received only if the 
State agency files for a claim with FNS within two years after the 
calendar quarter in which the cost was incurred. FNS will consider non-
cash expenditures such as depreciation to have been made in the quarter 
the expenditure was recorded in the accounting records of the State 
agency in accordance with generally accepted accounting principles.
    (4) States wishing to request an extension of the deadline in 
paragraphs (d)(2) and (d)(3) of this section must submit the request in 
writing to FNS prior to the applicable deadline. The State agency's 
request for an extension must include a specific explanation, 
justification, and documentation of why the claim will be late and when 
the claim will be filed.
    (5) The time limits in paragraphs (d)(2) and (d)(3) of this section 
will not apply to any of the following:
    (i) Any claim for an adjustment to prior year costs previously 
claimed under an interim rate concept;
    (ii) Any claim arising from an audit exception as defined in this 
section. An audit exception means a proposed adjustment by the 
Department to any expenditure claimed by a State agency by virtue of a 
Federal-or State-initiated audit. The audit must comply with the 
requirements of Sec.  277.17 and 7 CFR part 3015, and must have been 
started within 3 years of the date of submission of the final SF-269 of 
the relevant Federal fiscal year to which it applies.
    (iii) Any claim resulting from a court-ordered retroactive payment. 
However, this provision does not bind FNS to a State or Federal court 
decision when FNS was not a party to the action;
    (iv) Any claim for which FNS determines there was good cause for the 
State agency's not filing it within the time limit. Good cause is 
lateness due to circumstances beyond the State agency's control such as 
Acts of God or documented action or inaction of the Federal Government. 
It does not include neglect or administrative inadequacy on the part of 
the State, State agency, legislature, or any of their offices or 
employees.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 385, 65 FR 
33440, May 24, 2000]



Sec.  277.12  Retention and custody of records.

    (a) Retention period. All financial records, supporting documents, 
statistical records, negotiated contracts, and

[[Page 877]]

all other records pertinent to program funds shall be maintained for 
three years from the date of submission of the annual financial status 
report of the relevant fiscal year to which they apply except that:
    (1) If any litigation, claim, or audit is started before the 
expiration of the three-year period, the applicable records shall be 
retained until these have been resolved.
    (2) In the case of a payment by a State agency to a subagency or 
contractor using program funds, the State agency, USDA, the Comptroller 
General of the United States, or any of their duly authorized 
representatives, shall have access to any book, documents, papers and 
records of the subagency or contractor which the State agency, USDA, or 
the Comptroller General of the United States or any of their duly 
authorized representatives, determine are pertinent to administration of 
the specific FNS program funds, for the purpose of making audit, 
examination, excerpts, and transcripts.
    (b) Restrictions on public access. Unless required by laws, FNS will 
not place restrictions on State agencies which limit public access to 
their rec ords or the records of their subagencies or contractors that 
are pertinent to the administrative funding provided by FNS except when 
the State agency can demonstrate that such records must be kept 
confidential and would have been excepted from disclosure pursuant to 
the Freedom of Information Act (5 U.S.C. 552) if the records had 
belonged to FNS.



Sec.  277.13  Property.

    (a) General. This section prescribes policies and procedures 
governing title, use, disposition of real and personal property for 
which acquisition costs were borne, in whole or in part, as a direct 
charge to FNS funds, and ownership rights or intangible personal 
property developed, in whole or in part, with FNS funds. State agencies 
may follow their own property management policies and procedures 
provided they observe the requirements of this section. With respect to 
property covered by this section, FNS may not impose on State agencies 
any requirement (including property reporting requirements) not 
authorized by this section unless specifically required by Federal laws.
    (b) Nonexpendable personal property--(1) Title. Title to 
nonexpendable personal property whose acquisition cost is borne, in 
whole or in part, by FNS shall vest in the State agency upon 
acquisition, and shall be subject to the restrictions on use and 
dispositions set forth in this section.
    (2) Use. (i) The State agency shall use the property in the program 
as long as there is a need for such property to accomplish the purpose 
of the program.
    (ii) When there is no longer a need for the property to accomplish 
the purpose of the program, the State agency shall use the property 
where needed in administration of other programs in the following order 
of priority:
    (A) Other federally-funded programs of FNS.
    (B) Other federally-funded programs of USDA.
    (C) Other federally-funded programs.
    (iii) When the State agency no longer has need for such property in 
any of its federally financed activities, the property may be used for 
the State agency's own official activities in accordance with the 
following standards:
    (A) If the property had a total acquisition cost of less than 
$1,000, the State agency may use the property without reimbursement to 
FNS.
    (B) For all such property not covered under paragraph (b)(2)(iii)(A) 
of this section, the State agency may retain the property for its own 
use, provided a fair compensation is made to FNS for the FNS share of 
the property. The amount of compensation shall be computed by applying 
the percentage of FNS participation in the cost of the property to the 
current fair market value of the property.
    (3) Disposition. If the State agency has no need for the property, 
disposition of the property shall be made as follows:
    (i) If the property had a total acquisition cost of less than $1,000 
per unit, the State agency may sell the property and retain the 
proceeds.
    (ii) If the property had an acquisition cost of $1,000 or more per 
unit, the State agency shall:

[[Page 878]]

    (A) If instructed to ship the property elsewhere, the State agency 
shall be reimbursed with an amount which is computed by applying the 
percentage of the State agency's participation in the cost of the 
property to the current fair market value of the property, plus any 
shipping or interim storage costs incurred.
    (B) If instructed to otherwise dispose of the property, the State 
agency shall be reimbursed by FNS for the cost incurred in such 
disposition.
    (C) If disposition or other instructions are not issued by FNS 
within 120 days of a request from the State agency, the State agency 
shall sell the property and reimburse FNS an amount which is computed by 
applying the percentage of FNS participation in the cost of the property 
to the sales proceeds. The State agency may, however, deduct and retain 
from FNS's share $100 or 10 percent of the proceeds, whichever is 
greater, for the State agency selling and handling expenses.
    (c) Transfer of title to certain property. (1) Where FNS determines 
that an item of nonexpendable personal property with an acquisition cost 
of $1,000 or more which is to be wholly borne by FNS is unique, 
difficult, or costly to replace, FNS may reserve the right to require 
the State agency to transfer title of the property to the Federal 
Government or to a third party named by FNS.
    (2) Such reservation shall be subject to the following:
    (i) The right to require transfer of title may be reserved only by 
means of an expressed special condition under which funds were 
authorized for acquisition of the property, or, if approval for the 
acquisition of the property is given after the funds are awarded, by 
means of a written stipulation at the time such approval is given.
    (ii) The property must be sufficiently described to enable the State 
agency to determine exactly what property is involved.
    (3) FNS may not exercise the right to reserve until the State agency 
no longer needs the property in the activity for which it was acquired. 
Such need shall be assumed to end with termination of the activity in 
which the property was used unless the State agency continues to use the 
property in other program-related activities after the termination date 
and demonstrates to FNS a continued need for such use in the program.
    (4) To exercise the right, FNS must issue disposition instructions 
to the State agency not later than 120 days after the State agency no 
longer needs the property in the activity for which it was acquired. If 
instructions are not issued within that time, FNS's right shall lapse, 
and the State agency shall act in accordance with the applicable 
standards in paragraphs (b)(2) and (b)(3) of this section.
    (5) The State agency shall be entitled to reimbursement with an 
amount which is computed by applying the percentages of the State 
agency's participation in the acquisition cost of the property to the 
current fair market value of the property, and for any reasonable 
shipping and interim storage costs it incurs pursuant to FNS's 
disposition instructions.
    (d) Property management standards. State agencies' property 
management standards for nonexpendable personal property covered by this 
section shall include the following procedural requirements:
    (1) Property records shall be maintained accurately and provide for:
    (i) A description of the property.
    (ii) Manufacturer's serial number or other identification number.
    (iii) Acquisition date and cost.
    (iv) Source of the property.
    (v) Percentage of FNS funds used in the acquisition of the property, 
or sufficient information to be able to compute the percentage, if and 
when the property is disposed of.
    (vi) Location, use and condition of the property.
    (vii) Ultimate disposition data including sales price or the method 
used to determine current fair market value if the State agency 
reimburses FNS for its share.
    (viii) Trade-in value of any property purchased with Federal funds 
where their trade-in value reduces the acquisition cost of new property.
    (2) A physical inventory of property shall be taken and the results 
reconciled with the property records at least once every two years to 
verify the

[[Page 879]]

existence, current utilization, and continued need for the property.
    (3) A control system shall be in effect to ensure adequate 
safeguards to prevent loss, damage, or theft to the property. Any loss, 
damage, or theft of nonexpendable personal property shall be 
investigated and properly documented.
    (4) Adequate maintenance procedures shall be implemented to keep the 
property in good condition.
    (5) Proper sales procedures shall be implemented to keep the 
property in good condition.
    (e) Expendable personal property--(1) Title. Title to expendable 
personal property, whose acquisition cost was borne in whole or in part 
by FNS, shall vest in the State agency.
    (2) Use. The State agency shall use the property in the program as 
long as there is a need for such property to accomplish the purpose of 
the program.
    (3) Disposition. When there is no longer a need for the property in 
the program and there is a residual inventory exceeding $1,000 the State 
agency shall:
    (i) Use the property in other federally sponsored projects or 
programs;
    (ii) Retain the property for use on non-federally sponsored 
activities; or,
    (iii) Sell it.
    (4) Compensation. FNS must be compensated for its share if the 
alternative in paragraph (e)(3)(i) of this section is not followed. The 
amount of compensation shall be computed in the same manner as for 
nonexpendable personal property.
    (f) Patents and inventions. If any program activity produced 
patents, patent rights, processes or inventions in the course of work 
aided by FNS, such fact shall be promptly and fully reported to FNS. 
Unless there is prior agreement between the State agency and FNS on 
disposition of such items, FNS shall determine whether protection on 
such invention or discovery shall be sought and how the rights in the 
invention or discovery--including rights under any patent issued 
thereon--shall be disposed of and administered in order to protect the 
public interest consistent with ``Government Patent Policy'' 
(President's Memorandum for Heads of Excecutive Departments and 
Agencies, August 23, 1971), and State of Government Patent Policy as 
printed in title 37 CFR, chapters I and II.
    (g) Copyrights. When a program activity results in a book or other 
copyrightable materials, the author or State agency is free to copyright 
the work, but FNS reserves a royalty-free, nonexclusive and irrevocable 
right to reproduce, publish or otherwise use and to authorize others to 
use the work for government purposes. This includes copyrights on ADP 
software as specified in appendix A.



Sec.  277.14  Procurement standards.

    (a) General. This section establishes standards and guidelines for 
the procurement of supplies, equipment, construction and other services 
whose cost is borne in whole or in part by FNS program funds. These 
standards ensure that such materials are obtained in an effective and 
economical manner and in compliance with the provisions of applicable 
Federal law and Executive orders. No additional procurement standards 
will be imposed by FNS upon State agencies unless specifically required 
by Federal law, or Executive orders, or authorized by the Administrator 
for Federal Procurement Policy, Office of Management and Budget.
    (1) These standards do not relieve the State agency of any 
contractual responsibilities under its contracts. The State agency is 
responsible, in accordance with good administrative practice and sound 
business judgment, for the settlement of all contractual and 
administrative issues arising out of procurements entered into in 
support of the program. These include but are not limited to sources 
evaluations, protests, disputes and claims. FNS shall not substitute its 
judgment for that of the State agency unless the matter is primarily a 
Federal concern. Violations of laws shall be referred to the local, 
State or Federal authority having jurisdiction.
    (2) State agencies shall use their own procurement procedures 
provided that procurements paid in whole or in part with FNS program 
funds meet the standards set forth in this part.

[[Page 880]]

    (b) Review of proposed contracts. State agencies shall submit 
proposed contracts and related procurement documents to FNS for preaward 
review and approval when:
    (1) The procurement is expected to exceed $10,000 and is to be 
awarded without competition or only one bid or offer is received in 
response to solicitation;
    (2) The procurement expected to exceed $10,000 specifies a ``brand 
name'' product; or
    (3) FNS has determined that the State agency's procurement 
procedures or operation fails to comply with one or more significant 
aspects of this section.
    (c) Code of conduct. The State agency shall maintain a written code 
or standards of conduct which shall govern the performance of its 
officers, employees, or agents engaged in the award and administration 
of contracts borne in whole or in part with FNS program funds. No 
employee, officer, or agent of the State agency shall participate in the 
selection, or in the award or administration of a contract supported in 
whole or in part by FNS program funds if a conflict of interest, real or 
apparent, would be involved. Such conflict would arise when:
    (1) The employee, officer, or agent;
    (2) Any member of his/her immediate family;
    (3) His or her partner; or
    (4) An organization which employs, or is about to employ, any of the 
above, has a financial or other interest in the firm selected for award. 
The State agency's officers, employees, or agents shall neither solicit 
nor accept gratuities, favors, or anything of monetary value from 
contractors, potential contractors, or parties to subagreements. State 
agencies may set minimum rules where the financial interest is not 
substantial or the gift is an unsolicited item of nominal intrinsic 
value. To the extent permitted by State or local law or regulations, 
such standards of conduct shall provide for penalties, sanctions, or 
other disciplinary actions for violations of such standards by the State 
agency's officers, employees, or agents, or by contractors or their 
agents.
    (d) Procurement procedures. The State agency shall establish 
procurement procedures which provide that proposed procurement actions 
shall be reviewed by State agency officials to avoid the purchase of 
unnecessary or duplicative items. Consideration should be given to 
consolidation or dividing the purchase into smaller units, to obtain a 
more economical purchase. Where appropriate, an analysis shall be made 
of lease versus purchase alternatives, and any other appropriate 
analyses, to determine which approach would be the most economical. To 
foster greater economy and efficiency, State agencies are encouraged to 
enter into State and local intergovernmental agreements for procurement 
or use of common goods and services.
    (e) Contracting with small and minority firms, women's business 
enterprises and labor surplus area firms. (1) It is FNS policy to award 
a fair share of contracts to small and minority business firms. State 
agencies must take affirmative steps to assure that small and minority 
businesses are utilized when possible as sources of supplies, equipment, 
construction and services. State agency affirmative steps shall include 
the following:
    (i) Including qualified small and minority businesses on 
solicitation lists.
    (ii) Assuring that small and minority businesses are solicited 
whenever they are potential sources.
    (iii) When economically feasible, dividing total requirements into 
smaller tasks or quantities so as to permit maximum small and minority 
business participation.
    (iv) Where the requirement permits, establishing delivery schedules 
which will encourage participation by small and minority business.
    (v) Using the services and assistance of the Small Business 
Administration, the Office of Minority Business Enterprise of the 
Department of Commerce and the Community Services Administration, as 
appropriate.
    (vi) If any subcontracts are to be let, requiring the prime 
contractor to take the affirmative steps in paragraphs (e)(1) (i) 
through (v) of this section.
    (2) State agencies shall take similar appropriate affirmative action 
in support of women's business enterprises.

[[Page 881]]

    (3) State agencies are encouraged to procure goods and services from 
labor surplus areas, as defined by the Department of Labor.
    (4) FNS shall impose no additional regulations or requirements in 
the foregoing areas unless specifically mandated by law or Executive 
order.
    (f) Selection procedures. All State agency procurement transactions 
shall be conducted in a manner that provides maximum open and free 
competition with this section. Procurement procedures shall not contain 
features which restrict or eliminate competition. The State agency shall 
have written selection procedures which shall provide, as a minimum, the 
following procedural requirements:
    (1) Solicitation of offers, whether by competitive sealed bid or 
competitive negotiation, shall contain a clear and accurate description 
of the technical requirements for the material, product, or service 
desired. Descriptions shall not, in competitive procurements, contain 
features which unduly restrict competition. Descriptions may include a 
statement of the qualitative nature of the material, product or service 
desired and, when necessary, shall set forth those minimum essential 
characteristics and standards to which it must conform if it is to 
satisfy its intended use. When it is impractical or uneconomical to 
describe clearly and accurately the technical requirements, a ``brand 
name or equal'' description may be used to define the performance or 
requirements of the material, product or service desired. The specific 
features of the named brand which must be met by offerors shall be 
clearly stated. State agencies shall clearly set forth all requirements 
which offerors must fulfill and all other factors to be used in 
evaluating bids or proposals.
    (2) State agencies shall make awards only to responsible contractors 
that possess the potential ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration shall be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (g) Procurement methods. State agency procurements made in whole or 
in part with program funds shall be by one of the following methods:
    (1) Small purchase procedures are those relatively simple and 
informal procurement methods that are sound and appropriate for a 
procurement of services, supplies, or other property, costing in the 
aggregate not more than $10,000. State agencies shall comply with State 
or local small purchase dollar limits under $10,000. If small purchase 
procedures are used for a procurement under the program, price or rate 
quotations shall be obtained from an adequate number of qualified 
sources.
    (2) In competitive sealed bids (formal advertising), sealed bids are 
publicly solicited and a firm-fixed-price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is 
lowest in price.
    (i) In order for the State agency to use this method of procurement 
the following conditions, as a minimum, must prevail:
    (A) A complete, adequate, and realistic specification or purchase 
description is available.
    (B) Two or more responsible suppliers are willing and able to 
compete effectively for the State agency's business.
    (C) The procurement lends itself to a firm-fixed-price contract, and 
selection of the successful bidder can appropriately be made principally 
on the basis of price.
    (ii) If formal advertising is used for a procurement under a grant, 
the following requirements shall apply:
    (A) A sufficient time prior to the date set for opening of bids, 
bids shall be solicited from an adequate number of known suppliers. In 
addition, the invitation shall be publicly advertised.
    (B) The invitation for bids, including specifications and pertinent 
attachments, shall clearly define the items or services needed in order 
for the bidders to properly respond to the invitation.
    (C) All bids shall be opened publicly at the time and place stated 
in the invitation for bids.
    (D) A firm-fixed-price contract award shall be made by written 
notice by the State agency to that responsible bidder whose bid, 
conforming to the invitation for bids, is lowest. Where specified

[[Page 882]]

in the bidding documents, factors such as discounts, transportation 
costs and life cycle costs shall be considered in determining which bid 
is lowest. Payment discounts may only be used to determine low bid when 
prior experience of the State agency indicates that such discounts are 
generally taken.
    (E) Any or all bids may be rejected by the State agency when there 
are sound documented business reasons in the best interest of the 
program.
    (3) In competitive negotiation, proposals are requested from a 
number of sources and the Request for Proposal is publicized, 
negotiations are normally conducted with more than one of the sources 
submitting offers, and either a fixed-price or cost-reimbursable type 
contract is awarded, as appropriate. Competitive negotiation may be used 
if conditions are appropriate for the use of formal advertising. If 
competitive negotiation is used for procurement under a grant, the 
following requirements shall apply:
    (i) Proposals shall be solicited from an adequate number of 
qualified sources to permit reasonable competition consistent with the 
nature and requirements of the procurement. The Request for Proposals 
shall be publicized and reasonable requests by other sources to compete 
shall be honored to the maximum extent practicable.
    (ii) The Request for Proposal shall identify all significant 
evaluation factors, including price or cost where required and their 
relative importance.
    (iii) The State agency shall provide procedures for technical 
evaluation of the proposals received, determinations of responsible 
offerors for the purpose of written or oral discussions, and selection 
for contract award.
    (iv) Award may be made to the responsible offeror whose proposal 
will be most advantageous to the State agency, price and other factors 
considered. Unsuccessful offerors should be notified promptly.
    (v) State agencies may utilize competitive negotiation procedures 
for procurement of architectural/engineering professional services 
whereby competitors' qualifications are evaluated and the most qualified 
competitor is selected subject to negotiation of fair and reasonable 
compensation.
    (4) Noncompetitive negotiation is procurement through solicitation 
of a proposal from only one source, or after solicitation of a number of 
sources, competition is determined inadequate. Noncompetitive 
negotiation may be used when the award of a contract is infeasible under 
small purchase, competitive bidding (formal advertising) or competitive 
negotiation procedures. Awards of contracts by noncompetitive 
negotiation are limited to the following:
    (i) The item is available only from a single source;
    (ii) Public exigency or emergency when the urgency for the 
requirement will not permit a delay incident to competitive procurement;
    (iii) FNS authorizes noncompetitive procurement; or
    (iv) After solicitation of a number of sources, competition is 
determined inadequate.
    (h) Contract pricing. The cost plus a percentage of cost and 
percentage of construction cost method(s) of contracting may not be used 
by a State agency. State agencies shall perform some form of cost or 
price analysis in connection with every procurement action including 
contract modifications. Costs or prices based on estimated costs for 
contracts, paid in whole or in part by FNS program funds, shall be 
allowed only to the extent that costs incurred or cost estimates 
included in negotiated prices are consistent with Federal cost 
principles.
    (i) State agency procurement records. State agencies shall maintain 
records sufficient to detail the significant history of a procurement. 
These records shall include, but are not necessarily limited to, 
information pertinent to the rationale for the method of procurement, 
the selection of contract type, the contract selection or rejection, and 
the basis for the cost or price.
    (j) Contract provisions. In addition to provisions defining a sound 
and complete procurement contract, State agencies shall include the 
following contract provisions or conditions in all procurement contracts 
and subcontracts as required by this provision, Federal law, or FNS:

[[Page 883]]

    (1) Contracts other than small purchases shall contain provisions or 
conditions which will allow for administrative, contractual, or legal 
remedies in instances where contractors violate or breach contract 
terms, and provide for such sanctions and penalties as may be 
appropriate.
    (2) All contracts in excess of $10,000 shall contain suitable 
provisions for termination by the State agency including the manner by 
which it will be effected and the basis for settlement. In addition, 
such contracts shall describe conditions under which the contract may be 
terminated for default as well as conditions where the contract may be 
terminated because of circumstances beyond the control of the 
contractor.
    (3) All contracts awarded in excess of $10,000 by State agencies and 
their contractors or subagencies shall contain a provision requiring 
compliance with Executive Order 11246, entitled ``Equal Employment 
Opportunity,'' as amended by Executive Order 11375, and as supplemented 
in Department of Labor regulations (29 CFR part 60).
    (4) All contracts and subcontracts for construction or repair shall 
include a provision for compliance with the Copeland ``Anti-Kickback'' 
Act (18 U.S.C. 874) as supplemented in Department of Labor regulations 
(29 CFR part 3). This Act provides that each contractor or subagency 
shall be prohibited from inducing, by any means, any person employed in 
the construction, completion, or repair of public work, to give up any 
part of the compensation to which he is otherwise entitled. The State 
agency shall report all suspected or reported violations to FNS.
    (5) Where applicable, all contracts awarded by State agencies and 
subagencies in excess of $2,000 for construction contracts in excess of 
$2,500 for other contracts which involve the employment of mechanics or 
laborers shall include a provision for compliance with sections 103 and 
107 of the Contract Work Hours and Safety Standards Act (40 U.S.C. 327 
through 330) as supplemented by Department of Labor regulations (29 CFR 
part 5). Under section 103 of the Act, each contractor shall be required 
to compute the wages of every mechanic and laborer on the basis of a 
standard work day of 8 hours and a standard work week of 40 hours. Work 
in excess of the standard work day or work week is permissible provided 
that the work is compensated at a rate of not less than 1\1/2\ times the 
basic rate for all hours worked in excess of 8 hours in any calendar day 
or 40 hours in the work week. Section 107 of the Act is applicable to 
construction work and provides that no laborer or mechanic shall be 
required to work in surroundings or under working conditions which are 
unsanitary, hazardous, or dangerous to his health and safety as 
determined under construction, safety, and health standards promulated 
by the Secretary of Labor. These requirements do not apply to the 
purchases of supplies or materials or articles ordinarily available on 
the open market, or contracts for transportation or transmission of 
intelligence.
    (6) The contract shall include notice of FNS requirements and 
regulations pertaining to reporting and print rights under any contract 
involving research, developmental, experimental, or demonstration work 
with respect to any discovery or invention which arises or is developed 
in the course of or under such contract, and of FNS requirements and 
regulations pertaining to copyrights and rights to data so derived.
    (7) All negotiated contracts (except those awarded by small 
purchases procedures) awarded by State agencies shall include a 
provision to the effect that the State agency, FNS, the Comptroller 
General of the United States, or any of their duly authorized 
representatives, shall have access to any books, documents, papers, and 
records of the contractor which are directly pertinent to that specific 
contract, for the purpose of making audit, examination, excerpts, and 
transcriptions. State agencies shall require contracts to maintain all 
required records for three years after the State agency makes final 
payments or all other pending matters are closed, whichever is last.
    (8) Contracts, subcontracts, and subgrants of amounts in excess of 
$100,000 shall contain a provision which requires compliance with all 
applicable standards, orders, or requirements

[[Page 884]]

issued under section 306 of the Clean Air Act, section 508 of the Clean 
Water Act, Executive Order 11738, and Environmental Protection Agency 
(EPA) regulations, which prohibit the use under nonexempt Federal 
contract, grants, or loans of facilities included on the EPA List of 
Violating Facilities. The provision shall require reporting of 
violations to the FNS and to the USEPA Assistant Administrator for 
Enforcement.
    (9) Contracts shall recognize mandatory standards and policies 
relating to energy efficiency which are contained in the State energy 
conservation plan issued in compliance with the Energy Policy and 
Conservation Act (Pub. L. 94-165).
    (k) Contract administration. State agencies shall maintain a 
contract administration system insuring that contractors perform in 
accordance with the terms, conditions, and specifications of their 
contracts or purchase orders.



Sec.  277.15  [Reserved]



Sec.  277.16  Suspension, disallowance and program closeout.

    (a) Suspension. When a State agency has materially failed to comply 
with any of the provisions contained in the Act, regulations, or FNS-
approved State Plan of Operation, FNS may, after written notification to 
the State agency, temporarily withhold some or all Federal 
reimbursements for costs of administration of the Food Stamp Program in 
accordance with Sec.  276.4. Adjustments will be made either by 
adjusting the Letter of Credit authorization or by not allowing the 
State agency to withdraw funds.
    (b) Disallowance. (1) FNS may disallow costs in accordance with part 
276 and effect nonpayment for some or all costs incurred by a State 
agency which are normally allowable but are determined by FNS to be 
nonreimbursable because the State agency has failed to comply with any 
of the provisions contained in the Act, regulations, or FNS-approved 
State Plan of Operation.
    (2) FNS may also disallow costs and institute recovery of Federal 
funds when a State agency fails to adhere to the cost principles of this 
part and appendix A.
    (c) Offsets to the Letter of Credit. (1) FNS may recover funds when 
owed by the State agency to FNS through offsets to the Letter of Credit. 
Offsets shall include:
    (i) Costs determined by FNS to be disallowed under the provisions of 
this part;
    (ii) Unallowable costs resulting from audit or investigation 
findings;
    (iii) Amounts owed which have been billed to the State agency and 
which the State agency has failed to pay without cause acceptable to 
FNS; or
    (iv) Amounts owed to FNS for title IV reimbursements and recipient 
claims collections which were reported on the FNS-209 and which the 
State agency has failed to pay.
    (2) The amounts recovered through the offset procedure should be in 
one lump sum. If recovery of funds through the offset procedure is not 
possible in one lump sum, FNS shall make appropriate adjustments to 
recover the funds in not more than three fiscal years.
    (d) Program transfer or termination. (1) When termination or 
transfer of a State program has been agreed upon by FNS, the following 
closeout procedure shall be observed:
    (i) Upon request, FNS shall make or arrange for prompt payment to 
the State agency for allowable costs not covered by previous payments.
    (ii) The State agency shall immediately refund to FNS any 
unobligated balance of cash withdrawn by the State agency for the 
administration of the program in the affected State or Indian 
reservation.
    (iii) The State agency shall submit to FNS within 90 days after the 
date of termination of the program, all required financial, performance, 
and other reports. FNS may grant extensions when requested by the State 
agency.
    (iv) FNS shall adjust the amount authorized by the Letter of Credit 
in order to effect payment of any amounts due the State agency, and if 
appropriate, shall bill the State agency for any amounts due to FNS. The 
amounts of such billings shall be promptly remitted to FNS.

[[Page 885]]

    (v) In the event a final audit has not been performed prior to the 
closeout of the program, FNS shall retain the right to disallow costs or 
recover funds resulting from the final audit findings.
    (2) Provisions of Sec.  277.13 apply for any property acquired with 
program funds or received from the Federal Government in connection with 
the program and which was in use in the affected project area or areas.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 342, 59 FR 
2733, Jan. 19, 1994]



Sec.  277.17  Audit requirements.

    (a) General. This section sets forth the audit requirements for 
State agencies that receive FNS program funds. Audits shall be conducted 
on an organization-wide basis. Such audits are to determine whether:
    (1) Financial operations are conducted properly;
    (2) The financial statements are presented fairly;
    (3) The organization has complied with laws and regulations 
affecting the expenditure of Federal funds;
    (4) Internal procedures have been established to meet the objectives 
of federally assisted programs; and
    (5) Financial reports to the Federal Government contain accurate and 
reliable information.

Except where required by law, no additional requirements for audit will 
be imposed by FNS unless approved by the Office of Management and Budget 
(OMB). The provisions of this section do not limit the authority of FNS 
to make audits of State agencies, their subdivisions, and subcontracts. 
However, if independent audits arranged for by State agencies meet the 
requirements prescribed herein, FNS shall rely on them, and any 
additional audit work already done.
    (b) Audit standards. (1) State agencies shall use their own 
procedures to arrange for independent audits, and to prescribe the scope 
of audits, provided that the audits comply with the requirements set 
forth in this section. Where contracts are awarded for audit services, 
the contracts shall include a reference to OMB Circular A-102, 
Attachment P.
    (2) Audits shall be made in accordance with the General Accounting 
Office ``Standards for Audit of Governmental Organizations, Programs, 
Activities, and Functions, the Guidelines for Financial and Compliance 
Audits of Federally Assisted Program,'' and any compliance supplements 
approved by OMB, and generally accepted auditing standards established 
by the American Institute of Certified Public Accountants.
    (c) Purpose of audit. Audits will include, at a minimum, an 
examination of the systems of internal control, systems established to 
ensure compliance with laws and regulations affecting the expenditure of 
Federal funds, financial transactions and accounts, and financial 
statements and reports of State agencies. These examinations are to 
determine whether:
    (1) There is effective control over and proper accounting for 
revenues expenditures, assets, and liabilities.
    (2) The financial statements are presented fairly in accordance with 
generally accepted accounting principles.
    (3) The Federal financial reports (including Financial Status 
Reports, Cash Reports, and claims for advances and reimbursements) 
contain accurate and reliable financial data; and are presented in 
accordance with the terms of applicable agreements, and in accordance 
with Attachment H of OMB Circular A-102.
    (4) Federal funds are being expended in accordance with the terms of 
applicable agreements and those provisions of Federal law or regulations 
that could have a material effect on the financial statements or on the 
awards tested.
    (d) Audit coverage. A representative number of charges to Federal 
funds shall be tested. The test shall be representative of:
    (1) The universe of Federal funds received, and
    (2) All cost categories that materially affect the award. The test 
is to determine whether the charges:
    (i) Are necessary and reasonable for the proper administration of 
the program;
    (ii) Conform to any limitations or exclusions in the award;

[[Page 886]]

    (iii) Were given consistent accounting treatments and applied 
uniformly to both federally assisted and other activities of the State 
agency;
    (iv) Were net of applicable credits;
    (v) Did not include costs property chargeable to other federally 
assisted programs;
    (vi) Were properly recorded (i.e., correct amount, date) and 
supported by source documentation;
    (vii) Were approved in advance, if subject to prior approval in 
accordance with Financial Management Circular 74-4;
    (viii) Were incurred in accordance with competitive purchasing 
procedures, if covered by OMB Circular A-102, Attachment O; and
    (ix) Were allocated equitably to benefiting activities, including 
non-Federal activities.
    (3) Audits usually will be made annually, but not less frequently 
than every two years.
    (4) If the auditors become aware of irregularities in the State 
agency, subagency or subcontractor, the auditor shall promptly notify 
the cognizant agency and State agency management officials above the 
level of involvement. Irregularities include such matters as conflict of 
interest, falsification of records or reports, and misappropriation of 
funds and other assets.
    (e) Audit report. The audit report shall include:
    (1) Financial statements, including footnotes, of the State agency, 
subagency, or subcontractor organization.
    (2) The auditor's comments on the financial statements which should:
    (i) Identify the statements examined and the period covered.
    (ii) Identify the various programs under which the organization 
received Federal funds, and the amounts received for each program.
    (iii) State that the audit was done in accordance with paragraph (d) 
of this section.
    (iv) Express an opinion as to whether the financial statements are 
fairly presented in accordance with generally accepted accounting 
principles. If an unqualified opinion cannot be expressed, state the 
nature of the qualification.
    (3) The auditor's comments on compliance and internal control which 
should:
    (i) Include comments on weaknesses in and noncompliance with the 
systems of internal control, separately identifying material weaknesses.
    (ii) Identify the nature and impact of any noted instances of 
noncompliance with the terms of agreements and those provisions of 
Federal law or regulation that could have a material effect on the 
financial statements and reports.
    (iii) Contain an expression of positive assurance with respect to 
compliance with requirements for tested items, and negative assurance 
for untested items.
    (4) Comments on the accuracy and completeness of financial reports 
and claims for advances or reimbursements to Federal agencies.
    (5) Comments on corrective action taken or planned by the State 
agency.
    (f) Record retention. Work paper and reports shall be retained for a 
minimum of three years from the date of the audit report unless the 
auditor is notified in writing by the cognizant agency of the need to 
extend the retention period. The audit workpapers shall be made 
available upon request to the cognizant agency or its designees and the 
General Accounting Office or its designees.
    (g) Cognizant agency responsibilities. The cognizant agency shall 
have the following responsibilities:
    (1) Obtain or make quality assessment reviews of the work of non-
Federal audit organizations, and provide the results to other interested 
audit agencies. If a non-Federal audit organization is responsible for 
audits of State agencies that have different cognizant audit agencies, a 
single quality assessment review will be arranged.
    (2) Assure that all audit reports of State agencies that affect 
federally assisted programs are received, reviewed, and distributed to 
appropriate Federal audit officials. These officials will be responsible 
for distributing audit reports to their program officials.
    (3) Whenever significant inadequacies in an audit are disclosed, the 
State agency will be advised and the auditor will be called upon to take 
corrective

[[Page 887]]

action. If corrective action is not taken, the cognizant agency shall 
notify the State agency and Federal awarding agencies of the facts and 
its recommendation. Major inadequacies or repetitive substandard 
performance of independent auditors shall be referred to appropriate 
professional bodies.
    (4) Assure that satisfactory audit coverage is provided in a timely 
manner and in accordance with the provisions of this section.
    (5) Provide technical advice and act as a liaison between Federal 
agencies, independent auditors and State agencies.
    (6) Maintain a followup system on audit findings and investigative 
matters to assure that audit findings are resolved.
    (7) Inform other affected audit agencies of irregularities 
uncovered. The audit agencies, in turn, shall inform all appropriate 
officials in their agencies. State or local government law enforcement 
and prosecuting authorities shall also be informed of irregularities 
within their jurisdiction.
    (8) Recipients shall require subrecipients that are local 
governments of Indian tribal governments to adopt the requirements in 
paragraphs (d) through (f) of this section. The recipient shall ensure 
that the subrecipient audit reports are received as required, and shall 
submit the reports to the cognizant agency. The cognizant agency will 
have the responsibility for those reports described in paragraph (g) of 
this section.



Sec.  277.18  Establishment of an Automated Data Processing (ADP) and 
Information Retrieval System.

    (a) Scope and application. This section establishes conditions for 
initial and continuing authority to claim Federal financial 
participation (FFP) for the costs of the planning, development, 
acquisition, installation and implementation of ADP equipment and 
services used in the administration of the Food Stamp Program. Due to 
the nature of the procurement of ADP equipment and services, current 
State agency approved cost allocation plans for ongoing operational 
costs shall not apply to ADP system development costs under this section 
unless documentation required under paragraph (c) of this section is 
submitted to and approvals are obtained from FNS.
    (b) Definitions:
    Acceptance Documents means written evidence of satisfactory 
completion of an approved phase of work or contract, and acceptance 
thereof by the State agency.
    Advance Planning Document for Project Implementation or 
Implementation APD means a written plan of action requesting Federal 
financial participation (FFP) to acquire and implement ADP services and/
or equipment.
    Advance Planning Document for Project Planning or Planning APD means 
a brief written plan of action that requests FFP to accomplish the 
planning necessary for a State agency to determine the need for and plan 
the acquisition of ADP equipment and/or services, and to acquire 
information necessary to prepare an Implementation APD.
    Advance Planning Document Update (APDU) means an annual self-
certification by the State agency on the status of project development 
activities and expenditures in relation to the approved Planning APD or 
Implementation APD. An APDU may also be submitted as needed to request 
funding approval for project continuation whenever significant project 
changes occur or are anticipated.
    Automated Data Processing or ADP means data processing performed by 
a system of electronic or electrical machines so interconnected and 
interacting as to minimize the need for human assistance or 
intervention.
    Automated Data Processing Equipment or hardware means:
    (1) Electronic digital computers, regardless of size, capacity, or 
price, that accept data input, store data, perform calculations, and 
other processing steps, and prepare information;
    (2) All peripheral or auxiliary equipment used in support of 
electronic digital computers whether selected and acquired with the 
computer or separately;
    (3) Data transmission or communications equipment that is selected 
and acquired solely or primarily for use with a configuration of ADP 
equipment

[[Page 888]]

which includes an electronic digital computer; and
    (4) Data input equipment used to enter directly or indirectly into 
an electronic digital computer, peripheral or auxiliary equipment, or 
data transmission, or communication equipment.
    Automated Data Processing Services means:
    (1) Services to operate ADP equipment, either by private sources, or 
by employees of the State agency, or by State or local organizations 
other than the State agency; and/or
    (2) Services provided by private sources or by employees of the 
State agency or by State and local organizations other than the State 
agency to perform such tasks as feasibility studies, system studies, 
system design efforts, development of system specifications, system 
analysis, programming and system implementation. This includes system 
training, systems development, site preparation, data entry, and 
personal services related to automated systems development and 
operations that are specifically identified as part of a Planning APD or 
Implementation APD.
    Data Processing means the preparation of source media containing 
data or basic elements of information and the use of such source media 
according to precise rules of procedures to accomplish such operations 
as classifying, sorting, calculating, summarizing, recording, and 
transmitting.
    Emergency situation means a situation where:
    (1) The State agency can demonstrate to FNS an immediate need to 
acquire ADP equipment or services in order to continue operation of the 
Food Stamp Program; and
    (2) The State agency can clearly document that the need could not 
have been anticipated or planned for and the need prevents the State 
from following the prior approval requirements of Sec.  277.18(c).
    Feasibility Study means a preliminary study to determine whether it 
is sufficiently probable that effective and efficient use of ADP 
equipment or systems would warrant a substantial investment of staff, 
time, and money being requested, and whether the plan can be 
accomplished successfully.
    Functional Requirements Specification means an initial definition of 
the proposed system, which documents the goals, objectives, user or 
programmatic requirements, the operating environment, and the proposed 
design methodology, e.g., centralized or distributed. This document 
details what the new system and/or hardware should do, not how it is to 
do it. The Specification document shall be based upon a clear and 
accurate description of the functional requirements for the project, and 
shall not, in competitive procurements, lead to requirements which 
unduly restrict competition.
    General Systems Design means a combination of narrative and diagrams 
describing the generic architecture of a system as opposed to the 
detailed architecture of the system. A general systems design may 
include a systems diagram; narrative identifying overall logic flow and 
systems functions; a description of equipment needed (including 
processing, data transmission and storage requirements); a description 
of other resource requirements which will be necessary to operate the 
system; a description of system performance requirements; and a 
description of the environment in which the system will operate, 
including how the system will function within that environment.
    Regular funding or regular FFP rate means any Federal reimbursement 
rate authorized by Sec.  277.4(b).
    Request for Proposal or RFP means the document used for public 
solicitations of competitive proposals from qualified sources as 
outlined in Sec.  277.14(g)(3).
    Service Agreement means the document, described in Sec.  277.18(f), 
signed by the State or local agency and the State or local central data 
processing facility whenever a central data processing facility provides 
ADP services to the State or local agency.
    Software means a set of computer programs, procedures, and 
associated documentation used to operate the hardware.
    System specifications means information about the new ADP systems, 
such as: Workload descriptions, input data, information to be maintained 
and processed, data processing techniques, and output data, which is 
required to determine the ADP equipment and software

[[Page 889]]

necessary to implement the system design.
    System study means the examination of existing information flow and 
operational procedures within an organization. The study consists of 
three basic phases: Data gathering or investigation of the present 
system and new information requirements; analysis of the data gathered 
in the investigation; and synthesis, or refitting, of the parts and 
relationships uncovered through the analysis into an efficient system.
    (c) General acquisition requirements--(1) Requirement for prior FNS 
approval. A State agency shall obtain prior written approval from FNS as 
specified in paragraph (c)(2) of this section when it plans to acquire 
ADP equipment or services with proposed FFP that it anticipates will 
have total acquisition costs of $5 million or more in Federal and State 
funds. This applies to both competitively bid and sole source 
acquisitions. A State agency shall also obtain prior written approval 
from FNS of its justification for a sole source acquisition when it 
plans to acquire ADP equipment or services non-competitively from a 
nongovernmental source which has a total State and Federal acquisition 
cost of more than $1 million but no more than $5 million. The State 
agency shall request prior FNS approval by submitting the Planning APD, 
the Implementation APD or the justification for the sole source 
acquisition signed by the appropriate State official to the FNS Regional 
Office. However, a State agency shall obtain prior written approval from 
FNS for the acquisition of ADP equipment or services to be utilized in 
an EBT system regardless of the cost of the acquisition.
    (2) Specific prior approval requirements. (i) For ADP equipment and 
services acquisitions which require prior approval as specified in 
paragraph (c)(1) of this section, the State agency shall obtain the 
prior written approval of FNS for:
    (A) The Planning APD prior to entering into contractual agreements 
or making any other commitment for acquiring the necessary planning 
services;
    (B) The Implementation APD prior to entering into contractual 
agreements or making any other commitment for the acquisition of ADP 
equipment or services.
    (ii) For ADP equipment and services acquisitions requiring prior 
approval as specified in paragraph (c)(1) of this section, prior 
approval of the following documents associated with such acquisitions is 
also required:
    (A) RFP's; unless specifically exempted by FNS, the State agency 
shall obtain prior written approval of the RFP before the RFP may be 
released. However, RFPs costing up to $5 million for competitive 
procurements and up to $1 million for noncompetitive acquisitions from 
non-governmental sources and which are an integral part of the approved 
APD need not be submitted to FNS. States will be required to submit RFPs 
under this threshold amount on an exception basis or if the procurement 
strategy is not adequately described and justified in an APD. The State 
agency shall obtain prior written approval from FNS for Request for 
Proposals which are associated with an EBT system regardless of the 
cost.
    (B) Contracts; unless specifically exempted by FNS, the State agency 
shall obtain prior written approval before the contract may be signed by 
the State agency. However, contracts costing up to $5 million for 
competitive procurements and up to $1 million for noncompetitive 
acquisitions from nongovernmental sources, and which are an integral 
part of the approved APD need not be submitted to FNS. States will be 
required to submit contracts under this threshold amount on an exception 
basis or if the procurement strategy is not adequately described and 
justified in an APD. The State agency shall obtain prior written 
approval from FNS for contracts which are associated with an EBT system 
regardless of the cost.
    (C) Contract amendments; unless specifically exempted by FNS, the 
State agency shall obtain prior written approval before the contract 
amendment may be signed by the State agency. However, contract 
amendments involving cost increases of up to $1 million or time 
extensions of up to 120 days, and which are an integral part of the 
approved APD need not be submitted to FNS. States will be required to 
submit contract amendments under these

[[Page 890]]

threshold amounts on an exception basis or if the contract amendment is 
not adequately described and justified in an APD. Amendments to 
contracts for EBT systems shall be permitted within the approved funding 
cap. State agencies shall submit copies of any contract amendments or 
contract extensions to FNS with an accompanying analysis of the impact 
the changes would have upon the approved issuance cap.
    (iii) The State agency must obtain prior written approval from FNS 
as specified in paragraphs (c)(2) (i) and (ii) of this section in order 
to claim and receive reimbursement for the associated costs of the ADP 
acquisition.
    (3) Approval requirements. (i) For ADP equipment and service 
acquisitions requiring prior approval as specified in paragraph (c)(1) 
of this section, the State agency shall submit the following documents 
to FNS for approval:
    (A) Feasibility studies, when specifically required by FNS as a 
condition of approving the Planning APD. When required by FNS for 
approval, the State agency shall submit the feasibility study no later 
than 90 days after its completion.
    (B) APD Updates, as required by paragraph (e) of this section, on an 
annual or as needed basis.
    (ii) The State agency must obtain FNS approval of the documents 
specified in paragraph (c)(3)(i) of this section in order to claim and 
receive reimbursement for the associated costs of the ADP acquisition.
    (4) Approval by the State agency. Approval by the State agency is 
required for all documents specified in this regulation prior to 
submission for FNS approval. In addition, State agency approval is also 
required for those acquisitions of ADP equipment and services not 
requiring prior approval by FNS.
    (5) Prompt action on requests for prior approval. FNS will reply 
promptly to State requests for prior approval. If FNS has not provided 
written approval, disapproval or a request for additional information 
within 60 days of FNS' letter acknowledging receipt of the State's 
request, the request will be deemed to have provisionally met the prior 
approval requirement in paragraph (c) of this section. However, 
provisional approval will not exempt a State from having to meet all 
other Federal requirements which pertain to the acquisition of ADP 
equipment and services. Such requirements remain subject to Federal 
audit and review.
    (d) APD content requirements--(1) Planning APD. The State agency may 
request FFP for the costs of determining the need for and planning the 
acquisition of ADP equipment or services through the submission of the 
Planning APD. The State agency may request FFP for the costs of planning 
activities beginning with initial project inception through the 
performance of necessary systems and alternatives analyses, selection 
and design, including the completion of a general systems design. The 
Planning APD shall contain the following information:
    (i) The State agency's description of the programmatic and 
organizational needs and/or problems to be addressed by the proposed ADP 
acquisition and the specific objectives to be accomplished under the 
Planning APD;
    (ii) The State agency's commitment to complete the following, where 
appropriate, as part of project planning activities: a functional 
requirements specification document, feasibility study, alternatives 
analysis, cost-benefit analysis, and a general system design. If an 
existing ADP system is to be transferred, the State agency may plan to 
use the general system design of the transferred system.
    (iii) The State agency's description of the organization, required 
State and contractual resources and availability of those resources, and 
the assignments of roles and responsibilities for project planning 
activities. The State agency shall include a description of resources to 
be procured and procurement methods;
    (iv) The State agency's schedule of activities and deliverables 
during project planning, including a description and schedule of 
procurement activities to be undertaken in support of the planning 
project; and
    (v) A proposed budget which shall identify costs for project 
planning activities by Federal fiscal year. The budget shall include an 
estimate of

[[Page 891]]

prospective cost distribution to participating Federal agencies and the 
method for cost allocation. The State agency shall also include an 
estimate of the total project costs, including both the cost of the 
planning project and the cost of any eventual ADP equipment and/or 
services acquisition, which will be used only for determining whether 
the threshold of Sec. Sec.  277.18(c)(1) is met. An estimate of total 
project cost for an EBT system shall not be required to be incorporated 
into the Planning APD budget.
    (2) Implementation APD. The State agency may request FFP to acquire 
ADP equipment and services through the submission of the Implementation 
APD. The State agency may request FFP for the necessary activities to 
develop, acquire, install and implement the proposed ADP system or 
acquisition. The Implementation APD shall contain the following 
information, where appropriate:
    (i) The State agency shall complete and submit a functional 
requirements specification document;
    (ii) The State agency shall submit a feasibility study and 
associated alternatives analyses, which include the transfer or 
modification of an existing system from a similar State or jurisdiction 
in the examination of alternatives. State agencies which reject the 
transfer or modification of an existing system must provide an analysis 
describing the barriers to system transfer as part of the feasibility 
study. The analysis of barriers to system transfer shall include a 
comparison of the costs of overcoming the problem in transferring an 
operational system to the costs of developing a new system;
    (iii) The State agency shall submit the new or transferred general 
systems design and shall also document the intended approaches, plans 
and techniques to develop or modify specific aspects of the proposed ADP 
system or acquisition including hardware, software, telecommunications, 
system testing, and data security;
    (iv) The State agency shall describe the anticipated resource 
requirements for implementation of the ADP project, the resources 
planned to be available for the project, and plans for augmenting 
resources to meet resource requirements;
    (v) The State agency shall indicate the principal events and 
schedule of activities, milestones, and deliverables during 
implementation of the project;
    (vi) The State agency shall submit a proposed budget which 
identifies costs for intended project development and implementation 
activities by Federal fiscal year and shall include a consideration of 
all possible Implementation APD activity costs (e.g., system conversion, 
computer capacity planning, supplies, training, and miscellaneous ADP 
expenses). The budget shall contain an estimate of prospective cost 
distribution and methods for allocating costs to participating Federal 
agencies;
    (vii) The State agency shall document the scope, methodology, 
evaluation criteria and results of cost-benefit analyses for evaluating 
the selected design and alternatives. The cost-benefit analysis shall 
include a statement indicating the period of time the State agency 
intends to use the proposed equipment or system; and
    (viii) The State agency shall describe the security and interface 
requirements to be employed and the backup and contingency procedures 
available.
    (3) APD Budget. The proposed budget for both the Planning APD and 
the Implementation APD shall include cost distribution plans containing 
the bases for proposed rates, both direct and indirect, for costs 
associated with system planning, development, acquisition or 
implementation, as appropriate. The budget proposals accompanying the 
Implementation APD shall also include proposed cost distribution plans 
and the bases of proposed rates for the operation of the ADP system. The 
budget activities shall be presented on a Federal fiscal year basis in a 
clear fashion to associate costs with each planned activity. The budgets 
must identify all development costs separately from any ongoing 
operational costs. Costs must be distinguished by developmental projects 
and developmental time periods. Actual costs claimed must be 
reconciliable to projected costs as proposed and approved by FNS in the 
APD.
    (e) APD Update--(1) General submission requirements. The State 
agency

[[Page 892]]

shall submit an APD Update for FNS approval for all approved Planning 
and Implementation APD's when total acquisition costs exceed $5 million. 
The APD Update shall be submitted to the FNS Regional Office within 90 
days after the annual anniversary date of the original APD approval, 
unless the submission date is specifically altered by FNS.
    (2) Content requirements. The APD Update represents a self-
certification by the State agency of project status in relation to the 
provisions of the approved Planning APD and Implementation APD. The 
Annually Updated APD shall include:
    (i) Project activity status. (A) The status of all major tasks and 
milestones in the approved Planning APD, Implementation APD or previous 
APD Update's for the past year. The APD Update shall include all major 
tasks and milestones completed in the past year and degree of completion 
for unfinished tasks.
    (B) The status of all project deliverables completed in the past 
year and degree of completion for unfinished products.
    (C) Reports of past and/or anticipated problems or delays in meeting 
target dates in the approved Planning APD, Implementation APD or 
previous APD Update's for the remainder of the project. The Annually 
Updated APD shall include an explanation of the need to extend any major 
project target dates.
    (ii) Project expenditures. (A) A detailed accounting for all 
expenditures for project development over the past year.
    (B) An explanation of differences between projected expenses in the 
approved Planning or Implementation APD, or previous APD Update's, and 
actual expenditures for the past year. If changes in costs are reported, 
FNS may require the submission of a revised cost-benefit analysis as a 
condition for approval of the APD Update.
    (C) Changes to the allocation basis in the approved APD's cost 
allocation methodology.
    (iii) Changes to the approved APD.
    (A) Revised language for all changes to the approved APD or previous 
APD Updates shall be submitted as part of the APD Update, unless 
submitted separately by the State agency as the changes occurred 
throughout the year.
    (B) Changes in project management and/or contractor services.
    (3) Submission as needed. In addition to the requirement for 
approval of an APD Update on an annual basis, as specified in paragraph 
(e)(1) of this section, the State agency may submit an APD Update on a 
more frequent or as needed basis, in order to obtain a commitment of FFP 
whenever significant project changes occur. Without such approval, the 
State agency is at risk for funding of project activities which are not 
in compliance with the terms and conditions of the approved APD and 
subsequently approved APD Updates, until such time as approval is 
specifically granted by FNS. At a minimum, the State agency should 
consider submission of an APD Update whenever any of the following 
changes occur or are anticipated:
    (i) A significant increase ($1 million or more) in total project 
costs;
    (ii) A significant schedule extension (60 days or more) for major 
milestones;
    (iii) A significant change in procurement approach, and/or scope of 
procurement activities beyond that approved in the APD;
    (iv) A change in system concept, or a change to the scope of the 
project; or
    (v) A change to the approved cost allocation methodology.
    (f) Service agreements. The State agency shall execute service 
agreements when data processing services are to be provided by a State 
central data processing facility or another State or local agency. 
Service agreements shall be kept on file by the State agency and be 
available for Federal review, and shall:
    (1) Identify the ADP services that will be provided;
    (2) Include, preferably as an amendable attachment, a schedule of 
charges for each identified ADP service, and a certification that these 
charges apply equally to all users;
    (3) Include a description of the method(s) of accounting for the 
services rendered under the agreement and computing services charges;
    (4) Include assurances that services provided will be timely and 
satisfactory;

[[Page 893]]

    (5) Include assurances that information in the computer system as 
well as access, use and disposal of ADP data will be safeguarded in 
accordance with provisions of Sec.  272.1(c) and Sec.  277.13;
    (6) Require the provider to obtain prior approval pursuant to Sec.  
277.18(c)(1) from FNS for ADP equipment and ADP services that are 
acquired from commercial sources primarily to support the Food Stamp 
Program and requires the provider to comply with Sec.  277.14 for 
procurements related to the service agreement. ADP equipment and 
services are considered to be primarily acquired to support the Food 
Stamp Program when the Program may reasonably be expected to either be 
billed for more than 50 percent of the total charges made to all users 
of the ADP equipment and services during the time period covered by the 
service agreement, or directly charged for the total cost of the 
purchase or lease of ADP equipment or services;
    (7) Include the beginning and ending dates of the period of time 
covered by the service agreement; and
    (8) Include a schedule of expected total charges to the Program for 
the period of the service agreement.
    (g) Conditions for receiving FFP.--(1) A State agency may receive 
FFP at the 50 percent reimbursement rate for the costs of planning, 
design, development or installation of ADP and information retrieval 
systems if the proposed system will:
    (i) Assist the State agency in meeting the requirements of the Food 
Stamp Act;
    (ii) Meet the program standards specified in Sec.  272.10(b)(1), 
(b)(2), and (b)(3) of this chapter, except for the requirements in Sec.  
272.10(b)(2)(vi), (b)(2)(vii), and (b)(3)(ix) of this chapter to 
eventually transmit data directly to FCS;
    (iii) Be likely to provide more efficient and effective 
administration of the program; and
    (iv) Be compatible with such other systems utilized in the 
administration of State agency plans under the program of Temporary 
Assistance for Needy Families (TANF).
    (2) State agencies seeking FFP for the planning, design, development 
or installation of automated data processing and information retrieval 
systems shall develop Statewide systems which are integrated with TANF. 
In cases where a State agency can demonstrate that a local, dedicated, 
or single function (issuance or certification only) system will provide 
for more efficient and effective administration of the program, FNS may 
grant an exception to the Statewide integrated requirement. These 
exceptions will be based on an assessment of the proposed system's 
ability to meet the State agency's need for automation. Systems funded 
as exceptions to this rule, however, should be capable to the extent 
necessary, of an automated data exchange with the State agency system 
used to administer TANF. In no circumstances will funding be available 
for systems which duplicate other State agency systems, whether 
presently operational or planned for future development.
    (h) Emergency acquisition requirements. The State agency may request 
FFP for the costs of ADP equipment and services acquired to meet 
emergency situations which preclude the State agency from following the 
prior approval requirements of Sec.  277.18(c). FNS may provide FFP in 
emergency situations if the following conditions are met:
    (1) The State agency must submit a written request to FNS prior to 
the acquisition of any ADP equipment or services. The written request 
must be sent by registered mail and shall include:
    (i) A brief description of the ADP equipment and/or services to be 
acquired and an estimate of their costs;
    (ii) A brief description of the circumstances which result in the 
State agency's need to proceed with the acquisition prior to obtaining 
formal FNS approval; and
    (iii) A description of the adverse impact which would result if the 
State agency does not immediately acquire the ADP equipment and/or 
services.
    (2) Upon receipt of a written request for emergency acquisition FNS 
shall provide a written response to the State agency within 14 days. The 
FNS response shall:
    (i) Inform the State agency that the request has been disapproved 
and the reason for disapproval; or,

[[Page 894]]

    (ii) Inform the State agency that FNS recognizes that an emergency 
situation exists and the State agency must submit a formal request for 
approval by FNS which includes the information specified at Sec.  
277.18(d)(2) within 90 days from the date of the State agency's initial 
written request.
    (iii) If FNS approves the request submitted under paragraph (h)(1) 
of this section, FFP will be available from the date the State agency 
acquires the ADP equipment and services.
    (i) Cost determination and claiming costs--(1) Cost determination. 
Actual costs must be determined in compliance with an FNS approved 
budget and appendix A to this part, and must be reconcilable with the 
FNS funding level. There shall be no payments pursuant to this section 
to the extent that a State agency is reimbursed for such costs pursuant 
to any other Federal program or uses ADP systems for purposes not 
connected with the Food Stamp Program. The State agency approved cost 
allocation plan must be amended to disclose the methods which will be 
used to identify and classify costs to be claimed. This methodology must 
be submitted to FNS as part of the request for FNS approval of funding 
as required in paragraph (d)(3) of this section. Any costs funded 
pursuant to these regulations shall be excluded in determining the State 
agency's administrative costs under any other section of this part.
    (2) Cost identification for purposes of FFP claims. State agencies 
shall assign and claim the costs incurred under an approved APD in 
accordance with the following criteria:
    (i) Development costs. Using its normal departmental accounting 
system, the State agency shall specifically identify what items of costs 
constitute development costs, assign these costs to specific project 
cost centers, and distribute these costs to funding sources based on the 
specific identification, assignment and distribution outlined in the 
approved APD. The methods for distributing costs set forth in the APD 
should provide for assigning identifiable costs, to the extent 
practicable, directly to program/functions. The State agency shall amend 
the cost allocation plan required by Sec.  277.9 to include the approved 
APD methodology for the identification, assignment and distribution of 
the development costs.
    (ii) Operational costs. Costs incurred for the operation of an ADP 
system shall be identified and assigned by the State agency to funding 
sources in accordance with the approved cost allocation plan required by 
Sec.  277.9.
    (iii) Service agreement costs. States that operate a central data 
processing facility shall use their approved central service cost 
allocation plan required by OMB Circular A-87 to identify and assign 
costs incurred under service agreements with the State agency. The State 
agency shall then distribute these costs to funding sources in 
accordance with paragraphs (i)(2)(i) and (i)(2)(ii) of this section.
    (3) Capital expenditures. The State agency shall charge the costs of 
ADP equipment having unit acquisition costs or total aggregate costs, at 
the time of acquisition, of more than $25,000 by means of depreciation 
or use allowance, unless a waiver is specifically granted by FNS. If the 
equipment acquisition is part of an APD that is subject to the prior 
approval requirements of paragraph (c)(2) of this section, the State 
agency may submit the waiver request as part of the APD.
    (4) Claiming costs. Prior to claiming funding under this section the 
State agency shall have complied with the requirements for obtaining 
approval and prior approval of Sec.  277.18(c).
    (5) Budget authority. FNS approval of requests for funding shall 
provide notification to the State agency of the budget authority and 
dollar limitations under which such funding may be claimed. FNS shall 
provide this amount as a total authorization for such funding which may 
not be exceeded unless amended by FNS. FNS's determination of the amount 
of this authorization shall be based on the budget submitted by the 
State agency. Activities not included in the approved budget, as well as 
continuation of approved activities beyond scheduled deadlines in the 
approved plan, shall require FNS approval of an amended State budget for 
payment. Requests to amend the budget authorization approved by FNS 
shall be submitted to FNS prior to claiming such expenses.

[[Page 895]]

    (j) Procurement requirements. (1) Procurements of ADP equipment and 
services are subject to the procurement standards prescribed by Sec.  
277.14 regardless of any conditions for prior approval, except the 
requirements of Sec.  277.14(b)(1) and (2) regarding review of proposed 
contracts. Those standards include a requirement for maximum practical 
open and free competition regardless of whether the procurement is 
formally advertised or negotiated.
    (2) The standards prescribed by Sec.  277.14, as well as the 
requirement for prior approval, apply to ADP services and equipment 
acquired by a State or local agency, and the ADP services and equipment 
acquired by a State or local central data processing facility primarily 
to support the Food Stamp Program.
    (3) The competitive procurement policy prescribed by Sec.  277.14 
shall be applicable except for ADP services provided by the agency 
itself, or by other State or local agencies.
    (k) Access to the system and records. Access to the system in all 
aspects, including but not limited to design, development, and 
operation, including work performed by any source, and including cost 
records of contractors and subcontractors, shall be made available by 
the State agency to FNS or its authorized representatives at intervals 
as are deemed necessary by FNS, in order to determine whether the 
conditions for approval are being met and to determine the efficiency, 
economy and effectiveness of the system. Failure to provide full access 
by appropriate State and Federal representatives to all parts of the 
system shall result in suspension and/or termination of Food Stamp 
Program funds for the costs of the system and its operation.
    (l) Ownership rights--(1) Software(i) The State or local government 
shall include a clause in all procurement instruments which provides 
that the State or local government shall have all ownership rights in 
any software or modifications thereof and associated documentation 
designed, developed or installed with FFP under this section.
    (ii) FNS reserves a royalty-free, nonexclusive, and irrevocable 
license to reproduce, publish, or otherwise use and to authorize others 
to use for Federal Government purposes, such software, modifications, 
and documentation.
    (iii) Proprietary operating/vendor software packages (e.g., ADABAS 
or TOTAL) which are provided at established catalog or market prices and 
sold or leased to the general public shall not be subject to the 
ownership provisions in paragraphs (l)(1)(i) and (l)(1)(ii) of this 
section. FFP is not available for proprietary applications software 
developed specifically for the Food Stamp Program.
    (2) Automated data processing equipment. The policies and procedures 
governing title, use and disposition of property purchased with Food 
Stamp Program funds, which appear at 7 CFR 277.13 are applicable to 
automated data processing equipment.
    (m) Use of ADP systems. ADP systems designed, developed or installed 
with FFP shall be used for the period of time specified in the APD, 
unless FNS determines that a shorter period is justified.
    (n) Basis for continued Federal financial participation. FNS will 
continue FFP at the levels approved in the Planning APD and the 
Implementation APD provided that project development proceeds in 
accordance with the conditions and terms of the approved APD and that 
ADP resources are used for the purposes authorized. FNS will use the APD 
Update to monitor ADP project development. The submission of the report 
prescribed in Sec.  277.18(e) for the duration of project development is 
a condition for continued FFP. In addition, periodic onsite reviews of 
ADP project development and State and local agency ADP operations may be 
conducted by or for FNS to assure compliance with approved APD's, proper 
use of ADP resources, and the adequacy of State or local agency ADP 
operations.
    (o) Disallowance of Federal financial participation. If FNS finds 
that any ADP acquisition approved under the provisions of Sec.  
277.18(c) fails to comply with the criteria, requirements, and other 
undertakings described in the approved or modified APD, payment of FFP 
may be disallowed.

[[Page 896]]

    (p) ADP system security requirements and review process--(1) ADP 
system security requirements. State and local agencies are responsible 
for the security of all ADP projects under development, and operational 
systems involved in the administration of the Food Stamp Program. State 
and local agencies shall determine appropriate ADP security requirements 
based on recognized industry standards or standards governing security 
of Federal ADP systems and information processing.
    (2) ADP security program. State agencies shall implement and 
maintain a comprehensive ADP Security Program for ADP systems and 
installations involved in the administration of the Food Stamp Program. 
ADP Security Programs shall include the following components.
    (i) Determination and implementation of appropriate security 
requirements as prescribed in paragraph (p)(1) of this section.
    (ii) Establishment of a security plan and, as appropriate, policies 
and procedures to address the following areas of ADP security:
    (A) Physical security of ADP resources;
    (B) Equipment security to protect equipment from theft and 
unauthorized use;
    (C) Software and data security;
    (D) Telecommunications security;
    (E) Personnel security;
    (F) Contingency plans to meet critical processing needs in the event 
of short- or long-term interruption of service;
    (G) Emergency preparedness; and
    (H) Designation of an Agency ADP Security Manager.
    (iii) Periodic risk analyses. State agencies shall establish and 
maintain a program for conducting periodic risk analyses to ensure that 
appropriate, cost-effective safeguards are incorporated into new and 
existing systems. In addition, risk analyses shall be performed whenever 
significant system changes occur.
    (3) ADP system security reviews. State agencies shall review the ADP 
system security of installations involved in the administration of the 
Food Stamp Program on a biennial basis. At a minimum, the reviews shall 
include an evaluation of physical and data security, operating 
procedures, and personnel practices. State agencies shall maintain 
reports of their biennial ADP system security reviews, together with 
pertinent supporting documentation, for Federal on-site review.
    (4) Applicability. The security requirements of this section apply 
to all ADP systems used by State and local governments to administer the 
Food Stamp Program.
    (5) Costs. Costs incurred for complying with the provisions of 
paragraphs (p)(1) through (p)(3) of this section are considered regular 
administrative costs which are funded at the regular FFP level.

[Amdt. 319, 55 FR 4355, Feb. 7, 1990, as amended by Amdt. 345, 57 FR 
11259, Apr. 1, 1992; Amdt. 342, 59 FR 2733, Jan. 19, 1994; Amdt. 368, 61 
FR 33643, June 28, 1996; Amdt. 385, 65 FR 33440, May 24, 2000]

 Appendix A to Part 277--Principles for Determining Costs Applicable to 
       Administration of the Food Stamp Program by State Agencies

    This appendix sets forth the procedures implementing uniform 
requirements for the negotiations and approval of cost allocation plans 
with State agencies, in accordance with the provisions of Federal 
Management Circular (FMC) 74-4 and OASC-10, ``Cost Principles and 
Procedures for Establishing Cost Allocation Plans and Indirect Cost 
Rates for Grants and Contracts with the Federal Government,'' U.S. 
Department of Health, Education, and Welfare. This material is adapted 
substantially from the circular; changes have been made only when 
necessary in order to conform with legislative constraints.
    (A) Purpose and scope.
    (1) Objectives. This appendix sets forth principles for determining 
the allowable costs of administering the Food Stamp Program by State 
agency under FNS-approved State Plans of Operation. The principles are 
for the purpose of cost determination and are not intended to identify 
the circumstances or dictate the extent of Federal and State or local 
participation in the financing of the Program. They are designed to 
provide that all federally assisted programs bear their fair share of 
costs recognized under these principles, except where restricted or 
prohibited by law. No provision for profit or other increment above cost 
is intended.
    (2) Policy guides. The application of these principles is based on 
the fundamental premises that:

[[Page 897]]

    (a) State agencies are responsible for the efficient and effective 
administration of the Food Stamp Program through the application of 
sound management practice.
    (b) The State agency assumes the responsibility for seeing that Food 
Stamp Program funds have been expended and accounted for consistent with 
underlying agreements and program objectives.
    (c) Each State agency, in recognition of its own unique combination 
of staff facilities and experience, will have the primary responsibility 
for employing whatever form of organization and management techniques as 
may be necessary to assure proper and efficient administration.
    (3) Application. These principles will be applied by FNS in 
determining costs incurred by State agencies receiving FNS payments for 
administering the Food Stamp Program.
    (B) Definitions.
    Approval or authorization by FNS means documentation evidencing 
consent prior to incurring specific costs.
    Cognizant Federal Agency means the Federal agency recognized by OMB 
as having the predominate interest in terms of program dollars.
    Cost allocation plan means the documentation identifying, 
accumulating, and distributing allowable costs of program administration 
together with the allocation methods used.
    Cost, as used herein, means cost as determined on a cash, accrual, 
or other basis acceptable to FNS as a discharge of the State agency's 
accountability for FNS funds.
    Cost center means a pool, summary account, objective or area 
established for the accumulation of costs. Such areas include objective 
organizational units, functions, objects or items of expense, as well as 
ultimate cost objective(s) including specific costs, products, projects, 
contracts, programs and other operations.
    Federal agency means FNS and also any department, agency, 
commission, or instrumentality in the executive branch of the Federal 
Government which makes grants to or contracts with State or local 
governments.
    Payments for administrative costs means reimbursement or advances 
for costs to State agencies pursuant to any agreement whereby FNS 
provides funds to carry out programs, services, or activities in 
connection with administration of the Food Stamp Program. The principles 
and policies stated in this appendix as applicable to program payments 
in general also apply to any State agency obligations under a cost 
reimbursement type of agreement performed by a subagency, including 
contracts and subcontracts.
    Food Stamp Program administration means those activities and 
operations of the State agency which are necessary to carry out the 
purposes of the Food Stamp Act, including any portion of the Program 
financed by the State agency.
    Local unit means any political subdivision of government below the 
State level.
    Other agencies of the State means departments or agencies of the 
State or local unit which provide goods, facilities, and services to a 
State agency.
    Subagencies means the organization or person to which a State agency 
makes any payment for acquisition of goods, materials or services for 
use in administering the Food Stamp Program and which is accountable to 
the State agency for the use of the funds provided.
    Service, as used herein, means goods and facilities, as well as 
services.
    Supporting services means auxiliary functions necessary to sustain 
the direct effort of administering the Program. These services may be 
centralized in the State agency or in some other agency, and include 
procurement, payroll, personnel functions, maintenance and operation of 
space, data processing, accounting, budgeting, auditing, mail and 
messenger service, and the like.
    (C) Basic guidelines.
    (1) Factors affecting allowability of costs. To be allowable under 
the Program, costs must meet the following general criteria:
    (a) Be necessary and reasonable for proper and efficient 
administration of the Program, be allocable thereto under these 
principles, and, except as specifically provided herein, not be a 
general expense required to carry out the overall responsibilities of 
State or local governments.
    (b) Be authorized or not prohibited under State or local laws or 
regulations.
    (c) Conform to any limitations or exclusions set forth in these 
principles, Federal Laws, or other governing limitations as to types or 
amounts of cost items.
    (d) Be consistent with policies, regulations, and procedures that 
apply uniformly to both federally assisted and other activities of the 
unit of government of which the State agency is a part.
    (e) Be accorded consistent treatment through application of 
generally accepted accounting principles appropriate to the 
circumstances.
    (f) Not be allocable to or included as a cost to any other federally 
financed program in either the current or a prior period.
    (g) Be the net of all applicable credits.
    (2) Allocable costs.
    (a) A cost allocable to a particular cost objective to the extent of 
benefits received by such objective.
    (b) Any cost allocable to a particular program or cost objective 
under these principles may not be shifted to other Federal programs to 
overcome fund deficiencies, avoid restrictions imposed by law or grant 
agreement, or for other reasons.

[[Page 898]]

    (c) Where an allocation of joint cost will ultimately result in 
charges to the Program, an allocation plan will be required as 
prescribed in section I of these principles.
    (3) Applicable credits.
    (a) Applicable credits refer to those receipts or reduction of 
expenditure-type transactions which offset or reduce expense items 
allocable to programs as direct or indirect costs. Examples of such 
transactions are: Purchase discounts; rebates or allowances; recoveries 
or indemnities on losses; sale of publications, equipment, and scrap; 
income from personal or incidental services; and adjustments of 
overpayments or erroneous charges.
    (b) Applicable credits may also arise when Federal funds are 
received or are available from sources other than FNS to finance 
operations or capital items donated or financed by the Federal 
Government to fulfill matching requirements under another program. These 
types of credits should likewise be used to reduce related expenditures 
in determining the rates or amounts applicable to a given program.
    (D) Composition of cost.
    (1) Total cost. The total cost of a program is comprised of the 
allowable direct cost incident to its performance, plus its allocable 
portion of allowable indirect costs, less applicable credit.
    (2) Classification costs. There is no universal rule for classifying 
certain costs as either direct or indirect under every accounting 
system. A cost may be direct with respect to some specific service or 
function, but indirect with respect to a program or other ultimate cost 
objective. However, it is essential that each item of cost be treated 
consistently either as a direct or an indirect cost. Specific guides for 
determining direct and indirect costs allocable under the Program are 
provided in the section which follows.
    (E) Direct costs.
    (1) General. Direct costs are those that can be identified 
specifically with a particular cost objective. These costs may be 
charged directly to the Program, contracts, or to other programs against 
which costs are finally lodged. Direct costs may also be charged to cost 
objectives used for the accumulation of costs pending distribution in 
the course to programs and other ultimate costs objectives.
    (2) Application. Typical direct costs chargeable to the Program are:
    (a) Compensation of employees for the time and effort devoted 
specifically to the administration of the Program.
    (b) Cost of materials acquired, consumed, or expended specifically 
for the purpose of the Program.
    (c) Equipment and other approved capital expenditures.
    (d) Other items of expense incurred specifically for efficiently and 
effectively administering the Program.
    (e) Service furnished specifically for the Program by other 
agencies, provided such charges are consistent with criteria outlined in 
section G of these principles.
    (F) Indirect costs.
    (1) General. Indirect costs are those (a) incurred for a common or 
joint purpose benefiting more than one cost objective, and (b) not 
readily assignable to the cost objectives specifically benefited, 
without effort disproportionate to the result achieved. The term 
indirect cost as used herein applies to costs of this type originating 
in the State agency, as well as those incurred by other departments in 
supplying goods, services, and facilities, to the State agency. To 
facilitate equitable distribution of indirect expenses to the cost 
objectives served, it may be necessary to establish a number of pools of 
indirect costs within a State agency or in other agencies providing 
services to a State agency. Indirect cost pools should be distributed to 
benefiting cost objectives on bases which will produce an equitable 
result in consideration of relative benefits derived.
    (2) State agency indirect costs. All State agency indirect costs, 
including the various levels of supervision, are eligible for allocation 
to the program provided they meet the conditions set forth in their 
principles. In lieu of determining the actual amount of State agency 
indirect cost allocable to the program the following methods may be 
used:
    (a) Predetermined fixed rates for indirect costs. A predetermined 
fixed rate for computing indirect costs applicable to program 
administration may be negotiated annually in situations where the cost 
experience and other pertinent facts available are deemed sufficient to 
enable the parties to reach an informed judgment (1) as to the probable 
level of indirect costs in the State agency during the period to be 
covered by the negotiated rate, and (2) that the amount allowable under 
the predetermined rate would not exceed actual indirect costs.
    (b) Negotiated lump sum for overhead. A negotiated fixed amount in 
lieu of indirect costs may be appropriate under circumstances where the 
benefits derived from a State agency's indirect services cannot be 
readily determined as in the case of a small self-contained or isolated 
activity. When this method is used, a determination should be made that 
the amount negotiated will be approximately the same as the actual 
indirect cost that may be incurred. Such amounts negotiated in lieu of 
indirect costs will be treated as an offset to total indirect expenses 
of the State agency before allocation to remaining activities. The base 
on which such remaining expenses are allocated should be appropriately 
adjusted.
    (3) Limitation on indirect costs.

[[Page 899]]

    (a) Some Federal programs may be subject to laws that limit the 
amount of indirect cost that may be allowed. Agencies that sponsor 
programs of this type will establish procedures which will assure that 
the amount actually allowed for indirect costs under each such program 
does not exceed the maximum allowable under the statutory limitation or 
the amount otherwise allowable under these principles, whichever is the 
smaller.
    (b) When the amount allowable under a statutory limitation is less 
than the amount otherwise allocable as indirect costs under these 
principles, the amount not recoverable as indirect costs under a program 
may not be shifted to another federally sponsored program or contract.
    (G) Cost incurred by other agencies of the State.
    (1) General. The cost of service provided by other agencies may only 
include allowable direct costs of the service plus a pro rata share of 
allowable supporting costs and supervision directly required in 
performing the service, but not supervision of a general nature such as 
that provided by the head of a department and his staff assistants not 
directly involved in operations. However, supervision by the head of a 
department or agency whose sole function is providing the service 
furnished would be an eligible cost. Supporting costs include those 
furnished by other units of the supplying department or by other 
agencies.
    (2) Alternative methods of determining indirect cost. In lieu of 
determining actual indirect cost related to a particular service 
furnished by other agencies of the State, either of the following 
alternative methods may be used provided only one method is used for a 
specific service during the fiscal year involved.
    (a) Standard indirect rate. An amount equal to ten percent of direct 
labor cost in providing the service performed by other agencies of the 
State (excluding overtime, shift, or holiday premiums, and fringe 
benefits) may be allowed in lieu of actual allowable indirect cost for 
that service.
    (b) Predetermined fixed rate. A predetermined fixed rate for 
indirect cost of the unit or activity providing service may be 
negotiated as set forth in section F(2)(a) of these principles.
    (H) Cost incurred by State agency for others. The principles 
provided in section G will also be used in determining the cost of 
services provided by the State agency to another agency.
    (I) Cost allocation plan.
    (1) A cost allocation will be required to support the distribution 
of any indirect costs. All costs allocable to the Food Stamp Program 
under cost allocation plans will be supported by formal accounting 
records which will substantiate the propriety of eventual charges.
    (2) There are two types of cost allocation plans:
    (a) Statewide or central service cost allocation plan identifies and 
distributes the cost of services provided by support organizations to 
those departments or units participating in Federal programs.
    (b) Indirect cost proposals distribute the administrative or joint 
costs incurred by the State agency and the cost of service allocable to 
it under the Statewide or central service cost allocation plan in a 
ratio to all work performed by the State agency. The process involves 
applying a percentage relationship of indirect cost to direct cost.
    (3) Requirements. The cost allocation plan of the State agency shall 
cover all allocated costs of the department as well as costs to be 
allocated under plans of other agencies or organizational units which 
are to be included in the costs of federally sponsored programs. The 
cost allocation plans of all the agencies rendering services to the 
State agency, to the extent feasible, should be presented in a single 
document.
    (4) Instructions for preparation of cost allocation plans. The 
Department of Health and Human Services, in consultation with the other 
Federal agencies concerned, will be responsible for developing and 
issuing the instructions for use by State agencies in preparation of 
cost allocation plans. This responsibility applies to both central 
support services at the State and local government level and indirect 
cost proposals of individual State agencies.
    (5) Submitting plans for approval.
    (a) Responsibility for approving cost allocation plans for 
individual State agencies has been assigned by the Office of Management 
and Budget to the cognizant Federal agency.
    (b) State cost allocation plans must be submitted to the cognizant 
Federal agency within six months after the last day of the State's 
fiscal year. Upon request by the State agency, an extension of time for 
submittal of the cost allocation plan may be granted by the cognizant 
Federal agency. It is essential that cost allocation plans be submitted 
in a timely manner. Failure to submit the plans when required will cause 
the State agency to become delinquent. In the event a State becomes 
delinquent, FNS will not provide for the recovery of central service and 
indirect costs, and such costs already made and claimed against Food 
Stamp Program funds will be subject to disallowance.
    (6) Negotiation and approval of cost allocation plans for States. 
The cognizant Federal agency, in collaboration with Federal agencies 
concerned, will be responsible for negotiation, approval, and audit of 
cost allocation plans.

[[Page 900]]

    (7) Negotiation and approval of cost allocation plans for local 
governments. Cost allocation plans will be retained at the local 
government level for audit by the cognizant Federal agency except in 
those cases where that agency requests that cost allocation plans be 
submitted to it for negotiation and approval.
    (8) A current list of cognizant Federal agencies is maintained by 
the Office of Management and Budget.
    (9) Resolution of problems. The Office of Management and Budget will 
lend assistance in resolving problems encountered by Federal agencies on 
cost allocation plans.
    (10) Approval by FNS. FNS reserves the right to disapprove costs not 
meeting the general criteria outlined in section C of these principles. 
FNS shall promptly notify the State agency in writing of the 
disapproval, the reason for the disapproval and the effective date. 
Costs incurred by State agencies after disapproval may not be charged to 
FNS unless if FNS subsequently approves the cost.

                  Standards for Selected Items of Cost

    A. Allowable cost. Standards for allowabil ity of costs are 
established by Federal Management Circular 74-4. These standards will 
apply regardless of whether a particular item of cost is treated as 
direct or indirect. Failure to mention a particular item of cost in 
these standards is not intended to imply that it is either allowable or 
unallowable. Rather, determination of allowability in each case should 
be based on the treatment of standards provided for similar or related 
items of cost. The allowability of the selected items of cost is subject 
to the general policies and principles as stated in Attachment A to 
Federal Management Circular 74-4.
    (1) Accounting. The cost of establishing and maintaining accounting 
and other information systems required for the management of the Food 
Stamp Program is allowable. This includes costs incurred by central 
service agencies of the State government for these purposes. The cost of 
maintaining central accounting records required for overall State or 
local government purposes, such as appropriation and fund accounts by 
the Treasurer, Comptroller, or similar officials, is considered to be a 
general expense of government and is not allowable.
    (2) Advertising. Advertising media includes newspapers, magazines, 
radio and television programs, direct mail, trade papers, and the like. 
The advertising costs allowable are those which are solely for:
    (a) Recruitment of personnel required for the Program;
    (b) Solicitation of bids for the procurement of goods and services 
required;
    (c) Disposal of scrap or surplus materials acquired in the 
performance of the agreement; and
    (d) Other purposes specifically provided for by FNS regulations or 
approved by FNS in the administration of the Food Stamp Program.
    (3) Advisory councils. Costs incurred by State advisory councils or 
committees established to carry out Food Stamp Program goals are 
allowable. The cost of like organizations is allowable when used to 
improve the efficiency and effectiveness of the Program.
    (4) Audit service. The cost of audits necessary for the 
administration and management of functions related to the Program is 
allowable.
    (5) Bonding. Costs of premiums on bonds covering employees who 
handle Food Stamp Program funds or food coupons are allowable. The 
amount of allowable coverage shall be limited to the anticipated maximum 
amount of food stamp funds or food coupons handled at one time by that 
employee.
    (6) Budgeting. Costs incurred for the development, preparation, and 
execution of budgets are allowable. Costs for services of a central 
budget office are generally not allowable since these are costs of 
general government. However, where employees of the central budget 
office actively participate in the State agency's budget process, the 
cost of services identifiable to the Food Stamp Program are allowable.
    (7) Building lease management. The administrative cost for lease 
management which includes review of lease proposals, maintenance of a 
list of available property for lease, and related activities is 
allowable.
    (8) Central stores. The cost of maintaining and operating a central 
stores organization for supplies, equipment, and materials used either 
directly or indirectly for the Food Stamp Program is allowable.
    (9) Communications. Communication costs incurred for telephone calls 
or service, telegraph, teletype service, wide area telephone service 
(WATS), centrex, telpak (tie lines), postage, messenger service and 
similar expenses are allowable.
    (10) Compensation for personal services.
    (a) General. Compensation for personal services includes all 
remuneration, paid currently or accrued, for services rendered during 
the period of performance in the administration of the program including 
but not necessarily limited to wages, salaries, and supplementary 
compensation and benefits as defined in section A.(13) of these 
principles. The costs of such compensation are allowable to the extent 
that total compensation for individual employees: is reasonable for the 
services rendered; follows an appointment made in accordance with State 
or local government laws and rules and which meets Federal Merit System 
or other requirements, where applicable; and is determined and supported 
as provided in section A of these principles. Compensation for employees 
engaged

[[Page 901]]

in federally assisted activities will be considered reasonable to the 
extent that it is consistent with that paid for similar work in other 
activities of the State or local government. In cases where the kinds of 
employees required for the Food Stamp Program activities are not found 
in the other activities of the State or local government, compensation 
will be considered reasonable to the extent that it is comparable to 
that paid for similar work in the labor market in which the employing 
government competes for the kind of employees involved. Compensation 
surveys providing data representative of the labor market involved will 
be an acceptable basis for evaluating reasonableness.
    (b) Payroll and distribution of time. Amounts charged to the program 
for personal services, regardless of whether treated as direct or 
indirect costs, will be based on payrolls documented and approved in 
accordance with the generally accepted practice of the State or local 
agency. Payrolls must be supported by time and attendence or equivalent 
records for individual employees. Distribution of salaries and wages of 
employees chargeable to more than one program or other cost objective 
will be supported by appropriate time reports or approved time study 
methodologies. The method used should be included in the cost allocation 
plan and should be approved by FNS.
    (11) Depreciation and use allowance.
    (a) State agencies may be compensated for the use of buildings, 
capital improvements, and equipment through use allowances or 
depreciation. Use allowances are the means of providing compensation in 
lieu of depreciation or other equivalent costs. However, a combination 
of the two methods may not be used in connection with a single class of 
fixed assets.
    (b) The computation of depreciation or use allowances will be based 
on acquisition cost. Where actual cost records have not been maintained, 
a reasonable estimate of the original acquisition cost may be used in 
the computation. The computation will exclude the cost of any portion of 
the cost of buildings and equipment donated or borne directly or 
indirectly by the Federal Government through charges to Federal programs 
or otherwise, irrespective of where title was originally vested or where 
it presently resides. In addition, the computation will also exclude the 
cost of acquisition of land. Depreciation or a use allowance on idle or 
excess facilities is not allowable, except when specifically authorized 
by FNS.
    (c) Where the depreciation method is followed, adequate property 
records must be maintained, and any generally accepted method of 
computing depreciation may be used. However, the method of computing 
depreciation must be consistently applied for any specific asset or 
class of assets for all affected federally sponsored programs and must 
result in equitable charges considering the extent of the use of the 
assets for the benefit of such programs.
    (d) In lieu of depreciation, a use allowance for buildings and 
improvements may be computed at an annual rate not exceeding two percent 
of acquisition cost. The use allowance for equipment (excluding items 
properly capitalized as building cost) will be computed at an annual 
rate not exceeding six and two-thirds percent of acquisition cost of 
usable equipment.
    (e) No depreciation or use charge may be allowed on any assets that 
would be considered as fully depreciated, provided, however, that 
reasonable use charges may be negotiated for any such assets if 
warranted after taking into consideration the cost of the facility or 
item involved, the estimated useful life remaining at time of 
negotiation, the effect of any increased maintenance charges or 
decreased efficiency due to age, and any other factors pertinent to the 
utilization of the facility or item for the purpose contemplated.
    (12) Disbursing service. The cost of disbursing program funds by the 
State Treas urer or other designated officer is allowable. Disbursing 
services cover the processing of checks or warrants, from preparation to 
redemption, including the necessary records of accountability and 
reconciliation of such records with related cash accounts.
    (13) Employee fringe benefits. Costs identified are allowable to the 
extent that total compensation for employees is reasonable as defined in 
paragraph (10)(a) of these principles.
    (a) Employee benefits in the form of regular compensation paid to 
employees during periods of authorized absences from the job, such as 
for annual leave, sick leave, court leave, military leave, and the like, 
if they are provided pursuant to an approved leave system, and the cost 
thereof is equitably allocated to all related activities, including 
federally assisted programs.
    (b) Employee benefits in the form of employers' contributions or 
expense for social security, employees' life and health insurance plans, 
unemployment insurance coverage, workers' compensation insurance, 
pension plans, severance pay, and the like, provided such benefits are 
granted under approved plans and are distributed equitably to programs 
and to other activities.
    (14) Employee morale, health And welfare costs. The costs of health 
or first-aid clinics and/or infirmaries, recreational facilities, 
employees' counseling services, employee information publications, and 
any related expenses incurred in accordance with general State or local 
policy, are allowable. Income generated from any of these activities 
will be offset against expenses.

[[Page 902]]

    (15) Exhibits. Costs of exhibits relating specifically to the Food 
Stamp Program are allowable.
    (16) Legal expenses. The cost of legal expenses required in the 
administration of the program is allowable. Legal services furnished by 
the chief legal officer of a State or local government or his staff 
solely for the purpose of discharging his general responsibilities as 
legal officer are unallowable. Legal expenses for the prosecution of 
claims against the Federal Government is unallowable.
    (17) Maintenance and repair. Costs incurred for necessary 
maintenance, repair, or upkeep of property which neither add to the 
permanent value of the property nor appreciably prolong its intended 
life, but keep it in an efficient operating condition, are allowable.
    (18) Materials and supplies. The cost of materials and supplies 
necessary to carry out the program is allowable. Purchases made 
specifically for the program should be charged thereto at their actual 
prices after deducting all cash discounts, trade discounts, rebates, and 
allowances received by the State agency. Withdrawals from general stores 
or stockrooms should be charged at cost under any recognized method of 
pricing consistently applied. Incoming transportation charges are a 
proper part of material cost.
    (19) Memberships, subscriptions and professional activities.
    (a) The cost of membership in civic, business, technical, and 
professional organizations is allowable, provided:
    (i) The benefit from the membership is related to the program,
    (ii) The expenditure is for agency membership,
    (iii) The cost of the membership is reasonably related to the value 
of the services or benefits received, and
    (iv) The expenditure is not for membership in an organization which 
devotes a substantial part of its activities to influencing legislation.
    (b) Reference material. The cost of books, and subscriptions to 
civic, business, professional, and technical periodicals is allowable 
when related to the program.
    (c) Meetings and conferences. Costs are allowable when the primary 
purpose of the meeting is the dissemination of technical information 
relating to the program and they are consistent with regular practices 
followed for other activities of the State agency.
    (20) Motor pools. The costs of a service organization which provides 
automobiles to user State agencies at a mileage or fixed rate and/or 
provides vehicle maintenance, inspection and repair services are 
allowable.
    (21) Payroll preparation. The cost of preparing payrolls and 
maintaining necessary wage records is allowable.
    (22) Personnel administration. Costs for the recruitment, 
examination, certification, classification, training, establishment of 
pay standards, and related activities for the program are allowable.
    (23) Printing and reproduction. Cost for printing and reproduction 
services necessary for program administration including but not limited 
to forms, reports, manuals, and information literature, is allowable. 
Publication costs of reports or other media relating to program 
accomplishments or results are allowable.
    (24) Procurement service. The cost of procurement service, including 
solicitation of bids, preparation and award of contracts, and all phases 
of contract administration in providing goods, facilities and services 
for the program is allowable.
    (25) Prosecution activities. The costs of investigations and 
prosecutions of intentional Food Stamp Program violations are allowable. 
Costs of investigation, prosecution, or claims collection which are 
performed by agencies other than the State agency shall be based on a 
formal agreement between the State or local agency and provider agency. 
These interagency agreements shall meet the requirements of this part in 
regard to allowable charges. Funding under these interagency agreements 
shall be provided by the State agency from their funds and funds made 
available by FNS.
    (26) Taxes. In general, taxes or payments in lieu of taxes which the 
State agency is legally required to pay are allowable.
    (27) Training and education. The cost of in-service training, 
customarily provided for employee development which directly or 
indirectly benefits the program is allowable. Out-of-service training 
involving extended periods of time is allowable only when specifically 
authorized by FNS.
    (28) Transportation. Costs incurred for freight, cartage, express, 
postage, and other transportation costs relating either to goods 
purchased, delivered, or moved from one location to another are 
allowable.
    (29) Travel. Travel costs are allowable for expenses for 
transportation, lodging, subsistence, and related items incurred by 
employees who are in travel status on official business incident to the 
program. Such costs may be charged on an actual basis, on a per diem or 
mileage basis in lieu of actual costs incurred, or on a combination of 
the two. The charges must be consistent with those normally allowed in 
like circumstances in nonfederally sponsored activities. The difference 
in cost between first-class air accommodations and less-than-first-class 
air accommodations is unallowable except when less-than-first-class air 
accommodations are not reasonably available. Notwithstanding the 
provisions of paragraphs C (7) and (10), travel costs of officials 
covered by those paragraphs, when specifically related to

[[Page 903]]

grant programs, are allowable with the prior approval of a grantor 
agency.
    B. Costs allowable with approval of FNS.
    (1) Automated Data Processing. The costs of acquiring data 
processing equipment and services used in the administration of the Food 
Stamp Program are allowable. The costs of ADP equipment and services 
acquisitions which exceed the prior approval cost thresholds specified 
in Sec.  277.18(c) are allowable upon the prior written approval of FNS. 
Requests for prior approval of such costs shall be in accordance with 
the provisions of Sec.  277.18.
    (2) Building space and related facilities. The cost of space in 
privately or publicly owned buildings used for the benefit of the 
Program is allowable subject to the following conditions.
    (a) The total cost of space, whether in a privately or publicly 
owned building, may not exceed the rental cost of comparable space and 
facilities in a privately owned building in the same locality.
    (b) The cost of space may not be charged to FNS for periods of 
nonoccupancy, without authorization of FNS.
    (i) Rental cost. The rental cost of space in a privately-owned 
building is allowable.
    (ii) Maintenance and operation. The cost of utilities, insurance, 
security, janitorial services, elevator service, upkeep of grounds, 
normal repairs and alterations and the like, are allowable to the extent 
they are not otherwise included in rental or other charges for space.
    (iii) Rearrangements and alterations. Costs incurred for 
rearrangement and alteration of facilities required specifically for the 
program or those that materially increase the value or useful life of 
the facilities (section B(3) of these principles) are allowable when 
specifically approved by FNS.
    (iv) Depreciation and use allowances on publicly owned buildings. 
These costs are allowable as provided in paragraph A(11) of these 
principles.
    (v) Occupancy of space under rental-purchase or a lease with option-
to-purchase agreement. The cost of space procured under such 
arrangements is allowable when specifically approved by FNS.
    (3) Capital expenditures. The cost, net of any credits, of 
facilities, equipment, other capital assets, and repairs which 
materially increase the value or useful life of capital assets, and/or 
of nonexpendable personal property, having a useful life of more than 
one year and a net acquisition cost of more than $5,000 per unit after 
allocation to FNS as projected for one year after purchase, is allowable 
when such procurement is specifically approved by FNS. No such approval 
shall be granted unless the State agency shall demonstrate to FNS that 
such a cost is:
    (a) Necessary and reasonable for proper and efficient administration 
of the program, and allocable thereto under the principles provided 
herein; and
    (b) That procurement of such item or items has been or will be made 
in accordance with the standards set out in Sec.  277.14. In no case 
shall such a cost become a program charge against FNS prior to approval 
in writing by FNS of the procurement and the cost. When assets acquired 
with Food Stamp funds are (i) sold, (ii) no longer available for use in 
a federally sponsored program, or (iii) used for purposes not authorized 
by FNS, FNS's equity in the asset will be refunded in the same 
proportion as Federal participation in its cost. In case any assets are 
traded on new items, only the net cost of the newly acquired assets is 
allowable.
    (4) Insurance.
    (a) Cost of insurance to secure the State agency against financial 
losses involved in the acceptance, storage, and issuance of food coupons 
and ATP cards is allowable with FNS approval.
    (b) Costs of other insurance in connection with the general conduct 
of activities are allowable subject to the following limitations:
    (i) Types and extent and cost of coverage will be in accordance with 
general State or local government policy and sound business practice.
    (ii) Costs of insurance or contributions to any reserve covering the 
risk of loss of, or damage to, Federal Government property are 
unallowable except to the extent that FNS approves such cost.
    (5) Management studies. The cost of management studies to improve 
the effectiveness and efficiency of program management for the Food 
Stamp Program is allowable. However, FNS must approve cost in excess of 
$2,500 for studies performed by outside consultants or agencies other 
than the State agency.
    (6) Preagreement costs. Costs incurred prior to the effective date 
of approval of the amended indirect cost proposal or the revised 
Statewide cost allocation plan, whether or not they would have been 
allowable thereunder if incurred after such date, are allowable only 
when subsequently provided for in the plan or approved indirect cost 
proposal.
    (7) Professional services. Cost of professional services rendered by 
individuals or organizations not a part of the State agency is 
allowable. Prior authorization must be obtained from FNS for cost 
exceeding a total of $2,500.
    (8) Proposal costs. Costs of preparing indirect cost proposals or 
amendments for allocating, distributing, and implementing provisions for 
payment of portions of the costs of administering the Food Stamp Program 
by the State agency are allowable.
    (9) Cost incurred by agencies other than the State. The cost of 
services provided by other agencies (including municipal governments) 
may only include allowable direct costs plus

[[Page 904]]

a pro rata share of allowable supporting costs and supervision directly 
required in performing the service. Allowable supporting costs are those 
services which may be centralized and includes such functions as 
procurement, payroll, personnel services, maintenance and operation of 
space, data processing, accounting, budgeting, auditing, mail and 
messenger service and the like. Supervision costs will not include 
supervision of a general nature such as that provided by the head of a 
department and his staff assistants not directly involved in the 
operation of the program. In lieu of determining actual indirect cost 
related to a particular service performed by another agency, either of 
the following alternative methods may be used during the fiscal year 
involved and is specifically provided for in the indirect cost proposal:
    (a) Standard indirect rate equal to ten percent of direct labor cost 
in providing the service (excluding overtime, shift or holiday premiums, 
and fringe benefits) may be allowed in lieu of actual allowable cost.
    (b) A predetermined fixed rate for indirect cost of the unit or 
activity providing service may be negotiated.
    C. Unallowable costs. The following costs shall not be allowable:
    (1) Costs of determining food stamp eligibility incidental to the 
determination of TANF eligibility are not chargeable to FNS.
    (2) Bad debts. Any losses arising from uncollectable accounts or 
other claims, and related costs, are unallowable.
    (3) Contingencies. Contributions to a contingency reserve or any 
similar provision for unforeseen events are unallowable.
    (4) Contributions and donations. Unallowable.
    (5) Entertainment. Costs whose purpose is for amusement, social 
activities, and incidental costs relating thereto, such as meals, 
beverages, lodgings, rentals, transportation, and gratuities are 
unallowable.
    (6) Fines and penalties. Costs resulting from violations of or 
failure to comply with Federal, State and local laws and regulations are 
unallowable.
    (7) Governor's expenses. The salaries and expenses of the Office of 
the Governor of a State or the chief executive of a political 
subdivision are considered a cost of general State or local government 
and are unallowable. However, for a federally-recognized Indian tribal 
government, only that portion of the salaries and expenses of the office 
of the chief executive that is a cost of general government is 
unallowable. The portion of salaries and expenses directly attributable 
to managing and operating programs is allowable.
    (8) Indemnification. The cost of indemnifying the State against 
liabilities to third parties and other losses not compensated by 
insurance is unallowable.
    (9) Interest and other financial costs. Interest on borrowings, bond 
discounts, cost of financing and refinancing operations, and legal and 
professional fees paid in connection therewith, are unallowable.
    (10) Legislative expenses. Salaries and other expenses of the State 
legislature or similar local governmental bodies are unallowable.
    (11) Losses. Losses which could have been covered by permissible 
insurance are unallowable.
    (12) Underrecovery of cost under agreements. Any excess of cost over 
Federal contribution under one agreement is unallowable under another 
agreement.
    (13) The acquisition of land or buildings is an unallowable cost.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended by Amdt. 207, 47 FR 
52338, Nov. 19, 1982; Amdt. 298, 52 FR 36400, Sept. 29, 1987; Amdt. 316, 
54 FR 24531, June 7, 1989; Amdt. 319, 55 FR 4361, Feb. 7, 1990; Amdt. 
342, 59 FR 2733, Jan. 19, 1994; Amdt. 385, 65 FR 33441, May 24, 2000]



PART 278_PARTICIPATION OF RETAIL FOOD STORES, WHOLESALE FOOD CONCERNS 
AND INSURED FINANCIAL INSTITUTIONS--Table of Contents




Sec.
278.1 Approval of retail food stores and wholesale food concerns.
278.2 Participation of retail food stores.
278.3 Participation of wholesale food concerns.
278.4 Procedure for redeeming coupons.
278.5 Participation of insured financial institutions.
278.6 Disqualification of retail food stores and wholesale food 
          concerns, and imposition of civil money penalties in lieu of 
          disqualifications.
278.7 Determination and disposition of claims--retail food stores and 
          wholesale food concerns.
278.8 [Reserved]
278.9 Implementation of amendments relating to the participation of 
          retail food stores, wholesale food concerns and insured 
          financial institutions.
278.10 [Reserved]

    Authority: 7 U.S.C. 2011-2036.

    Editorial Note: OMB control numbers relating to this part 278 are 
contained in Sec.  271.8.



Sec.  278.1  Approval of retail food stores and wholesale food concerns.

    (a) Application. Any firm desiring to participate or continue to be 
authorized in the program shall file an application as prescribed by 
FNS. Such an application shall contain information

[[Page 905]]

which will permit a determination to be made as to whether such an 
applicant qualifies, or continues to qualify, for authorization under 
the provisions of the program. FNS may require that a retail food store 
or wholesale food concern be visited to confirm eligibility for program 
participation prior to such store or concern being authorized or 
reauthorized in the program. Required visits shall be conducted by an 
authorized employee of the Department, a designee of the Secretary, or 
an official of the State or local government designated by the 
Secretary. FNS shall approve or deny the application within 45 days of 
receipt of a completed application. A completed application means that 
all information (other than an on-site visit) that FNS deems necessary 
in order to make a determination on the firm's application has been 
received. This information includes, but is not limited to, a completed 
application form, all information and documentation from the applicant, 
as well as any needed third-party verification and documentation.
    (b) Determination of authorization. An applicant shall provide 
sufficient data and information on the nature and scope of the firm's 
business for FNS to determine whether the applicant's participation will 
further the purposes of the program. Upon request, an applicant shall 
provide documentation to FNS to verify information on the application. 
Such information may include, but is not limited to, State and local 
business licenses, Social Security cards, drivers' licenses, 
photographic identification cards, bills of sale, deeds, leases, sales 
contracts, State certificates of incorporation, sales records, invoice 
records and business-related tax records. Retail food stores and 
wholesale food concerns and other entities eligible for authorization 
also shall be required to sign a release form which will authorize FNS 
to verify all relevant business related tax filings with appropriate 
agencies. In addition, they must obtain corroborating documentation from 
other sources as deemed necessary to ensure the legitimacy of applicant 
firms, as well as the accuracy of information provided by the stores and 
concerns. Failure to comply with any request for information or failure 
to sign a written release form shall result in denial of the application 
for authorization or withdrawal of a firm or concern from the program. 
In determining whether a firm qualifies for authorization, FNS shall 
consider all of the following:
    (1) The nature and extent of the food business conducted by the 
applicant. (i) Retail food store. (A) An establishment or house-to-house 
trade route shall normally be considered to have food business of a 
nature and extent that will effectuate the purposes of the program if it 
sells food for home preparation and consumption and meets one of the 
following criteria: Offer for sale, on a continuous basis, a variety of 
qualifying foods in each of the four categories of staple foods as 
defined in Sec. 271.2 of this chapter, including perishable foods in at 
least two of the categories (Criterion A); or have more than 50 percent 
of the total gross retail sales of the establishment or route in staple 
foods (Criterion B).
    (B) A retail food store must meet eligibility determination factors 
which may be based on, but not limited to, visual inspection, sales 
records, purchase records, counting of stockkeeping units, or other 
inventory or accounting recordkeeping methods that are customary or 
reasonable in the retail food industry. In determining eligibility, such 
information may be requested for verification purposes, and failure to 
provide such documentation may result in denial or withdrawal from the 
program.
    (ii) Application of Criterion A. In order to qualify under this 
criterion, firms shall:
    (A) Offer for sale and normally display in a public area, qualifying 
staple food items on a continuous basis, evidenced by having, on any 
given day of operation, no fewer than three different varieties of food 
items in each of the four staple food categories. Documentation to 
determine if a firm stocks a sufficient amount of required staple foods 
to offer them for sale on a continuous basis may be required in cases 
where it is not clear that the requirement has been met. Such 
documentation can be achieved through store visits and/or verifying 
information when requested. Failure to provide

[[Page 906]]

verifying information when requested or to cooperate with store visits 
shall result in the denial or withdrawal of authorization.
    (B) Offer for sale perishable staple food items in at least two 
staple food categories. Perishable foods are items which are either 
frozen staple food items or fresh, unrefrigerated or refrigerated staple 
food items that will spoil or suffer significant deterioration in 
quality within 2-3 weeks; and
    (C) Offer a variety of staple foods which means different types of 
foods, such as apples, cabbage, tomatoes, and squash in the fruit or 
vegetable staple food category, or milk, cheese, butter and yogurt in 
the dairy category. Variety of foods is not to be interpreted as 
different brands, different nutrient values, different varieties of 
packaging, or different package sizes. Similar processed food items with 
varying ingredients such as, but not limited to, sausages, breakfast 
cereals, milk, sliced breads, and cheeses, and similar unprocessed food 
items, such as, but not limited to, different varieties of apples, 
cabbage, tomatoes, or squash shall not each be considered as more than 
one staple food variety for the purpose of determining variety. Multiple 
ingredient food items intended for home preparation and consumption, 
such as, but not limited to, cold pizza, macaroni and cheese, soup, or 
frozen dinners, shall only be counted as one staple food variety each 
and will normally be included in the staple food category of the main 
ingredient as determined by the FNS.
    (iii) Application of Criterion B. In order to qualify under this 
criterion, firms must have more than 50 percent of their total gross 
retail sales in staple food sales. Total gross retail sales must include 
all retail sales of a firm, including food and non-food merchandise, as 
well as services, such as rental fees, professional fees, and 
entertainment/sports/games income. However, a fee directly connected to 
the processing of staple foods, such as raw meat, poultry, or fish by 
the service provider, may be calculated as staple food sales under 
Criterion B.
    (iv) Ineligible firms. Firms that do not meet the eligibility 
requirements in this section or that do not effectuate the purpose of 
the Food Stamp Program shall not be eligible for program participation. 
New applicant firms that are found to be ineligible will be denied 
authorization to participate in the program, and authorized retail food 
stores found to be ineligible will be withdrawn from program 
participation. Ineligible firms under this paragraph include, but are 
not limited to, stores selling only accessory foods, including spices, 
candy, soft drinks, tea, or coffee; ice cream vendors selling solely ice 
cream; and specialty doughnut shops or bakeries not selling bread. In 
addition, firms that are considered to be restaurants, that is, firms 
that have more than 50 percent of their total gross retail sales in hot 
and/or cold prepared foods not intended for home preparation and 
consumption, shall not qualify for participation as retail food stores 
under Criterion A or B. This includes firms that primarily sell prepared 
foods that are consumed on the premises or sold for carryout. Such firms 
may qualify, however, under the special restaurant programs that serve 
the elderly, disabled, and homeless populations, as set forth in 
paragraph (d) of this section.
    (v) Wholesale food concerns. Wholesale food concerns, the primary 
business of which is the sale of eligible food at wholesale, and which 
meet the staple food requirements in paragraph (b) of this section, 
shall normally be considered to have adequate food business for the 
purposes of the program, provided such concerns meet the criteria 
specified in paragraph (c) of this section.
    (vi) Co-located wholesale food concerns. No co-located wholesale/
retail food concern with 50 percent or less of its total sales in retail 
food sales may be authorized to redeem food stamps unless it meets the 
criteria applicable to all retail firms and:
    (A) It is a legitimate retail food outlet. Indicators which may 
establish to FNS that a firm is a legitimate retail food outlet include, 
but are not limited to, the following:
    (1) The firm's marketing structure; as may be determined by factors 
such as, but not limited to:
    (i) A retail business license;

[[Page 907]]

    (ii) The existence of sales tax records documenting retail food 
sales; and/or separate bookkeeping records; and
    (2) The way the firm holds itself out to the public as evidenced by 
factors such as, but not limited to:
    (i) The layout of the retail sales space;
    (ii) The use of retail advertisements;
    (iii) The posting of retail prices;
    (iv) Offering specials to attract retail customers;
    (v) Hours of operation for retail business;
    (vi) Parking area for retail customers; and
    (B) It has total annual retail food sales of at least $250,000; or
    (C) It is a legitimate retail outlet but fails to meet the 
requirements in paragraph (b)(1)(iv)(B) of this section, and not 
authorizing such a firm would cause hardship to food stamp households. 
Hardship would occur in any one of the following circumstances:
    (1) Program recipients would have difficulty in finding authorized 
firms to accept their coupons for eligible food;
    (2) Special ethnic foods would not otherwise be available to 
recipients; or
    (3) Recipients would be deprived of an opportunity to take advantage 
of unusually low prices offered by the firm if no other authorized firm 
in the area offers the same types of food items at comparable prices.
    (2) The volume of coupon business which FNS may reasonably expect 
the firm to do. The FNS officer in charge may consider such factors as 
the location of a store and previous food sales volumes in evaluating 
the ability of an applicant firm to attract food stamp business.
    (3) The business integrity and reputation of the applicant. FNS 
shall deny the authorization of any firm from participation in the 
program for a period of time as specified in paragraph (k) of this 
section based on consideration of information regarding the business 
integrity and reputation of the firm as follows:
    (i) Conviction of or civil judgment against the owners, officers or 
managers of the firm for:
    (A) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public or private 
agreement or transaction;
    (B) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, or obstruction of 
justice; or
    (C) Violation of Federal, State and/or local consumer protection 
laws or other laws relating to alcohol, tobacco, firearms, controlled 
substances, and/or gaming licenses;
    (ii) Administrative findings by Federal, State or local officials 
that do not give rise to a conviction or civil judgment but for which a 
firm is removed from such a program, or the firm is not removed from the 
program but FNS determines a pattern exists (3 or more instances) 
evidencing a lack of business integrity on the part of the owners, 
officers or managers of the firm;
    (iii) Evidence of an attempt by the firm to circumvent a period of 
disqualification, a civil money penalty or fine imposed for violations 
of the Food Stamp Act and program regulations;
    (iv) Previous Food Stamp Program violations administratively and/or 
judicially established as having been committed by owners, officers, or 
managers of the firm for which a sanction had not been previously 
imposed and satisfied;
    (v) Evidence of prior Food Stamp Program violations personally 
committed by the owner(s) or the officer(s) of the firm at one or more 
units of a multi-unit firm, or evidence of prior Food Stamp Program 
violations committed by management at other units of multi-unit firms 
which would indicate a lack of business integrity on the part of 
ownership and for which sanctions had not been previously imposed and 
satisfied; or
    (vi) Commission of any other offense indicating a lack of business 
integrity or business honesty of owners, officers or managers of the 
firm that seriously and directly affects the present responsibility of a 
person.
    (4) Bonding for firms with previous sanctions. (i) If the applicant 
firm has been sanctioned for violations of this part, by withdrawal or 
disqualification from program participation, or by a

[[Page 908]]

civil money penalty, the FNS officer-in-charge shall, as a condition of 
future authorization, require the applicant to present a collateral bond 
which:
    (A) Is issued by a bonding agent recognized under the law of the 
State in which the applicant is conducting business, and which is 
represented by a negotiable certificate only.
    (B) Is payable to the Food and Nutrition Service, U.S. Department of 
Agriculture;
    (C) Cannot be canceled by the bonding agent for non-payment of the 
premium by the applicant;
    (D) Has a face value of $1,000 or an amount equal to ten percent of 
the average monthly coupon redemption volume of the applicant for the 
immediate twelve months prior to the effective date of the most recent 
sanction which necessitated the bond, whichever amount is greater;
    (E) Is valid at all times during which the firm is authorized to 
participate in the program; and
    (F) Remains in the custody of the officer-in-charge unless released 
to the applicant as a result of the withdrawal of the applicant's 
authorization, without a fiscal claim established against the applicant 
by FNS.
    (ii) Furnishing a collateral bond shall not eliminate or reduce a 
firm's obligation to pay in full any civil money penalty or previously 
determined fiscal claim which may have been assessed against the firm by 
FNS prior to the time the bond was required by FNS, and furnished by the 
firm. A firm which has been assessed a civil money penalty shall pay FNS 
as required, any subsequent fiscal claim asserted by FNS. In such cases 
a collateral bond shall be furnished to FNS with the payment, or a 
schedule of intended payments, of the civil money penalty. A buyer or 
transferee shall not, as a result of the transfer or purchase of a 
disqualified firm, be required to furnish a bond prior to authorization.
    (5) Taxpayer identification numbers. At the time of an initial 
request for authorization as well as reauthorization, an applicant firm 
must provide its employer identification number and social security 
numbers as described below:
    (i) Employer Identification Number. The firm must provide its 
employer identification number (EIN) if one has been assigned to the 
firm by the Internal Revenue Service. The authority to request EINs and 
the guidelines for requesting EINs are set forth in section 6109(f) of 
the Internal Revenue Code of 1986 and Treas. Reg. Sec.  301.6109-2 (26 
CFR 301.6109-2).
    (ii) Social Security Number. In addition to the EIN, the firm must 
provide the social security numbers (SSNs) of the following individuals:
    (A) The SSN of an owner of a sole proprietorship.
    (B) The SSNs of general partners of firms which are partnerships.
    (C) The SSNs of up to five of the largest shareholders (owners) of 
privately owned corporations. (For purposes of this section, a privately 
owned corporation is one which has shares or stock that are not traded 
on a stock exchange or available for purchase by the general public.)
    (6) Other factors. Any other factors which the FNS officer in charge 
considers pertinent to the application under consideration.
    (c) Wholesalers. A wholesale food concern may be authorized to 
accept coupons only from a specified customer or customers if it meets 
the requirements of paragraphs (a) and (b) of this section, and FNS 
determines it is required as a redemption outlet:
    (1) For one or more specified authorized drug addict or alcoholic 
treatment programs,
    (2) For one or more specified authorized group living arrangements,
    (3) For one or more specified authorized shelters for battered women 
and children,
    (4) For one or more specified authorized nonprofit cooperative food-
purchasing ventures,
    (5) For one or more specified authorized public or private nonprofit 
homeless meal providers, or
    (6) For one or more specified authorized retail food stores which 
are without access to an insured financial institution which will redeem 
their coupons.

No firm may be authorized to accept and redeem coupons concurrently as 
both a retail food store and a wholesale food concern. Authorizations of 
wholesale food concerns granted prior to

[[Page 909]]

January 28, 1982 shall expire on May 31, 1982. Wholesale food concerns 
desiring to participate in the program after that date must reapply for 
authorization in accordance with the provisions of this paragraph.
    (d) Meal services. A meal delivery service or communal dining 
facility desiring to prepare and serve meals to households eligible to 
use coupons for those meals in addition to meeting the requirements of 
paragraphs (a) and (b) of this section, must establish that:
    (1) It is recognized as a tax exempt organization by the Internal 
Revenue Service; or
    (2) It is a senior citizens' center or apartment building occupied 
primarily by elderly persons and SSI recipients, and their spouses; or
    (3) It is a restaurant operating under a contract with a State or 
local agency to prepare and serve (or deliver) low-cost meals to 
homeless persons, elderly persons and SSI recipients (and in the case of 
meal delivery services, to elderly persons or handicapped persons) and 
their spouses. Such a facility must have more than 50 percent of its 
total sales in food. The contracts of restaurants must specify the 
approximate prices which will be charged.
    (e) Treatment programs. Drug addict or alcoholic treatment and 
rehabilitation programs wishing to redeem through wholesalers food 
stamps received from or on behalf of their participants shall in 
addition to meeting the requirements of paragraphs (a), (b) and (d)(1) 
of this section, be under Part B of Title XIX of the Public Health 
Service Act (42 U.S.C. 300x et seq.). Approval to participate is 
automatically withdrawn once the treatment and rehabilitation program no 
longer meets the criteria which would make it eligible for funding under 
part B of Title XIX (in accordance with the definition in Drug addiction 
or alcoholic treatment and rehabilitation program in Sec.  271.2).
    (f) Group living arrangements. FNS shall authorize as retail food 
stores those group living arrangements wishing to redeem coupons 
directly through wholesalers. The group living arrangement must, in 
addition to meeting requirements of paragraphs (a), (b), and (d)(1) of 
this section, be certified by the appropriate agency or agencies of the 
State under regulations issued under section 1616(e) of the Social 
Security Act or under standards determined by the Secretary to be 
comparable to standards implemented by appropriate State agencies under 
section 1616(e) of the Social Security Act. Approval to participate is 
automatically cancelled at any time that a program loses its 
certification from the State agency or agencies.
    (g) Shelters for battered women and children. FNS shall authorize as 
retail food stores those shelters for battered women and children 
wishing to redeem coupons directly through wholesalers. The shelter must 
be public or private nonprofit, as defined in paragraph (d)(1) of this 
section, and meet the requirements of paragraphs (a) and (b) of this 
section. Shelters which also serve other groups of individuals must have 
a portion of the facility set aside on a long-term basis to shelter 
battered women and children. Also required is that the shelter be a 
residence which serves meals or provides food to its residents.
    (h) House-to-house trade routes. FNS shall, in consultation with the 
Department's Office of Inspector General, determine those locations 
where the operation of trade routes damages the program's integrity. FNS 
may limit the authorization of house-to-house trade routes to those 
trade routes whose services are required by participating households in 
such areas in order to obtain food. The FNS Officer in Charge, in 
deciding whether households in such areas require a trade route's 
services, shall consider the volume of food business the trade route 
does and the availability of alternate sources of comparable food. An 
FNS official shall inspect any applicant trade route's vehicle to ensure 
that the trade route is a retail food store before authorizing it to 
accept coupons. An FNS official may require, as a condition of 
continuing authorization, that the trade route vehicle be reinspected 
semiannually to ensure that it continues to be a retail food store.
    (i) Private homeless meal providers. FNS may authorize as retail 
food stores those restaurants which contract with the appropriate State 
agency to serve meals to homeless persons

[[Page 910]]

at ``concessional'' (low or reduced) prices. Restaurants shall be 
responsible for obtaining contracts with the appropriate State agency as 
defined in Sec.  272.9 and for providing a copy of the contract to FNS 
at the time it applies for authorization to accept food stamp benefits. 
Contracts must specify the approximate prices which will be charged. 
Examples of reduced prices include, but are not limited to, a percentage 
reduction, a set dollar amount reduction, a daily special meal, or an 
offer of a free food item or beverage (excluding alcoholic beverages).
    (j) Authorization. Upon approval, FNS shall issue a nontransferable 
authorization card to the firm. The authorization card shall be valid 
only for the time period for which the firm is authorized to accept and 
redeem food stamp benefits. The authorization card shall be retained by 
the firm until such time as the authorization period has ended, 
authorization in the program is superseded, or the card is surrendered 
or revoked as provided in this part. All firms will be authorized in the 
program for a period of 5 years. The specification of an authorization 
period in no way precludes FNS from periodically requesting information 
from a firm for purposes of reauthorization in the program or from 
withdrawing or terminating the authorization of a firm in accordance 
with this part.
    (k) Denying authorization. FNS shall deny the application of any 
firm if it determines that:
    (1) The firm does not qualify for participation in the program as 
specified in paragraph (b), (c), (d), (e), (f), (g), (h) or (i) of this 
section; or
    (2) The firm has failed to meet the eligibility requirements for 
authorization under Criterion A or Criterion B, as specified in 
paragraph (b)(1)(i) of this section; or, for co-located wholesale/retail 
firms, the firm fails to meet the requirements of paragraph (b)(1)(vi) 
of this section. Any firm that has been denied authorization on these 
bases shall not be eligible to submit a new application for 
authorization in the program for a minimum period of six months from the 
effective date of the denial;
    (3) The firm has been found to lack the necessary business integrity 
and reputation to further the purposes of the program. Such firms shall 
be denied authorization in the program for the following period of time:
    (i) Firms for which records of criminal conviction or civil judgment 
exist that reflect on the business integrity of owners, officers, or 
managers as stipulated in Sec.  278.1(b)(3)(i) shall be denied 
authorization permanently;
    (ii) Firms which have been officially removed from other Federal, 
State or local government programs through administrative action shall 
be denied for a period equivalent to the period of removal from any such 
programs; or, if the firm is not removed from the program, but FNS 
determines a pattern (3 or more instances) exists evidencing a lack of 
business integrity on the part of the owners, officers or managers of 
the firm, such firm shall be denied for a one year period effective from 
the date of denial;
    (iii) Firms for which evidence exists of an attempt to circumvent a 
period of disqualification, a civil money penalty, or fine imposed for 
violations of the Food Stamp Act of 1977, as amended, and program 
regulations shall be denied for a period of three years from the 
effective date of denial;
    (iv) Firms for which evidence exists of prior Food Stamp Program 
violations by owners, officers, or managers of the firm for which a 
sanction had not been previously imposed and satisfied shall be denied 
for a period of time equivalent to the appropriate disqualification 
period for such previous violations, effective from the date of denial;
    (v) Firms for which evidence exists of prior Food Stamp Program 
violations at other units of multi-unit firms as specified in Sec.  
278.1(b)(3)(v) for which a sanction had not been previously imposed and 
satisfied shall be denied for a period of time equivalent to the 
appropriate disqualification period for such previous violations, 
effective from the date of denial;
    (vi) Firms for which any other evidence exists which reflects 
negatively on the business integrity or business honesty of the owners, 
officers or managers of the firm as specified in Sec.  278.1(b)(3)(vi) 
shall be denied for a period of one year from the effective date of 
denial;

[[Page 911]]

    (4) The firm has filed an application that contains false or 
misleading information about a substantive matter, as specified in Sec.  
278.6(e). Such firms shall be denied authorization for the periods 
specified in Sec.  278.6(e)(1) or Sec.  278.6(e)(3);
    (5) The firm's participation in the program will not further the 
purposes of the program;
    (6) The firm has been found to be circumventing a period of 
disqualification or a civil money penalty through a purported transfer 
of ownership;
    (7) The firm has failed to pay in full any fiscal claim assessed 
against the firm under Sec.  278.7, any fines assessed under Sec. Sec.  
278.6(l) or 278.6(m), or a transfer of ownership civil money penalty 
assessed under Sec.  278.6(f). The FNS officer in charge shall issue a 
notice to the firm by certified mail or personal service of any 
authorization denial and shall advise the firm that it may request 
review of that determination.
    (l) Withdrawing authorization. (1) FNS shall withdraw the 
authorization of any firm authorized to participate in the program for 
any of the following reasons.
    (i) The firm's continued participation in the program will not 
further the purposes of the program;
    (ii) The firm fails to meet the specifications of paragraph (b), 
(c), (d), (e), (f), (g), (h), or (i) of this section;
    (iii) The firm fails to meet the requirements for eligibility under 
Criterion A or B, as specified in paragraph (b)(1)(i) of this section; 
or, for co-located wholesale/retail firms, the firm fails to meet the 
requirements of paragraph (b)(1)(vi) of this section, for the time 
period specified in paragraph (k)(2) of this section;
    (iv) The firm fails to maintain the necessary business integrity to 
further the purposes of the program, as specified in paragraph (b)(3) of 
this section. Such firms shall be withdrawn for lack of business 
integrity for periods of time in accordance with those stipulated in 
paragraph (k)(3) of this section for specific business integrity 
findings;
    (v) The firm has failed to pay in full any fiscal claim assessed 
against the firm under Sec.  278.7 or any fines assessed under 
Sec. Sec.  278.6(l) or 278.6(m) or a transfer of ownership civil money 
penalty assessed under Sec.  278.6(f); or
    (vi) The firm has failed to pay fines assessed under Sec.  278.6(l) 
or Sec.  278.6(m); or
    (vii) The firm is required under State and/or local law to charge 
tax on eligible food purchased with coupons or to sequence or allocate 
purchases of eligible foods made with coupons and cash in a manner 
inconsistent with 272.1 of these regulations.
    (2) The FNS officer in charge shall issue a notice to the firm by 
certified mail or personal service to inform the firm of the 
determination and of the review procedure. FNS shall remove the firm 
from the program if the firm does not request review within the period 
specified in part 279.
    (m) Refusal to accept correspondence or to respond to inquiries. FNS 
may withdraw or deny the authorization of any firm which:
    (1) Refuses to accept correspondence from FNS;
    (2) Fails to respond to inquiries from FNS within a reasonable time; 
or
    (3) Cannot be located by FNS with reasonable effort.
    (n) Periodic reauthorization. At the request of FNS a retail food 
store or wholesale food concern will be required to undergo a periodic 
reauthorization determination by updating any or all of the information 
on the firm's application form. Failure to cooperate in the 
reauthorization process will result in withdrawal of the firm's approval 
to participate in the program.
    (o) Applications containing false information. The filing of any 
application containing false or misleading information may result in the 
denial of approval for participation in the program, as specified in 
paragraph (k) of this section, or disqualification of a firm from 
participation in the program, as specified in Sec.  278.6, and may 
subject the firm and persons responsible to civil or criminal action.
    (p) Administrative review. Any withdrawal or denial of authorization 
to participate in the program shall be subject to administrative review 
under part 279.
    (q) Use and disclosure of information provided by firms. With the 
exception of EINs and SSNs, any information collected from retail food 
stores and

[[Page 912]]

wholesale food concerns, such as ownership information and sales and 
redemption data, may be disclosed for purposes directly connected with 
the administration and enforcement of the Food Stamp Act and these 
regulations, and can be disclosed to and used by State agencies that 
administer the Special Supplemental Nutrition Program for Women, Infants 
and Children (WIC). Such information may also be disclosed to and used 
by Federal and State law enforcement and investigative agencies for the 
purpose of administering or enforcing other Federal or State law, and 
the regulations issued under such other law.Such disclosure and use 
shall also include companies or individuals under contract for the 
operation by, or on behalf of FNS to accomplish an FNS function. Such 
purposes include the audit and examination of such information by the 
Comptroller General of the United States authorized by any other 
provision of law. Any person who publishes, divulges, discloses, or 
makes known in any manner or to any extent not authorized by Federal law 
or regulations any information obtained under this paragraph shall be 
fined not more than $1,000 or imprisoned not more than 1 year, or both. 
Safeguards with respect to employee identification numbers (EINs) are 
contained in paragraph (q)(2) of this section. Safeguards with respect 
to Social Security numbers (SSNs) are contained in paragraph (q)(3) of 
this section.
    (1) Criteria for requesting information. FNS shall determine what 
information can be disclosed and which government agencies have access 
to that information based on the following criteria:
    (i) Federal and State law enforcement or investigative agencies or 
instrumentalities administering or enforcing specified Federal and State 
laws, or regulations issued under those laws, have access to certain 
information maintained by FNS. Such agencies or instrumentalities must 
have among their responsibilities the enforcement of law or the 
investigation of suspected violations of law. However, only certain 
Federal entities have access to information involving SSNs and EINs in 
accordance with paragraph (q)(1)(ii) of this section;
    (ii) Except for SSNs and EINs, information provided to FNS by 
applicants and authorized firms participating in the FSP may be 
disclosed and used by qualifying Federal and State entities in 
accordance with paragraph (q)(1)(i) of this section. The disclosure of 
SSNs and EINs is limited only to qualifying Federal agencies or 
instrumentalities which otherwise have access to SSNs and EINs based on 
law and routine use. Release of information under this paragraph shall 
be limited to information relevant to the administration or enforcement 
of the specified laws and regulations, as determined by FNS;
    (iii) Requests for information must be submitted in writing, 
including electronic communication, and must clearly indicate the 
specific provision of law or regulations which would be administered or 
enforced by access to requested information, and the relevance of the 
information to those purposes. If a formal agreement exists between FNS 
and another agency or instrumentality, individual written requests may 
be unnecessary. FNS may request additional information if needed to 
clarify a request;
    (iv) Disclosure by FNS is limited to: Information about applicant 
stores and concerns with applications on file; information about 
authorized stores participating in the FSP; and information about 
unauthorized entities or individuals illegally accepting or redeeming 
food stamps;
    (v) Requests for information disclosure by FNS may involve a 
specific store or concern, or some or all stores and concerns covered by 
paragraph (q)(1)(iv) of this section. In addition, FNS may sign 
agreements allowing certain government entities direct access to 
appropriate FNS data, with access to EINs and SSNs limited only to other 
Federal agencies and instrumentalities that otherwise have access to 
such numbers.
    (2) Employer identification numbers. (i) The Department may have 
access to the EINs obtained pursuant to paragraph (b)(5) of this section 
for the purpose of establishing and maintaining a list of the names and 
EINs of the stores and concerns for use in determining those applicants 
who previously have

[[Page 913]]

been sanctioned or convicted under sections 12 and 15 of the Food Stamp 
Act of 1977, as amended, (7 U.S.C. 2021 or 2024). The Department also 
may share EINs with other Federal agencies and instrumentalities that 
otherwise have access to EINs if the Department determines that such 
sharing would assist in verifying and matching such information against 
information maintained by such other agency or instrumentality. Any such 
information shared pursuant to this paragraph may be used by the 
Department or such other agency or instrumentality for the purpose of 
effective administration and enforcement of the Food Stamp Act of 1977, 
as amended, or for the purpose of investigating violations of other 
Federal laws or enforcing such laws. See Treas. Reg. Sec.  301.6109-2 
(b) and (c) (26 CFR 301.6109-2 (b) and (c)).
    (ii) The only persons permitted access to EINs obtained pursuant to 
paragraph (b) of this section are officers and employees of the United 
States, who otherwise have access and whose duties or responsibilities 
require access to the EINs for the administration or enforcement of the 
Food Stamp Act of 1977, as amended, or for the purpose of investigating 
violations of other Federal laws or enforcing such laws. See Treas. Reg. 
Sec.  301.6109-2(d)(1) (26 CFR 301.6109-2(d)(1)).
    (iii) The Department or any agency or instrumentality of the United 
States shall provide for any additional safeguards that the Secretary of 
the Treasury determines to be necessary or appropriate to protect the 
confidentiality of the EINs. The Department may also provide for any 
additional safeguards to protect the confidentiality of EINs so long as 
these safeguards are consistent with any safeguards determined by the 
Secretary of the Treasury to be necessary or appropriate. See Treas. 
Reg. Sec.  301.6109-2(d)(2) (26 CFR 301.6109-2(d)(2)).
    (iv) EINs maintained by the Department or maintained by any agency 
or instrumentality of the United States pursuant to Sec.  278.1(b)(5) 
are confidential. Except as provided in paragraph (q)(2)(ii) of this 
section above, no officer or employee of the United States who has or 
had access to any such EIN may disclose that number in any manner. For 
purposes of paragraph (q)(2)(iv) of this section the term officer or 
employee includes a former officer or employee. See Treas. Reg. Sec.  
301.6109-2(e) (26 CFR 301.6109(e)).
    (v) Sections 7213(a) (1), (2) and (3) of the Internal Revenue Code 
of 1986 apply with respect to the unauthorized, willful disclosure to 
any person of EINs obtained by the Department pursuant to Sec.  
278.1(b)(5) in the same manner and to the same extent as sections 
7213(a) (1), (2) and (3) apply with respect to unauthorized disclosure 
of returns and return information described in those sections. Section 
7213(a)(4) of the Internal Revenue Code of 1986 applies with respect to 
the willful offer of any item of material value in exchange for any EIN 
obtained by the Department pursuant to Sec.  278.1(b)(5) in the same 
manner and to the same extent as section 7213(a)(4) applies with respect 
to offers (in exchange for any return or return information) described 
in that section. See Treas. Reg. Sec.  301.6109-2(f) (26 CFR 301.6109-
2(f)).
    (3) Social Security numbers. (i) The Department may have access to 
SSNs obtained pursuant to paragraph (b)(5) of this section for the 
purpose of establishing and maintaining a list of names and SSNs of 
stores and concerns for use in determining those applicants who 
previously have been sanctioned or convicted under section 12 or 15 of 
the Food Stamp Act of 1977, as amended, (7 U.S.C. 2021 or 2024). The 
Department may use this determination of sanctions and convictions in 
administering sections 12 and 15 of the Food Stamp Act of 1977, as 
amended, (7 U.S.C. 2018, 2021). The Department also may share SSNs with 
other Federal agencies and instrumentalities if the Department 
determines that such sharing would assist in verifying and matching such 
information against information maintained by the Department or such 
other agency or instrumentality. Any such information shared pursuant to 
this paragraph shall be used for the purpose of effective administration 
and enforcement of the Food Stamp Act of 1977, as amended, or for the 
purpose of investigating violations of other Federal laws or enforcing 
such laws.
    (ii) The only persons permitted access to SSNs obtained pursuant to

[[Page 914]]

paragraph (b) of this section are officers and employees of the United 
States, who otherwise have access, and whose duties or responsibilities 
require access to the SSNs for the administration or enforcement of the 
Food Stamp Act of 1977, as amended, or for the purpose of investigating 
violations of other Federal laws or enforcing such laws. Such access 
shall also include companies or individuals under contract for the 
operation by, or on behalf of FNS to accomplish an FNS function.
    (iii) The Department shall provide for all additional safeguards 
that the Commissioner of the Social Security Administration determines 
to be necessary or appropriate to protect the confidentiality of the 
SSNs. The Department may also provide for any additional safeguards to 
protect the confidentiality of SSNs so long as these safeguards are 
consistent with any safeguards determined by the Commissioner of the 
Social Security Administration to be necessary or appropriate.
    (iv) The SSNs and related records that are obtained or maintained by 
authorized persons are confidential, and no officer or employee shall 
disclose any such SSN or related record except as authorized. The term 
``related record'' means any record, list, or compilation that 
indicates, directly or indirectly, the identity of any individual with 
respect to whom a request for a SSN is maintained. For purposes of 
paragraph (r)(3)(iv) of this section the term ``officer or employee'' 
includes a former officer or employee.
    (v) The sanctions under sections 7213(a) (1), (2) and (3) of the 
Internal Revenue Code of 1986 will apply with respect to the 
unauthorized, willful disclosure to any person of SSNs and related 
records obtained or maintained in the same manner and to the same extent 
as sections 7213(a) (1), (2) and (3) apply with respect to unauthorized 
disclosures of returns and return information described in those 
sections. The sanction under section 7213(a)(4) of the Internal Revenue 
Code of 1986 will apply with respect to the willful offer of any item of 
material value in exchange for any SSN or related record in the same 
manner and to the same extent as section 7213(a)(4) applies with respect 
to offers (in exchange for any return or return information) described 
in that section.
    (4) FNS initiated matches. Under the restrictions noted in paragraph 
(r) of this section, FNS will periodically initiate cross matches of 
retailer data with other Federal and State agencies' files for the 
purpose of verifying information provided by applicant and participating 
firms, and for the purposes of administering and enforcing other Federal 
or State laws. Such matches could involve all firms participating after 
implementation for the purpose of verifying information such as, but not 
limited to, SSNs and retail sales data.
    (r) Public and Private Nonprofit Homeless Meal Providers. FNS shall 
authorize as retail food stores, those public and private nonprofit 
homeless meal providers which apply and qualify for authorization to 
accept food stamps from homless food stamp recipients. Such meal 
providers must be public or private nonprofit organizations as defined 
by the Internal Revenue Service (I.R.C. 501(c)(3)), must serve meals 
that include food purchased by the provider, must meet the requirements 
of paragraphs (a) and (b) of this section, and must be approved by an 
appropriate State or local agency, pursuant to Sec.  272.9. Public and 
private nonprofit homeless meal providers shall be responsible for 
obtaining approval from an appropriate State or local agency and shall 
provide written documentation of such approval to FNS prior to approval 
of the meal provider's application for authorization. (If such approval 
is subsequently withdrawn, FNS authorization shall be withdrawn). Public 
and private nonprofit homeless meal providers serving meals which 
consist wholly of donated foods shall not be eligible for authorization. 
In an area in which FNS, in consultation with the Department's Office of 
Inspector General, finds evidence that the authorization of a public and 
private nonprofit homeless meal provider would damage the Food Stamp 
Program's integrity, FNS shall limit the participation of that public 
and private nonprofit homeless meal provider, unless FNS determines that 
the establishment or shelter is the only one of its kind serving the 
area.

[[Page 915]]

    (s) Each authorized retail food store shall post in a suitable and 
conspicuous location in the store a sign designed and provided by FNS 
which provides information on how persons may report abuses they have 
observed in the operation of the program. Refusal or repeated failure to 
display such a sign by an authorized retail food store may result in the 
withdrawal of the firm's approval to participate in the program.
    (t) Periodic notification. The FNS will issue periodic notification 
to participating retail stores and wholesale food concerns to clarify 
program eligibility criteria, including the definitions of ``Retail food 
store'', ``Staple foods'', ``Eligible foods'', and ``Perishable foods''. 
At a minimum, such information will be provided to stores at the time of 
authorization, reauthorization and upon request.

[Amdt. 136, 43 FR 43274, Sept. 22, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
278.1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.

    Effective Date Note: At 61 FR 53600, Oct. 15, 1996, in Sec.  278.1, 
paragraph (i) was redesignated as paragraph (j) and a new paragraph (i) 
was added. This paragraph contains information collection and 
recordkeeping requirements and will not become effective until approval 
has been given by the Office of Management and Budget. The Food and 
Nutrition Service will publish a document in the Federal Register 
announcing the effective date.



Sec.  278.2  Participation of retail food stores.

    (a) Use of coupons. Coupons may be accepted by an authorized retail 
food store only from eligible households or the households' authorized 
representative, and only in exchange for eligible food. Coupons may not 
be accepted in exchange for cash, except when cash is returned as change 
in a transaction in which coupons were accepted in payment for eligible 
food under pargraph (d) of this section. Coupons may not be accepted in 
payment of interest on loans or for any other nonfood use. An authorized 
retail food store may not accept coupons from another retail food store, 
except that public or private nonprofit homeless meal providers may 
redeem coupons for eligible food through authorized retail food stores.
    (b) Equal treatment for coupon customers. Coupons shall be accepted 
for eligible foods at the same prices and on the same terms and 
conditions applicable to cash purchases of the same foods at the same 
store except that tax shall not be charged on eligible foods purchased 
with coupons. However, nothing in this part may be construed as 
authorizing FNS to specify the prices at which retail food stores may 
sell food. However, public or private nonprofit homeless meal providers 
may only request voluntary use of food stamps from homeless food stamp 
recipients and may not request such household using food stamps to pay 
more than the average cost of the food purchased by the public or 
private nonprofit homeless meal provider contained in a meal served to 
the patrons of the meal service. For purposes of this section, ``average 
cost'' is determined by averaging food costs over a period of up to one 
calendar month. Voluntary payments by food stamp recipients in excess of 
such costs may be accepted by the meal providers. The value of donated 
foods from any source shall not be considered in determining the amount 
to be requested from food stamp recipients. All indirect costs, such as 
those incurred in the acquisition, storage, or preparation of the foods 
used in meals shall also be excluded. In addition, if others have the 
option of eating free or making a monetary donation, food stamp 
recipients must be provided the same option of eating free or making a 
donation in money or food stamps. No retail food store may single out 
coupon users for special treatment in any way.
    (c) Accepting coupons. No authorized retail food store may accept 
coupons marked ``paid,'' ``canceled,'' or ``specimen.'' Nor may a retail 
food store accept coupons bearing any cancellation or endorsement, or 
coupons of other than the 1-dollar denomination which have been detached 
from the coupon books prior to the time of purchase or delivery of 
eligible food unless the detached coupons are accompanied by the coupon 
books which bear the same serial numbers that appear on the detached 
coupons. However, in the case of public or private nonprofit homeless

[[Page 916]]

meal providers, retail food stores may accept detached coupons which 
have been accepted by the homeless meal provider. It is the right of the 
household member or the authorized representative to detach the coupons 
from the book.
    (d) Making change. An authorized retail food store shall use, for 
the purpose of making change, uncanceled and unmarked 1-dollar coupons 
which were previously accepted for eligible foods. If change in an 
amount of less than 1-dollar is required, the eligible household shall 
receive the change in cash. However, in the case of public or private 
nonprofit homeless meal providers, neither cash change nor credit slips 
shall be provided under any circumstances when food stamps are used to 
purchase meals. At no time may cash change in excess of 99 cents be 
returned in a coupon transaction. An authorized retail food store may 
not engage in a series of coupon transactions the purpose of which is to 
provide the same food stamp customer an amount of cash change greater 
than the maximum 99 cents cash change allowed in one transaction.
    (e) Accepting coupons before delivery. Food retailers may not accept 
coupons before delivering the food, retain custody of any unspent 
coupons, or in any way prevent an eligible household from using coupons 
in making purchases from other authorized firms. However, a nonprofit 
cooperative food purchasing venture may accept coupons from a member of 
the cooperative at the time the member places a food order. The food 
ordered must be made available to the member within 14 days from the day 
the cooperative receives the member's coupons.
    (f) Paying credit accounts. Coupons may not be accepted by an 
authorized retail food store in payment for any eligible food sold to a 
household on credit.
    (g) Redeeming coupons. Authorized retail food stores may exchange 
coupons accepted in accordance with this part for face value upon 
presentation through the banking system or through a wholesale food 
concern authorized to accept coupons from that retailer. Authorized drug 
addict or alcoholic treatment and rehabilitation programs, group living 
arrangements, and shelters for battered women and children may present 
coupons for redemption through authorized wholesale food concerns. A 
drug addict or alcoholic treatment center, group living arrangement, or 
shelter for battered women and children may purchase food in authorized 
retail food stores as the authorized representative of its participating 
households. Public or private nonprofit homeless meal providers may 
purchase food in authorized retail food stores and through authorized 
wholesale food concerns. Authorized drug addict and alcoholic treatment 
and rehabilitation programs, group living arrangements, shelters for 
battered women and children, and public or private nonprofit homeless 
meal providers for homeless food stamp households shall not present 
coupons directly to an insured financial institution for redemption.
    (h) Identifying coupon users. Coupons may not knowingly be accepted 
from persons who have no right to possession of coupons. If a food 
retailer has any cause to believe that a person presenting coupons has 
no right to use the coupons, the food retailer should request the person 
to show the ID card of the household to establish the right of that 
person to use the coupons. Where photo ID cards are in use, the person 
presenting the ID card need not be pictured on the card. Public or 
private nonprofit homeless meal providers redeeming detached coupons 
through retail food stores shall present their retailer authorization 
card as proof of their eligibility to redeem coupons through retail food 
stores.
    (i) Checking meal delivery service recipients. A nonprofit meal 
delivery service shall require the recipient of a delivered meal to show 
the marked ID card establishing the recipient's right to use coupons for 
that service the first time that the recipient offers coupons in payment 
for the service, and shall request the marked ID card at any time the 
nonprofit meal delivery service has cause to question the continued 
eligibility of the recipient to use coupons for delivered meals.
    (j) Checking hunting and fishing equipment users. Authorized Alaskan 
retailers shall require coupon customers

[[Page 917]]

wanting to purchase hunting and fishing equipment with coupons to show 
their ID cards to determine that they live in an area designated by FNS 
as one in which persons are dependent upon hunting and fishing for 
subsistence.
    (k) Checking participants in restaurants. A restaurant operating 
under a State contract shall require a household purchasing meals to 
show the marked ID card establishing the household's right to purchase 
meals with coupons unless the personnel of the restaurant know that the 
program participant tendering coupons is eligible to use coupons to 
purchase meals.
    (l) Checking public or private nonprofit homeless meal provider 
recipients. Public or private nonprofit homeless meal providers shall 
establish a food stamp patron's right to purchase meals with coupons.

[Amdt. 136, 43 FR 43274, Sept. 22, 1978, as amended at Amdt. 191, 46 FR 
50277, Oct. 9, 1981; Amdt. 205, 46 FR 60167, Dec. 8, 1981; Amdt. 257, 49 
FR 32538, Aug. 15, 1984; Amdt. 286, 52 FR 7557, Mar. 11, 1987; 53 FR 
31649, Aug. 19, 1988; Amdt. 344, 56 FR 54778, Oct. 23, 1991; Amdt. 356, 
59 FR 29714, June 9, 1994; Amdt. 343, 61 FR 53601, Oct. 15, 1996]



Sec.  278.3  Participation of wholesale food concerns.

    (a) Accepting coupons. An authorized wholesale food concern may 
accept endorsed coupons from one or more specified authorized retail 
food stores, from one or more specified authorized nonprofit cooperative 
food-purchasing ventures, from one or more specified authorized group 
living arrangements, from one or more specified authorized drug addict 
or alcoholic treatment programs, from one or more specified authorized 
shelters for battered women and children, or, from one or more specified 
public or private nonprofit homeless meal providers if the coupons are 
accompanied by a properly filled-out and signed redemption certificate, 
and are not marked ``paid,'' ``canceled,'' or ``specimen.'' A wholesaler 
authorized to accept coupons from an authorized drug addict or alcoholic 
treatment program, or from an authorized group living arrangement, or 
from an authorized shelter for battered women and children, or from one 
or more public or private nonprofit homeless meal providers may accept 
coupons from that treatment program, or group living arrangement, or 
shelter for battered women and children, or from one or more public or 
private nonprofit homeless meal providers, only in exchange for food.
    (b) Accepting legally obtained coupons. No authorized wholesale food 
concern may accept coupons if the wholesaler knows or has reasonable 
cause to believe that the coupons were not legally obtained for eligible 
food.
    (c) Redeeming coupons. An authorized wholesale food concern may 
redeem coupons, properly accepted from retailers, through the banking 
system, upon presentation of the coupons with:
    (1) The authorized retail food store's properly filled-out and 
signed redemption certificate for the coupons; and
    (2) The authorized wholesale food concern's properly filled-out and 
signed redemption certificate.
    (d) Handling retailer redemption certificates. No authorized 
wholesale food concern may alter, prepare, or complete an authorized 
retail food store's redemption certificate.

[Amdt. 136, 43 FR 43274, Sept. 22, 1978, as amended by Amdt. 173, 46 FR 
62810, Dec. 29, 1981; Amdt. 286, 52 FR 7558, Mar. 11, 1987; Amdt. 344, 
56 FR 54778, Oct. 23, 1991; Amdt. 343, 61 FR 53601, Oct. 15, 1996]



Sec.  278.4  Procedure for redeeming coupons.

    (a) Coupons accepted without authorization. Coupons accepted by a 
retail food store or a wholesale food concern before the receipt by the 
firm of an authorization card from FNS may not be presented for 
redemption unless the FNS officer in charge has approved the redemption 
under Sec.  278.7(b). Burned or mutilated coupons shall be presented for 
redemption to the FNS officer in charge as provided in Sec.  278.7(c).
    (b) Endorsing coupons. Each authorized retail food store or 
authorized wholesale food concern shall mark its authorization number or 
name on each coupon before it presents the coupons for redemption.
    (c) Using redemption certificates. FNS will provide all authorized 
firms with redemption certificates. Wholesale food concerns and retail 
food stores, except for drug addict and alcoholic treatment

[[Page 918]]

and rehabilitation programs and public or private nonprofit homeless 
meal providers, shall use the redemption certificates to present coupons 
to insured financial institutions for credit or for cash. All retail 
food stores which wish to redeem coupons at wholesale food concerns 
shall use the redemption certificates for that purpose. An authorized 
retail firm using redemption certificates to redeem coupons shall fill 
out the redemption certificate to show the value of the coupons 
redeemed, the name of the insured financial institution or wholesaler, 
the date, and the signature and title of the official of the firm 
redeeming coupons.

[Amdt. 136, 43 FR 43274, Sept. 22, 1978, as amended by Amdt. 286, 52 FR 
7558, Mar. 11, 1987; Amdt. 344, 56 FR 54778, Oct. 23, 1991; Amdt. 343, 
61 FR 53601, Oct. 15, 1996]



Sec.  278.5  Participation of insured financial institutions.

    (a) Accepting coupons. (1) Financial institutions that are insured 
by the Federal Deposit Insurance Corporation (FDIC) or financial 
institutions which are insured under the Federal Credit Union Act and 
which have retail food stores or wholesale food concerns in their field 
of membership may redeem coupons only from authorized retail food 
stores, meal services, and wholesale food concerns in accordance with 
the rules contained in this part and instructions of the Federal Reserve 
Banks. No financial institution may impose on or collect from a retail 
food store a fee or other charge for redemption of coupons that are 
submitted to the financial institution in a manner consistent with the 
requirements, except for coupon cancellation, for the presentation of 
coupons by the financial institution to the Federal Reserve banks. 
Coupons submitted to insured financial institutions for credit or cash 
must be properly endorsed in accordance with Sec.  278.4 of this part 
and shall be accompanied by a properly completed and signed redemption 
certificate. All verified and encoded redemption certificates accepted 
by insured financial institutions shall be forwarded with the 
corresponding coupon deposits to the Federal Reserve Bank along with the 
accompanying Food Coupon Deposit Document (Form FNS-521). In accordance 
with Federal Reserve requirements, the coupon deposit value entered on 
the Food Coupon Deposit Document must be equal to the actual value of 
coupons being deposited and to the total value of verified amounts 
encoded on the corresponding redemption certificates.
    (2) An insured financial institution shall verify the amount of the 
coupons being redeemed and record the amount in the designated space on 
the redemption certificate. In order to conform with Federal Reserve 
requirements, the verified amount shall be recorded in the appropriate 
field on the redemption certificate using Magnetic Ink Character 
Recognition (MICR) encoding. Redemption certificates accepted by insured 
financial institutions shall be forwarded with the corresponding coupon 
deposits to the Federal Reserve Bank along with the Food Coupon Deposit 
Document (Form FNS-521).
    (3) Redeemed coupons must be indelibly cancelled on the face of the 
coupon by the first insured financial institution receiving them. If the 
cancellation on the coupon face does not show the depositing 
institution's name or its routing symbol transit number, this 
identifying information must appear on the straps affixed to each bundle 
of coupons of like denomination. Deposits not meeting these cancellation 
requirements may be returned to the depositing institution for 
reprocessing. Retail food stores may not be required to cancel the 
coupons by the insured financial institution nor may the insured 
financial institution charge the retail food stores a fee or other 
charge for cancellation of coupons. A portion of a coupon consisting of 
less than three-fifths of a whole coupon may not be redeemed.
    (4) Insured financial institutions which are members of the Federal 
Reserve System, insured nonmember clearing institutions, and insured 
nonmember institutions which have arranged with a Federal Reserve Bank 
to deposit coupons for credit to the account of a member institution on 
the books of a Federal Reserve Bank may

[[Page 919]]

forward coupons directly to the Federal Reserve Bank. Other insured 
financial institutions may forward cancelled coupons through ordinary 
collection channels.
    (b) Role of Federal Reserve Banks. Federal Reserve Banks, acting as 
fiscal agents of the United States, will receive canceled coupons for 
collection as cash items from armed forces installations, member insured 
financial institutions of the Federal Reserve System, nonmember clearing 
insured financial institutions, and nonmember insured financial 
institutions which have arranged with a Federal Reserve Bank to deposit 
coupons for credit to the account of a member insured financial 
institution on the books of the Federal Reserve Bank, and will charge 
those items to the general account of the Treasurer of the United 
States.
    (c) FNS liability for losses. FNS shall not be liable for the value 
of any coupons lost, stolen, or destroyed while in the custody of an 
insured financial institution or for the value of coupons lost, stolen, 
or destroyed while in transit from an insured financial institution to a 
Federal Reserve Bank.
    (d) FNS use of coupons to detect violations. Regardless of any other 
provision in these regulations, coupons may be issued to, purchased by, 
or redeemed by persons authorized by FNS to use those coupons in 
examining and inspecting program operations, and for other purposes 
determined by FNS to be required for proper administration of the 
program. Coupons which have been so issued and used, as well as any 
coupons which have been issued under paragraph (g) of this section, or 
which FNS believes may have been issued, transferred, negotiated, used, 
or received in violation of this subchapter or of any applicable 
statute, shall at the request of FNS and on issuance of a receipt for 
them be turned over to FNS by the insured financial institution 
receiving the coupons, or by any other person to whom the request is 
addressed, together with any certificate(s) of redemption accompanying 
the coupons. Any coupons so requested shall not be eligible for 
redemption through Federal Reserve Banks or other collection channels. 
However, FNS may redeem coupons from any insured financial institution 
or person by payment of the face amount of the coupons upon 
determination by FNS that this direct redemption of coupons is 
warranted. FNS shall determine the proper disposition of any coupons 
held by FNS on completion of the examination or inspection in which the 
coupons were used. Claims or demands for unredeemed coupons surrendered 
to FNS may be mailed to the local FNS field office for the project area 
involved.
    (e) Selling coupons to stores for internal checks. FNS may sell 
coupons at face value to any authorized retail food store which wishes 
to use coupons to conduct internal checks of coupon transactions. The 
retail food store must submit a written request to FNS which shall 
include a certification that the store recognizes that its use of 
coupons will not affect FNS action to enforce program regulations and 
that the requested coupons will be used only for internal checks of the 
store's employees and only to uncover sales of items other than eligible 
foods. The request shall also include the name of the city or county in 
which the stores to be checked through the use of the requested coupons 
are located and the name and address of any outside agency with which 
the retail food store has or will have a contract to conduct checks of 
the store's employees using coupons. The request shall be directed to 
the Benefit Redemption Division, FSP, FNS, U.S. Department of 
Agriculture, 3101 Park Center Drive, Alexandria, VA 22302, and shall be 
accompanied by a check or money order made payable to the Food and 
Nutrition Service to cover the face value cost of the coupons requested. 
Coupons bought by retail food stores for use in internal checks may be 
later redeemed for full value in accordance with Sec.  278.4, and in 
redeeming those coupons, retail food stores are authorized to make the 
certification required for redemption.
    (f) Continued participation of households under investigation. Upon 
the written request of Federal, State, or local government agencies 
which have authority to investigate, and are investigating, suspected 
violations of Federal or State statutes concerning the enforcement of 
the Food Stamp Act or the regulations, the State agency may

[[Page 920]]

allow ineligible households to continue program participation. The State 
agency may allow the households to continue participation in the program 
until the earlier of (1) expiration of the period of 90 days after the 
request is received or any longer period which FNS, upon request of the 
State agency, may approve in a particular case, or (2) receipt of 
notification from the investigative agency that participation may be 
terminated or that the investigation has been completed. Regardless of 
any other provision of these regulations, FNS may not hold the State 
agency liable for the value of any coupons issued to households under 
this paragraph.

[Amdt. 136, 43 FR 43274, Sept. 22, 1978, as amended by Amdt. 257, 49 FR 
32538, Aug. 15, 1984; Amdt. 267, 51 FR 6514, Feb. 25, 1986; Amdt. 272, 
51 FR 12498, Apr. 11, 1986; Amdt. 288, 52 FR 11815, Apr. 13, 1987; Amdt. 
272, 52 FR 18198, May 14, 1987; Amdt. 356, 59 FR 29714, June 9, 1994; 
Amdt. 331, 59 FR 60062, Nov. 22, 1994]



Sec.  278.6  Disqualification of retail food stores and wholesale food 
concerns, and imposition of civil money penalties in lieu of disqualifications.

    (a) Authority to disqualify or subject to a civil money penalty. FNS 
may disqualify any authorized retail food store or authorized wholesale 
food concern from further participation in the program if the firm fails 
to comply with the Food Stamp Act of 1977, as amended, or this part. 
Such disqualification shall result from a finding of a violation on the 
basis of evidence that may include facts established through on-site 
investigations, inconsistent redemption data, evidence obtained through 
a transaction report under an electronic benefit transfer system, or the 
disqualification of a firm from the Special Supplemental Nutrition 
Program for Women, Infants and Children (WIC), as specified in paragraph 
(e)(8) of this section. Disqualification shall be for a period of 6 
months to 5 years for the firm's first sanction; for period of 12 months 
to 10 years for a firm's second sanction; and disqualification shall be 
permanent for a disqualification based on paragraph (e)(1) of this 
section. Any firm which has been disqualified and which wishes to be 
reinstated at the end of the period of disqualification, or at any later 
time, shall file a new application under Sec.  278.1 so that FNS may 
determine whether reauthorization is appropriate. The application may be 
filed no earlier than 10 days before the end of the period of 
disqualification. FNS may, in lieu of a disqualification, subject a firm 
to a civil money penalty of up to an amount specified in Sec.  
3.91(b)(3)(i) of this title for each violation if FNS determines that a 
disqualification would cause hardship to participating households. FNS 
may impose a civil money penalty of up to an amount specified in 
Sec. 3.91(b)(3)(ii) of this title for each violation in lieu of a 
permanent disqualification for trafficking, as defined in Sec.  271.2 of 
this chapter, in accordance with the provisions of paragraphs (i) and 
(j) of this section.
    (b) Charge letter--(1) General provisions. Any firm considered for 
disqualification or imposition of a civil money penalty under paragraph 
(a) of this section or a fine as specified under paragraph (l) or (m) of 
this section shall have full opportunity to submit to FNS information, 
explanation, or evidence concerning any instances of noncompliance 
before FNS makes a final administrative determination. The FNS regional 
office shall send the firm a letter of charges before making such 
determination. The letter shall specify the violations or actions which 
FNS believes constitute a basis for disqualification or imposition of a 
civil money penalty or fine. The letter shall specify the violations or 
actions which FNS believes constitute a basis for disqualification or 
imposition of a civil money penalty. The letter shall inform the firm 
that it may respond either orally or in writing to the charges contained 
in the letter within 10 days of receiving the letter. The firm's 
response shall set forth a statement of evidence, information, or 
explanation concerning the specified violations or acts. The firm shall 
make its response, if any, to the officer in charge of the FNS field 
office which has responsibility for the project area in which the firm 
is located. In the case of a firm for which action is taken in 
accordance with paragraph (e)(8) of this section, the charge letter 
shall inform such firm that the disqualification action is not subject 
to

[[Page 921]]

administrative or judicial review, as specified in paragraph (e)(8) of 
this section.
    (2) Charge letter for trafficking. (i) The charge letter shall 
advise a firm being considered for permanent disqualification based on 
evidence of trafficking as defined in Sec.  271.2 that the firm must 
notify FNS if the firm desires FNS to consider the sanction of a civil 
money penalty in lieu of permanent disqualification. The charge letter 
shall also advise the firm that the permanent disqualification shall be 
effective immediately upon the date of receipt of the notice of 
determination, regardless of whether a request for review is filed in 
accordance with part 279 of this chapter. If the disqualification is 
reversed through administrative or judicial review, the Secretary shall 
not be liable for the value of any sales lost during the 
disqualification period. Firms that request and are determined eligible 
for a civil money penalty in lieu of permanent disqualification for 
trafficking may continue to participate in the program pending review 
and shall not be required to pay the civil money penalty pending appeal 
of the trafficking determination action.
    (ii) Firms that request consideration of a civil money penalty in 
lieu of a permanent disqualification for trafficking shall have the 
opportunity to submit to FNS information and evidence as specified in 
Sec.  278.6(i), that establishes the firm's eligibility for a civil 
money penalty in lieu of a permanent disqualification in accordance with 
the criteria included in Sec.  278.6(i). This information and evidence 
shall be submitted within 10 days, as specified in Sec.  278.6(b)(1).
    (iii) If a firm fails to request consideration for a civil money 
penalty in lieu of a permanent disqualification for trafficking and 
submit documentation and evidence of its eligibility within the 10 days 
specified in Sec.  278.6(b)(1), the firm shall not be eligible for such 
a penalty.
    (c) Review of evidence. The letter of charges, the response, and any 
other information available to FNS shall be reviewed and considered by 
the appropriate FNS regional office, which shall then issue the 
determination.In the case of a firm subject to permanent 
disqualification under paragraph (e)(1) of this section, the 
determination shall inform such a firm that action to permanently 
disqualify the firm shall be effective immediately upon the date of 
receipt of the notice of determination from FNS, regardless of whether a 
request for review is filed in accordance with part 279 of this chapter. 
If the disqualification is reversed through administrative or judicial 
review, the Secretary shall not be liable for the value of any sales 
lost during the disqualification period. Firms that request and are 
determined eligible to a civil money penalty in lieu of permanent 
disqualification for trafficking may continue to participate in the 
program pending review and shall not be required to pay the civil money 
penalty pending appeal of the trafficking determination action. In the 
case of a firm for which action is taken in accordance with paragraph 
(e)(8) of this section, the determination notice shall inform such firm 
that the disqualification action is not subject to administrative or 
judicial review, as specified in paragraph (e)(8) of this section.
    (d) Basis for determination. The FNS regional office making a 
disqualification or penalty determination shall consider: (1) The nature 
and scope of the violations committed by personnel of the firm, (2) any 
prior action taken by FNS to warn the firm about the possibility that 
violations are occurring, and (3) any other evidence that shows the 
firm's intent to violate the regulations.
    (e) Penalties. FNS shall take action as follows against any firm 
determined to have violated the Act or regulations. For the purposes of 
assigning a period of disqualification, a warning letter shall not be 
considered to be a sanction. A civil money penalty and a 
disqualification shall be considered sanctions for such purposes. The 
FNS regional office shall:
    (1) Disqualify a firm permanently if:
    (i) Personnel of the firm have trafficked as defined in Sec.  271.2; 
or
    (ii) Violations such as, but not limited to, the sale of ineligible 
items occurred and the firm had twice before been sanctioned.

[[Page 922]]

    (iii) It is determined that personnel of the firm knowingly 
submitted information on the application that contains false information 
of a substantive nature that could affect the eligibility of the firm 
for authorization in the program, such as, but not limited to, 
information related to:
    (A) Eligibility requirements under Sec.  278.1(b), (c), (d), (e), 
(f), (g) and (h);
    (B) Staple food stock;
    (C) Annual gross sales for firms seeking to qualify for 
authorization under Criterion B as specified in the Food Stamp Act of 
1977, as amended;
    (D) Annual staple food sales;
    (E) Total annual gross retail food sales for firms seeking 
authorization as co-located wholesale/retail firms;
    (F) Ownership of the firm;
    (G) Employer Identification Numbers and Social Security Numbers;
    (H) Food Stamp Program history, business practices, business ethics, 
WIC disqualification or authorization status, when the store did (or 
will) open for business under the current ownership, business, health or 
other licenses, and whether or not the firm is a retail and wholesale 
firm operating at the same location; or
    (I) Any other information of a substantive nature that could affect 
the eligibility of a firm.
    (2) Disqualify the firm for 5 years if it is to be the firm's first 
sanction, the firm had been previously advised of the possibility that 
violations were occurring and of possible consequences of violating the 
regulations, and the evidence shows that:
    (i) It is the firm's practice to sell expensive or conspicuous 
nonfood items, cartons of cigarettes, or alcoholic beverages in exchange 
for food coupons; or
    (ii) The firm's coupon redemptions for a specified period of time 
exceed its food sales for the same period of time; or
    (iii) A wholesale food concern's redemptions of coupons for a 
specified period of time exceed the redemptions of all the specified 
authorized retail food stores, nonprofit cooperative food-purchasing 
ventures, group living arrangements, drug addict and alcoholic treatment 
programs, homeless meal providers, and shelters for battered women and 
children which the wholesale food concern was authorized to serve during 
that time; or
    (iv) A wholesale food concern's stated redemptions of coupons for a 
particular retail food store, nonprofit cooperative food-purchasing 
venture, group living arrangement, drug addict and alcoholic treatment 
program, homeless meal providers, or shelters for battered women and 
children exceeded the actual amount of coupons which that firm or 
organization redeemed through the wholesaler; or
    (v) Personnel of the firm knowingly accepted coupons from an 
unauthorized firm or an individual known not to be legally entitled to 
possess coupons.
    (3) Disqualify the firm for 3 years if it is to be the first 
sanction for the firm and the evidence shows that:
    (i) It is the firm's practice to commit violations such as the sale 
of common nonfood items in amounts normally found in a shopping basket 
and the firm was previously advised of the possibility that violations 
were occurring and of the possible consequences of violating the 
regulations; or
    (ii) Any of the situations described in paragraph (e)(2) of this 
section occurred and FNS had not previously advised the firm of the 
possibility that violations were occurring and of the possible 
consequences of violating the regulations; or
    (iii) The firm is an authorized communal dining facility, drug 
addiction or alcoholic treatment and rehabilitation program, group 
living arrangement, homeless meal provider, meal delivery service, or 
shelter for battered women and children and it is the firm's practice to 
sell meals in exchange for food coupons to persons not eligible to 
purchase meals with food coupons and the firm has been previously 
advised of the possibility that violations were occurring and of the 
possible consequences of violating the regulations; or
    (iv) A wholesale food concern accepted coupons from an authorized 
firm which it was not authorized to serve and the wholesale food concern 
had been previously advised of the possibility that violations were 
occurring and of possible consequences of violating the regulations; or

[[Page 923]]

    (v) The firm is an authorized retail food store and personnel of the 
firm have engaged in food coupon transactions with other authorized 
retail stores, not including treatment programs, group living 
arrangements, homeless meal providers, or shelters for battered women 
and children, and the firm had been previously advised of the 
possibility that violations were occurring and of the possible 
consequences of violating the regulations.
    (vi) Personnel of the firm knowingly submitted information on the 
application that contained false information of a substantive nature 
related to the ability of FNS to monitor compliance of the firm with FSP 
requirements, such as, but not limited to, information related to:
    (A) Annual eligible retail food sales;
    (B) Store location and store address and mailing address;
    (C) Financial institution information; or
    (D) Store name, type of ownership, number of cash registers, and 
non-food inventory and services.
    (4) Disqualify the firm for 1 year if it is to be the first sanction 
for the firm and the ownership or management personnel of the firm have 
committed violations such as the sale of common nonfood items in amounts 
normally found in a shopping basket, and FNS had not previously advised 
the firm of the possibility that violations were occurring and of the 
possible consequences of violating the regulations.
    (5) Disqualify the firm for 6 months if it is to be the first 
sanction for the firm and the evidence shows that personnel of the firm 
have committed violations such as but not limited to the sale of common 
nonfood items due to carelessness or poor supervision by the firm's 
ownership or management.
    (6) Double the appropriate period of disqualification prescribed in 
paragraphs (e) (2) through (5) of this section as warranted by the 
evidence of violations if the same firm has once before been assigned a 
sanction.
    (7) Send the firm a warning letter if violations are too limited to 
warrant a disqualification.
    (8) FNS shall disqualify from the Food Stamp Program any firm which 
is disqualified from the WIC Program:
    (i) Based in whole or in part on any act which constitutes a 
violation of that program's regulation and which is shown to constitute 
a misdemeanor or felony violation of law, or for any of the following 
specific program violations:
    (A) A pattern of claiming reimbursement for the sale of an amount of 
a specific food item which exceeds the store's documented inventory of 
that food item for a specified period of time;
    (B) Exchanging WIC food instruments for cash, credit or 
consideration other than eligible food; or the exchange of firearms, 
ammunition, explosives or controlled substances, as defined in section 
802 of title 21 of the United States Code, for food instruments;
    (C) A pattern of receiving, transacting and/or redeeming WIC food 
instruments outside of authorized channels;
    (D) A pattern of exchanging non-food items for a WIC food 
instrument;
    (E) A pattern of charging WIC customers more for food than non-WIC 
customers or charging WIC customers more than the current shelf price; 
or
    (F) A pattern of charging for food items not received by the WIC 
customer or for foods provided in excess of those listed on the food 
instrument.
    (ii) FNS shall not disqualify a firm from the Food Stamp Program on 
the basis of a WIC disqualification unless:
    (A) Prior to the time prescribed for securing administrative review 
of the WIC disqualification action, the firm was provided individual and 
specific notice that it could be disqualified from the Food Stamp 
Program based on the WIC violations committed by the firm;
    (B) A signed and dated copy of such notice is provided to FNS by the 
WIC administering agency; and
    (C) A determination is made in accordance with paragraph (a) of this 
section that such action will not cause a hardship for participating 
Food Stamp households.
    (iii) Such a Food Stamp disqualification:
    (A) Shall be for the same length of time as the WIC 
disqualification;
    (B) May begin at a later date than the WIC disqualification; and

[[Page 924]]

    (C) Shall not be subject to administrative or judicial review under 
the Food Stamp Program.
    (f) Criteria for civil money penalties for hardship and transfer of 
ownership. (1) FNS may impose a civil money penalty as a sanction in 
lieu of disqualification when the firm subject to a disqualification is 
selling a substantial variety of staple food items, and the firm's 
disqualification would cause hardship to food stamp households because 
there is no other authorized retail food store in the area selling as 
large a variety of staple food items at comparable prices. FNS may 
disqualify a store which meets the criteria for a civil money penalty if 
the store had previously been assigned a sanction. A civil money penalty 
for hardship to food stamp households may not be imposed in lieu of a 
permanent disqualification.
    (2) In the event any retail food store or wholesale food concern 
which has been disqualified is sold or the ownership thereof is 
otherwise transferred to a purchaser or transferee, the person or other 
legal entity who sells or otherwise transfers ownership of the retail 
food store or wholesale food concern shall be subjected to and liable 
for a civil money penalty in an amount to reflect that portion of the 
disqualification period that has not expired, to be calculated using the 
method found at Sec.  278.6(g). If the retail food store or wholesale 
food concern has been permanently disqualified, the civil money penalty 
shall be double the penalty for a ten year disqualification period. The 
disqualification shall continue in effect at the disqualified location 
for the person or other legal entity who transfers ownership of the 
retail food store or wholesale food concern notwithstanding the 
imposition of a civil money penalty under this paragraph.
    (3) At any time after a civil money penalty imposed under paragraph 
(f) (2) of this section has become final under the provisions of part 
279, the Food and Consumer Service may request the Attorney General 
institute a civil action to collect the penalty from the person or 
persons subject to the penalty in a district court of the United States 
for any district in which such person or persons are found, reside, or 
transact business.
    (4) A bona fide transferee of a retail food store shall not be 
required to pay a civil money penalty imposed on the firm prior to its 
transfer. A buyer or transferee (other than a bona fide buyer or 
transferee) may not be authorized to accept or redeem coupons and may 
not accept or redeem coupons until the Secretary receives full payment 
of any penalty imposed on such store or concern.
    (g) Amount of civil money penalties for hardship and transfer of 
ownership. FNS shall determine the amount of the civil money penalty as 
follows:
    (1) Determine the firm's average monthly redemptions of coupons for 
the 12-month period ending with the month immediately preceding that 
month during which the firm was charged with violations.
    (2) Multiply the average monthly redemption figure by 10 percent.
    (3) Multiply the product arrived at in paragraph (g)(2) by the 
number of months for which the firm would have been disqualified under 
paragraph (e) of this section. The civil money penalty may not exceed an 
amount specified in Sec.  3.91(b)(3)(i) of this title for each 
violation.
    (h) Notifying the firm of civil money penalties for hardship and 
transfer of ownership. A firm has 15 days from the date the FNS regional 
office notifies the firm in writing in which to pay the civil money 
penalty, or to notify the regional office in writing of its intent to 
pay in installments as specified by the regional office. The firm must 
present to FNS a collateral bond as specified in Sec.  278.1(b)(4), 
within the same 15-day period. The civil money penalty must be paid in 
full by the end of the period for which the firm would have been 
disqualified. FNS shall:
    (1) Disqualify the firm for the period determined to be appropriate 
under paragraph (e) of this section if the firm refuses to pay any of 
the civil money penalty;
    (2) Disqualify the firm for a period corresponding to the unpaid 
part of the civil money penalty if the firm does not pay the civil money 
penalty in full or in installments as specified by the FNS regional 
office; or
    (3) Disqualify the firm for the prescribed period if the firm does 
not

[[Page 925]]

present a collateral bond within the required 15 days. Any payment on a 
civil money penalty which have been received by FNS shall be returned to 
the firm. If the firm presents the required bond during the 
disqualification period, the civil money penalty may be reinstated for 
the duration of the disqualification period.
    (i) Criteria for eligibility for a civil money penalty in lieu of 
permanent disqualification for trafficking. FNS may impose a civil money 
penalty in lieu of a permanent disqualification for trafficking as 
defined in Sec.  271.2 if the firm timely submits to FNS substantial 
evidence which demonstrates that the firm had established and 
implemented an effective compliance policy and program to prevent 
violations of the Program. Firms assessed a CMP under this paragraph 
shall be subject to the applicable penalties included in Sec. Sec.  
278.6(e) (2) through (6) for the sale of ineligible items. Only those 
firms for which a permanent disqualification for trafficking took effect 
on or after October 1, 1988, are eligible for a civil money penalty in 
lieu of permanent disqualification for trafficking, except that firms 
that have been disqualified but are awaiting a judicial review decision 
are eligible for a civil money penalty in lieu of a permanent 
disqualification. In determining the minimum standards of eligibility of 
a firm for a civil money penalty in lieu of a permanent disqualification 
for trafficking, the firm shall, at a minimum, establish by substantial 
evidence its fulfillment of each of the following criteria:

    Criterion 1. The firm shall have developed an effective compliance 
policy as specified in Sec.  278.6(i)(1); and
    Criterion 2. The firm shall establish that both its compliance 
policy and program were in operation at the location where the 
violation(s) occurred prior to the occurrence of violations cited in the 
charge letter sent to the firm; and
    Criterion 3. The firm had developed and instituted an effective 
personnel training program as specified in Sec.  278.6(i)(2); and
    Criterion 4. Firm ownership was not aware of, did not approve, did 
not benefit from, or was not in any way involved in the conduct or 
approval of trafficking violations; or it is only the first occasion in 
which a member of firm management was aware of, approved, benefited 
from, or was involved in the conduct of any trafficking violations by 
the firm. Upon the second occasion of trafficking involvement by any 
member of firm management uncovered during a subsequent investigation, a 
firm shall not be eligible for a civil money penalty in lieu of 
permanent disqualification. Notwithstanding the above provision, if 
trafficking violations consisted of the sale of firearms, ammunition, 
explosives or controlled substances, as defined in 21 U.S.C. Sec.  802, 
and such trafficking was conducted by the ownership or management of the 
firm, the firm shall not be eligible for a civil money penalty in lieu 
of permanent disqualification. For purposes of this section, a person is 
considered to be part of firm management if that individual has 
substantial supervisory responsibilities with regard to directing the 
activities and work assignments of store employees. Such supervisory 
responsibilities shall include the authority to hire employees for the 
store or to terminate the employment of individuals working for the 
store.

    (1) Compliance policy standards. As specified in Criterion 1 above, 
in determining whether a firm has established an effective policy to 
prevent violations, FNS shall consider written and dated statements of 
firm policy which reflect a commitment to ensure that the firm is 
operated in a manner consistent with this part 278 of current FSP 
regulations and current FSP policy on the proper acceptance and handling 
of food coupons. As required by Criterion 2, such policy statements 
shall be considered only if documentation is supplied which establishes 
that the policy statements were provided to the violating employee(s) 
prior to the commission of the violation. In addition, in evaluating the 
effectiveness of the firm's policy and program to ensure FSP compliance 
and to prevent FSP violations, FNS may consider the following:
    (i) Documentation reflecting the development and/or operation of a 
policy to terminate the employment of any firm employee found violating 
FSP regulations;
    (ii) Documentation of the development and/or continued operation of 
firm policy and procedures resulting in appropriate corrective action 
following complaints of FSP violations or irregularities committed by 
firm personnel;
    (iii) Documentation of the development and/or continued operation of 
procedures for internal review of firm

[[Page 926]]

employees' compliance with FSP regulations;
    (iv) The nature and scope of the violations charged against the 
firm;
    (v) Any record of previous firm violations under the same ownership; 
and
    (vi) Any other information the firm may present to FNS for 
consideration.
    (2) Compliance training program standards. As prescribed in 
Criterion 3 above, the firm shall have developed and implemented an 
effective training program for all managers and employees on the 
acceptance and handling of food coupons in accordance with this part 
278. A firm which seeks a civil money penalty in lieu of a permanent 
disqualification shall document its training activity by submitting to 
FNS its dated training curricula and records of dates training sessions 
were conducted; a record of dates of employment of firm personnel; and 
contemporaneous documentation of the participation of the violating 
employee(s) in initial and any follow-up training held prior to the 
violation(s). FNS shall consider a training program effective if it 
meets or is otherwise equivalent to the following standards:
    (i) Training for all managers and employees whose work brings them 
into contact with food stamps or who are assigned to a location where 
food stamps are accepted, handled or processed shall be conducted within 
one month of the institution of the compliance policy under Criterion 1 
above. Employees hired subsequent to the institution of the compliance 
policy shall be trained within one month of employment. All employees 
shall be trained periodically thereafter;
    (ii) Training shall be designed to establish a level of competence 
that assures compliance with Program requirements as included in this 
part 278;
    (iii) Written materials, which may include FNS publications and 
program regulations that are available to all authorized firms, are used 
in the training program. Training materials shall clearly state that the 
following acts are prohibited and are in violation of the Food Stamp Act 
and regulations: the exchange of food coupons, ATP cards or other 
program access devices for cash; and, in exchange for coupons, the sale 
of firearms, ammunition, explosives or controlled substances, as the 
term is defined in section 802 of title 21, United States Code.
    (j) Amount of civil money penalty in lieu of permanent 
disqualification for trafficking. A civil money penalty assessed in 
accordance with Sec.  278.6(i) shall not exceed $20,000 for each 
violation and shall not exceed $40,000 for all violations occurring 
during a single investigation. FNS shall determine the amount of the 
civil money penalty as follows:
    (1) Determine the firm's average monthly redemptions for the 12-
month period ending with the month immediately preceding the month 
during which the firm was charged with violations;
    (2) Multiply the average monthly redemption figure by 10 percent;
    (3) For the first trafficking offense by a firm, multiply the 
product obtained in Sec.  278.6(j)(2) by 60 if the largest amount of 
food coupons, ATP cards, or other benefit instruments involved in a 
single trafficking transaction had a face value of $99 or less. If the 
face value of coupons, ATP cards or other benefit instruments involved 
in the largest single trafficking transaction was $100 or more, the 
amount of the product obtained in this paragraph shall be doubled;
    (4) For a second trafficking offense by a firm, multiply the product 
obtained in Sec.  278.6(j)(2) by 120 if the largest amount of food 
coupons, ATP cards, or other benefit instruments involved in a single 
trafficking transaction had a face value of $99 or less and the same 
firm has once before been sanctioned for trafficking in food coupons, 
ATP cards, or other benefit instruments. If the face value of food 
coupons, ATP cards, or other benefit instruments involved in the largest 
single trafficking transaction was $100 or more, the amount of the 
product obtained in this paragraph shall be doubled; and
    (5) If a third trafficking offense is committed by the firm, the 
firm shall not be eligible for a civil money penalty in lieu of 
disqualification.
    (k) Payment of civil money penalty in lieu of a permanent 
disqualification for trafficking. Payment of the full amount of the 
civil money penalty in lieu of

[[Page 927]]

permanent disqualification for trafficking shall be made within 30 days 
of the date the final determination was received by the firm. If payment 
is not made within the prescribed period, the right to the civil money 
penalty in lieu of a permanent disqualification is forfeited and 
disqualification shall become effective immediately.
    (l) Fines for the acceptance of loose coupons. FNS may impose a fine 
against any retail food store or wholesale food concern that accepts 
coupons that are not accompanied by the corresponding book cover, other 
than the denomination of coupons used for making change as specified in 
Sec.  278.2(d) or coupons accepted from homeless meal providers as 
specified in Sec.  278.2(c). The fine to be assessed against a firm 
found to be accepting loose coupons shall be $500 per investigation plus 
an amount equal to double the face value of each loose coupon accepted, 
and may be assessed and collected in addition to any fiscal claim 
established by FNS. The fine shall be paid in full within 30 days of the 
firm's receipt of FNS' notification to pay the fine. The Attorney 
General of the United States may institute judicial action in any court 
of competent jurisdiction against the store or concern to collect the 
fine. FNS may withdraw the authorization of the store, as well as other 
authorized locations of a multi-unit firm which are under the same 
ownership, for failure to pay such a fine as specified under Sec.  
278.1(k). FNS may deny the authorization of any firm that has failed to 
pay such fines as specified under Sec.  278.1(j).
    (m) Fines for unauthorized third parties that accept food stamps. 
FNS may impose a fine against any individual, sole proprietorship, 
partnership, corporation or other legal entity not approved by FNS to 
accept and redeem food coupons for any violation of the provisions of 
the Food Stamp Act or the program regulations, including violations 
involving the acceptance of coupons. The fine shall be $1,000 for each 
violation plus an amount equal to three times the face value of the 
illegally accepted food coupons. The fine shall be paid in full within 
30 days of the individual's or legal entity's receipt of FNS' 
notification to pay the fine. The Attorney General of the United States 
may institute judicial action in any court of competent jurisdiction 
against the person to collect the fine. FNS may withdraw the 
authorization of any firm that is under the same ownership as an 
unauthorized firm that has failed to pay such a fine, as specified under 
Sec.  278.1(k). FNS may deny authorization to any firm that has failed 
to pay such a fine, as specified under Sec.  278.1(j).
    (n) Review of determination. The determination of FNS shall be final 
and not subject to further administrative or judicial review unless a 
written request for review is filed within the period stated in part 279 
of this chapter.
    Notwithstanding the above, any FNS determination made on the basis 
of paragraph (e)(8) of this section shall not be subject to further 
administrative or judicial review.
    (o) Delivery of notice. The delivery by certified mail or personal 
service of any notice required of FNS by this part will constitute 
notice to the addressee of its contents.

[Amdt. 136, 43 FR 43274, Sept. 22, 1978, as amended by Amdt. 236, 47 FR 
56471, Dec. 17, 1982; Amdt. 236, 49 FR 22057, May 25, 1984; Amdt. 258, 
49 FR 28393, July 12, 1984; Amdt. 286, 52 FR 7558, Mar. 11, 1987; Amdt. 
280, 52 FR 13222, Apr. 22, 1987; Amdt. 311, 54 FR 18645, May 2, 1989; 
Amdt. 323, 55 FR 31812, Aug. 6, 1990; Amdt. 344, 56 FR 54778, Oct. 23, 
1991; Amdt. 334, 57 FR 3912, Feb. 3, 1992; Amdt. 354, 59 FR 27434, May 
27, 1994; 62 FR 40928, July 31, 1997; 64 FR 23172, Apr. 30, 1999; Amdt. 
391, 66 FR 2800, Jan. 12, 2001; 68 FR 41052, July 10, 2003]



Sec.  278.7  Determination and disposition of claims--retail food stores 
and wholesale food concerns.

    (a) Claims against violators. FNS may establish and pursue claims 
against firms or other entities which have accepted or redeemed coupons 
in violation of the Food Stamp Act or this part regardless of whether 
the firms or entities are authorized to accept food stamps. If a firm 
fails to pay a claim, FNS may collect the claim by offsetting against 
amounts due the firm on redemption of other coupons or by deducting the 
amounts due from bonds posted by firms in compliance with the provisions 
of Sec.  278.1(b)(4). FNS shall deny an application for authorization or 
reauthorization by a firm which has failed to pay a claim.

[[Page 928]]

    (b) Forfeiture of a collateral bond. If FNS establishes a claim 
against an authorized firm which has previously been sanctioned, 
collection of the claim may be through total or partial forfeiture of 
the collateral bond. If FNS determines that forfeiture is required for 
collection of the claim, FNS shall take one or more of the following 
actions, as appropriate.
    (1) Determine the amount of the bond to be forfeited on the basis of 
the loss to the Government through violations of the act, and this part, 
as detailed in a letter of charges to the firm;
    (2) Send written notification by certified mail-return receipt 
requested to the firm and the bonding agent, of FNS' determination 
regarding forfeiture of all or a specified part of the collateral bond, 
and the reasons for the forfeiture;
    (3) Advise the firm and the bonding agent of the firm's right to 
administrative review of the claim determination;
    (4) Advise the firm and the bonding agent that if payment of the 
current claim is not received directly from the firm, FNS shall obtain 
full payment through forfeiture of the bond;
    (5) Proceed with collection on the bond for the amount forfeited if 
a request for review is not filed by the firm within the period 
established in Sec.  279.5, or if such review is unsuccessful; and
    (6) Upon the expiration of time permitted for the filing of a 
request for administratve and/or judicial review, deposit the bond in a 
Federal Reserve Bank account or in the Treasury Account, General. If FNS 
requires only a portion of the face value of the bond to satisfy a 
claim, the entire bond will be negotiated, and the remaining amount 
returned to the firm.
    (c) Coupons accepted without authorization. (1) The FNS officer in 
charge may approve the redemption under Sec.  278.4 of coupons accepted 
by firms before the receipt of an authorization card from FNS if the 
following conditions exist:
    (i) The coupons were received in accordance with the requirements of 
this part governing acceptance of coupons except the requirement that 
the firm be authorized before acceptance;
    (ii) The coupons were accepted by the firm in good faith, and 
without intent to circumvent this part; and
    (iii) The firm receives authorization to participate in the program.
    (2) Firms seeking approval to redeem coupons accepted without 
authorization shall present a written application for approval to the 
local FNS field office. This application shall be accompanied by a 
written statement signed by the firm of all the facts about the 
acceptance of the coupons. The statement shall also include a 
certification that the coupons were accepted in good faith, and without 
any intent to circumvent this part.
    (d) Burned or mutilated coupons. FNS may redeem burned or mutilated 
coupons only to the extent that the Bureau of Engraving and Printing of 
the United States Treasury Department can determine the value of the 
coupons. The firm presenting burned or mutilated coupons for redemption 
shall submit the coupons to the local FNS field office with a properly 
filled-out redemption certificate. In the section of the redemption 
certificate for entering the amount of coupons to be redeemed, an 
estimate of the value of the burned or mutilated coupons submitted for 
redemption shall be entered if the exact value of the coupons is 
unknown. The phrase ``Deputy Administrator for Fiscal Management, FNS, 
USDA,'' should be entered in the section of the redemption certificate 
for entering the name and address of the insured financial institution 
or wholesaler.
    (e) Old series coupons. FNS may redeem the old series food coupons 
issued in 50-cent, 2-dollar, and 5-dollar denominations when they are 
presented for redemption. Firms presenting the coupons for redemption 
shall submit the coupons to the local FNS field office with a properly 
completed redemption certificate and a written statement, signed by a 
representative of the firm, detailing the circumstances of the 
acceptance of the coupons.
    (f) Denials of claims brought by authorized firms against FNS. If a 
claim brought by a firm against FNS under this section is denied in 
whole or in part, notification of this action shall be sent to the firm 
by certified mail or

[[Page 929]]

personal service. If the firm is aggrieved by this action, it may seek 
administrative review as provided in part 279.
    (g) Lost or stolen coupons. FNS may not be held liable for claims 
from retail food stores, meal services, or wholesale food concerns for 
lost or stolen coupons.

[Amdt. 136, 43 FR 43274, Sept. 22, 1978, as amended by Amdt. 258, 49 FR 
28393, July 12, 1984; Amdt. 257, 49 FR 32538, Aug. 15, 1984; Amdt. 262, 
49 FR 50598, Dec. 31, 1984; 68 FR 41052, July 10, 2003]



Sec.  278.8  [Reserved]



Sec.  278.9  Implementation of amendments relating to the participation 
of retail food stores, wholesale food concerns and insured financial institutions.

    (a) Amendment 224. Retail food stores shall have signs posted as 
required by this amendment no later than 30 days after distribution of 
the signs by FNS.
    (b) Amendment 257. With the exception of the provisions in Sec.  
278.5 requiring redeeming financial institutions to verify that coupons 
are supported by redemption certificates, the revisions to part 278 
shall be effective September 14, 1984. Redeeming financial institutions 
shall begin verifying coupon deposits as required by Sec.  278.5 in 
accordance with the schedule determined by the Federal Reserve Board. 
Insured financial institutions shall adhere to preexisting requirements 
for handling redemption certificates (at 7 CFR 278.5(a)) until their 
Federal Reserve District implements the procedures contained in this 
final rule. FNS shall not be liable for any losses of coupons in transit 
to Federal Reserve Banks or as a result of a burglary or robbery of an 
insured financial institution which occur after September 14, 1984.
    (c) Amendment 267. The federally insured credit unions authorized to 
redeem food stamps under this amendment may begin accepting food stamps 
for redemption not later than March 27, 1986.
    (d) The program changes of Amendment 272 at Sec.  278.5(a) (1) and 
(3) are effective upon publication of the amendment. Financial 
institutions must implement the provisions no later than April 21, 1986.
    (e) Amendment No. 286. The provisions for part 278 of Amendment No. 
286 were effective March 11, 1987 for purposes of submitting 
applications for authorization to accept food stamps. For all other 
purposes, the effective date was April 1, 1987.
    (f) Amendment No. 280. The provisions for part 271 and Sec. Sec.  
278.1(r) and 278.6(f) of No. 280 are effective retroactively to April 1, 
1987. The provision for Sec.  278.1(o) is effective May 22, 1987.
    (g) Amendment No. 304. The technical amendment for part 278 of 
Amendment No. 304 was effective August 1, 1988.
    (h) Amendment No. 323. The program changes made to Sec.  278.6 by 
this amendment are retroactively effective October 1, 1988.
    (i) Amendment No. 334. The program changes made to Sec.  278.1 and 
Sec.  278.6 by this amendment are effective February 1, 1992. The 
program changes made to Sec.  271.2 and Sec.  271.5 by this amendment 
are retroactively effective to November 28, 1990, as specified in Pub. 
L. No. 101-624.
    (j) Amendment No. 354. The program changes made to Sec.  271.2 and 
Sec.  278.6 by this amendment are effective October 1, 1993.
    (k) Amendment No. 331. The program changes made to Sec. Sec.  271.2 
and 278.5 by this amendment are effective December 22, 1994.
    (l) Amendment No. 335. Expanded authority to use and disclose 
information about firms participating in the FSP under CFR 278.1(r) for 
currently authorized firms is effective and will be implemented 
beginning February 25, 1997 but not before 60-days after the date of 
notices to such firms, notifying them of the changes. The only exception 
to the above is that such disclosure of information shall not apply to 
firms that are withdrawn or are disqualified from FSP participation 
prior to implementation, unless such firms participate in the FSP at a 
future date subsequent to the implementation date.
    (m) Amendment No. 383. The program changes made to Sec.  278.1 by 
this amendment are effective September 29, 2000.

[Amdt. 136, 43 FR 43274, Sept. 22, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  
278.9, see the List of CFR Sections Affected, which appears in the

[[Page 930]]

Finding Aids section of the printed volume and on GPO Access.



Sec.  278.10  [Reserved]



PART 279_ADMINISTRATIVE AND JUDICIAL REVIEW_FOOD RETAILERS AND FOOD 
WHOLESALERS--Table of Contents




                     Subpart A_Administrative Review

Sec.
279.1 Jurisdiction and authority.
279.2 Manner of filing requests for review.
279.3 Content of request for review.
279.4 Action upon receipt of a request for review.
279.5 Determination of the designated reviewer.
279.6 Legal advice and extensions of time.

                        Subpart B_Judicial Review

279.7 Judicial review.
279.8 Implementation of amendments relating to administrative and 
          judicial review.

    Authority: 7 U.S.C. 2011-2036.

    Source: Amdt. 136, 43 FR 43279, Sept. 22, 1978, unless otherwise 
noted.

    Editorial Note: Nomenclature changes to part 279 appear at 68 FR 
41052, July 10, 2003.



                     Subpart A_Administrative Review



Sec.  279.1  Jurisdiction and authority.

    A food retailer or wholesale food concern aggrieved by 
administrative action under Sec.  278.1, Sec.  278.6 or Sec.  278.7 of 
this chapter may, within a period stated in this Part, file a written 
request for review of the administrative action with FNS. On receipt of 
the request for review, the questioned administrative action shall be 
stayed pending disposition of the request for review, except in the case 
of a permanent disqualification as specified in Sec.  278.6(e)(1) of 
this chapter.
    (a) Jurisdiction. Reviewers designated by the Secretary shall act 
for the Department on requests for review filed by food retailers or 
wholesale food concerns aggrieved by any of the following actions:
    (1) Denial of an application or withdrawal of authorization to 
participate in the program under Sec.  278.1 of this chapter;
    (2) Disqualification under Sec.  278.6 of this chapter, except that 
a disqualification for failure to pay a civil money penalty shall not be 
subject to administrative review and a disqualification imposed under 
Sec.  278.6(e)(8) of this chapter shall not be subject to administrative 
or judicial review;
    (3) Imposition of a fine under Sec.  278.6 of this chapter;
    (4) Denial of all or part of any claim asserted by a firm against 
FNS under Sec.  278.7(c), (d), or (e) of this chapter;
    (5) Assertion of a claim under Sec.  278.7(a) of this chapter; or
    (6) Forfeiture of part or all of a collateral bond under Sec.  278.1 
of this chapter, if the request for review is made by the authorized 
firm. FNS shall not accept requests for review made by a bonding company 
or agent.
    (b) Authority. The determination of the designated reviewer shall be 
the final administrative determination of the Department, subject, 
however, to judicial review under section 14 of the Food Stamp Act and 
subpart B of this part.

[68 FR 41052, July 10, 2003]



Sec.  279.2  Manner of filing requests for review.

    (a) Submitting requests for review. Requests for review submitted by 
firms shall be mailed to or filed with Director, Administrative Review 
Division, U.S. Department of Agriculture, Food and Nutrition Service, 
3101 Park Center Drive, Alexandria, Virginia 22302.
    (b) Content of requests. Requests for review shall be in writing and 
shall state the name and business address of the firm involved, and the 
name, address and position with the firm of the person who signed the 
request. The request shall be signed by the owner of the firm, an 
officer or partner of the firm, or by counsel, and need not be under 
oath.
    (c) Time limit for requesting review. A request for review shall be 
filed within 10 days of the date of delivery of the notice of the action 
for which review is requested. For purposes of determining whether a 
filing date is timely:
    (1) The filing date shall be the postmark date of the request, or 
equivalent if the written request is filed by a means other than mail;
    (2) In computing the 10 day period, the day of delivery of the 
notice of the action for which review is requested

[[Page 931]]

may not be included. The last day of the period so computed shall be 
included, unless it is a Saturday, a Sunday, or a legal holiday. In that 
case, the period runs until the end of the next day which is not a 
Saturday, a Sunday, or a legal holiday. As used in this paragraph, 
``legal holiday'' includes New Year's Day, Washington's Birthday, 
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, 
Thanksgiving Day, Christmas Day, and any other day designated as a 
holiday by the President or the Congress of the United States.

[Amdt. 136, 43 FR 43279, Sept. 22, 1978, as amended by Amdt. 236, 49 FR 
22058, May 25, 1984. Redesignated and amended at 68 FR 41053, July 10, 
2003]



Sec.  279.3  Content of request for review.

    (a) Identifying the request. Requests for review shall clearly 
identify the administrative action from which the review is requested. 
This identification shall include the date of the letter or other 
written communication notifying the firm of the administrative action, 
the name and title of the person who signed the letter or other 
communication, and whether the action under appeal concerns a denial of 
an application or a withdrawal of authorization to participate, a 
disqualification from further participation, a civil money penalty, or a 
denial of all or any part of a claim or a fine.
    (b) Supporting the request. The request shall include information in 
support of the request showing the grounds on which review is being 
sought, or shall state that supporting information will be filed in 
writing at a later date. In the latter case, the designated reviewer 
shall notify the firm of the date by which the information must be 
filed.

[Amdt. 136, 43 FR 43279, Sept. 22, 1978, as amended by Amdt. 236, 49 FR 
22058, May 25, 1984; Amdt. 334, 57 FR 3913, Feb. 3, 1992. Redesignated 
and amended at 68 FR 41053, July 10, 2003]



Sec.  279.4  Action upon receipt of a request for review.

    (a) Holding action. Upon receipt of a request for review of 
administrative action, the administrative action shall be held in 
abeyance until the designated reviewer has made a determination. 
However, permanent disqualifications for trafficking shall not be held 
in abeyance and shall be effective immediately as specified in 
278.6(b)(2) of this chapter. If the disqualification is reversed through 
administrative or judicial review, the Secretary shall not be held 
liable for the value of any sales lost during the disqualification 
period. If the administrative action in question involves a denial of 
approval of an application to participate in the program, a denial of a 
claim brought by a firm against FNS, or the forfeiture of a collateral 
bond, the designated reviewer shall direct that the firm not be approved 
for participation, not be paid any part of the disputed claim, or not be 
reimbursed for any bond forfeiture, until the designated reviewer has 
made a determination.
    (b) Filing supporting information. If the request filed by the firm 
includes a request for an opportunity to file written information in 
support of its position at a later date, the designated reviewer shall 
promptly notify the firm of the date by which the information shall be 
filed. If the firm fails to file any information in support of its 
position by the designated date, the information submitted with the 
original request shall be considered to be the only information 
submitted by the firm. In that case, if no information in support of the 
firm's position was submitted with the original request, the action of 
the appropriate FNS office shall be final.
    (c) Extensions of time. Upon timely written request to FNS by the 
firm requesting the review, FNS may grant extensions of time if, in FNS' 
discretion, additional time is required for the firm to fully present 
information in support of its position. However, no extension may be 
made in the time allowed for the filing of a request for review.

[Amdt. 136, 43 FR 43279, Sept. 22, 1978, as amended by Amdt. 236, 49 FR 
22059, May 25, 1984; Amdt. 258, 49 FR 28393, July 12, 1984; 49 FR 29769, 
July 24, 1984; Amdt. 356, 59 FR 29714, June 9, 1994; 64 FR 23174, Apr. 
30, 1999. Redesignated and amended at 68 FR 41053, July 10, 2003]

[[Page 932]]



Sec.  279.5  Determination of the designated reviewer.

    (a) Basis for designated reviewer determination. The designated 
reviewer shall make a determination based upon:
    (1) The information submitted by the appropriate FNS office;
    (2) Information submitted by the firm in support of its position; 
and
    (3) Any additional information, in writing, obtained by the 
designated reviewer from any other person having relevant information.
    (b) Review of denial or withdrawal of authorization. When the action 
under review is the denial of an application for authorization or the 
withdrawal of an existing authorization, the designated reviewer shall 
sustain the action under review; sustain the action under review, but 
specify a shorter period of time the action will remain in effect; or 
direct that the action under review be reversed.
    (c) Review of disqualification or civil money penalty or fine. When 
the action under review is disqualifying a firm from program 
participation or assessing a civil money penalty or fine against a firm, 
the designated reviewer shall: Sustain the action under review; specify 
a shorter period of disqualification; specify a reduced money penalty or 
fine; direct that an official warning letter be issued to the firm in 
lieu of a disqualification, civil money penalty or fine; or, direct that 
the action under review be reversed. The designated reviewer may change 
a disqualification of a firm to a civil money penalty if the 
disqualification would cause a hardship to participating households 
(except in the case of a permanent disqualification). The designated 
reviewer, working with the appropriate FNS office, shall determine if 
circumstances warrant a civil money penalty in accordance with Sec.  
278.6 of this chapter.
    (d) Review of denial of claim. In the case of a request for review 
of a denial of all or part of a claim of a firm, the determination of 
the designated reviewer shall sustain the action under review or shall 
specify the amount of the claim to be paid by FNS.
    (e) Determination notifications. FNS shall notify the firm of the 
determination. Such notification will be sent to the representative of 
the firm who filed the request for review.
    (f) Effective date. The determination of the designated reviewer 
shall take effect 30 days after the date of delivery of the 
determination to the firm.

[Amdt. 136, 43 FR 43279, Sept. 22, 1978, as amended by Amdt. 334, 57 FR 
3913, Feb. 3, 1992; Amdt. 356, 59 FR 29714, June 9, 1994. Redesignated 
and amended at 68 FR 41053, July 10, 2003]



Sec.  279.6  Legal advice and extensions of time.

    (a) Advice from Office of the General Counsel. If any request for 
review involves any doubtful questions of law, the Benefit Redemption 
Division shall obtain the advice of the Department's Office of the 
General Counsel.
    (b) Extensions of time. Upon timely written request to the 
designated reviewer by the firm requesting the review, the designated 
reviewer may grant extensions of time if, in the designated reviewer's 
discretion, additional time is required for the firm to fully present 
information in support of its position. However, no extensions may be 
made in the time allowed for the filing of a request for review.

[Amdt. 136, 43 FR 43279, Sept. 22, 1978, as amended by Amdt. 356, 59 FR 
29714, June 9, 1994. Redesignated and amended at 68 FR 41053, July 10, 
2003]



                        Subpart B_Judicial Review



Sec.  279.7  Judicial review.

    (a) Filing for judicial review. Except for firms disqualified from 
the program in accordance with Sec.  278.6(e)(8) of this chapter, a firm 
aggrieved by the determination of the designated reviewer may obtain 
judicial review of the determination by filing a complaint against the 
United States in the U.S. district court for the district in which the 
owner resides or is engaged in business, or in any court of record of 
the State having competent jurisdiction. The complaint must be filed 
within 30 days after the date of delivery or service upon the firm of 
the notice of determination of the designated reviewer in accordance 
with Sec.  279.5(e); otherwise the determination shall be final.
    (b) Summons and complaint. Service of the summons and complaint in 
any

[[Page 933]]

such action shall be made in accordance with the rules of civil 
procedure for the U.S. district courts. The copy of the summons and 
complaint required by the rules to be served on the agency whose order 
is being attacked shall be sent by registered or certified mail to the 
person in charge of the applicable regional office of FNS.
    (c) Trial de novo. The suit in the U.S. district court or in the 
State court, as the case may be, shall be a trial de novo by the court 
in which the court shall determine the validity of the questioned 
administrative action. If the court determines that the administrative 
action is invalid, it shall enter a judgment or order which it 
determines is in accordance with the law and the evidence.
    (d)  Stay of action. During the pendency of any judicial review, or 
any appeal therefrom, the administrative action under review shall 
remain in force unless the firm makes a timely application to the court 
and after hearing thereon, the court stays the administrative action 
after a showing that irreparable injury will occur absent a stay and 
that the firm is likely to prevail on the merits of the case. However, 
permanent disqualification actions taken in accordance with Sec.  
278.6(e)(1) of this chapter shall not be subject to such a stay of 
administrative action. If the disqualification action is reversed 
through administrative or judicial review, the Secretary shall not be 
liable for the value of any sales lost during the disqualification 
period.

[Amdt. 136, 43 FR 43279, Sept. 22, 1978, as amended by Amdt. 274, 51 FR 
18752, May 21, 1986; Amdt. 356, 59 FR 29714, June 9, 1994; 64 FR 23174, 
Apr. 30, 1999. Redesignated and amended at 68 FR 41053, July 10, 2003]



Sec.  279.8  Implementation of amendments relating to administrative 
and judicial review.

    (a) Amendment No. 257. The program change to Sec.  279.3(a)(4) shall 
be effective September 14, 1984.
    (b) Amendment No. 274. The program change of Amendment No. 274 at 
Sec.  279.10(d) is effective retroactively to December 23, 1985.
    (c) Amendment No. 334. The program changes made to part 279 by this 
amendment are effective February 1, 1992.

[Amdt. 257, 49 FR 32539, Aug. 15, 1984; Amdt. 262, 49 FR 50598, Dec. 31, 
1984, as amended by Amdt. 274, 51 FR 18752, May 21, 1986; Amdt. 334, 57 
FR 3913, Feb. 3, 1992. Redesignated at 68 FR 41053, July 10, 2003]



PART 280_EMERGENCY FOOD ASSISTANCE FOR VICTIMS OF DISASTERS--Table of Contents




    Authority: 7 U.S.C. 2011-2036.

    Source: Amdt. 192, 46 FR 8922, Jan. 27, 1981, as amended at 56 FR 
63617, Dec. 4, 1991.

    Editorial Note: OMB control numbers relating to this part 280 are 
contained in Sec.  271.8.



Sec.  280.1  Interim disaster procedures.

    The Secretary shall, after consultation with the official empowered 
to exercise the authority provided for by section 302(a) of the Disaster 
Relief Act of 1974, establish temporary emergency standards of 
eligibility for the duration of the emergency for households who are 
victims of a disaster which disrupts commercial channels of food 
distribution, if such households are in need of temporary food 
assistance and if commercial channels of food distribution have again 
become available to meet the temporary food needs of such households. 
Such standards as are prescribed for individual emergencies may be 
promulgated without regard to section 4(c) of this Act or the procedures 
set forth in section 553 of Title 5 of the United States Code. In 
addition to establishing temporary emergency standards of eligibility, 
the Secretary shall provide for emergency allotments to eligible 
households to replace food destroyed in a disaster. Such emergency 
allotments would be equal to the value of the food actually lost in such 
disaster but not greater than the applicable maximum monthly allotment 
for the household size.



PART 281_ADMINISTRATION OF THE FOOD STAMP PROGRAM ON INDIAN RESERVATIONS--Table of Contents




Sec.
281.1 General purpose and scope.
281.2 Administration.
281.3 Determination of failure.

[[Page 934]]

281.4 Determining Indian tribal organization capability.
281.5 Responsibilities of an Indian tribal organization designated as 
          State agency.
281.6 Liabilities and sanctions.
281.7 Indian tribal organization failure.
281.8 Transfer of program administration.
281.9 Funding.
281.10 Appeals.

    Authority: 7 U.S.C. 2011-2036.

    Source: 44 FR 35925, June 19, 1979, unless otherwise noted.



Sec.  281.1  General purpose and scope.

    (a) These regulations govern the operation of the Food Stamp Program 
on Indian reservations either separately or concurrently with the Food 
distribution program. In order to assure that the Food Stamp Program is 
responsive to the needs of Indians on reservations, State agencies are 
required to consult with Indian tribal organizations about the 
implementation and operation of the Food Stamp Program on reservations. 
Also, under certain specified conditions Indian tribal organizations on 
reservations can administer the Food Stamp Program. The Act authorizes 
the Secretary to pay such amounts for administrative costs as are 
determined to be necessary for the effective operation of the Food Stamp 
Program on Indian reservations.
    (b) The operation of the Food Stamp Program on Indian reservations 
is governed by all of the terms and conditions set forth in the Food 
Stamp Act of 1977 as amended and the regulations of this chapter.
    (c) Additionally, under no circumstances shall any household 
participate simultaneously in the Food Stamp Program and the Food 
Distribution Program. Policy governing this prohibition is found in 
Sec.  283.7(e).



Sec.  281.2  Administration.

    (a) Qualification. (1) The appropriate ITO of an established Indian 
reservation will qualify for participation under the provisions of this 
part, when that ITO files an application which demonstrates the status 
of an area as an established reservation, unless FNS determines that 
such area(s) does not qualify as a reservation, as that term is defined 
in these regulations. For purposes of this part, established reservation 
means the geographically defined area(s) currently recognized and 
established by Federal or State treaty or by Federal statute whereby 
such geographically defined area(s) is set aside for the use of Indians. 
Where such established areas exist, the appropriate ITO is presumed to 
exercise governmental jurisdiction, unless otherwise determined by FNS:
    (2) The appropriate ITO for other areas, in order to qualify as 
reservations for the provisions of this part, must show to FNS:
    (i) That the ITO exercises governmental jurisdiction over a 
geographic area(s) which enjoys legal recognition from the Federal or a 
State government and is set aside for the use of Indians.
    (ii) A clear and precise description of the boundaries of such 
geographic area(s).
    (3) Otherwise qualified areas for which the responsible ITO has 
requested operation of the Food Distribution Program alone in accordance 
with Sec.  283.4, rather than concurrent operation with the Food Stamp 
Program, shall be exempt from the requirements of this part, and shall 
not be considered food stamp areas for any other purposes of this 
subchapter. Indian tribal households (households in which at least one 
adult member is recognized by the appropriate ITO as a tribal member) 
resident in these areas shall be ineligible for food stamp benefits. 
However, non-Indian tribal households resident in these areas may apply 
and be certified for food stamps at the State agency's certification 
office which would otherwise service the area. Otherwise qualified areas 
for which the responsible ITO has requested operation of the food 
distribution Program concurrently with the Food Stamp Program or areas 
within the reservation where FNS has determined that concurrent 
operation is necessary in accordance with Sec.  283.3(b)(2) shall be 
subject to all requirements of this part and subchapter.
    (b) State plan. In addition to the public comment requirements in 
Sec.  272.2, the State agency shall submit for comment its service 
plans, and all other portions of the State plan that directly pertains 
to the operation of the Program for residents on the reservation

[[Page 935]]

to the responsible ITO for reservations that qualify under paragraph (a) 
of this section. The ITO shall have 30 days to provide comments in 
writing to the State agency. The State agency shall, if appropriate and 
to the extent practicable, incorporate into its plans any suggestions 
made by the ITO. Additionally, the State agency shall administer the 
Food Stamp Program in a manner that is responsive to the needs of the 
Indians on the reservation, as determined by ongoing consultation with 
the ITO and by other means, regarding such areas of program operation as 
project area designation, operating procedures, locations and hours of 
certification and issuance, staffing and corrective action plans. The 
State agency shall maintain records of consultations on State plans and 
ongoing consultations held with ITO's for review by FNS. FNS shall study 
these records as part of reviews in accord with Sec.  281.3 and 
Management Evaluation Reviews of the State agency.
    (c) Project area designation. (1) An Indian reservation shall be 
designated as a separate project area or areas for the purpose of 
improving the accessibility of program services to Indians on the 
reservation unless:
    (i) The State agency demonstrates to FNS that the size or population 
of the reservation does not warrant such designation;
    (ii) The State agency demonstrates to FNS that the tribe can be 
adequately served by the existing or a planned project area because of 
the location of certification and issuance offices;
    (iii) The State agency demonstrates to FNS that such designation 
would reduce the availability of certification and issuance offices; or
    (iv) The State agency otherwise demonstrates to FNS that such 
designation would impair its Statewide administration of the Program.
    (2) In the case where the Indian reservation boundaries cross State 
lines, the ITO and the appropriate State agencies may jointly request 
FNS approval that a single State agency administer the Food Stamp 
Program on all or part of the Indian reservation. A single agency of the 
State government would have to administer the Program under the same 
terms and conditions applied to all other political subdivisions within 
its jurisdiction. An ITO designated as a State agency pursuant to Sec.  
281.4(d) would have to administer the Program under the same terms and 
conditions on all areas of the reservation.
    (d) Contracts with an Indian tribal organization. The State agency 
may contract program functions to an ITO. These functions include, but 
are not limited to, outreach, preparation of bilingual materials on 
issuance. The State agency may also use the ITO in prescreening, 
translations, interpretive services and other noncertification 
functions. The State agency shall not contract responsibility for 
certification activities such as interviews or eligibility 
determinations. In all cases, the State agency shall retain full 
responsibility for program administration.

[44 FR 35925, June 19, 1979, as amended by Amdt. 207, 47 FR 52338, Nov. 
19, 1982]



Sec.  281.3  Determination of failure.

    (a) Request for determination of State government agency failure. 
FNS shall examine State agency adminstration of the Food Stamp Program 
on all or part of a reservation when requested by the ITO, the State 
agency or at FNS' discretion. When FNS determines that a deficiency in a 
State agency operation of the Food Stamp Program on all or part of an 
Indian reservation may be serious enough to warrant a review, FNS shall 
advise the State agency and the ITO in writing of the alleged 
deficiencies and of its plans to conduct the review and document 
deficiencies, if any are found. Subsequent to October 1, 1979 FNS shall 
complete these reviews within 90 days from receipt of an ITO's or State 
agency's request except under unusual circumstances such as the receipt 
of a large number of simultaneous requests.
    (b) Review--(1) Content of the review for State agency performance. 
The review shall be designed to determine whether or not the State 
agency is properly administering the Food Stamp Program on a specific 
reservation. When an agency of State government is administering the 
Program on a reservation,

[[Page 936]]

FNS shall as a part of the review consult with the ITO about the 
operation of the Program on the reservation. The review should, 
depending on the nature of the complaint, include but not be limited to, 
an analysis of some or all of the following data:
    (i) The records of State agency consultation with the ITO required 
under Sec.  281.2(a);
    (ii) The estimated percentage of all eligible Indians on the 
reservation who are participating the Program;
    (iii) The nature and extent of violations, if any, of the 30-day and 
other processing standards for Indians;
    (iv) The percentage of errors made in determining eligibility and/or 
the amount of benefits overissued or underissued;
    (v) Compliance with standards for location and hours of 
certification and issuance offices as required in Sec.  272.5;
    (vi) Compliance with bilingual requirements of this regulation, 
where appropriate;
    (vii) Compliance with nondiscrimination requirements of this 
regulation;
    (viii) Compliance with other significant program requirements;
    (ix) Comparison with services provided in all other areas of the 
State; and
    (x) Any other relevant information that becomes available during the 
course of reviews including information received through contacts with 
the Indian tribe.
    (2) Finding of no or of minor deficiencies. If after the review FNS 
determines either that deficiencies do not exist or that only minor 
deficiencies exist, FNS shall issue a report documenting its findings to 
both the State agency and the ITO and shall work closely with the State 
agency to achieve corrective action.
    (c) Formal warning. After the review is completed, if FNS determines 
that major deficiencies exist, a formal warning shall be issued to the 
State, with a copy to the ITO. At a minimum, such warning shall indicate 
the State agency deficiencies and shall detail the basis upon which 
deficiencies were determined. The State shall have 30 days to respond 
with evidence that it is in compliance or to submit a corrective action 
proposal under part 276. If satisfactory compliance is achieved by the 
State agency on deficiencies cited in a formal warning, FNS shall notify 
the State, with a copy to the ITO, that the warning for those 
deficiences is satisfied.
    (d) Determination of failure and sanctions. If at any time after the 
formal warning period, or during or after the corrective action period, 
FNS determines that major deficiencies still exist which the State 
agency has not satisfactorily addressed or is not satisfactorily 
addressing, FNS shall determine State failure and may impose appropriate 
Federal sanctions on the State agency as specified in part 276.
    (e) ITO operations. If FNS has determined State failure and FNS has 
also determined that the ITO is capable of administering a Food Stamp 
Program in accordance with the terms and requirements for participating 
State agencies as established in the Act and regulations, then the ITO 
shall assume adminstration of the Food Stamp Program on the reservation. 
The State agency shall continue to administer the Food Stamp Program on 
the reservation until an effective termination and transition 
arrangement has been completed in accordance with Sec.  281.8.



Sec.  281.4  Determining Indian tribal organization capability.

    (a) Determining capability of ITO. If the ITO wishes to administer 
its own Food Stamp Program on the reservation FNS shall determine the 
ITO's potential capability for administering the Food Stamp Program in 
accordance with the criteria listed in Sec.  281.4(b). FNS shall begin 
to evaluate the ITO's capability for all aspects of Food Stamp Program 
administration, allowing for fulfillment of that potential through 
necessary training and technical assistance, not later than the date of 
the issuance of the formal warning to the State agency.
    (b) ITO responsibility. (1) The ITO must satisfy FNS that it is 
capable (if provided with any needed training and technical assistance) 
of administering the Food Stamp Program effectively and efficiently, and 
of complying with all provisions of the Food Stamp Act of 1977, as 
amended, and the regulations of this chapter, including provisions

[[Page 937]]

governing quality control procedures, fraud determinations, and 
establishment and collection of claims for both Indian and any non-
Indian participants. The ITO shall provide FNS with the following 
information:
    (i) Operation of government programs. The ITO shall provide FNS a 
list of all government programs that the ITO administers and has 
recently administered. FNS may ask the ITO to provide the names of 
appropriate officials of the government organizations having 
jurisdiction over these programs so FNS can obtain all relevant audits, 
GAO reports, program evaluations and any other documents pertaining to 
the effectiveness and efficiency of tribal administration of these 
programs. The ITO shall also provide FNS a list of its recent 
contractual responsibilities, if any, for the Food Stamp Program under 
Sec.  281.2(b).
    (ii) Fiscal capabilities. The ITO shall provide FNS documentation of 
its bookeeping and accounting procedures, including procedures in use 
for fiscal accountability under part 277 and for other government 
programs that the ITO administers.
    (iii) Projected certification and issuance facilities. The ITO shall 
provide FNS with a description of the location of projected 
certification and issuance facilities.
    (iv) Fraud hearings and claims. The ITO shall provide FNS with a 
description of how it will pursue fraud hearings and claims against 
Indian and non-Indian participants.
    (v) Staffing. The ITO shall provide FNS with sufficient information 
to determine that personnel who will be used in the certification 
process will be employed under standards equivalent to current standards 
for a Merit System of Personnel Administration or any standards later 
prescribed by the Office of Personnel Management under section 208 of 
the Intergovernmental Personnel Act of 1970.
    (vi) Civil rights assurance. The ITO shall provide FNS an assurance 
that the ITO shall comply with Title VI of the Civil Rights Act of 1964 
(Pub. L. 88-352), the Age Discrimination Act of 1975 (Pub. L. 94-135), 
the Rehabilitation Act of 1973 (Pub. L. 99-112), section 504), and 
section 11(c) of the Food Stamp Act of 1977 and all pertinent 
regulations or directives to the effect that no person in the United 
States shall, on the grounds of sex, race, color, age, political belief, 
religion, handicap, or national origin, be denied benefits or otherwise 
be subject to discrimination under the Food Stamp Program. Where 
appropriate, FNS shall consider the adequacy of measures taken by the 
ITO to ensure that there shall be no discrimination.
    (2) Prior to the determination of ITO capability, FNS shall consult 
with other sources such as the Bureau of Indian Affairs (BIA) to obtain 
any information relevant to the capability determination.
    (3) If it is determined by FNS, after consultation with other 
sources such as the BIA, that the ITO is not capable of operating an 
efficient and effective Food Stamp Program, the agency of the State 
government shall continue to operate the Program on the reservation in 
accordance with Sec.  281.3.
    (c) Training and technical assistance. Upon determining that the 
State agency has failed to properly administer the Food Stamp Program 
and that the ITO is potentially capable of operating an effective and 
efficient Food Stamp Program, FNS shall determine, based on information 
provided by the ITO and other sources such as BIA, the training and 
technical assistance which is necessary to assure efficient and 
effective program administration. FNS will assure that appropriate 
training and technical assistance is provided as expeditiously as 
possible prior to the ITO's assumption of the administration of the Food 
Stamp Program.
    (d) Assumption of duties. When FNS is satisfied that the ITO has 
successfully completed (c) of this section, FNS shall designate the ITO 
as a State agency, contingent on the following:
    (1) State plans. The ITO shall prepare and submit to FNS a Plan of 
Operation as provided in Sec.  272.2. In completing the Plan of 
Operation the ITO shall affirm that it will comply with the Civil Rights 
assurances detailed in (b)(1)(vi) of this section.
    (2) Proposed budget. As part of the Plan of Operation, the ITO shall 
annually submit to FNS a proposed statement which shall provide a 
summary of program information and amounts

[[Page 938]]

budgeted to carry out the various program functions. This information 
shall be submitted to FNS for approval prior to the commitment of any 
Federal funds for administrative costs for that year. FNS shall provide 
the ITO any technical assistance which is necessary to prepare this 
information.
    (3) Termination and transition arrangement. An effective termination 
and transition arrangement shall be established as required in Sec.  
281.8.



Sec.  281.5  Responsibilities of an Indian tribal organization designated 
as State agency.

    An ITO administering the Food Stamp Program on a reservation shall 
adhere to the Food Stamp Act of 1977, all subsequent amendments, and all 
regulations issued pursuant to that law in the same manner as any other 
State agency. The ITO may contract certain administrative functions to 
private organizations as provided in parts 274 and 277. The ITO may not, 
however, contract responsibility for certification activities such as 
interviews or eligibility determinations. The ITO shall retain full 
responsibility for program administration.



Sec.  281.6  Liabilities and sanctions.

    An ITO administering the Food Stamp Program on a reservation is 
subject to the same liabilities and Federal sanctions as is any other 
State agency. FNS shall monitor administration of the Program and 
conduct reviews through the Performance Reporting System described in 
part 275. When necessary, warning procedures and other Federal sanctions 
prescribed in part 276 will be implemented.



Sec.  281.7  Indian tribal organization failure.

    When Performance Reporting System reviews indicate that continuing 
deficiencies exist and corrective action proposals (including training 
and technical assistance to overcome these deficiencies), and/or 
appropriate sanctions have not, in the opinion of FNS, resulted in a 
sufficient degree of improvement, FNS will conduct a review to determine 
if the ITO has failed to properly administer the Food Stamp Program. FNS 
shall examine the relevant factors specified in Sec.  281.3(b)(1) and 
shall follow the notification and determination procedures set forth in 
Sec.  281.3 (c) and (d). If ITO failure is determined, FNS shall require 
the appropriate agency of the State government to resume administration 
of the Program on the reservation in accordance with an approved 
termination and transition arrangement.



Sec.  281.8  Transfer of program administration.

    The transfer of program administration from an agency of the State 
government to an ITO pursuant to a determination of failure as provided 
for in Sec.  281.3, or from an ITO to an agency of the State government 
pursuant to Sec.  281.7, shall be contingent on the establishment of an 
effective termination and transition arrangement and an approved Plan of 
Operation from the State agency assuming program administration. Grant 
closeout procedures shall be followed in accordance with part 277. FNS 
shall approve the transition plan, monitor its implementation and 
resolve any issues which may arise during the transition and after the 
transfer of program administration.



Sec.  281.9  Funding.

    (a) Agency of State government. From the funds available to carry 
out this provision beginning July 1, 1979, FNS may pay to each agency of 
State government administering a Food Stamp Program on a reservation, 75 
percent of all approved administrative costs, such as: Certification, 
issuance, outreach, fair hearings and quality control, incurred on the 
reservation for residents of the reservation and approved by FNS to meet 
standards set by the 1977 Food Stamp Act. FNS may pay each agency of 
State government administering a Food Stamp Program on a reservation 75 
percent of all approved administrative costs incurred off the 
reservation for activities begun after the effective date of these 
regulations that are primarily directed at providing better services for 
Indians on the reservation, such as hiring an interpreter or an Indian 
outreach worker, or moving a certification or issuance center closer to 
a reservation.

[[Page 939]]

The provisions of part 277 apply to any funds received under this 
section.
    (b) Indian tribal organization acting as State agency. From the 
funds available to carry out the provisions of this part beginning 
October 1, 1979, FNS is authorized to pay to each ITO acting as a State 
agency and administering a Food Stamp Program on a reservation 75 
percent of all administrative costs approved by FNS as needed for 
operation of a Food Stamp Program on a reservation. Any approval for 
payment of funds in excess of 75 percent must be based on compelling 
justification that such additional amounts are necessary for the 
effective operation of the Food Stamp Program on the reservation. The 
provisions of part 277 apply to any funds received under this section.



Sec.  281.10  Appeals.

    (a) Failure/capability. (1) Any State agency or ITO may appeal the 
determination made by FNS on:
    (i) Whether or not the reservation definition is met;
    (ii) The failure or absence of failure of an agency of State 
government to properly administer the Food Stamp Program;
    (iii) The capability or incapability of an ITO to administer the 
Food Stamp Program;
    (iv) The failure of an ITO to properly administer the Food Stamp 
Program;
    (v) The Federal matching percentage level of administrative funding 
made available by FNS. To prevail the State agency must show a 
compelling justification that additional funding is needed for the 
effective administration of the Program on the reservation.
    (2) At the time FNS advises the State agency or ITO of its 
determination, FNS shall also advise the State agency or ITO of its 
right to appeal and, except for appeals of funding determinations, shall 
advise the State agency or ITO of its right to request either a meeting 
to present its position in person or a review of the record. On appeals 
of funding determinations, FNS shall advise the State agency or ITO that 
it may indicate if it wishes a meeting, however, FNS need schedule a 
meeting only if FNS determines a meeting is warranted to reach a proper 
adjudication of the matter. Otherwise, FNS shall review supportive 
information submitted by the State agency or ITO in paragraph (b)(2) of 
this section.
    (b) Procedures--(1) Time limit. Any State agency or ITO which wants 
to appeal an initial FNS determination under paragraph (a) of this 
section must notify the Administrator of FNS, in writing within 15 days 
from the date of the determination and must advise FNS if it wishes a 
meeting or a review of the record.
    (2) Acknowledgment. Within five days of receipt by the Administrator 
of FNS of a request for review, FNS shall provide the State agency or 
ITO by certified mail, return receipt requested, with a written 
acknowledgement of the request. The acknowledgment shall include the 
name and address of the official designated by the Administrator to 
review the appeal. The acknowledgment shall also notify the State agency 
or ITO that within ten day of receipt of the acknowledgment, the State 
agency or ITO shall submit written information in support of its 
position.
    (3) Scheduling a meeting. If the Administrator, FNS, grants a 
meeting FNS shall advise the State agency or ITO by certified mail, 
return receipt requested, of the time, date and location of the meeting 
at least ten days in advance of the meeting. FNS shall schedule and 
conduct the meeting and make a decision within 60 days of the receipt of 
the information submitted in response to paragraph (b)(2) of this 
section.
    (4) Review. If no meeting is conducted, the official designated by 
the Administrator, FNS, shall review information presented by a State 
agency or ITO which requests a review, and shall make a final 
determination in writing within 45 days of the receipt of the State 
agency's or ITO's information submitted in response to paragraph (b)(2) 
of this section setting forth in full the reasons for the determination.
    (5) Final decision. The official's decision after a meeting or a 
review shall be final.
    (c) Funding and other sanctions. Any State agency or ITO that wishes 
to appeal a funding determination made by FNS other than under (a)(5) of 
this section, or the application of a Federal

[[Page 940]]

sanction, shall follow the Administrative Review Procedures set forth in 
part 276.



PART 282_DEMONSTRATION, RESEARCH, AND EVALUATION PROJECTS--Table of Contents




Sec.
282.1 Legislative authority and notice requirements.
282.2 Funding.

    Authority: 7 U.S.C. 2011-2036.

    Source: Amdt. 134, 43 FR 54215, Nov. 21, 1978, unless otherwise 
noted.



Sec.  282.1  Legislative authority and notice requirements.

    (a) Legislative authority. Section 17 of the Act authorizes the 
Secretary to conduct demonstration, research, and evaluation projects. 
In conducting such projects, the Secretary may waive all or part of the 
requirements of the Act and implementing regulations necessary to 
conduct such projects, except that no project, other than a project 
involving the payment of the average value of allotments by household 
size in the form of cash to eligible households or a project conducted 
to test improved consistency or coordination between the food stamp 
employment and training program and the Job Opportunities and Basic 
Skills program under Title IV of the Social Security Act, may be 
undertaken which would lower or further restrict the established income 
and resource standards or benefit levels.
    (b) Notices. At least 30 days prior to the initiation of a 
demonstration project, FNS shall publish a General Notice in the Federal 
Register if the demonstration project will likely have a significant 
impact on the public. The notice shall set forth the specific 
operational procedures and shall explain the basis and purpose of the 
demonstration project. If significant comments are received in response 
to this General Notice, the Department will take such action as may be 
appropriate prior to implementing the project. If the operational 
procedures contained in the General Notice described above are 
significantly changed because of comments, an amended General Notice 
will be published in the Federal Register at least 30 days prior to the 
initiation of the demonstration project, except where good cause exists 
supporting a shorter effective date. The explanation for the 
determination of good cause will be published with the amended General 
Notice. The amended General Notice will also explain the basis and 
purpose of the change.

[Amdt. 371, 61 FR 60012, Nov. 26, 1996]



Sec.  282.2  Funding.

    Federal financial participation may be made available to 
demonstration, research, and evaluation projects awarded by FNS through 
grants and contracts. Funds may not be transferred from one project to 
another. FNS will pay all costs incurred during the project, up to the 
level established in the grant, or in the terms and conditions of the 
contract. FNS may grant time extensions of the project upon approval. 
Funding for additional costs is subject to existing Federal grant and 
contract procedures.

[Amdt. 371, 61 FR 60012, Nov. 26, 1996]



PART 283_APPEALS OF QUALITY CONTROL (``QC'') CLAIMS--Table of Contents




                            Subpart A_General

Sec.
283.1 Meaning of words.
283.2 Scope and applicability.
283.3 Definitions.

            Subpart B_Appeals of QC Claims of $50,000 or More

283.4 Filing appeals for QC claims of $50,000 or more.
283.5 Motion to dismiss.
283.6 Answer.
283.7 Procedures upon failure to file an answer.
283.8 Rebuttal or amendment of appeal or answer.
283.9 Withdrawal of appeal.
283.10 Consent decision.
283.11 Prehearing conference and procedure.
283.12 Discovery.
283.13 Subpoenas.
283.14 Fees of witnesses.
283.15 Procedure for hearing.
283.16 Consolidation of issues.
283.17 Post-hearing procedure.
283.18 Motions and requests.
283.19 ALJs.
283.20 Review by the Judicial Officer.
283.21 Ex parte communications.

[[Page 941]]

283.22 Form; filing; service; proof of service; computation of time; and 
          extensions of time.
283.23 Procedural matters.

   Subpart C_Summary Procedure for Appeals of QC Claims of Less Than 
                                 $50,000

283.24 Incorporation of procedures by reference.
283.25 Filing appeals for QC claims of less than $50,000.
283.26 Request that appeals be handled under procedures in subpart B for 
          appeals of QC claims of $50,000 or more.
283.27 Procedures upon failure to file an answer.
283.28 Discovery.
283.29 Scheduling conference.
283.30 Cross motions for summary judgment.
283.31 Review of the record.
283.32 ALJ's initial decision.

    Authority: 7 U.S.C. 2011-2036.

    Source: Amdt. 348, 59 FR 34561, July 6, 1994, unless otherwise 
noted.



                            Subpart A_General



Sec.  283.1  Meaning of words.

    As used in this part, words in the singular form shall be deemed to 
import the plural, and vice versa, as the case may require.



Sec.  283.2  Scope and applicability.

    The rules of practice in this part, shall be applicable to appeals 
by State agencies of Food and Nutrition Service quality control (QC) 
claims for Fiscal Year (``FY'') 1986 and subsequent fiscal years 
pursuant to sections 14(a) and 16(c) of the Food Stamp Act of 1977, as 
amended, 7 U.S.C. 2023(a) and 2025(c).



Sec.  283.3  Definitions.

    As used in this part, the terms as defined in the Food Stamp Act of 
1977, as amended, 7 U.S.C. 2011-2032 (``Act''), and in the regulations, 
standards, instructions or orders issued thereunder, shall apply with 
equal force and effect. In addition, and except as may be provided 
otherwise in this section:
    Administrator means the Administrator, Food and Nutrition Service, 
U.S. Department of Agriculture (``USDA'').
    ALJ means any Administrative Law Judge in USDA appointed pursuant to 
5 U.S.C. 3105 or detailed to the USDA pursuant to 5 U.S.C. 3344 and 
assigned to the appeal.
    Appeal means the appeal to the ALJ.
    Ex parte communication means an oral or written communication not on 
the public record with respect to which reasonable prior notice to all 
parties is not given, but it shall not include procedural matters.
    Filing. A pleading or other document allowed or required to be filed 
in accordance with this part shall be considered filed when postmarked, 
if mailed, or when received, if hand delivered.
    FNS means the Food and Nutrition Service, USDA.
    Hearing means that part of the appeal which involves the submission 
of evidence before the ALJ for the record in the appeal.
    Hearing Clerk means the Hearing Clerk, USDA, Washington, DC 20250.
    Judicial Officer means an official of the USDA delegated authority 
by the Secretary of Agriculture, pursuant to the Act of April 4, 1940 (7 
U.S.C. 450c-459g) and Reorganization Plan No. 2 of 1953 (5 U.S.C. 1970 
ed., Appendix, P. 550), as amended by Public Law 97-35, title I, sec. 
125, 95 Stat. 357, 369 (1981) (7 U.S.C. 2201 note), to perform the 
adjudicating function involved (7 CFR 2.35(a)), or the Secretary of 
Agriculture if the authority so delegated is exercised by the Secretary.
    OC claim means a claim made pursuant to 7 U.S.C. 2025(c).
    Secretary means the Secretary of the USDA.
    State agency means:
    (1) The agency of State government, including the local offices 
thereof, which is responsible for the administration of the federally 
aided public assistance programs within the State, and in those States 
where such assistance programs are operated on a decentralized basis, it 
includes the counterpart local agencies which administer such assistance 
programs for the State agency; and
    (2) The Indian tribal organization of any Indian tribe determined by 
the Secretary to be capable of effectively administering a Food Stamp 
Program in accordance with the Food Stamp Act of 1977, as amended, 7 
U.S.C. 2011-2032.

[[Page 942]]



            Subpart B_Appeals of QC Claims of $50,000 or More



Sec.  283.4  Filing appeals for QC claims of $50,000 or more.

    (a) Time. A State agency may appeal the bill for collection from FNS 
for a QC claim of $50,000 or more for a food stamp QC error rate in 
excess of the tolerance level. A State agency shall file a written 
notice of appeal, in accordance with this subpart, within 10 days of 
receipt of the bill for collection from FNS for a QC claim of $50,000 or 
more. The State agency may request an extension to the 10-day filing 
requirement in accordance with Sec.  283.22(f). FNS shall issue the bill 
for collection by certified mail or personal service.
    (b) Exhaustion of administrative remedies. The State agency must 
appeal the bill for collection to the ALJ, pursuant to this subpart, and 
exhaust the available administrative remedies before filing suit in the 
Federal District Courts.
    (c) Filing. The notice of appeal shall be filed with the Hearing 
Clerk in accordance with Sec.  283.22(b).
    (d) Content of the notice. (1) A notice of appeal, in order to be 
considered acceptable, must contain the following information:
    (i) A brief and clear statement that it is an appeal from a QC claim 
of $50,000 or more identifying the period the claim covers, the date and 
amount of the bill for collection, and the date of receipt of the bill 
for collection;
    (ii) Identification of the State agency as the appellant and FNS as 
the appellee;
    (iii) A statement that the notice of appeal is filed pursuant to 
section 14(a) of the Food Stamp Act;
    (iv) A copy of the bill for collection which constitutes the basis 
for the filing of the notice of appeal shall be attached to the notice.
    (2) Failure to file an acceptable notice of appeal may result in a 
challenge by FNS to the notice, dismissal of the notice by the ALJ and a 
waiver of the opportunity for further appeal or review by the Judicial 
Officer unless the State agency pursues the options as discussed in 
Sec. Sec.  283.17(d) and 283.20.
    (e) Receipt of notice of appeal and assignment of docket number. 
Upon receipt of a notice of appeal, the Hearing Clerk shall assign the 
appeal a docket number. The Hearing Clerk shall:
    (1) Send the State agency a letter which shall include the following 
information:
    (i) Advice that the notice of appeal has been received and the date 
of receipt;
    (ii) The docket number assigned to the appeal and instructions that 
all future communications related to the appeal shall reference the 
docket number, and;
    (iii) Advice that the State agency must file and serve its appeal 
petition, as set forth in Sec.  283.22, not later than 60 days after 
receiving a notice of the claim. Failure to file a timely appeal 
petition may result in a waiver of further appeal rights.
    (2) Send FNS a copy of the notice of appeal and a copy of the letter 
to the State agency.
    (f) Stay of collection. The filing of a timely notice of appeal 
shall automatically stay the action of FNS to collect the QC claim 
asserted against the State agency until a decision is reached on the 
acceptability of the appeal, and in the case of an acceptable appeal, 
until a final administrative determination has been issued. However, 
interest will accrue on the outstanding claim amount during the stay as 
provided in section 13(a)(1) of the Food Stamp Act of 1977, as amended 
(7 U.S.C. 2022(a)(1)).
    (g) Content of the appeal petition. The appeal petition shall 
include:
    (1) A brief statement of the allegations of fact and provisions of 
law that constitute the basis for the appeal including a statement as to 
whether a factual basis for good cause relief exists;
    (2) The nature of the relief sought, and;
    (3) A request for an oral hearing, if desired by the State agency. 
Failure to request an oral hearing will result in a forfeiture of the 
opportunity for such a hearing, except as provided in Sec.  283.15(a).
    (h) FNS answer. Upon service of the State agency appeal petition, 
FNS shall:

[[Page 943]]

    (1) File an answer, in accordance with Sec.  283.6, not later than 
60 days after the State agency submits its appeal petition and;
    (2) Advise the Hearing Clerk if FNS wishes to have an oral hearing.
    (i) Oral hearing not requested. If no oral hearing has been 
requested, the appeal shall proceed in accordance with the procedures 
set forth under subpart C of this part.



Sec.  283.5  Motion to dismiss.

    (a) Filing of motion to dismiss. Prior to or at the same time as 
filing the answer, FNS may file a motion to dismiss. The appeal may be 
challenged on the basis that the notice of appeal was not filed within 
10 days or as that time may have been extended by the ALJ, the appeal 
petition was not filed in accordance with Sec.  283.4, or that the 
appeal petition is substantially incomplete and could not be quickly and 
easily cured by amendment. The motion must be accompanied by clear and 
convincing proof of any of these factors alleged as grounds for 
dismissal.
    (b) Service of motion to dismiss. FNS shall serve the State agency 
with a copy of the motion to dismiss. The State agency will have 10 days 
from date of service to submit objections to the motion.
    (c) Ruling on a motion to dismiss. The ALJ will rule on the motion 
to dismiss before any further action proceeds on the basis of the merits 
of the appeal. The basis of the ruling will be clearly documented and 
will become part of the official record. If the ALJ denies the motion, 
FNS shall file its answer in accordance with Sec.  283.6 within 60 days 
of service of the ALJ's ruling, unless there is a motion for 
reconsideration filed pursuant to Sec.  283.17(d) or review by the 
Judicial Officer is sought pursuant to Sec.  283.20.
    (d) Dismissal of appeal. If the ALJ finds the basis for the motion 
to have merit, the appeal may be dismissed. The initial decision of the 
ALJ shall become final and effective 30 days after service in accordance 
with Sec.  283.17(c)(2) unless either party pursues the options as 
discussed in Sec. Sec.  283.17(d) and 283.20.
    (e) Waiver. Failure to file for dismissal of the appeal by the time 
the answer is required to be filed will result in waiver of the right to 
request dismissal.



Sec.  283.6  Answer.

    (a) Filing and service. Not later than 60 days after the State 
agency submits its appeal petition, or within 60 days following service 
of a ruling in accordance with Sec.  283.5, FNS shall file an answer 
signed by the FNS Administrator or authorized representative or the 
attorney of record in the appeal. The attorney may file an appearance of 
record prior to or simultaneously with the filing of the answer.
    (b) Contents. The answer shall clearly admit, deny, or explain each 
of the allegations of the appeal petition and shall:
    (1) Clearly set forth any defense asserted by FNS; or
    (2) State that FNS admits all the facts alleged in the appeal 
petition; or
    (3) State that FNS admits the jurisdictional allegations of the 
appeal petition and neither admits nor denies the remaining allegations 
and consents to the issuance of an order without further procedure.
    (c) Default. Failure to file a timely answer shall be deemed, for 
purposes of the appeal, an admission of the allegations in the appeal 
petition and failure to deny or otherwise respond to an allegation of 
the appeal petition shall be deemed for purposes of the appeal, an 
admission of said allegation, unless FNS and the State agency have 
agreed to a consent decision pursuant to Sec.  283.10.



Sec.  283.7  Procedures upon failure to file an answer.

    The failure by FNS to file an answer shall constitute a waiver of 
hearing. Upon such failure to file, the State agency shall file a 
proposed decision, along with a motion for adoption thereof, both of 
which shall be served upon FNS by the State agency. Within 10 days after 
service of such motion and proposed decision, FNS may file objections 
thereto. If the ALJ finds that meritorious objections have been filed, 
the State agency's motion shall be denied with supporting reasons. If 
meritorious objections are not filed, the ALJ shall issue an initial 
decision without further procedures or hearing.

[[Page 944]]

Copies of the initial decision or denial of the State agency's motion 
shall be served on each of the parties and shall be included as part of 
the official record. Where the decision as proposed by the State agency 
is adopted as the ALJ's initial decision, such decision of the ALJ shall 
become final and effective 30 days after service in accordance with 
Sec.  283.17(c)(2) unless reconsideration or review by the Judicial 
Officer is sought as discussed in Sec. Sec.  283.17(d) and 283.20.



Sec.  283.8  Rebuttal or amendment of appeal or answer.

    (a) Not later than 30 days after FNS submits an answer in accordance 
with Sec.  283.6, the State agency may submit rebuttal evidence.
    (b) At any time prior to the filing of a motion for a hearing 
pursuant to Sec.  283.15(b), the appeal petition or the answer may be 
amended without prior authorization by the ALJ. Thereafter, such an 
amendment may only be made as authorized by the ALJ upon a showing of 
cause.



Sec.  283.9  Withdrawal of appeal.

    At any time before the ALJ files an initial decision, the State 
agency may withdraw its appeal and agree to pay the full amount of the 
claim. By withdrawing an appeal, the State agency waives all opportunity 
to appeal or seek further administrative or judicial review on the claim 
or related matters.



Sec.  283.10  Consent decision.

    At any time before the ALJ files an initial decision, FNS and the 
State agency may agree to entry of a consent decision. Such decision 
shall be filed in the form of a decision signed by the parties with 
appropriate space for signature by the ALJ and shall contain an 
admission of at least the jurisdictional facts, consent to the issuance 
of the agreed decision without further procedure and such other 
admissions or statements as may be agreed between the parties. The ALJ 
shall enter such decision without further procedures, unless an error is 
apparent on the face of the document. Such decision shall be final and 
shall take effect 30 days after the date of the delivery or service of 
such decision and is not subject to further administrative or judicial.



Sec.  283.11  Prehearing conference and procedure.

    (a) Time and place. The ALJ shall direct the parties or their 
counsel to participate in a prehearing conference at any reasonable time 
prior to the hearing. The prehearing conference shall be held at the 
U.S. Department of Agriculture, Washington, DC. Reasonable notice of the 
time, place of the prehearing conference and if personal attendance will 
be necessary shall be given. Prehearing conferences may be conducted 
telephonically. The ALJ shall order each of the parties to furnish at 
the prehearing conference or at another time prior to the hearing the 
following:
    (1) An outline of the appeal or defense;
    (2) The legal theories upon which the party will rely;
    (3) Copies of or a list of documents that the party anticipates 
relying upon at the hearing; and
    (4) A list of witnesses who will testify on behalf of the party. At 
the discretion of the party furnishing such list of witnesses, the names 
of the witnesses need not be furnished if they are otherwise identified 
in some meaningful way, such as a short statement of the type of 
evidence they will offer.
    (b) Procedures. The ALJ shall not order any of the foregoing 
procedures that a party can show are inappropriate or unwarranted under 
the circumstances of the particular appeal.
    (c) Matters to be considered. At the prehearing conference, the 
following matters shall be considered:
    (1) The simplification of issues;
    (2) The necessity of amendments to pleadings;
    (3) The possibility of obtaining stipulations of facts and of the 
authenticity, accuracy, and admissibility of documents, which will avoid 
unnecessary proof;
    (4) The limitation of the number of expert or other witnesses;
    (5) Negotiation, compromise, or settlement of issues;
    (6) The exchange of copies of proposed exhibits;

[[Page 945]]

    (7) The nature of and the date by which discovery, as provided in 
Sec.  283.12, must be completed;
    (8) The identification of documents or matters of which official 
notice may be requested;
    (9) A schedule to be followed by the parties for the completion of 
the actions decided at the conference; and
    (10) Such other matters as may expedite and aid in the disposition 
of the appeal.
    (d) Reporting. (1) A prehearing conference will not be 
stenographically reported unless so directed by the ALJ.
    (2) Any party to the appeal may, upon motion, request the ALJ to 
allow for a stenographic transcript of a prehearing conference. The 
party requesting the transcript shall bear the transcription cost of 
producing the transcript and the duplication cost for one transcript 
provided to the ALJ and to the other parties to the appeal.
    (e) Order. Actions taken as a result of a conference shall be 
reduced to an appropriate written order, unless the ALJ concludes that a 
stenographic report, if available, shall suffice, or, in the event the 
conference takes place within 7 days of the beginning of the hearing, 
the ALJ elects to make a statement on the record at the hearing 
summarizing the actions taken.



Sec.  283.12  Discovery.

    (a) Dispositions.--(1) Motion for taking deposition. Only upon a 
finding by the ALJ that a deposition is necessary to preserve testimony 
as provided in this subparagraph, upon the motion of a party to the 
appeal, the ALJ may, at any time after the filing of the answer, order 
the taking of testimony by deposition. The motion shall set forth:
    (i) The name and address of the proposed deponent;
    (ii) The name and address of the person (referred to hereafter in 
this section as the ``officer'') qualified under the regulations in this 
part to take depositions, before whom the proposed examination is to be 
made;
    (iii) The proposed time and place of the examination, which shall be 
at least 15 days after the date of service of the motion; and
    (iv) The reasons why such deposition should be taken, which shall be 
solely for the purpose of eliciting testimony which otherwise might not 
be available at the time of the hearing, for use as provided in 
accordance with paragraph (a)(7) of this section.
    (2) ALJ's order for taking depositions. If the ALJ finds that the 
testimony may not otherwise be available at the hearing, the taking of 
the deposition may be ordered. The order shall be served upon the 
parties, and shall state:
    (i) The time and place of the examination;
    (ii) The name of the officer before whom the examination is to be 
made; and
    (iii) The name of the deponent. The officer and the time and place 
need not be the same as those suggested in the motion.
    (3) Qualifications of officer. The deposition shall be made before 
an officer authorized by the law of the United States or by the law of 
the place of the examination to administer oaths, or before an officer 
authorized by the Secretary to administer oaths.
    (4) Procedure on examination. (i) The deponent shall be examined 
under oath or affirmation and shall be subject to cross-examination. 
Objections to questions or documents shall be in the short form, stating 
the grounds of objections relied upon. The questions propounded, 
together with all objections made (but not including argument or 
debate), shall be recorded verbatim. In lieu of oral examination, 
parties may transmit written questions to the officer prior to the 
examination and the officer shall propound such questions to the 
deponent.
    (ii) The party taking the deposition shall arrange for the 
examination of the witness either by oral examination, or by written 
questions upon agreement of the parties or as directed by the ALJ. If 
the examination is conducted by means of written questions, copies of 
the questions shall be served upon the other party to the appeal and 
filed with the officer at least 10 days prior to the date set for the 
examination unless otherwise agreed, and the other party may serve cross 
questions and file them with the officer at any time prior to the time 
of the examination.

[[Page 946]]

    (iii) The parties may stipulate in writing or the ALJ may upon 
motion order that a deposition be taken by telephone. A deposition taken 
by telephone is to be taken at the place where the deponent is to answer 
questions propounded to the deponent.
    (iv) The parties may stipulate in writing or the ALJ may upon motion 
order that a deposition be recorded by other than stenographic means. 
The stipulation or the order shall designate the manner of recording, 
preserving and filing of the deposition, and may include other 
provisions to assure that the recorded testimony is accurate and 
trustworthy.
    (5) Certification by the officer. The officer shall certify on the 
deposition that the deponent was duly sworn and that the deposition is a 
true record of the deponent's testimony. The officer shall then securely 
seal the deposition, together with one copy thereof (unless there are 
more than two parties in the appeal, in which case there should be 
another copy for each additional party), in an envelope and mail the 
same by registered or certified mail to the Hearing Clerk.
    (6) Corrections to the transcript. (i) At any time prior to the 
hearing, any party may file a motion proposing corrections to the 
transcript of the deposition.
    (ii) Unless a party files such a motion in the manner prescribed, 
the transcript shall be presumed to be a true, correct, and complete 
transcript of the testimony given in the deposition proceeding and to 
contain an accurate description or reference to all exhibits in 
connection therewith, and shall be deemed to be certified correct 
without further procedure.
    (iii) At any time prior to the use of the deposition in accordance 
with paragraph (a)(7) of this section and after consideration of any 
objections filed thereto, the ALJ may issue an order making any 
corrections in the transcript which the ALJ finds are warranted, and 
these corrections shall be entered onto the original transcript by the 
Hearing Clerk (without obscuring the original text).
    (7) Use of depositions. A deposition ordered and taken in accordance 
with the provisions of this section may be used in an appeal under these 
rules if the ALJ finds that the evidence is otherwise admissible and
    (i) That the witness is deceased;
    (ii) That the witness is unable to attend or testify because of age, 
sickness, infirmity, or imprisonment;
    (iii) That the party offering the deposition has endeavored to 
procure the attendance of the witness by subpoena, but has been unable 
to do so; or
    (iv) That such exceptional circumstances exist as to make it 
desirable, in the interests of justice, to allow the deposition to be 
used. If the party upon whose motion the deposition was taken refuses to 
offer it in evidence, any other party may offer the deposition or any 
part thereof in evidence. If only part of a deposition is offered in 
evidence by a party, any other party may require the introduction of any 
other part which is relevant be considered with the part introduced, and 
any party may introduce any other parts.
    (b) Interrogatories, requests for admissions and requests for 
production of documents--(1) Interrogatories. A party may submit written 
interrogatories to any other party to an appeal. The time for submitting 
and responding to written interrogatories shall be set by the ALJ at the 
pre-hearing conference, but in no event shall the time for response be 
less than 20 days from the date of service or within such time as 
determined upon motion to the ALJ. The number of interrogatories 
submitted by each party shall not exceed twenty-five questions including 
subparts, unless additional interrogatories are authorized by the ALJ. 
Each interrogatory should be answered separately and fully in writing, 
unless it is objected to, in which event the reasons for objection 
should be stated in lieu of an answer. The answers are to be signed 
under penalty of perjury by the person making them. Objections shall be 
signed by the attorney of record in the appeal or by the responding 
party's authorized representative.
    (2) Request for admissions. A party may submit a written request for 
admission of the truth of any matters relevant to the appeal to any 
other party to the appeal. The time for submitting a written request for 
admission shall

[[Page 947]]

be set by the ALJ at the pre-hearing conference. The number of 
admissions contained in a request submitted by a party shall not exceed 
twenty-five unless additional admissions are authorized by the ALJ. The 
matter is admitted unless, within 20 days after service thereof, or 
within such time as determined upon motion to the ALJ, the party to whom 
the request is directed serves upon the party requesting the admission a 
written answer or objection addressed to the matter signed by the party, 
counsel or designated representative. If objection is made, the reasons 
therefor should be stated. The answer should specifically deny the 
matter or set forth in detail why the answering party cannot truthfully 
admit or deny the matter. An answering party may not give lack of 
information or knowledge as a reason for the failure to admit or deny 
unless it is stated that reasonable inquiry has been made and that the 
information known or readily obtainable is insufficient to enable the 
party to admit or deny. A party who considers that a matter for which an 
admission has been requested presents a genuine issue for hearing may 
not, on that ground alone, object to the request; the party may deny the 
matter or set forth reasons why the matter cannot be admitted or denied.
    (3) Request for production of documents. (i) Any party may serve 
upon any other party to the appeal a request for production of documents 
which are in the possession or control of the party upon whom the 
request is served. The time for service and response to such a request 
shall be set by the ALJ at the pre-hearing conference. Upon payment of 
fees for search and duplication of documents, any party to the appeal 
may obtain copies of such documents.
    (ii) Parties may request production of any documents regarding any 
matter, not privileged, which is relevant to the subject matter involved 
in the pending action. Grounds for objection will not exist if the 
information sought appears reasonably calculated to lead to the 
discovery of admissible evidence.
    (iii) If such documents include privileged information or 
information the disclosure of which is proscribed by the Food Stamp Act 
of 1977, as amended, such documents need not be produced.
    (c) Supplementation of response. A party who knows or later learns 
that a response is incorrect is under a duty to correct such response as 
soon as possible. A party who has responded to a request for discovery 
with a response that was complete when made is under a duty to 
supplement the response to include information thereafter acquired. A 
party is under a duty to supplement responses with respect to any 
question directly addressed to:
    (1) The identity and location of persons having knowledge of 
discoverable matters, and
    (2) The identity of each person expected to be called as an expert 
witness at the hearing, the subject matter on which such expert(s) is 
expected to testify, and the substance of the testimony.
    (d) Frequency and use of discovery. The ALJ shall limit, upon motion 
of a party, the frequency or extent of discovery if the ALJ determines 
that:
    (1) The discovery sought is unreasonably cumulative or duplicative, 
or is obtainable from some other source that is more convenient, less 
burdensome, or less expensive;
    (2) The party seeking discovery has had ample opportunity by 
discovery in the action to obtain the information sought; or
    (3) The discovery is unduly burdensome or expensive, taking into 
account the needs of the case, the amount in controversy, limitations on 
the parties' resources, and the importance of the issues at stake in the 
litigation.
    (e) Protective orders--(1) Request for protective order. A party 
served with such a request may file a motion for a protective order 
before the date on which a response to the discovery request is due, 
stating why discovery should be limited or should not be required.
    (2) Issuance of protective order. In issuing a protective order, the 
ALJ may make any order which justice requires to protect a party or 
person from annoyance, embarrassment, oppression or undue burden or 
expense, including one or more of the following:
    (i) That discovery not be had;

[[Page 948]]

    (ii) That the discovery may be had only through a method of 
discovery other than that requested;
    (iii) That certain matters not be inquired into, or that the scope 
of discovery be limited to certain matters;
    (iv) That discovery be conducted with no one present except persons 
designated by the ALJ; and
    (v) That the contents of discovery or evidence be sealed.
    (f) Failure to respond to discovery--(1) Motions to compel. If a 
deponent fails to respond or gives an evasive or incomplete answer to a 
question propounded at a deposition pursuant to paragraph (a) of this 
section or a party fails to respond or gives evasive or incomplete 
answers to written interrogatories or admissions, or fails to respond, 
in full or in part, to a request for production of documents served 
pursuant to paragraph (b) of this section, the party seeking discovery 
may apply for an order compelling an answer by filing and serving a 
motion on all parties and deponents.
    (2) Filing motion to compel. (i) Such motion must be filed within 20 
days following the service of the unresponsive answer upon deposition or 
within 20 days after expiration of the period allowed for answers to 
interrogatories or production of documents.
    (ii) On matters related to an oral examination, the proponent of the 
question may complete or adjourn the examination before he applies for 
an order.
    (3) Responding to motion to compel. A response to the motion may be 
filed in accordance with Sec.  283.18(d).
    (g) Decision of the ALJ. (1) The ALJ may grant a motion to compel 
production or deny a motion for a protective order only if the ALJ finds 
that the discovery sought is necessary for the expeditious, fair, and 
reasonable consideration of the issues; it is not unduly costly or 
burdensome; it will not unduly delay the proceeding; and the information 
sought is not privileged.
    (2) The initial decision of the ALJ regarding the motion to compel 
the production of privileged documents or the motion for a protective 
order shall become final and effective 10 days after service unless 
either party pursues the options as discussed in Sec. Sec.  283.17(d) 
and 283.20.
    (h) Failure to comply with an order. (1) If a party or other witness 
refuses to be sworn or refuses to answer any question after being 
directed to do so by order of the ALJ, such refusal may subject the 
refusing party to proceedings to compel compliance with the ALJ's order 
in the appropriate United States district court.
    (2) If any party or other person refuses to obey an order made under 
this section requiring an answer to designated questions or production 
of documents, the ALJ may order that the matters regarding which 
questions were asked or the contents of the document or documents or any 
other designated facts should be taken to be established for the 
purposes of the proceeding in accordance with the claim of the party 
obtaining the order.
    (i) Postponements or delays. No hearing, proceeding or other matter 
under this part shall be postponed or otherwise delayed pending the 
response or resolution of issues pertaining to a request for information 
pursuant to the Freedom of Information Act, 5 U.S.C. 552.



Sec.  283.13  Subpoenas.

    (a) Issuance of subpoenas. The attendance and testimony of witnesses 
and the production of documentary evidence from any place in the United 
States on behalf of any party to the appeal may be required by subpoena 
at the designated place of hearing. Except for cause shown, requests for 
subpoenas shall be filed at least 15 days prior to the date of the 
hearing. Subpoenas shall be issued by the ALJ, over the facsimile 
signature of the Secretary, upon a reasonable showing by the applicant 
of the grounds, necessity and reasonable scope thereof.
    (b) Service of subpoenas. (1) When the ALJ issues a subpoena under 
this section, the party who requested such subpoena shall serve all 
other parties with a copy of the subpoena, notice of the names and 
addresses of the individuals subpoenaed and specify any documents 
required to be produced.
    (2) Subpoenas may be served:
    (i) By a U.S. Marshal or deputy marshal,

[[Page 949]]

    (ii) By any other person who is not less than 18 years of age, or
    (iii) By registering and mailing a copy of the subpoena addressed to 
the person to be served at the last known principal place of business or 
residence.
    (3) Proof of service may be made:
    (i) By the return of service on the subpoena by the U.S. Marshal or 
deputy marshal,
    (ii) If served by an employee of the Department, by a certificate 
stating that he personally served the subpoena upon the person named 
therein,
    (iii) If served by another person, by an affidavit of such person 
stating that he personally served the subpoena upon the person named 
therein, or
    (iv) If service was by registered mail, by an affidavit made by the 
person mailing the subpoena that it was mailed as provided herein and by 
the signed return post-office receipt. Where the subpoena is issued on 
behalf of the Secretary and service is by mail, the return receipt 
without an affidavit or certificate of mailing shall be sufficient proof 
of service.
    (4) In making personal service, the person making service shall 
leave a copy of the subpoena with the person subpoenaed, or, if such 
person is not immediately available, with any other responsible person 
authorized to accept service residing or employed at the place of 
residence or business of the person subpoenaed.
    (5) The original of the subpoena, bearing or accompanied by the 
required proof of service, shall be returned to the official who issued 
the same. The party at whose request the subpoena is issued shall be 
responsible for the service thereof.



Sec.  283.14  Fees of witnesses.

    Witnesses summoned under these rules shall be paid the same fees and 
expenses that are paid witnesses in the courts of the United States. 
Fees shall be paid by the party at whose request the witness appears. 
Current Federal, State, or local government employees shall not be 
eligible to receive witness fees.



Sec.  283.15  Procedure for hearing.

    (a) Request for hearing. A party may request a hearing on the facts 
by including such request in its Appeal Petition or Answer, whichever is 
appropriate. Failure to request a hearing within the time specified 
shall constitute a waiver of the opportunity for such a hearing, except 
as provided for under Sec.  283.4(i). In the event FNS denies any 
material facts and fails to request a hearing, the matter may be set 
down for hearing on motion of the State agency or upon the ALJ's own 
motion.
    (b) Time and place. If any material issue of fact is joined by the 
pleadings, the ALJ, upon motion of any party, stating that the matter is 
ready for hearing, shall set a time for the hearing, as soon as feasible 
thereafter, with due regard for the public interest and the convenience 
and necessity of the State agency and FNS. The hearing shall be held at 
the U.S. Department of Agriculture, Washington, DC. Upon a showing of 
unusual or extraordinary circumstances, the ALJ may order that the 
hearing be held at another location. The ALJ shall file a notice stating 
the time and place of the hearing. If any change in the time of the 
hearing is made, the ALJ shall file a notice of such change, which 
notice shall be served upon the parties, unless it is made during the 
course of an oral hearing and made a part of the transcript or actual 
notice given to the parties.
    (c) Appearances. The parties may appear in person or by attorney of 
record in the appeal or by any other designated representative. Any 
person who appears as attorney or as a party's designated representative 
must conform to the standards of ethical conduct required by 
practitioners before the courts of the United States.
    (d) Exchange of witness and rebuttal witness lists, statements and 
exhibits. (1) Witness and rebuttal witness lists, copies of prior 
statements of proposed witnesses, and copies of proposed hearing 
exhibits, including copies of any written statements or depositions that 
a party intends to offer in lieu of live testimony in accordance with 
Sec.  283.12(a)(7), shall be exchanged at least 15 days in advance of 
the hearing or at such other time as may be set by the ALJ.
    (2) A witness whose name does not appear on the witness list shall 
not be permitted to testify and exhibits which

[[Page 950]]

were not provided to the opposing party as provided above shall not be 
admitted into evidence at the hearing absent a showing of cause and as 
authorized by the ALJ.
    (e) Deparment of attorney or representative. (1) Whenever an ALJ 
finds that a person acting as attorney or designated representative for 
any party to the appeal is guilty of unethical or contumacious conduct 
in, or in connection with an appeal, the ALJ may order that such person 
be precluded from further acting as attorney or representative in the 
appeal. Review by the Judicial Officer may be taken on any such order, 
but no appeal of the QC claim shall be delayed or suspended pending 
disposition of the debarment review by the Judicial Officer. Provided, 
however, that the ALJ shall suspend the appeal of the QC claim for a 
reasonable time for the purpose of enabling the party to obtain another 
attorney or representative.
    (2) Whenever it is found, after notice and opportunity for hearing, 
that a person who is acting or who has acted as attorney or 
representative for another person in any proceeding before the U.S. 
Department of Agriculture, is unfit to act as such counsel because of 
such unethical or contumacious conduct, such person will be precluded 
from acting as the attorney or representative in any or all proceedings 
before the Department as found to be appropriate.
    (f) Failure to appear. (1) If FNS or the State agency, after being 
duly notified, fails to appear at the hearing without cause, that party 
shall be deemed to have waived the opportunity for an oral hearing and 
to have admitted any facts which may be presented at the hearing. Such 
failure by either party shall also constitute an admission of all the 
material allegations of fact contained in any pleadings submitted by the 
other party. The party who appears shall have the option of whether to 
follow the procedure under Sec.  283.7 or to present evidence, in whole 
or in part, in the form of declarations or by oral testimony before the 
ALJ.
    (2) Failure to appear at a hearing shall not be deemed to be a 
waiver of the right to be served with a copy of the ALJ's initial 
decision, to file a motion for reconsideration pursuant to Sec.  
283.17(d) or to seek review by the Judicial Officer in accordance with 
Sec.  283.20.
    (g) Order of proceeding. Except as may be decided otherwise by the 
ALJ, FNS shall proceed first at the hearing. FNS has the burden of 
proving, by a preponderance of the evidence, the QC claim against the 
State agency for a QC error rate in excess of the tolerance level. The 
State agency will proceed second and must prove, by a preponderance of 
the evidence, the facts upon which it bases its appeal.
    (h) Evidence. (1) The testimony of witnesses at a hearing shall be 
on oath or affirmation and subject to cross-examination.
    (2) Upon a finding of cause, the ALJ may order that any witness be 
examined separately and apart from all other witnesses except those who 
may be parties to the appeal or whose presence is shown by a party to be 
essential to the presentation of the party's cause.
    (3) After a witness called by either party has testified on direct 
examination, any other party may request and obtain the production of 
any statement, or part thereof, of such witness in the possession of the 
opposing party which relates to the subject matter as to which the 
witness has testified. Such production shall be made according to the 
procedures and subject to the definitions and limitations prescribed in 
the Jencks Act (18 U.S.C. 3500).
    (4) Evidence which is immaterial, irrelevant, or unduly repetitious, 
or which is not of the sort upon which responsible persons are 
accustomed to rely, shall be excluded by order of the ALJ insofar as 
practicable.
    (i) Inclusion in the record. At the oral hearing or as ordered by 
the ALJ, depositions to the extent deemed admissible, written 
interrogatories, written requests for admission and respective responses 
may be offered in evidence by the party at whose instance they were 
taken. If not offered by such party, they may be offered in whole or in 
part by any other party. If only part of a deposition, written 
interrogatory, written request for admission or response thereto is 
offered in evidence by a party, any other party may require

[[Page 951]]

that all of it, which is relevant to the part introduced, be offered, 
and any party may introduce any other parts. Such depositions, written 
interrogatories, written requests for admission and respective responses 
thereto shall be admissible in evidence subject to such objections as to 
relevancy, materiality or competency of the testimony as were noted at 
the time of their taking or are made at the time they are offered in 
evidence.
    (j) Objections. (1) If a party objects to the admission of any 
evidence or to the limitation of the scope of any examination or cross 
examination or to any other ruling by the ALJ, the party shall state 
briefly the grounds of such objection, whereupon an automatic exception 
will follow if the objection is overruled by the ALJ.
    (2) Only objections made before the ALJ may be subsequently relied 
upon on review by the Judicial Officer.
    (k) Exhibits. Four copies of each exhibit shall be filed with the 
ALJ. However, where there are more than two parties in the appeal, an 
additional copy shall be filed for each additional party. A true copy of 
an exhibit may be substituted for the original.
    (l) Official records or documents. An official government record or 
document or entry therein, if admissible for any purpose, shall be 
admissible in evidence without the production of the person who made or 
prepared the same, and shall be prima facie evidence of the relevant 
facts stated therein. Such record or document shall be evidenced by an 
official publication thereof or by a copy certified by a person having 
legal authority to make such certification.
    (m) Official notice. Official notice shall be taken of such matters 
as are judicially noticed by the courts of the United States and of any 
other matter of technical, scientific, or commercial fact of established 
character. Provided, that the parties shall be given adequate 
opportunity to show that such facts are erroneously noticed.
    (n) Offer of proof. Whenever evidence is excluded by the ALJ, the 
party offering such evidence may make an offer of proof, which shall be 
included in the transcript. The offer of proof shall consist of a brief 
statement describing the evidence excluded. If the evidence consists of 
a brief oral statement, it shall be included in the transcript in toto. 
If the evidence consists of a document or other exhibit, it shall be 
marked for identification and inserted in the hearing record. In either 
event, if the Judicial Officer, upon review, determines that the ALJ's 
ruling excluding the evidence was erroneous and prejudicial, the 
evidence shall be considered a part of the transcript and hearing 
record. If the Judicial Officer determines that the ALJ's ruling 
excluding the evidence was erroneous and prejudicial, and that it would 
inappropriate to have such evidence considered a part of the hearing 
record without reopening the hearing, the Judicial Officer may direct 
that the hearing be reopened to permit the taking of such evidence or 
for any other purpose in connection with the excluded evidence.
    (o) Transcript. Hearings shall be recorded and transcribed verbatim. 
The party requesting the hearing shall bear the transcription cost of 
producing the transcript and the duplication cost for one transcript 
provided to the ALJ and to the other parties to the appeal.



Sec.  283.16  Consolidation of issues.

    Similar issues involved in appeals by two or more State agencies may 
be consolidated upon motion by the State agencies, FNS, or at the 
discretion of the ALJ if it is decided that consolidation would help to 
promote administrative efficiency.
    (a) Disposition of consolidated issues. If the ALJ orders 
consolidation, the issues consolidated will be considered first. If a 
hearing has been requested by any of the parties that have had issues 
consolidated, arguments on the consolidated issues will be heard before 
arguments on dissimilar issues. The ALJ will take the information into 
consideration along with arguments on other issues in preparing initial 
decisions for QC appeals in which some issues have been consolidated.
    (b) Initial decision. (1) If the ALJ decides the evidence and 
arguments by the State agencies on the consolidated issues cannot be 
overcome by the evidence presented by FNS and are sufficient to grant 
the relief requested by a State agency or all State agencies in

[[Page 952]]

which the issue is involved, the ALJ shall prepare an initial decision 
as provided in Sec.  283.17(c).
    (2) FNS may file a motion for reconsideration pursuant to Sec.  
283.17(d) or seek review by the Judicial Officer in accordance with 
Sec.  283.20.



Sec.  283.17  Post-hearing procedure.

    (a) Corrections to transcript. (1) At any time, but not later than 
the time fixed for filing proposed findings of fact, conclusions of law, 
order and briefs, any party may file a motion proposing corrections to 
the transcript.
    (2) Unless a party files such a motion in the matter prescribed, the 
transcript shall be presumed to be a true, correct, and complete 
transcript of the testimony given at the hearing and to contain an 
accurate description or reference to all exhibits received in evidence 
and made part of the hearing record. The transcript shall be deemed to 
be certified without further action by the ALJ.
    (3) At any time prior to the filing of the ALJ's initial decision 
and after consideration of any objections filed as to the transcript, 
the ALJ may issue an order making any corrections in the transcript that 
the ALJ finds are warranted. Such corrections shall be entered into the 
original transcript by the Hearing Clerk (without obscuring the original 
text).
    (b) Proposed findings of fact, conclusions of law, order, and 
briefs. The parties may file proposed findings of fact, conclusions of 
law and orders based solely upon the record and on officially noticed 
matters, and briefs in support thereof. briefs may be filed at the 
discretion of the ALJ. The ALJ shall announce at the hearing the time 
within which these documents may be filed.
    (c) ALJ's initial decision. (1) The ALJ shall decide the appeal not 
later than 60 days after receipt of rebuttal evidence submitted by the 
State agency or, if the State agency does not submit rebuttal evidence, 
not later than 90 days after the State agency submits the notice of 
appeal and evidence in support of the appeal. In accordance with Sec.  
283.22(f), the ALJ may, upon motion or sua sponte, extend this deadline 
for cause shown.
    (2) The ALJ shall prepare, upon the basis of the record and 
officially noticed matters, and shall file, an initial decision which 
shall include a decision on a request for good cause relief, a copy of 
which shall be served upon each of the parties.
    (3) Such initial decision shall be considered final for purposes of 
judicial review without further proceedings, unless there is a motion 
for reconsideration filed pursuant to Sec.  283.17(d) or review by the 
Judicial Officer is sought pursuant to Sec.  283.20.
    (4) If no motion for reconsideration or review by the Judicial 
Officer is filed, the initial decision shall constitute the final notice 
of determination for purposes of judicial review and shall become 
effective 30 day after service.
    (d) Motion for reconsideration. (1) Except as provided in paragraph 
(d)(4) of this section, any party may file a motion for reconsideration 
of the initial decision within 30 days of service of the initial 
decision. If served by mail, the time for filing a motion for 
reconsideration will be 5 days longer in accordance with Sec.  283.22.
    (2) Every such motion must set forth the mattes claimed to have been 
erroneously decided and the basis of the alleged errors. Such motion 
shall be accompanied by a supporting brief.
    (3) Responses to such motions shall be filed in accordance with 
Sec.  283.18(d).
    (4) No party may file a motion for reconsideration of an initial 
decision that has been revised in response to a previous motion for 
reconsideration.
    (5) The ALJ may dispose of a motion for reconsideration by denying 
it or by issuing a revised initial decision.
    (6) If the ALJ denies a motion for reconsideration, the initial 
decision shall constitute the final notice of determination for purposes 
of judicial review and shall become effective 30 days after service 
unless review by the Judicial Officer is sought in accordance with Sec.  
283.20.
    (7) If the ALJ issues a revised initial decision, that decision 
shall constitute the final notice of determination for purposes of 
judicial review and shall become effective 30 days after service unless 
review by the Judicial Officer is sought in accordance with Sec.  
283.20.

[[Page 953]]



Sec.  283.18  Motions and requests.

    (a) Filing. All motions and requests shall be filed with the Hearing 
Clerk, and served upon all the parties by the moving or requesting 
party, except motions and requests made on the record during the oral 
hearing. The ALJ assigned to the appeal or the Chief Judge shall rule 
upon all motions and requests filed or made prior to seeking review of 
the ALJ's initial decision pursuant to Sec.  283.20, except motions 
directly relating to such review. Thereafter, the Judicial Officer shall 
rule on any motions and requests as well as the motions directly 
relating to the review of the ALJ's initial decision.
    (b) Time for filing. Any motion or request may be filed at any time, 
except that:
    (1) Motions to dismiss pursuant to Sec.  283.5 must be filed within 
the time allowed for filing an answer; and
    (2) Motions for reconsideration must be filed within 30 days of 
service of the ALJ's initial decision pursuant to Sec.  283.17(d).
    (c) Contents. All written motions and requests shall state the 
particular order, ruling, or action desired and the grounds therefor.
    (d) Response to motions and requests. Within 10 days after service 
of any written motion or request or within such shorter or longer period 
as may be fixed by the ALJ or Judicial Officer, an opposing party may 
file a response to the motion or request. The moving party shall have no 
right to reply to the response; however, the ALJ or Judicial Officer may 
order that a reply be filed.
    (e) Certification to the Judicial Officer. The submission or 
certification of any motion, request, objection, or other question to 
the Judicial Officer prior to the seeking of review pursuant to Sec.  
283.20 shall be made by and in the discretion of the ALJ. The ALJ may 
either rule upon or certify the motion, request, objection, or other 
question to the Judicial Officer, but not both.



Sec.  283.19  ALJs.

    (a) Assignment. No ALJ shall be assigned to serve in any appeal who:
    (1) Has any pecuniary interest in any matter or business involved in 
the appeal,
    (2) Is related by blood or marriage to any party in the appeal, or
    (3) Has any conflict of interest which might impair the ALJ's 
objectivity in the appeal.
    (b) Disqualification of ALJ. (1) Any party to the appeal may, by 
motion, request that the ALJ withdraw from the appeal on one or more of 
the grounds set out in paragraph (a) of this section. Such motion shall 
set forth with particularity the alleged grounds for disqualification. 
The ALJ may then either rule upon or certify the motion to the Judicial 
Officer, but not both.
    (2) The ALJ may withdraw from any appeal for any reason deemed by 
the ALJ to be disqualifying.
    (c) Powers. (1) Subject to review as provided elsewhere in this 
part, the ALJ, in any assigned appeal, shall have the power to:
    (i) Rule upon motions and requests;
    (ii) Set the time and place of a pre-hearing conference and the time 
of the hearing, adjourn the hearing from time to time, and change the 
time of the hearing;
    (iii) Administer oaths and affirmations;
    (iv) Regulate the scope and timing of discovery;
    (v) Issue and enforce subpoenas as authorized under 7 U.S.C. 2023(a) 
and these rules;
    (vi) Summon and examine witnesses and receive evidence at the 
hearing;
    (vii) Appoint expert witnesses in accordance with the provisions of 
Rule 706 of the Federal Rules of Evidence;
    (viii) Admit or exclude evidence;
    (ix) Hear oral argument on facts or law;
    (x) Upon motion of a party, decide cases, in whole or in part, by 
non-oral hearing procedures under subpart C of this part where there is 
no disputed material issue of fact;
    (xi) Perform all acts and take all measures necessary for the 
maintenance of order, including the exclusion of contumacious counsel or 
other persons;
    (xii) Take all other actions authorized under the Act and these 
rules, including the extension of time upon motion of a party or sua 
sponte for cause shown.

[[Page 954]]

    (2) The ALJ may not rule upon the validity of Federal statutes or 
regulations.
    (d) Who may act in the absence of the ALJ. In case of the absence of 
the ALJ or the ALJ's inability to act, the powers and duties to be 
performed by the ALJ under these rules of practice in connection with 
any assigned appeal may, without abatement of the appeal, unless 
otherwise directed by the Chief Judge, be assigned to any other ALJ.



Sec.  283.20  Review by the Judicial Officer.

    (a) Filing of review petition. (1) Within 30 days after service of 
the ALJ's initial decision, or any part thereof, any party may seek 
Judicial Officer review of such decision by filing a review petition 
with the Hearing Clerk. However, if another party files a motion for 
reconsideration under Sec.  283.17(d), consideration of the review 
petition shall be stayed automatically pending resolution of the motion 
for reconsideration. If a motion for reconsideration is timely filed, a 
review petition may be filed within 30 days after the ALJ denies the 
motion or issues a revised initial decision, whichever applies.
    (2) As provided in Sec.  283.15(h), objections made before the ALJ 
regarding evidence or regarding a limitation on examination or cross-
examination or other ruling may be relied upon in a Judicial Officer 
review.
    (3) Each issue set forth in the review petition, and the arguments 
thereon, shall be plainly and concisely stated; and shall contain 
detailed citations to the record, statutes, regulations or authorities 
being relied upon in support thereof. A brief in support may be filed 
simultaneously with the review petition.
    (b) Response to review petition. Within 30 days after service of a 
copy of a review petition and any brief in support thereof, any other 
party to the proceedings may file a response in support of or in 
opposition to the review petition and in such response any relevant 
issue, not presented in the review petition, may be raised.
    (c) Transmittal of the record. (1) Whenever a review petition of an 
ALJ's initial decision is filed and a response thereto has been filed or 
time for filing a response has expired, the Hearing Clerk shall transmit 
to the Judicial Officer the record of the appeal.
    (2) Such record shall include: The pleadings; motions and requests 
filed and rulings thereon; the transcript of the testimony taken at the 
hearing, together with the exhibits filed in connection therewith; any 
documents or papers filed in connection with a prehearing conference; 
such proposed findings of fact, conclusions of law, orders, and briefs 
in support thereof, as may have been filed in connection with the 
appeal; the ALJ's initial decision; the motion for reconsideration of 
the ALJ's initial decision; the ALJ's initial decision on the motion for 
reconsideration and the review petition, and such briefs in support 
thereof and responses thereto as may have been filed.
    (d) Oral argument. A party filing a review petition may request, 
within the prescribed time for filing such review petition, an 
opportunity for oral argument before the Judicial Officer. Within the 
time allowed for filing a response, the responding party may file a 
request for such oral argument. Failure to make such request to appear 
before the Judicial Officer, within the prescribed time period, shall be 
deemed a waiver of the opportunity for oral argument. There is no right 
to appear personally before the Judicial Officer. The Judicial Officer 
may grant, refuse, or limit any request for oral argument. Oral argument 
shall not be transcribed unless so ordered in advance by the Judicial 
Officer for cause shown upon request of a party or upon the Judicial 
Officer's own motion.
    (e) Scope of argument. Argument to be heard by the Judicial Officer 
on review, whether oral or on brief, shall be limited to the issues 
raised in the review petition to the Judicial Officer or in the response 
to such petition, except that if the Judicial Officer determines that 
additional issues should be argued, the parties shall be given 
reasonable notice of such determination, so as to permit adequate 
preparation on all issues to be argued.
    (f) Notice of argument; postponement. The Hearing Clerk shall advise 
all parties of the time and place at which oral argument will be heard. 
A request for postponement of the argument must be

[[Page 955]]

made by motion filed within a reasonable time in advance of the date 
fixed for argument.
    (g) Order of argument. The appellant is entitled to commence and 
conclude the argument.
    (h) Submission of briefs. By agreement of the parties, a review may 
be submitted for decision on the briefs, but the Judicial Officer may 
direct that the review be argued orally.
    (i) Additional evidence. If any party demonstrates to the 
satisfaction of the Judicial Officer that additional evidence not 
presented to the ALJ is material, not cumulative, and that there were 
reasonable grounds for the failure to present such evidence to the ALJ, 
the Judicial Officer shall remand the matter to the ALJ for 
consideration of such additional evidence.
    (j) Decision of the Judicial Officer on review. (1) As soon as 
practicable after the receipt of the record from the Hearing Clerk, or, 
in case oral argument was had, as soon as practicable thereafter, the 
Judicial Officer, upon the basis of the record and any matter of which 
official notice is taken, shall rule on the review.
    (2) The Judicial Officer may adopt, reduce, reverse, compromise, 
remand or approve settlement of any claim initially decided by the ALJ 
under this part.
    (3) The Judicial Officer shall promptly serve each party to the 
appeal with a copy of the ruling of the Judicial Officer which shall be 
considered the final determination and contain a statement describing 
the right to seek judicial review.
    (4) Judicial review must be sought within 30 days of service of the 
final notice of determination by the Judicial Officer pursuant to 7 
U.S.C. 2023(a).



Sec.  283.21  Ex parte communications.

    (a) ALJ; Judicial Officer. At no time prior to the issuance of the 
final decision shall the ALJ or Judicial Officer discuss ex parte the 
merits of the appeal or review with any person who is connected with the 
appeal or review in an advocative or in an investigative capacity, or 
with any representative of such person. However, procedural matters 
shall not be included within this limitation; and furthermore, the ALJ 
or Judicial Officer may discuss the merits of the case with such a 
person if all parties to the appeal or review, or their attorneys have 
been given notice and an opportunity to participate. A memorandum of 
such discussion shall be included in the record.
    (b) Parties; interested persons. No party or other interested person 
shall make or knowingly cause to be made to the ALJ or Judicial Officer 
an ex parte communication relevant to the merits of the appeal or 
review.
    (c) Procedure. If the ALJ or Judicial Officer receives an ex parte 
communication in violation of this section, the one who receives the 
communication shall place in the public record of the appeal or review:
    (1) All such written communications;
    (2) Memoranda stating the substance of all such oral communications; 
and
    (3) Copies of all written responses, and memoranda stating the 
substance of all oral responses thereto.
    (4) Upon receipt of a communication knowingly made or knowingly 
caused to be made by a party in violation of this section, the ALJ or 
Judicial Officer may, to the extent consistent with the interests of 
justice and the policy of the underlying statute, require the party to 
show cause why its claim or interest in the appeal or review should not 
be dismissed, denied, disregarded or otherwise adversely affected on 
account of such violation.
    (d) Decision. To the extent consistent with the interests of justice 
and the policy of the underlying statute, a violation of this section 
shall be sufficient grounds for a decision adverse to the party who 
knowingly commits a violation of this section or who knowingly causes 
such a violation to occur.



Sec.  283.22  Form; filing; service; proof of service; computation of 
time; and extensions of time.

    (a) Form. (1) The original and two copies of all papers in a 
proceeding conducted under this subpart shall be filed with the Hearing 
Clerk.
    (2) Every pleading and paper filed in the proceeding shall contain a 
caption setting forth the title of the action, the docket number 
assigned by the Hearing Clerk, and a descriptive title (e.g., Motion for 
Extension of Time).

[[Page 956]]

    (3) Every pleading and paper shall be signed by and contain the 
address and telephone number of the representative for the party on 
whose behalf the paper was filed.
    (b) Filing. Papers are considered filed when they are postmarked, 
or, received, if hand delivered. Date of mailing may be established by a 
certificate from the party or representative or by proof that the 
document was sent by certified or registered mail.
    (c) Service. A party filing a document with the ALJ shall, at the 
time of filing, serve a copy of such document on every other party. 
Service upon any party of any document shall be made by delivering or 
mailing a copy to the party's last known address. When a party is 
represented by an attorney or designated representative, service shall 
be made upon such attorney or representative in lieu of the actual 
party.
    (d) Proof of service. A certificate of the person serving the 
document by personal delivery or by mail, setting forth the date, time 
and manner of service, shall be proof of service.
    (e) Computation of time. (1) In computing any period of time under 
this part or in an order issued thereunder, the time begins with the day 
following the act, event, or default, and includes the last day of the 
period, unless it is a Saturday, Sunday or legal holiday observed by the 
Federal Government, in which event it includes the next business day.
    (2) When a document has been served by mail, an additional five days 
will be added to the time permitted for any response.
    (f) Extensions of time. Requests for extensions of time shall be 
submitted to the ALJ, Chief Judge or the Judicial Officer prior to the 
expiration of the original due date. The time for the filing of any 
document or paper required or authorized under the rules in this part 
may be extended by the ALJ, Chief Judge or the Judicial Officer, if, in 
the judgment of the ALJ, Chief Judge or the Judicial Officer, there is 
cause for the extension. In instances where the time permits notice of 
the request for extension, time shall be given to the other party to 
submit views concerning the request.



Sec.  283.23  Procedural matters.

    (a) Communications from Hearing Clerk. In order to expedite the 
appeal process, the Hearing Clerk may develop form letters and 
transmittal forms to be used for notices, service of papers, requests 
for information, and all other communications between the Hearing 
Clerk's Office and the parties.
    (b) Representation. All parties may be represented by attorneys or 
by designated representatives. Attorneys or designated representatives 
appearing for the parties shall file formal notices of appearances and 
withdrawals with the Hearing Clerk.



   Subpart C_Summary Procedure for Appeals of QC Claims of Less Than 
                                 $50,000



Sec.  283.24  Incorporation of procedures by reference.

    Except as otherwise provided, the following procedures detailed in 
subpart B of this part shall apply to appeals of QC claims of less than 
$50,000: Sec. Sec.  283.5 Motion to Dismiss; 283.6 Answer; 283.8 
Rebuttal or Amendment of Appeal or Answer; 283.9 Withdrawal of Appeal; 
283.10 Consent Decision; 283.18 Motions and Requests; 283.19 ALJ's; 
283.20 Review by the Judicial Officer; 283.21 Ex Parte Communications; 
283.22 Filings; Service; Extensions of Time; and Computations of Time; 
and 283.23 Procedural Matters.



Sec.  283.25  Filing appeals for QC claims of less than $50,000.

    (a) Time. A State agency may appeal the bill for collection from FNS 
for a QC claim of less than $50,000 for a food stamp QC error rate in 
excess of the tolerance level. A State agency must file a written notice 
of appeal, in accordance with this section, within 10 days of receipt of 
the bill for collection from FNS for a QC claim of less than $50,000. 
The State agency may request an extension to the 10-day filing 
requirement in accordance with Sec.  283.22(f). FNS shall issue the bill 
for collection by certified mail or personal service.
    (b) Exhaustion of administrative remedies. The State agency must 
appeal the bill for collection to the ALJ, pursuant to this subpart, and 
exhaust the

[[Page 957]]

available administrative remedies before filing suit in the Federal 
District Courts.
    (c) Filing. The notice of appeal shall be filed with the Hearing 
Clerk.
    (d) Content of the notice of appeal. (1) A notice of appeal, in 
order to be considered acceptable must contain the following 
information:
    (i) A brief and clear statement that it is an appeal from a QC claim 
of less than $50,000 identifying the period the claim covers, the date 
and amount of the bill for collection, and the date of receipt of the 
bill for collection;
    (ii) Identification of the State agency as the appellant and FNS as 
the appellee;
    (iii) A statement that the notice of appeal is filed pursuant to 
section 14(a) of the Food Stamp Act;
    (iv) A true copy of the bill for collection which constitutes the 
basis for the filing of the notice of appeal shall be attached to the 
notice.
    (2) Failure to file an acceptable notice of appeal may result in a 
challenge by FNS to the notice and dismissal of the notice by the ALJ 
and a waiver of the opportunity for further appeal or review by the 
Judicial Officer unless the State agency pursues the options as 
discussed in Sec. Sec.  283.17(d) and 283.20.
    (e) Receipt of notice of appeal and assignment of docket number. 
Upon receipt of a notice of appeal, the Hearing Clerk shall assign the 
appeal a docket number. The Hearing Clerk shall:
    (1) Send the State agency a letter which shall include the following 
information:
    (i) Advise that the notice of appeal has been received and the date 
of receipt;
    (ii) The docket number assigned to the appeal and instructions that 
all future communications related to the appeal shall reference the 
docket number, and;
    (iii) That the State agency must file and serve its appeal petition, 
as set forth in Sec.  283.22 not later than 60 days after receiving a 
notice of the claim. Failure to file a timely appeal petition may result 
in a waiver of further appeal rights.
    (2) Send FNS a copy of the notice of appeal and a copy of the letter 
to the State agency.
    (f) Stay of collection. The filing of a timely notice of appeal 
shall automatically stay the action of FNS to collect the QC claim 
asserted against the State agency until a decision is reached on the 
acceptability of the appeal, and in the case of an acceptable appeal, 
until a final administrative determination has been issued. However, 
interest will accrue on the outstanding claim amount during the stay as 
provided in section 13(a)(1) of the Food Stamp Act of 1977, as amended 
(7 U.S.C. 2022(a)(1)).
    (g) Content of appeal petition. The appeal petition shall include:
    (1) A brief statement of the allegations of fact and provisions of 
law that constitute the basis for the appeal including a statement as to 
whether a factual basis for good cause relief exists, and
    (2) The nature of the relief sought.
    (h) FNS answer. Upon service of the State agency appeal petition, 
FNS shall file an answer, pursuant to Sec.  283.6, not later than 60 
days after the State agency submits its appeal petition.



Sec.  283.26  Request that appeals be handled under procedures in subpart 
B for appeals of QC claims of $50,000 or more.

    (a) If, after the filing of its appeal petition, the State agency 
does not believe that the summary procedure provided in this subpart is 
adequate for handling the appeal and that an oral hearing is necessary, 
the State agency may file, no later than the date established for the 
conclusion of any discovery pursuant to Sec.  283.29, a motion that its 
appeal be handled under the procedures in subpart B of this part.
    (b) The motion shall specify why the State agency believes that the 
summary procedure is inadequate and what harm will result if an oral 
hearing is not held.
    (c) FNS will have 10 days from service of the State agency's motion 
that the appeal be handled under subpart B of this part to submit 
arguments either in support of or against the State agency's position.
    (d) The ALJ will review the State agency's motion and the 
information submitted by FNS and decide which procedures shall be used 
in the appeal.

[[Page 958]]



Sec.  283.27  Procedures upon failure to file an answer.

    The failure by FNS to file an answer shall constitute a waiver of 
the opportunity to file a cross motion for summary judgment pursuant to 
Sec.  283.30. Upon such failure to file, the State agency shall file a 
proposed decision, along with a motion for adoption thereof, both of 
which shall be served upon FNS by the State agency. Within 10 days after 
service of such motion and proposed decision, FNS may file with the 
Hearing Clerk objections thereto. If the ALJ finds that meritorious 
objections have been filed, the State agency's motion shall be denied 
with supporting reasons. If meritorious objections are not filed, the 
ALJ shall issue an initial decision without further procedures. Copies 
of the decision or denial of State agency's motion shall be served on 
each of the parties and shall be included as part of the official 
record. Where the decision as proposed by the State agency is adopted as 
the ALJ's initial decision, such decision of the ALJ shall become final 
and effective 30 days after service unless reconsideration or review by 
the Judicial Officer is sought as discussed in Sec. Sec.  283.17(d) and 
283.20.



Sec.  283.28  Discovery.

    Upon motion and as ordered by the ALJ, written interrogatories, 
written requests for admissions and written requests for the production 
of documents, may be served by any party to the appeal upon any other 
party and used in accordance with Sec.  283.12(b).



Sec.  283.29  Scheduling conference.

    (a) Time and place. The ALJ shall direct the parties or their 
counsel to attend a scheduling conference following the filing of a 
notice of appeal pursuant to Sec.  283.25. The scheduling conference 
shall be held at the U.S. Department of Agriculture, Washington, DC. 
Reasonable notice of the time and place of the scheduling conference 
shall be given. The ALJ may order each of the parties to furnish at the 
scheduling conference the following:
    (1) An outline of the appeal or defense;
    (2) The legal theories upon which the party will rely;
    (3) Copies of or a list of documents that the party anticipates 
relying upon;
    (b) Procedures. The ALJ shall not order any of the foregoing 
procedures that a party can show are inappropriate or unwarranted under 
the circumstances of the particular appeal.
    (c) Scheduling conference. At the scheduling conference, the 
following matters shall be considered:
    (1) The simplification of issues;
    (2) The necessity of amendments to pleadings;
    (3) Stipulations of facts and of the authenticity, accuracy, and 
admissibility of documents;
    (4) Negotiation, compromise, or settlement of issues;
    (5) The exchange of copies of proposed exhibits;
    (6) The nature of and the date by which discovery, as provided in 
Sec.  283.28, must be completed;
    (7) The identification of documents or matters of which official 
notice may be requested;
    (8) A schedule to be followed by the parties for the filing of 
cross-motions for summary judgment and completion of other actions 
decided at the conference; and
    (9) Such other matters as may expedite and aid in the disposition of 
the appeal.
    (d) Reporting. A scheduling conference will not be stenographically 
reported unless so directed by the ALJ.
    (e) Attendance at scheduling conference. In the event the ALJ 
concludes that personal attendance by the ALJ and the parties or counsel 
at a scheduling conference is unwarranted or impractical, but decides 
that a conference would expedite the appeal, the ALJ may conduct such 
conference by telephone.
    (f) Order. Actions taken as a result of a conference shall be 
reduced to an appropriate written order, unless the ALJ concludes that a 
stenographic report shall suffice.



Sec.  283.30  Cross motions for summary judgment.

    Appeals filed pursuant to this subpart shall be determined upon 
cross motions for summary judgment unless the matter is heard under 
subpart B of

[[Page 959]]

this part in accordance with Sec.  283.26. Cross motions for summary 
judgment shall be filed by the parties along with the appeal petition 
and answer or in accordance with the schedule established by the ALJ 
pursuant to Sec.  283.29. Motions for summary judgment shall address the 
issues raised by the pleadings and may be supported by declarations. 
Motions and accompanying briefs in support of summary judgment shall not 
exceed 35 pages excluding exhibits unless otherwise authorized by the 
ALJ. Reply briefs may be filed by the parties in accordance with the 
schedule established by the ALJ. Reply briefs may not exceed 15 pages in 
length, excluding exhibits.



Sec.  283.31  Review of the record.

    (a) The ALJ shall review the cross motions for summary judgment, 
briefs, reply briefs and supporting materials submitted by both FNS and 
the State agency.
    (b) If the ALJ decides that additional information or briefing is 
required from a party, a request for such information or briefing shall 
be submitted to such party with a copy to the other party. The request 
shall identify the additional information or specific issues to be 
addressed and shall specify the date(s) by which such information or 
briefing must be provided. Upon receipt of such additional information 
or briefing, the ALJ shall provide the other party an opportunity to 
submit responsive information or briefing.
    (c) If the party to whom a request for additional information or 
briefing is made fails to submit the information or brief the issue(s) 
as requested, the ALJ may decide the appeal based on the existing 
record.
    (d) If the ALJ decides that oral argument is necessary on legal 
issues, the ALJ shall set a time for the oral arguments as soon as 
feasible thereafter, with due regard for the public interest and the 
convenience and necessity of the State agency and FNS. The oral 
arguments shall be held at the U.S. Department of Agriculture, 
Washington, DC. Upon a showing of unusual or extraordinary 
circumstances, the ALJ may order that the argument be held at another 
location. The ALJ shall file a notice stating the time and place of the 
oral arguments. If any change in the time of the oral arguments is made, 
the ALJ shall file a notice of such change, which notice shall be served 
upon the parties, unless it is made during the course of the oral 
arguments and made a part of the transcript or actual notice given to 
the parties.
    (e) Oral argument shall not be transcribed unless so ordered in 
advance by the ALJ for cause shown upon request of a party or upon the 
ALJ's own motion.



Sec.  283.32  ALJ's initial decision.

    (a) The ALJ shall decide the appeal not later than 60 days after 
receipt of rebuttal evidence submitted by the State agency pursuant to 
Sec.  283.8 or, if the State agency does not submit rebuttal evidence, 
not later than 90 days after the State agency submits the notice of 
appeal and evidence in support of the appeal. The ALJ may extend this 
deadline for cause shown.
    (b) The ALJ shall prepare, upon the basis of the record, and shall 
file an initial decision which shall include a decision on a request for 
good cause relief, a copy of which shall be served upon each of the 
parties.
    (c) Such initial decision shall constitute the final notice of 
determination for purposes of judicial review without further 
proceedings, unless there is a motion for reconsideration filed pursuant 
to Sec.  283.17(d) or review by the Judicial Officer is sought pursuant 
to Sec.  283.20.

      PART 284_PROVISION OF A NUTRITION ASSISTANCE PROGRAM FOR THE 
     COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS (CNMI) [RESERVED]



PART 285_PROVISION OF A NUTRITION ASSISTANCE GRANT FOR THE COMMONWEALTH 
OF PUERTO RICO--Table of Contents




Sec.
285.1 General purpose and scope.
285.2 Funding.
285.3 Plan of operation.
285.4 Audits.
285.5 Failure to comply.


[[Page 960]]


    Authority: 7 U.S.C. 2011-2036.

    Source: Amdt. 209, 47 FR 32409, July 27, 1982, unless otherwise 
noted.



Sec.  285.1  General purpose and scope.

    This part describes the general terms and conditions under which 
grant funds shall be provided by the Food and Nutrition Service (FNS) to 
the government of the Commonwealth of Puerto Rico for the purpose of 
designing and conducting a nutrition assistance program for needy 
persons. The Commonwealth of Puerto Rico is authorized to establish 
eligibility and benefit levels for the nutrition assistance program. In 
addition, with FNS approval, the Commonwealth of Puerto Rico may employ 
a small proportion of the grant funds to finance projects that the 
Commonwealth of Puerto Rico believes likely to improve or stimulate 
agriculture, food production, and food distribution.



Sec.  285.2  Funding.

    (a) FNS shall, consistent with the plan of operation required by 
Sec.  285.3 of this part, and subject to availability of funds, provide 
nutrition assistance grant funds to the Commonwealth of Puerto Rico to 
cover 100 percent of the expenditures related to food assistance 
provided to needy persons and 50 percent of the administrative expenses 
related to the food assistance. The amount of the grant funds provided 
to the Commonwealth of Puerto Rico shall not exceed amounts appropriated 
for this purpose for each fiscal year.
    (b) FNS shall, subject to the provisions in Sec. Sec.  285.3 and 
285.5 in this part, and limited by the provisions of paragraph (a) of 
this section, pay to the Commonwealth of Puerto Rico for the applicable 
fiscal year, the amount estimated by the Commonwealth of Puerto Rico 
pursuant to Sec.  285.3(b)(4). Payments shall be made no less frequently 
than on a monthly basis prior to the beginning of each month consistent 
with the Treasury Fiscal Requirement Manual, Volume I, part 6, section 
2030; these letters of credit shall be drawn on an as-needed basis. The 
amount shall be reduced or increased to the extent of any prior 
overpayment or underpayment which FNS determines has been made and which 
has not been previoulsy adjusted. The payment(s) received by the 
Commonwealth of Puerto Rico for a fiscal year shall not exceed the total 
authorized for the grant, or the total cost for the nutrition assistance 
program eligible for funding, whichever is less, for that fiscal year.
    (c) FNS may recover from the Commonwealth of Puerto Rico, through 
offsets to funding during any fiscal year, funds previously paid to the 
Commonwealth of Puerto Rico and later determined by the Secretary to 
have been overpayments. Funds which may be recovered include, but are 
not limited to:
    (1) Costs not included in the approved plan of operation;
    (2) Unallowable costs discovered in audit or investigation findings;
    (3) Funds allocated to the Commonwealth of Puerto Rico which 
exceeded expenditures during the fiscal year for which the funds were 
authorized; or
    (4) Amounts owed to FNS as a result of the nutrition assistance 
grant which have been billed to the Commonwealth of Puerto Rico and 
which the Commonwealth of Puerto Rico has failed to pay without cause 
acceptable to FNS.
    (d) Funds for payment of any prior fiscal year expenditures shall be 
claimed from the funding for that prior year. The payment of funds shall 
not exceed the authorization for that prior fiscal year.

[Amdt. 209, 47 FR 32409, July 27, 1982, as amended by Amdt. 243, 49 FR 
49585, Dec. 21, 1984; Amdt. 274, 51 FR 18752, May 21, 1986; Amdt. 371, 
61 FR 60012, Nov. 26, 1996]



Sec.  285.3  Plan of operation.

    (a) To receive payments for any fiscal year the Commonwealth of 
Puerto Rico shall have a plan of operation for that fiscal year approved 
by FNS. Each plan of operation shall be sumitted for FNS approval by the 
July 1 preceding the fiscal year for which the plan of operation is to 
be effective.
    (b) The plan of operation shall include the following information:
    (1) Designation of the agency or agencies directly responsible for 
administration, or supervision of the administration, of the nutrition 
assistance program.

[[Page 961]]

    (2) A description of the needy persons residing in the Commonwealth 
of Puerto Rico and an assessment of the food and nutrition needs of 
these persons. The description and assessment shall demonstrate that the 
nutrition assistance program is directed toward the most needy persons 
in the Commonwealth of Puerto Rico.
    (3) A description of the program for nutrition assistance including:
    (i) A general description of the nutrition assistance to be provided 
the needy persons who will receive assistance, and any agencies 
designated to provide such assistance; and
    (ii) To the extent grant funds are not used for direct nutrition 
assistance payments to needy persons, the plan of operation must 
demonstrate that the grants funds will provide nutrition assistance 
benefiting needy persons in the Commonwealth of Puerto Rico.
    (4) A budget and an estimate of the monthly amounts of expenditures 
necessary for the provision of the nutrition assistance and related 
administrative expenses up to the monthly amounts provided for payment 
in Sec.  285.2.
    (5) Other reasonably related information which FNS may request.
    (6) An agreement signed by the governor or other appropriate 
official to conduct the nutrition assistance program in accordance with 
the FNS-approved plan of operation and in compliance with all pertinent 
Federal rules and regulations. The Commonwealth of Puerto Rico shall 
also agree to comply with any changes in Federal law and regulations.
    (c) Any amendments to those provisions of the plan of operation 
specified in paragraph (b) of this section, must be submitted to FNS for 
approval.
    (d) FNS shall approve or disapprove any plan of operation no later 
than August 1 of the year of its submission. FNS approval of the plan of 
operation shall be based on an assessment that the nutrition assistance 
program, as defined in the plan of operation, is:
    (1) Sufficient to permit analysis and review;
    (2) Reasonably targeted to the most needy persons as defined in the 
plan of operation;
    (3) Supported by an assessment of the food and nutrition needs of 
needy persons;
    (4) Reasonable in terms of the funds requested;
    (5) Structured to include safeguards to prevent fraud, waste, and 
abuse in the use of grant funds; and
    (6) Consistent with all applicable Federal laws.
    (e) FNS shall approve or disapprove any amendments to those 
provisions of the plan of operation specified in paragraph (b) of this 
section. If FNS fails either to approve or deny the amendment, or to 
request additional information within 30 days, the amendment to the plan 
of operation is approved. If additional information is requested, the 
Commonwealth of Puerto Rico shall provide this as soon as possible, and 
FNS shall approve or deny the amendment to the plan of operation. 
Payment schedules and other program operations may not be altered until 
an amendment to the plan of operation is approved. The Commonwealth of 
Puerto Rico shall, for informational purposes, submit to FNS any 
amendments to those provisions of the plan of operation not specified in 
paragraph (b) of this section. Such submittal shall be made at least 30 
days prior to the effective date of the amendment. If circumstances 
warrant a waiver of the 30-day requirement, the Commonwealth of Puerto 
Rico shall submit a waiver request to FNS for consideration. Should FNS 
determine that such an amendment relates to the provisions of paragraph 
(b) of this section, FNS approval as established above will be necessary 
for the amendment to be implemented.
    (f) FNS may approve part of any plan of operation or amendment 
submitted by the Commonwealth of Puerto Rico contingent on appropriate 
action by the Commonwealth of Puerto Rico with respect to the problem 
areas in the plan of operation.
    (g) If all or part of the plan of operation is disapproved, FNS 
shall notify the appropriate agency in the Commonwealth of Puerto Rico 
of the problem area(s) in the plan of operation and the actions 
necessary to secure approval.

[[Page 962]]

    (h) In accordance with the provisions of Sec.  285.5, funds may be 
withheld or denied when all or part of a plan of operation is 
disapproved.

[Amdt. 209, 47 FR 32409, July 27, 1982, as amended by Amdt. 239, 48 FR 
23805, May 27, 1983; Amdt. 243, 49 FR 49585, Dec. 21, 1984; Amdt. 274, 
51 FR 18752, May 21, 1986; Amdt. 371, 61 FR 60012, Nov. 26, 1996]



Sec.  285.4  Audits.

    (a) The Commonwealth of Puerto Rico shall provide an audit of 
expenditures in compliance with the requirements in part 3015 of this 
title at least once every two years. The findings of such audit shall be 
reported to FNS no later than 120 days from the end of each fiscal year 
in which the audit is made.
    (b) Within 120 days of the end of each fiscal year, the Commonwealth 
of Puerto Rico shall provide FNS with a statement of: (1) Whether the 
grant funds received for that fiscal year exceeded the valid obligations 
made that year for which payment is authorized, and if so, by how much, 
and (2) such additional related information as FNS may require.

[Amdt. 209, 47 FR 32409, July 27, 1982. Redesignated by Amdt. 371, 61 FR 
60013, Nov. 26, 1996]



Sec.  285.5  Failure to comply.

    (a) Grant funds may be withheld in whole or in part, or denied if 
there is a substantial failure by the Commonwealth of Puerto Rico to 
comply with the requirements of Sec.  285.4, or to bring into compliance 
a plan of operation disapproved by FNS, or to comply with program 
requirements detailed in the plan of operation approved for that fiscal 
year. (For example, funds shall be paid to the Commonwealth of Puerto 
Rico to cover only the costs of the part or parts of the plan of 
operation receiving FNS approval. Withheld payments shall be paid when 
the unapproved part(s) of the plan are modified and approved.) FNS shall 
notify the Commonwealth of Puerto Rico that further payments shall not 
be made until FNS is satisfied that there will no longer be any such 
failure to comply.
    (b) Upon a finding of a substantial failure to comply with the 
requirements of Sec.  285.4 or the plan of operation, FNS may, in 
addition to or in lieu of actions taken in accordance with paragraph (a) 
of this section, refer the matter to the Attorney General with a request 
that injunctive relief be sought from the appropriate district court of 
the United States to require compliance with these regulations by the 
Commonwealth of Puerto Rico.

[Amdt. 209, 47 FR 32409, July 27, 1982. Redesignated by Amdt. 371, 61 FR 
60013, Nov. 26, 1996]

[[Page 963]]



                    SUBCHAPTER D_GENERAL REGULATIONS




PART 295_AVAILABILITY OF INFORMATION AND RECORDS TO THE PUBLIC--Table of Contents




Sec.
295.1 General statement.
295.2 Organizational description.
295.3 Informational and educational publications.
295.4 Program evaluation status reports.
295.5 Program statistical reports.
295.6 Public inspection and copying.
295.7 Indexes.
295.8 Requests.
295.9 Appeals.

    Authority: 5 U.S.C. 301, 552; 7 CFR 1.1-1.23.

    Source: 61 FR 39047, July 26, 1996, unless otherwise noted.



Sec.  295.1  General statement.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture at 7 CFR 1.1-1.23, and appendix A, implementing 
the Freedom of Information Act (5 U.S.C. 552). The Secretary's 
regulations, as implemented by the regulations in this part, govern the 
availability of records of FNS to the public.



Sec.  295.2  Organizational description.

    The description of the central and field organization of FNS is 
published as a notice in the Federal Register and may be revised from 
time to time in like manner. Such description contains a listing of FNS 
headquarters and field organizational units and their functions.



Sec.  295.3  Informational and educational publications.

    FNS publishes a wide variety of informational and educational 
periodicals, pamphlets, brochures, leaflets, guides, and educational 
aids explaining the operation of FNS food assistance programs. For more 
information concerning FNS publications and how to obtain them, write 
the Director, Public Information Staff, Food and Nutrition Service, 
USDA, 3101 Park Center Drive, Alexandria, VA 22302-1500.



Sec.  295.4  Program evaluation status reports.

    FNS also publishes summaries of objectives and findings of completed 
studies and projects concerning evaluation of FNS food assistance 
programs. A copy of the current status report on completed studies may 
be obtained by writing the Director, Office of Analysis and Evaluation, 
Food and Nutrition Service, USDA, 3101 Park Center Drive, Alexandria, VA 
22302-1500.



Sec.  295.5  Program statistical reports.

    Current and historical information on FNS food assistance program 
size, monetary outlays, geographic distribution, racial and ethnic 
participation rates, and other data is published throughout the year. 
Limited supplies are available for public distribution upon request. 
Write the Director, Program Information Division, Food and Nutrition 
Service, USDA, 3101 Park Center Drive, Alexandria, VA 22302-1500.



Sec.  295.6  Public inspection and copying.

    5 U.S.C. 552(a)(2) requires that certain informational materials be 
made available for public inspection and copying. Such materials 
maintained by FNS may be inspected and copied during regular office 
hours (currently 8:30 a.m. to 5 p.m.). Interested parties may submit 
requests to the FNS Records Management Officer, Information Technology 
Division, 3101 Park Center Drive, Alexandria, VA 22302-1500.



Sec.  295.7  Indexes.

    5 U.S.C. 552(a)(2) also requires an index of the materials required 
to be made available for public inspection and copying be published 
quarterly. Copies of this Index for FNS materials will be maintained for 
public inspection and copying during regular office hours in FNS 
Library, Room 810, 3101 Park Center Drive, Alexandria, Va. 22302-1500. 
Free copies of the current index may be obtained by writing or visiting 
any of the FNS offices listed in the local telephone directory or those 
listed below:

[[Page 964]]

    (a) Records Management Officer, Information Technology Division, 
Food and Nutrition Service, USDA, 3101 Park Center Drive, Alexandria, 
Va. 22302-1500.
    (b) Director, Financial Management, Food and Nutrition Service, 
USDA, 300 Corporate Blvd., Mercer Corporate Park, Robbinsville, NJ 
08691-1518.
    (c) Director, Financial Management, Food and Nutrition Service, 
USDA, 77 Forsyth Street, SW, Atlanta, GA 30303-3427.
    (d) Director, Financial and Administrative Management, Food and 
Nutrition Service, USDA, 77 W. Jackson Blvd., Chicago, Illinois 60604-
3507.
    (e) Director, Financial Management, Food and Nutrition Service, 
USDA, 1100 Commerce St., Dallas, Texas 75242-9980.
    (f) Director, Financial Management, Food and Nutrition Service, 
USDA, 550 Kearney St., San Francisco, CA 94108-2518.
    (g) Director, Financial Management, Food and Nutrition Service, 
USDA, 10 Causeway Street, Boston, MA 02222-1069.
    (h) Director, Financial and Administrative Management, Food and 
Nutrition Service, USDA, 1244 Speer Blvd., Denver, CO 80204-3581.



Sec.  295.8  Requests.

    (a) Requests for FNS program records under 5 U.S.C. 552(a)(3) shall 
be made in accordance with USDA Administrative Regulations 7 CFR 1.6 and 
addressed to the appropriate FNS official listed below:
    (1) Food Stamp program records--Requests for Food Stamp information 
should be addressed to the Director of the appropriate Division (Program 
Development Division, Benefit Redemption Division, or Program 
Accountability Division) at the following address: Food and Nutrition 
Service, USDA, 3101 Park Center Drive, Alexandria, VA, 22302-1500.
    (2) Child Nutrition Program records--Director, Child Nutrition 
Division, Food and Nutrition Service, USDA, 3101 Park Center Drive, 
Alexandria, VA 22302-1500.
    (3) Food Distribution Program records--Director, Food Distribution 
Division, Food and Nutrition Service, USDA, 3101 Park Center Drive, 
Alexandria, VA 22302-1500.
    (4) Supplemental Food Program records--Director, Supplemental Food 
Programs Division, Food and Nutrition Service, USDA, 3101 Park Center 
Drive, Alexandria, VA 22302-1500.
    (b) If the requester is unable to determine the official to whom his 
request should be addressed, he should address it to: Freedom of 
Information Act Officer, Information Technology Division, 3101 Park 
Center Drive, Alexandria, VA 22302. The Freedom of Information Act 
Officer will refer such requests to the appropriate official.
    (c) The officials outlined in paragraph (a) are authorized to make 
determinations in accordance with USDA Administrative Regulations at 7 
CFR 1.8.



Sec.  295.9  Appeals.

    (a) Any person whose request for records is denied shall have the 
right to appeal that denial in accordance with USDA Administrative 
Regulations 7 CFR 1.13. All appeals shall be addressed to: 
Administrator, Food and Nutrition Service, USDA, 3101 Park Center Drive, 
Alexandria, VA 22302-1500.
    (b) The following officials are delegated authority to make 
decisions on Freedom of Information Act appeals at the address above:
    (1) Food Stamp program (general)--Deputy Administrator, Food Stamp 
Program;
    (2) Food Stamp program (appeals on names of Food Stamp Investigators 
and Investigative aids)--Director, Benefit Redemption Division;
    (3) Child Nutrition program--Deputy Administrator, Special Nutrition 
Programs;

[[Page 965]]

    (4) Food Distribution program--Deputy Administrator, Special 
Nutrition Programs;
    (5) Supplemental Food program--Deputy Administrator, Special 
Nutrition Programs;
    (6) Management offices--Deputy Administrator, Management;
    (7) Financial Management offices--Deputy Administrator, Financial 
Management;
    (8) Appeals not covered above--Associate Administrator, FNS.

                        PARTS 296	299 [RESERVED]

[[Page 967]]



                              FINDING AIDS




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

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 969]]

            Material Approved for Incorporation by Reference

                     (Revised as of January 1, 2004)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR Part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


7 CFR (PARTS 210-299)

FOOD AND NUTRITION SERVICE, DEPARTMENT OF AGRICULTURE
                                                                   7 CFR


AOAC International

  2200 Wilson Blvd., Suite 400, Arlington, VA 
  22201-3301
Official Methods of Analysis of the AOAC            Part 210, Appendix A
  International, (formerly the Association of 
  Official Analytical Chemists), 15th Ed. (1990).


Food and Nutrition Service, Nutrition and Technical Services Division

  3101 Park Center Drive, Room 607, Alexandria, 
  Virginia 22302
Sections 5.4.1, 7.2.1 and 8.0 as described in       Part 210, Appendix A
  ``Protein Quality Evaluation, Report of the 
  Joint FAO/WHO Expert Consultation on Protein 
  Quality Evaluation,'' Rome, 1990, as published 
  by the Food and Agriculture Organization (FAO) 
  of the United Nations/World Health Organization 
  (WHO).

[[Page 971]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2004)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2 [Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 972]]

    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
        LV  National Endowment for the Arts (Part 6501)
       LVI  National Endowment for the Humanities (Part 6601)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

[[Page 973]]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)

[[Page 974]]

      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

[[Page 975]]

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

[[Page 976]]

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)

[[Page 977]]

      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)

[[Page 978]]

         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)

[[Page 979]]

      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)

[[Page 980]]

       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)

[[Page 981]]

       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)

[[Page 982]]

        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

[[Page 983]]

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)

[[Page 984]]

       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare

[[Page 985]]

        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)

[[Page 986]]

       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)

[[Page 987]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1599)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)

[[Page 988]]

         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 989]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2004)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 990]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 991]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 992]]

  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5

[[Page 993]]

  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V; 42, I
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General

[[Page 994]]

  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A

[[Page 995]]

  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
   Commission
[[Page 996]]

Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV

[[Page 997]]

Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 999]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected 1949-1963, 1964-1972, 1973-1985, and 1986- 2000'' published in 
11 separate volumes.

                                  2001

7 CFR
                                                                   66 FR
                                                                    Page
Chapter II
210.10 Regulation at 65 FR 36317 confirmed.........................38349
    (o)(2) corrected...............................................65597
215 Authority citation revised......................................2201
215.2 (aa) redesignated as (bb); (i-l), (k-l) and new (aa) added; 
        interim.....................................................2201
215.13a (f) and (g) added; interim..................................2201
220.8 (c) heading correctly revised; CFR correction................33631
    Regulation at 65 FR 36317 confirmed............................38349
225.2 Amended; interim..............................................2202
225.15 (f)(4)(iv) revised; (g) and (h) redesignated as (h) and 
        (i); new (g) added; interim.................................2202
226.2 Amended; interim..............................................2203
226.20 (b)(4), (c)(3) table and (c)(4) table corrected.............65597
226.23 (e)(1)(ii)(F) revised; (i) added; interim....................2203
245 Authority citation revised...............................2205, 48328
245.2 (a-3), (f-1), (k) and (l) redesignated as (a-4), (f-2), (l) 
        and (m); new (a-3), (f-1) and (k) added; interim............2205
    (f-3) added; (j) amended.......................................48328
245.5 (a) introductory text and (1)(vi) amended....................48328
245.6 (a)(1) revised; (f) added; interim............................2205
    (a) amended....................................................48328
245.6a (a) introductory text and (2)(i) amended....................48328
245.9 (b) through (g) removed; (a) heading and new (b) through (k) 
        added......................................................48328
245.11 (h) added...................................................48333
246 Implementation date delayed..............................8885, 52849
271.2 Amended.......................................................2799
    Regulation at 66 FR 2799 eff. date delayed...............8885, 18869
272.1 (c)(1)(vii) and (g)(165) added................................4463
    Regulation at 66 FR 4463 eff. date delayed...............8886, 29661
272.2 (d)(1)(xiii) added............................................4464
    Regulation at 66 FR 4464 effective date delayed in part........8886, 
                                                                   29661
273.1 (b)(7)(viii) through (xii) added..............................4464
    Regulation at 66 FR 4464 eff. date delayed...............8886, 29661
273.2 (f)(8)(i)(C) redesignated as (f)(8)(i)(D); (f)(1)(xiv), new 
        (f)(8)(i)(C) and (j)(2)(vii)(D) added.......................4464
    Regulation at 66 FR 4464 eff. date delayed...............8886, 29661
273.2 OMB numbers..................................................59357
273.4 OMB number...................................................59357
273.11 (c) introductory text, (1) heading, introductory text, (2) 
        heading, introductory text, (4)(ii) and (j) revised; (k) 
        through (q) added...........................................4464
    Regulation at 66 FR 4464 eff. date delayed...............8886, 29661

[[Page 1000]]

273.12 (a)(1)(viii) added...........................................4468
    Regulation at 66 FR 4468 eff. date delayed...............8886, 29661
    OMB numbers....................................................59357
273.16 (a)(1) amended; (b), (c), (e)(8)(i) revised; (e)(8)(iii), 
        (f)(2)(iii), (g)(2)(ii), (h)(2)(ii) removed; (e)(8)(iv), 
        (f)(2)(iv), (g)(2)(iii) and (h)(2)(iii) redesignated as 
        new (e)(8)(iii), (f)(2)(iii), (g)(2)(ii) and (h)(2)(ii).....4468
    Regulation at 66 FR 4468 eff. date delayed...............8886, 29661
273.24 (a)(1), (2) and (b) through (e) redesignated as (a)(5), (6) 
        and (g) through (j); heading, (a) introductory text, new 
        (g) heading revised; new (a)(1) through (4), (b) through 
        (f) added...................................................4469
    Regulation at 66 FR 4469 eff. date delayed...............8886, 29661
278.1 (b)(1)(i) and (ii) revised; (b)(1)(iii) and (iv) 
        redesignated as (b)(1)(v) and (vi); new (b)(1)(iii), (iv) 
        and (t) added; (q) introductory text and (3)(iii) amended 
                                                                    2799
    Regulation at 66 FR 2799 eff. date delayed...............8885, 18869
278.6 (a) and (g)(3) amended........................................2800
    Regulation at 66 FR 2800 eff. date delayed...............8885, 18869

                                  2002

7 CFR
                                                                   67 FR
                                                                    Page
Chapter II
210.10 (n)(3) and (o)(2) revised; (n)(4) table amended; (o)(3) 
        through (6) added..........................................36783
220.8 (j) revised..................................................36785
226 Authority citation revised.....................................43476
226.2 Amended; interim.............................................43476
226.6 (l) through (p) redesignated as (m) through (q); (b) and 
        (c), (k) and new (m) revised; (d)(3), (f)(1), (2), (3), 
        new (p) and (q) amended; interim...........................43477
226.7 (g) amended; interim.........................................43490
226.8 (g) amended; interim.........................................43490
226.12 (b)(2)(i) revised; interim..................................43490
226.14 (a) amended; interim........................................43490
226.15 (a), (b) heading and introductory text revised; (b)(5) and 
        (6) amended; (b)(7), (8) and (9) added; interim............43490
226.16 (b) introductory text, (2) and (3) amended; (b)(1), (d) 
        introductory text and (4) revised; (b)(4) through (8) and 
        (l) added; interim.........................................43491
226.17 (b)(2) amended; (d) added; interim..........................43493
226.18 (b) introductory text amended; (b)(1) revised; (b)(8) 
        through (12) amended; (b)(13) through (16) added; interim 
                                                                   43493
    Corrected......................................................47891
226.19 (b)(2) amended; interim.....................................43493
226.19a (b)(4) amended; interim....................................43493
226.20 (b) and (c)(4) revised......................................36786
226.23 (h) introductory text and (1) amended; interim..............43493
246.7 (d)(2)(iv)(A)(1) revised.....................................66304
250.3 Amended......................................................65014
250.13 (a)(5) amended..............................................65015
250.14 (b)(4), (c), (f)(1) introductory text and (2) amended; (e) 
        revised....................................................65015
250.16 (a)(2) revised..............................................65015
250.23 (a)(2) revised..............................................65015
250.30 (f)(1)(i) and (4) removed; (f)(1)(ii) and (5) redesignated 
        as (f)(1)(i) and (4); (f)(1) introductory text and new (i) 
        revised; new (f)(1)(ii) added; (f)(2) and (g) introductory 
        text amended...............................................65015
271.2 Amended......................................................41603
271.8 OMB numbers..................................................41603
272.1 (g)(166) added...............................................41603
272.2 (d)(1)(v) and (e)(9) amended; (d)(1)(xiv) and (xv) added.....41603
273.1 (b)(7)(iv) removed; (b)(7)(v) through (xii) redesignated as 
        (b)(7)(iv) through (xi); (d)(2) revised....................41603
273.5 (b)(11)(iv) amended..........................................41603
273.7 Revised......................................................41603
273.9 (c)(5)(i)(A), (F), (14) and (d)(4) amended...................41618
273.22 Removed.....................................................41618
273.24 (a)(5), (6) and (b)(8) removed; (c) heading and 
        introductory text and (g) through (j) revised..............41618
275.12 (d)(1) amended..............................................41619
277.4 (b)(8) amended...............................................41619

[[Page 1001]]

                                  2003

7 CFR
                                                                   68 FR
                                                                    Page
Chapter II
245.2 (b-2) and (c) redesignated as (c) and (b-3); new (b-2) added
                                                                   53489
245.5 (a)(1)(iii) and (iv) amended.................................53489
245.6 (b) and (c) introductory text amended........................53489
245.6a (c) revised.................................................53489
245.11 (i) added (OMB number pending)..............................53490
247 Authority citation revised.....................................51677
247.10 (b)(1), (2) and (3) revised.................................51677
250.30 (f)(1) introductory text reinstated; CFR correction.........46434
272.1 (g)(167) added...............................................22574
    Regulation at 65 FR 49719 confirmed............................37697
    (g)(169) added; interim........................................59523
273.2 (f)(8)(i)(A) and (ii) amended................................22574
273.10 (c)(3)(i) revised...........................................22574
273.12 Section heading, (a)(1) introductory text, (i), (2), and 
        (b)(2) revised; (a)(4) and (5) redesignated as (a)(5) and 
        (6); new (a)(4) added; (c) introductory text amended.......22574
273.21 (f)(2)(v) revised...........................................22575
274.12 Regulation at 65 FR 49719 confirmed; (g)(6)(i) amended; 
        (l)(6) reinstated..........................................37697
275.3 (c) amended; interim.........................................59523
275.11 (g) amended; interim........................................59523
275.16 (b)(1) revised; interim.....................................59523
275.23 (e)(2), (3) and (4) removed; (e)(5) through (11) 
        redesignated as (e)(2) and (4) through (9); (d)(1)(iii), 
        (e)(1), (2) heading, (i), (5)(i)(B)(3), (C)(3)(iii), (E) 
        introductory text, (2), (ii), (iii), (6)(i)(D), (iii)(A), 
        (B), (7), (8), (9) introductory text and (iii) amended; 
        (e)(3) and (10) added; interim.............................59523
278.1 (k)(1), (2), (l)(1)(ii), (iii), (2) and (p) amended..........41052
278.6 (b), (c) and (n) amended.....................................41052
278.7 (f) amended..................................................41052
278.8 Removed......................................................41052
279 Nomenclature change............................................41052
279.1--279.4 (Subpart A) Heading amended...........................41052
279.1 Revised......................................................41052
279.2 Removed; new 279.2 redesignated from 279.5; (a) and (c) 
        introductory text amended..................................41053
279.3 Removed; new 279.3 redesignated from 279.6; (b) amended......41053
279.4 Removed; new 279.4 redesignated from 279.7; (a) amended; (c) 
        revised; (d) removed.......................................41053
279.5--279.9 (Subpart B) Removed; new Subpart B redesignated from 
        Subpart C..................................................41053
279.5 Redesignated as 279.2; new 279.5 redesignated from 279.8; 
        (a) heading amended; (b), (c) and (e) revised; (f) 
        removed; (g) redesignated as new (f).......................41053
279.6 Redesignated as 279.3; new 279.6 redesignated from 279.9; 
        (a) revised................................................41053
279.7 Redesignated as 279.4; new 279.7 redesignated from 279.10; 
        (a) and (b) amended........................................41053
279.8 Redesignated as 279.5; new 279.8 redesignated from 279.11....41053
279.9 Redesignated as new 279.6....................................41053
279.10--279.11 (Subpart C) Redesignated as Subpart B...............41053
279.10 Redesignated as new 279.7...................................41053
279.11 Redesignated as new 279.8...................................41053


                                  [all]