[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2017 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

          Title 7

Agriculture


________________________

Parts 210 to 299

                         Revised as of January 1, 2017

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2017
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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                            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:
      Table of CFR Titles and Chapters........................    1085
      Alphabetical List of Agencies Appearing in the CFR......    1105
      List of CFR Sections Affected...........................    1115

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

                     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 
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    To determine whether a Code volume has been amended since its 
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EFFECTIVE AND EXPIRATION DATES

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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.

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Many agencies have begun publishing numerous OMB control numbers as 
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PAST PROVISIONS OF THE CODE

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``[RESERVED]'' TERMINOLOGY

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INCORPORATION BY REFERENCE

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This material, like any other properly issued regulation, has the force 
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Federal Register will approve an incorporation by reference only when 
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this volume.

[[Page vii]]

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    Oliver A. Potts,
    Director,
    Office of the Federal Register.
    October 1, 2016.

                                
                                      
                            

  

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                               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, 1600-1759, 1760-1939, 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, 2017.

    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.

    For this volume, Robert J. Sheehan, III was Chief Editor. The Code 
of Federal Regulations publication program is under the direction of 
John Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                          TITLE 7--AGRICULTURE




                  (This book contains parts 210 to 299)

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

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

                                                                    Part

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

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  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 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...........          80
220             School Breakfast Program....................          99
225             Summer Food Service Program.................         128
226             Child and Adult Care Food Program...........         175
227             Nutrition Education and Training Program....         285
235             State administrative expense funds..........         295
240             Cash in lieu of donated foods...............         308
245             Determining eligibility for free and reduced 
                    price meals and free milk in schools....         314
246             Special Supplemental Nutrition Program for 
                    Women, Infants and Children.............         357
247             Commodity Supplemental Food Program.........         470
248             WIC Farmers' Market Nutrition Program (FMNP)         493
249             Senior Farmers' Market Nutrition Program 
                    (SFMNP).................................         515
    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........         543
251             The Emergency Food Assistance Program.......         583
252             National Commodity Processing Program.......         595
253             Administration of the Food Distribution 
                    Program for households on Indian 
                    reservations............................         603
254             Administration of the Food Distribution 
                    Program for Indian households in 
                    Oklahoma................................         633
         SUBCHAPTER C--FOOD STAMP AND FOOD DISTRIBUTION PROGRAM
271             General information and definitions.........         636

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272             Requirements for participating State 
                    agencies................................         655
273             Certification of eligible households........         721
274             Issuance and use of program benefits........         910
275             Performance reporting system................         938
276             State agency liabilities and Federal 
                    sanctions...............................         976
277             Payments of certain administrative costs of 
                    State agencies..........................         985
278             Participation of retail food stores, 
                    wholesale food concerns and insured 
                    financial institutions..................        1018
279             Administrative and judicial review--food 
                    retailers and food wholesalers..........        1045
280             Emergency food assistance for victims of 
                    disasters...............................        1049
281             Administration of SNAP on Indian 
                    reservations............................        1049
282             Demonstration, research, and evaluation 
                    projects................................        1055
283             Appeals of quality control (``QC'') claims..        1056
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.....        1075
                    SUBCHAPTER D--GENERAL REGULATIONS
295             Availability of information and records to 
                    the public..............................        1079
296-299         [Reserved]

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                  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  Meal requirements for lunches and requirements for afterschool 
          snacks.
210.11  Competitive food service and standards.
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  School nutrition program professional standards.
210.31  Local school wellness policy.
210.32  State agency and Regional office addresses.
210.33  OMB control numbers.

Appendix A to Part 210--Alternate Foods for Meals
Appendix B to Part 210 [Reserved]
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, the sale of competitive foods, payment of 
funds, use of program funds, program

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monitoring, and reporting and recordkeeping requirements.

[53 FR 29147, Aug. 2, 1988, as amended at 78 FR 39090, June 28, 2013]



Sec. 210.2  Definitions.

    For the purpose of this part:
    2 CFR part 200, means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C) does not apply to the National School Lunch 
Program).
    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.
    Applicable credits shall have the meaning established in 2 CFR part 
200 and USDA implementing regulations 2 CFR part 400 and part 415.
    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 
paragraph (c) 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).
    Contractor means a commercial enterprise, public or nonprofit 
private organization or individual that enters into a contract with a 
school food authority.
    Cost reimbursable contract means a contract that provides for 
payment of incurred costs to the extent prescribed in the contract, with 
or without a fixed fee.
    Days means calendar days unless otherwise specified.

[[Page 9]]

    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.
    Fixed fee means an agreed upon amount that is fixed at the inception 
of the contract. In a cost reimbursable contract, the fixed fee includes 
the contractor's direct and indirect administrative costs and profit 
allocable to the contract.
    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 food groups which comprise 
reimbursable meals. The food components are: Meats/meat alternates, 
grains, vegetables, fruits, and fluid milk. Meals offered to 
preschoolers must consist of: Meats/meat alternates, grains, vegetables/
fruits, and fluid milk.
    Food item means a specific food offered within a food component.
    Food service management company means a commercial enterprise or a 
nonprofit organization which is or may 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.
    Local educational agency means a public board of education or other 
public or private nonprofit authority legally constituted within a State 
for either administrative control or direction of, or to perform a 
service function for, public or private nonprofit elementary schools or 
secondary schools in a city, county, township, school district, or other 
political subdivision of a State, or for a combination of school 
districts or counties that is recognized in a State as an administrative 
agency for its public or private nonprofit elementary schools or 
secondary schools. The term also includes any other public or private 
nonprofit institution or agency having administrative control and 
direction of a public or private nonprofit elementary school or 
secondary school, including residential child care institutions, Bureau 
of Indian Affairs schools, and educational service agencies and 
consortia of those agencies, as well as the State educational agency in 
a State or territory in which the State educational agency is the sole 
educational agency for all public or private nonprofit schools.
    Lunch means a meal service that meets the meal requirements in 
Sec. 210.10 for lunches.
    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 means, when applied to schools or institutions eligible 
for the Program, exempt from income tax under section 501(c)(3) of the 
Internal Revenue Code of 1986.
    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.
    Nonprofit school food service account means the restricted account 
in which all of the revenue from all food service operations conducted 
by the school

[[Page 10]]

food authority principally for the benefit of school children is 
retained and used only for the operation or improvement of the nonprofit 
school food service. This account shall include, as appropriate, non-
Federal funds used to support paid lunches as provided in 
Sec. 210.14(e), and proceeds from nonprogram foods as provided in 
Sec. 210.14(f).
    OIG means the Office of the Inspector General of the Department.
    Paid lunch means a lunch served to children who are either not 
certified for or elect not to receive the free or reduced price benefits 
offered under part 245 of this chapter. The Department subsidizes each 
paid lunch with both general cash assistance and donated foods. The 
prices for paid lunches in a school food authority shall be determined 
in accordance with Sec. 210.14(e).
    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.
    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 nutrition program directors are those individuals directly 
responsible for the management of the day-to-day operations of school 
food service for all participating schools under the jurisdiction of the 
school food authority.
    School nutrition program managers are those individuals directly 
responsible for the management of the day-to-day operations of school 
food service for a participating school(s).
    School nutrition program staff are those individuals, without 
managerial responsibilities, involved in day-to-day operations of school 
food service for a participating school(s).

[[Page 11]]

    School week means the period of time used to determine compliance 
with the meal requirements in Sec. 210.10. 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.
    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.
    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).
    Tofu means a soybean-derived food, made by a process in which 
soybeans are soaked, ground, mixed with water, heated, filtered, 
coagulated, and formed into cakes. Basic ingredients are whole soybeans, 
one or more food-grade coagulants (typically a salt or an acid), and 
water. Tofu products must conform to FNS guidance to count toward the 
meats/meat alternates component.
    USDA implementing regulations include the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations for Grants and Cooperative Agreements to 
State and Local Governments; and 2 CFR part 418, New Restrictions on 
Lobbying.
    Whole grains means grains that consist of the intact, ground, 
cracked, or flaked grain seed whose principal anatomical components--the 
starchy endosperm, germ and bran--are present in the same relative 
proportions as they exist in the intact grain seed. Whole grain-rich 
products must conform to FNS guidance to count toward the grains 
component.
    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]

    Editorial Note: For Federal Register citations affecting Sec. 210.2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



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

[[Page 12]]

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; parts 235 and 245 of this 
chapter; parts 15, 15a, and 15b of this title, and 2 CFR part 200; USDA 
implementing regulations 2 CFR part 400 and part 415; 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; 
part 245 of this chapter; parts 15, 15a, and 15b, and 3016 or 3019, as 
applicable, of this title and 2 CFR part 200; USDA implementing 
regulations 2 CFR part 400 and part 415 and FNS instructions.

[53 FR 29147, Aug. 2, 1988, as amended at 71 FR 39515, July 13, 2006; 81 
FR 66489, Sept. 28, 2016]



 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 will be made available to each State agency 
administering the National School Lunch Program as follows:
    (i) General: Cash assistance payments are composed of a general cash 
assistance payment and a performance-based 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. 
Performance-based cash assistance is provided to each State agency for 
lunches served in accordance with Sec. 210.7(d). 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.
    (ii) Cash assistance for lunches. 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

[[Page 13]]

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 performance-based 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 6 cents for school year 2012-2013, 
adjusted annually thereafter as specified in paragraph (b)(1)(iii) of 
this section. 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.
    (iii) Annual adjustments. In accordance with section 11 of the Act, 
FNS will prescribe annual adjustments to the per meal national average 
payment rate (general cash assistance), the performance-based cash 
assistance rate (performance-based 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.
    (iv) Maximum per meal rates. 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:
    (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

[[Page 14]]

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; 77 FR 25034, Apr. 27, 
2012]



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 2 CFR part 200, subpart D and USDA implementing 
regulations 2 CFR part 400 and part 415. 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 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 Secs. 210.7 and 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

[[Page 15]]

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 administering the National 
School Lunch Program shall submit quarterly reports to FNS as follows:
    (i) Each State agency shall submit to FNS a quarterly Financial 
Status Report (FNS-777) 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.
    (ii) Each State agency shall also submit a quarterly report, as 
specified by FNS, detailing the disbursement of performance-based cash 
assistance described in Sec. 210.4(b)(1). Such report shall be submitted 
no later than 30 days after the end of each fiscal year quarter. State 
agencies will no longer be required to submit the quarterly report once 
all SFAs in the State have been certified. The report shall include the 
total number of school food authorities in the State and the names of 
certified school food authorities.
    (3) End of year report. Each State agency shall submit a final 
Financial Status Report (FNS-777) 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 2 CFR 
part 200, subpart D and USDA implementing regulations 2 CFR part 400 and 
part 415.

[53 FR 29147, Aug. 2, 1988, as amended at 54 FR 12580, Mar. 28, 1989; 56 
FR 32939, July 17, 1991; 71 FR 39516, July 13, 2006; 77 FR 25034, Apr. 
27, 2012; 79 FR 330, Jan. 3, 2014; 81 FR 50185, July 29, 2016; 81 FR 
66488, Sept. 28, 2016]



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 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

[[Page 16]]

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 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

[[Page 17]]

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) Performance-based cash assistance. The State agency must provide 
performance-based cash assistance as authorized under Sec. 210.4(b)(1) 
for lunches served in school food authorities certified by the State 
agency to be in compliance with meal pattern and nutrition requirements 
set forth in Sec. 210.10 and, if the school food authority participates 
in the School Breakfast Program (7 CFR part 220), Sec. 220.8 or 
Sec. 220.23, as applicable.
    (1) State agency requirements. State agencies must establish 
procedures to certify school food authorities for performance-based cash 
assistance in accordance with guidance established by FNS. Such 
procedures must ensure State agencies:
    (i) Make certification procedures readily available to school food 
authorities and provide guidance necessary to facilitate the 
certification process.
    (ii) Require school food authorities to submit documentation to 
demonstrate compliance with meal pattern requirements set forth in 
Sec. 210.10 and Sec. 220.8 or Sec. 220.23, as applicable. Such 
documentation must reflect meal service at or about the time of 
certification.
    (iii) State agencies must review certification documentation 
submitted by the school food authority to ensure compliance with meal 
pattern requirements set forth in Sec. 210.10, Sec. 220.8, or 
Sec. 220.23, as applicable. For certification purposes, State agencies 
should consider any school food authority compliant:
    (A) If when evaluating daily and weekly range requirements for 
grains and meat/meat alternates, the certification documentation shows 
compliance with the daily and weekly minimums for these two components, 
regardless of whether the school food authority has exceeded the 
maximums for the same components.
    (B) If when evaluating the service of frozen fruit, the school food 
authority serves products that contain added sugar.
    (iv) Certification procedures must ensure that no performance-based 
cash assistance is provided to school food authorities for meals served 
prior to October 1, 2012.
    (v) Within 60 calendar days of a certification submission or as 
otherwise authorized by FNS, review submitted materials and notify 
school food authorities of the certification determination, the date 
that performance-based cash assistance is effective, and consequences 
for non-compliance;
    (vi) Disburse performance-based cash assistance for all lunches 
served beginning with the start of certification provided that 
documentation reflects meal service in the calendar month the 
certification materials are submitted or, in the month preceding the 
calendar month of submission; and
    (vii) In years subsequent to the year certified, through School Year 
2014-2015, State agencies must require school food authorities to submit 
an annual attestation of compliance with meal pattern requirements as 
new requirements are phased in. The attestation must be provided to the 
State agency as an addendum to the written agreement required in 
Sec. 210.9(b).
    (2) School food authority requirements. School food authorities 
seeking to obtain performance-based cash assistance must submit 
certification documentation to the State agency in accordance with State 
agency certification procedures, including documentation to support 
receipt of performance-based cash

[[Page 18]]

assistance. School food authorities must attest that the documentation 
provided is representative of the ongoing meal service within the school 
food authority. Required documentation includes a nutrient analysis and 
a detailed menu work sheet with food items and quantities or, a 
simplified nutrient assessment as well as a detailed menu worksheet with 
food items and quantities, and/or other materials specified in guidance 
issued by FNS. In years subsequent to the year of certification, through 
School Year 2014-2015, school food authorities must submit an annual 
attestation of compliance with meal pattern requirements as new 
requirements are phased in. The attestation must be provided to the 
State agency as an addendum to the written agreement required in 
Sec. 210.9(b). School food authorities certified to earn performance-
based cash assistance must maintain documentation of compliance, 
including production and menu records, and other records, as specified 
by FNS. School food authorities must make appropriate records available 
to State agencies upon request.
    (e) 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; 77 FR 25034, Apr. 27, 2012; 79 FR 
330, Jan. 3, 2014; 81 FR 50185, July 29, 2016]



Sec. 210.8  Claims for reimbursement.

    (a) Internal controls. The school food authority shall establish 
internal controls which ensure the accuracy of meal 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 meal counting 
and claiming system employed by each school within the jurisdiction of 
the school food authority; comparisons of daily free, reduced price and 
paid meal counts against data which will assist in the identification of 
meal counts in excess of the number of free, reduced price and paid 
meals served each day to children eligible for such meals; and a system 
for following up on those meal counts which suggest the likelihood of 
meal 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 counting and claiming system and the readily observable general 
areas of review cited under Sec. 210.18(h), as prescribed by FNS for 
each school under its jurisdiction. The on-site review shall take place 
prior to February 1 of each school year. Further, if the review 
discloses problems with a school's meal counting or claiming procedures 
or general review areas, the school food authority shall: ensure that 
the school implements corrective action; and, within 45 days of the 
review, 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 meals, 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 in accordance with this paragraph to the State agency for 
approval and, in the absence of specific disapproval

[[Page 19]]

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 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 used by 
schools in accordance with paragraph (a)(2)(i) of this section. At its 
discretion, the State agency may

[[Page 20]]

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 claims review process under 
paragraph (c)(2) of this section.
    (d) Advance funds. The State agency may advance funds available for 
the

[[Page 21]]

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; 81 FR 50185, July 29, 2016]



     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 
requirements for and limitations on the use of nonprofit school food 
service revenues set forth in Sec. 210.14 and the limitations on any 
competitive school food service as set forth in Sec. 210.11;
    (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 (2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415);
    (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 local educational agency 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 misapplication 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 22]]

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, and comply with the 
food safety requirements of Sec. 210.13;
    (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 certification documentation.
    (19) Maintain direct certification documentation obtained directly 
from the appropriate State or local agency, or other appropriate 
individual, as specified by FNS, indicating that:
    (i) A child in the Family, as defined in Sec. 245.2 of this chapter, 
is receiving benefits from SNAP, FDPIR or TANF, as defined in Sec. 245.2 
of this chapter; if one child is receiving such benefits, all children 
in that family are considered to be directly certified;
    (ii) The child is a homeless child as defined in Sec. 245.2 of this 
chapter;
    (iii) The child is a runaway child as defined in Sec. 245.2 of this 
chapter;
    (iv) The child is a migrant child as defined in Sec. 245.2 of this 
chapter;
    (v) The child is a Head Start child as defined in Sec. 245.2 of this 
chapter; or
    (vi) The child is a foster child as defined in Sec. 245.2 of this 
chapter.
    (20) Retain eligibility documentation submitted by families for a 
period of 3 years after the end of the fiscal year to which they pertain 
or as otherwise specified under paragraph (b)(17) of this section.
    (21) 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 
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 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

[[Page 23]]

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;
    (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]

    Editorial Note: For Federal Register citations affecting Sec. 210.9, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



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

    (a) General requirements--(1) General nutrition requirements. 
Schools must offer nutritious, well-balanced, and age-appropriate meals 
to all the children they serve to improve their diets and safeguard 
their health.
    (i) Requirements for lunch. School lunches offered to children age 5 
or older must meet, at a minimum, the meal requirements in paragraph (b) 
of this section. Schools must follow a food-based menu planning approach 
and produce enough food to offer each child the quantities specified in 
the meal pattern established in paragraph (c) of this section for each 
age/grade group served in the school. In addition, school lunches must 
meet the dietary specifications in paragraph (f) of this section. 
Schools offering lunches to children ages 1 through 4 and infants must 
meet the meal pattern requirements in paragraphs (p) and (q), as 
applicable, of this section. Schools must make potable water available 
and accessible without restriction to children at no charge in the 
place(s) where lunches are served during the meal service.
    (ii) Requirements for afterschool snacks. Schools offering 
afterschool snacks in afterschool care programs must meet the meal 
pattern requirements in paragraph (o) of this section. Schools must plan 
and produce enough food to offer each child the minimum quantities under 
the meal pattern in paragraph (o) 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 school day. If there are leftover meals, 
schools may offer them to the students but cannot get Federal 
reimbursement for them. Schools must identify, near or at the beginning 
of the serving line(s), the food items that constitute the unit-priced 
reimbursable school meal(s). The price of a reimbursable lunch does not 
change if the student does not take a food item or requests smaller 
portions.
    (3) Production and menu records. Schools or school food authorities, 
as applicable, must keep production and menu records for the meals they 
produce. These records must show how the meals offered contribute to the 
required food components and food quantities for each age/grade group 
every day. Labels or manufacturer specifications for food products and 
ingredients used to prepare school meals must indicate zero grams of 
trans fat per serving (less than 0.5 grams). Schools or school food 
authorities must maintain records of the latest nutritional analysis of 
the school menus conducted by the State agency. Production and menu 
records must be maintained in accordance with FNS guidance.
    (b) Meal requirements for school lunches. School lunches for 
children ages 5 and older must reflect food and nutrition requirements 
specified by the Secretary. Compliance with these requirements is 
measured as follows:

[[Page 24]]

    (1) On a daily basis:
    (i) Meals offered to each age/grade group must include the food 
components and food quantities specified in the meal pattern in 
paragraph (c) of this section;
    (ii) Food products or ingredients used to prepare meals must contain 
zero grams of trans fat per serving or a minimal amount of naturally 
occurring trans fat; and
    (iii) The meal selected by each student must have the number of food 
components required for a reimbursable meal and include at least one 
fruit or vegetable.
    (2) Over a 5-day school week:
    (i) Average calorie content of meals offered to each age/grade group 
must be within the minimum and maximum calorie levels specified in 
paragraph (f) of this section;
    (ii) Average saturated fat content of the meals offered to each age/
grade group must be less than 10 percent of total calories; and
    (iii) Average sodium content of the meals offered to each age/grade 
group must not exceed the maximum level specified in paragraph (f) of 
this section.
    (c) Meal pattern for school lunches. Schools must offer the food 
components and quantities required in the lunch meal pattern established 
in the following table:

----------------------------------------------------------------------------------------------------------------
                                                                             Lunch meal pattern
                       Meal pattern                        -----------------------------------------------------
                                                               Grades K-5        Grades 6-8        Grades 9-12
----------------------------------------------------------------------------------------------------------------
                                                                         Amount of food \a\ per week
                                                                              (minimum per day)
----------------------------------------------------------------------------------------------------------------
Fruits (cups) \b\.........................................    2\1/2\ (\1/2\)    2\1/2\ (\1/2\)             5 (1)
Vegetables (cups) \b\.....................................    3\3/4\ (\3/4\)    3\3/4\ (\3/4\)             5 (1)
    Dark green \c\........................................             \1/2\             \1/2\             \1/2\
    Red/Orange \c\........................................             \3/4\             \3/4\            1\1/4\
    Beans and peas (legumes) \c\..........................             \1/2\             \1/2\             \1/2\
    Starchy \c\...........................................             \1/2\             \1/2\             \1/2\
Other \c d\...............................................             \1/2\             \1/2\             \3/4\
Additional Veg to Reach Total \e\.........................             1 \e\             1 \e\        1\1/2\ \e\
Grains (oz eq) \f\........................................           8-9 (1)          8-10 (1)         10-12 (2)
Meats/Meat Alternates (oz eq).............................          8-10 (1)          9-10 (1)         10-12 (2)
Fluid milk (cups) \g\.....................................             5 (1)             5 (1)             5 (1)
----------------------------------------------------------------------------------------------------------------
                    Other Specifications: Daily Amount Based on the Average for a 5-Day Week
----------------------------------------------------------------------------------------------------------------
Min-max calories (kcal) \h\...............................           550-650           600-700           750-850
Saturated fat (% of total calories) \h\...................               <10               <10               <10
Sodium (mg) \h i\.........................................               640               710               740
                                                           -----------------------------------------------------
Trans fat \h\.............................................   Nutrition label or manufacturer specifications must
                                                                indicate zero grams of trans fat per serving.
----------------------------------------------------------------------------------------------------------------
\a\ Food items included in each group and subgroup and amount equivalents. Minimum creditable serving is \1/8\
  cup.
\b\ One quarter-cup of dried fruit counts as \1/2\ cup of fruit; 1 cup of leafy greens counts as \1/2\ cup of
  vegetables. No more than half of the fruit or vegetable offerings may be in the form of juice. All juice must
  be 100% full-strength.
\c\ Larger amounts of these vegetables may be served.
\d\ This category consists of ``Other vegetables'' as defined in Sec. 210.10(c)(2)(iii)(E). For the purposes of
  the NSLP, the ``Other vegetables'' requirement may be met with any additional amounts from the dark green, red/
  orange, and beans/peas (legumes) vegetable subgroups as defined in Sec. 210.10(c)(2)(iii).
\e\ Any vegetable subgroup may be offered to meet the total weekly vegetable requirement.
\f\ Beginning July 1, 2012 (SY 2012-2013), at least half of grains offered must be whole grain-rich. Beginning
  July 1, 2014 (SY 2014-15), all grains must be whole grain-rich.
\g\ Beginning July 1, 2012 (SY 2012-2013), all fluid milk must be low-fat (1 percent or less, unflavored) or fat-
  free (unflavored or flavored).
\h\ Discretionary sources of calories (solid fats and added sugars) may be added to the meal pattern if within
  the specifications for calories, saturated fat, trans fat, and sodium. Foods of minimal nutritional value and
  fluid milk with fat content greater than 1 percent are not allowed.
\i\ Final sodium targets must be met no later than July 1, 2022 (SY 2022-2023). The first intermediate target
  must be met no later than SY 2014-2015 and the second intermediate target must be met no later than SY 2017-
  2018. See required intermediate specifications in Sec. 210.10(f)(3).

    (1) Age/grade groups. Schools must plan menus for students using the 
following age/grade groups: Grades K-5 (ages 5-10), grades 6-8 (ages 11-
13), and grades 9-12 (ages 14-18). If an unusual grade configuration in 
a school prevents the use of these established age/grade groups, 
students in grades K-5

[[Page 25]]

and grades 6-8 may be offered the same food quantities at lunch provided 
that the calorie and sodium standards for each age/grade group are met. 
No customization of the established age/grade groups is allowed.
    (2) Food components. Schools must offer students in each age/grade 
group the food components specified in paragraph (c) of this section.
    (i) Meats/meat alternates component. Schools must offer meats/meat 
alternates daily as part of the lunch meal pattern. The quantity of 
meats/meat alternates must be the edible portion as served. 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 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. If a portion size 
of this component does not meet the daily requirement for a particular 
age/grade group, schools may supplement it with another meats/meat 
alternates to meet the full requirement. Schools may adjust the daily 
quantities of this component provided that a minimum of one ounce is 
offered daily to students in grades K-8 and a minimum of two ounces is 
offered daily to students in grades 9-12, and the total weekly 
requirement is met over a five-day period.
    (A) Enriched macaroni. Enriched macaroni with fortified protein as 
defined in appendix A to this part may be used to meet part of the 
meats/meat alternates requirement when used as specified in appendix A 
to this part. An enriched macaroni product with fortified protein as 
defined in ppendix A to this part may be used to meet part of the meats/
meat alternates component or the grains component but may not meet both 
food components in the same lunch.
    (B) Nuts and seeds. Nuts and seeds and their butters are allowed as 
meat alternates in accordance with FNS guidance. Acorns, chestnuts, and 
coconuts may not be used because of their low protein and iron content. 
Nut and seed meals or flours may be used only if they meet the 
requirements for Alternate Protein Products established in appendix A to 
this part. Nuts or seeds may be used to meet no more than one-half (50 
percent) of the meats/meat alternates component with another meats/meat 
alternates to meet the full requirement.
    (C) Yogurt. Yogurt may be used to meet all or part of the meats/meat 
alternates component. Yogurt may be plain or flavored, unsweetened or 
sweetened. Noncommercial and/or non-standardized yogurt products, such 
as frozen yogurt, drinkable yogurt products, homemade yogurt, yogurt 
flavored products, yogurt bars, yogurt covered fruits and/or nuts or 
similar products are not creditable. Four ounces (weight) or \1/2\ cup 
(volume) of yogurt equals one ounce of the meats/meat alternates 
requirement.
    (D) Tofu and soy products. Commercial tofu and soy products may be 
used to meet all or part of the meats/meat alternates component in 
accordance with FNS guidance. Noncommercial and/or non-standardized tofu 
and soy products are not creditable.
    (E) Beans and Peas (legumes). Cooked dry beans and peas (legumes) 
may be used to meet all or part of the meats/meat alternates component. 
Beans and peas (legumes) are identified in this section and include 
foods such as black beans, garbanzo beans, lentils, kidney beans, mature 
lima beans, navy beans, pinto beans, and split peas.
    (F) Other Meat Alternates. Other meat alternates, such as cheese and 
eggs, may be used to meet all or part of the meats/meat alternates 
component in accordance with FNS guidance.
    (ii) Fruits component. Schools must offer fruits daily as part of 
the lunch menu. Fruits that are fresh; frozen without added sugar; 
canned in light syrup, water or fruit juice; or dried may be offered to 
meet the requirements of this paragraph. All fruits are credited based 
on their volume as served, except that \1/4\ cup of dried fruit counts 
as \1/2\ cup of fruit. Only pasteurized, full-strength fruit juice may 
be used, and may be credited to meet no more than one-half of the fruits 
component.
    (iii) Vegetables component. Schools must offer vegetables daily as 
part of the lunch menu. Fresh, frozen, or canned vegetables and dry 
beans and peas (legumes) may be offered to meet

[[Page 26]]

this requirement. All vegetables are credited based on their volume as 
served, except that 1 cup of leafy greens counts as \1/2\ cup of 
vegetables and tomato paste and puree are credited based on calculated 
volume of the whole food equivalency. Pasteurized, full-strength 
vegetable juice may be used to meet no more than one-half of the 
vegetables component. Cooked dry beans or peas (legumes) may be counted 
as either a vegetable or as a meat alternate but not as both in the same 
meal. Vegetable offerings at lunch over the course of the week must 
include the following vegetable subgroups, as defined in this section in 
the quantities specified in the meal pattern in paragraph (c) of this 
section:
    (A) Dark green vegetables. This subgroup includes vegetables such as 
bok choy, broccoli, collard greens, dark green leafy lettuce, kale, 
mesclun, mustard greens, romaine lettuce, spinach, turnip greens, and 
watercress;
    (B) Red-orange vegetables. This subgroup includes vegetables such as 
acorn squash, butternut squash, carrots, pumpkin, tomatoes, tomato 
juice, and sweet potatoes;
    (C) Beans and peas (legumes). This subgroup includes vegetables such 
as black beans, black-eyed peas (mature, dry), garbanzo beans 
(chickpeas), kidney beans, lentils, navy beans pinto beans, soy beans, 
split peas, and white beans;
    (D) Starchy vegetables. This subgroup includes vegetables such as 
black-eyed peas (not dry), corn, cassava, green bananas, green peas, 
green lima beans, plantains, taro, water chestnuts, and white potatoes; 
and
    (E) Other vegetables. This subgroup includes all other fresh, 
frozen, and canned vegetables, cooked or raw, such as artichokes, 
asparagus, avocado, bean sprouts, beets, Brussels sprouts, cabbage, 
cauliflower, celery, cucumbers, eggplant, green beans, green peppers, 
iceberg lettuce, mushrooms, okra, onions, parsnips, turnips, wax beans, 
and zucchini.
    (iv) Grains component. (A) Enriched and whole grains. All grains 
must be made with enriched and whole grain meal or flour, in accordance 
with the most recent grains FNS guidance. Whole grain-rich products must 
contain at least 50 percent whole grains and the remaining grains in the 
product must be enriched.
    (B) Daily and weekly servings. The grains component is based on 
minimum daily servings plus total servings over a five-day school week. 
Beginning July 1, 2012 (SY 2012-2013), half of the grains offered during 
the school week must meet the whole grain-rich criteria specified in FNS 
guidance. Beginning July 1, 2014 (SY 2014-2015), all grains must meet 
the whole grain-rich criteria specified in FNS guidance. The whole 
grain-rich criteria provided in FNS guidance may be updated to reflect 
additional information provided voluntarily by industry on the food 
label or a whole grains definition by the Food and Drug Administration. 
Schools serving lunch 6 or 7 days per week must increase the weekly 
grains quantity by approximately 20 percent (1/5) 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) for each day less 
than five. The servings for biscuits, rolls, muffins, and other grain/
bread varieties are specified in FNS guidance.
    (C) Desserts. Schools may count up to two grain-based desserts per 
week towards meeting the grains requirement as specified in FNS 
guidance.
    (v) Fluid milk component. Fluid milk must be offered daily in 
accordance with paragraph (d) of this section.
    (3) Food components in outlying areas. Schools in American Samoa, 
Puerto Rico and the Virgin Islands may serve vegetables such as yams, 
plantains, or sweet potatoes to meet the grains component.
    (4) Adjustments to the school menus. Schools must adjust future menu 
cycles to reflect production and how often the food items are offered. 
Schools may need to change the foods offerings given students' 
selections and may need to modify recipes and other specifications to 
make sure that meal requirements are met.
    (5) Standardized recipes. All schools must develop and follow 
standardized recipes. A standardized recipe is a recipe that was tested 
to provide an established yield and quantity using the

[[Page 27]]

same ingredients for both measurement and preparation methods. 
Standardized recipes developed by USDA/FNS are in the Child Nutrition 
Database. If a school has its own recipes, they may seek assistance from 
the State agency or school food authority to standardize the recipes. 
Schools must add any local recipes to their local database as outlined 
in FNS guidance.
    (6) Processed foods. The Child Nutrition Database includes a number 
of processed foods. Schools may use purchased processed foods that are 
not in the Child Nutrition Database. Schools or the State agency must 
add any locally purchased processed foods to their local database as 
outlined in FNS guidance. The State agencies must obtain the levels of 
calories, saturated fat, and sodium in the processed foods.
    (7) Menu substitutions. Schools should always try to substitute 
nutritionally similar foods.
    (d) Fluid milk requirement--(1) Types of fluid milk. (i) Schools 
must offer students a variety (at least two different options) of fluid 
milk. All milk must be fat-free or low-fat. Milk with higher fat content 
is not allowed. Fat-free fluid milk may be flavored or unflavored, and 
low-fat fluid milk must be unflavored. Low fat or fat-free lactose-free 
and reduced-lactose fluid milk may also be offered.
    (ii) All fluid milk served in the Program must be pasteurized fluid 
milk which meets State and local standards for such milk. All fluid 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 fluid milk supply. If a school cannot get a supply of 
fluid 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 meals during the 
emergency period with an alternate form of fluid milk or without fluid 
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, ``fluid milk'' 
includes reconstituted or recombined fluid milk, or as otherwise allowed 
by FNS through a written exception.
    (3) Fluid milk substitutes. If a school chooses to offer one or more 
substitutes for fluid milk for non-disabled students with medical or 
special dietary needs, the nondairy beverage(s) must provide the 
nutrients listed in the following table. Fluid milk substitutes must be 
fortified in accordance with fortification guidelines issued by the Food 
and Drug Administration. A school need only offer the nondairy 
beverage(s) that it has identified as allowable fluid milk substitutes 
according to the following chart.

------------------------------------------------------------------------
                  Nutrient                         Per cup (8 fl oz)
------------------------------------------------------------------------
Calcium.....................................  276 mg.
Protein.....................................  8 g.
Vitamin A...................................  500 IU.
Vitamin D...................................  100 IU.
Magnesium...................................  24 mg.
Phosphorus..................................  222 mg.
Potassium...................................  349 mg.
Riboflavin..................................  0.44 mg.
Vitamin B-12................................  1.1 mcg.
------------------------------------------------------------------------

    (4) Restrictions on the sale of fluid milk. A school participating 
in the Program, or a person approved by a school participating in the 
Program, must not directly or indirectly restrict the sale or marketing 
of fluid milk (as identified in paragraph (d)(1) of this section) at any 
time or in any place on school premises or at any school-sponsored 
event.
    (e) Offer versus serve for grades K through 12. School lunches must 
offer daily the five food components specified in the meal pattern in 
paragraph (c) of this section. Under offer versus serve, students must 
be allowed to decline two components at lunch, except that the students 
must select at least \1/2\ cup of either the fruit or vegetable 
component. Senior high schools (as defined by the State educational 
agency) must participate in offer versus serve.

[[Page 28]]

Schools below the senior high level may participate in offer versus 
serve at the discretion of the school food authority.
    (f) Dietary specifications--(1) Calories. School lunches offered to 
each age/grade group must meet, on average over the school week, the 
minimum and maximum calorie levels specified in the following table:

----------------------------------------------------------------------------------------------------------------
                                                                         Calorie ranges for lunch
                                                        --------------------------------------------------------
                                                             Grades K-5         Grades 6-8        Grades 9-12
----------------------------------------------------------------------------------------------------------------
Min-max calories (kcal) \ab\...........................           550-650            600-700            750-850
----------------------------------------------------------------------------------------------------------------
\a\ The average daily amount for a 5-day school week must fall within the minimum and maximum levels.
\b\ Discretionary sources of calories (solid fats and added sugars) may be added to the meal pattern if within
  the specifications for calories, saturated fat, trans fat, and sodium.

    (2) Saturated fat. School lunches offered to all age/grade groups 
must, on average over the school week, provide less than 10 percent of 
total calories from saturated fat.
    (3) Sodium. Schools lunches offered to each age/grade group must 
meet, on average over the school week, the levels of sodium specified in 
the following table within the established deadlines:

----------------------------------------------------------------------------------------------------------------
             National school lunch program                         Sodium reduction: Timeline & amount
----------------------------------------------------------------------------------------------------------------
                                     Baseline: Average
                                      current sodium     Target 1: July 1,  Target 2: July 1,    Final Target:
         Age/grade group            levels in meals as     2014 (SY 2014-     2017 (SY 2017-    July 1, 2022 (SY
                                     offered \1\ (mg)        2015) (mg)         2018) (mg)      2022-2023) (mg)
----------------------------------------------------------------------------------------------------------------
K-5..............................  1,377 (elementary)..              1,230                935                640
6-8..............................  1,520 (middle)......              1,360              1,035                710
9-12.............................  1,588 (high)........              1,420              1,080                740
----------------------------------------------------------------------------------------------------------------
\1\ SNDA-III.

    (4) Trans fat. Food products and ingredients used to prepare school 
meals must contain zero grams of trans fat (less than 0.5 grams) per 
serving. Schools must add the trans fat specification and request the 
required documentation (nutrition label or manufacturer specifications) 
in their procurement contracts. Documentation for food products and food 
ingredients must indicate zero grams of trans fat per serving. Meats 
that contain a minimal amount of naturally-occurring trans fats are 
allowed in the school meal programs.
    (g) Compliance assistance. The State agency and school food 
authority must provide technical assistance and training to assist 
schools in planning lunches that meet the meal pattern in paragraph (c) 
of this section; the calorie, saturated fat, sodium, and trans fat 
specifications established in paragraph (f) of this section; and the 
meal pattern requirements in paragraphs (o), (p), and (q) of this 
section as applicable. Compliance assistance may be offered during 
trainings, onsite visits, and/or administrative reviews.
    (h) Monitoring dietary specifications.--(1) Calories, saturated fat 
and sodium. When required by the administrative review process set forth 
in Sec. 210.18, the State agency must conduct a weighted nutrient 
analysis to evaluate the average levels of calories, saturated fat, and 
sodium of the lunches offered to students in grades K and above during 
one week of the review period. The nutrient analysis must be conducted 
in accordance with the procedures established in paragraph (i)(3) of 
this section. If the results of the nutrient analysis indicate that the 
school lunches are not meeting the specifications for calories, 
saturated fat, and sodium specified in paragraph (f) of this section, 
the State agency or school food authority must provide technical 
assistance and require the reviewed school to take corrective action to 
meet the requirements.
    (2) Trans fat. State agencies must review product labels or 
manufacturer specifications to verify that the food

[[Page 29]]

products or ingredients used by the reviewed school(s) contain zero 
grams of trans fat (less than 0.5 grams) per serving.
    (i) Nutrient analyses of school meals--(1) Conducting the nutrient 
analysis. Any nutrient analysis, whether conducted by the State agency 
under Sec. 210.18 or by the school food authority, must be performed in 
accordance with the procedures established in paragraph (i)(3) of this 
section. The purpose of the nutrient analysis is to determine the 
average levels of calories, saturated fat, and sodium in the meals 
offered to each age grade group over a school week. The weighted 
nutrient analysis must be performed as required by FNS guidance.
    (2) Software elements--(i) The Child Nutrition Database. The 
nutrient analysis is based on the USDA 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 perform a weighted average 
analysis after the basic data is entered. The combined analysis of the 
lunch and breakfast programs is not allowed.
    (3) Nutrient analysis procedures--(i) Weighted averages. The 
nutrient analysis must include all foods offered as part of the 
reimbursable meals during one week within the review period. Foods items 
are included based on the portion sizes and serving amounts. They are 
also weighted based on their proportionate contribution to the meals 
offered. This means that food items offered more frequently are weighted 
more heavily than those not offered as frequently. The weighted nutrient 
analysis must be performed as required by FNS guidance.
    (ii) Analyzed nutrients. The analysis determines the average levels 
of calories, saturated fat, and sodium in the meals offered over a 
school week. It includes all food items offered by the reviewed school 
over a one-week period.
    (4) Comparing the results of the nutrient analysis. Once the 
procedures in paragraph (i)(3) of this section are completed, State 
agencies must compare the results of the analysis to the calorie, 
saturated fat, and sodium levels established in Sec. 210.10 or 
Sec. 220.8, as appropriate, for each age/grade group to evaluate the 
school's compliance with the dietary specifications.
    (j) Responsibility for monitoring meal requirements. Compliance with 
the meal requirements in paragraph (b) of this section, including 
dietary specifications for calories, saturated fat, sodium and trans 
fat, and paragraphs (o), (p), and (q) of this section, as applicable, 
will be monitored by the State agency through administrative reviews 
authorized in Sec. 210.18.
    (k) Menu choices at lunch--(1) Availability of choices. Schools may 
offer children a selection of nutritious foods within a reimbursable 
lunch to encourage the consumption of a variety of foods. 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 reimbursable 
lunch offered provided that the benefits made available to children 
eligible for free or reduced price lunches are not affected.
    (2) Opportunity to select. Schools that choose to offer a variety of 
reimbursable lunches, or provide multiple serving lines, must make all 
required food components available to all students, on every lunch line, 
in at least the minimum required amounts.
    (l) 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 a.m. and 2 p.m. Schools may request an exemption from these 
times from the State agency. With State agency approval, schools may 
serve lunches to children under age 5 over two service periods. Schools 
may divide quantities and food items offered each time any way they 
wish.

[[Page 30]]

    (2) Adequate lunch periods. FNS encourages schools to provide 
sufficient lunch periods that are long enough to give all students 
adequate time to be served and to eat their lunches.
    (m) Exceptions and variations allowed in reimbursable meals--(1) 
Exceptions for disability reasons. Schools must make substitutions in 
lunches and afterschool snacks for students who are considered to have a 
disability under 7 CFR 15b.3 and whose disability restricts their diet. 
Substitutions must be made on a case by case basis only when supported 
by a written statement of the need for substitution(s) that includes 
recommended alternate foods, unless otherwise exempted by FNS. Such 
statement must be signed by a licensed physician.
    (2) Exceptions for non-disability reasons. Schools may make 
substitutions for students without disabilities 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 written statement of the need for substitutions that 
includes recommended alternate foods, unless otherwise exempted by FNS. 
Except with respect to substitutions for fluid milk, such a statement 
must be signed by a recognized medical authority.
    (i) Fluid milk substitutions for non-disability reasons. Schools may 
make substitutions for fluid milk for non-disabled students who cannot 
consume fluid milk due to medical or special dietary needs. A school 
that selects this option may offer the nondairy beverage(s) of its 
choice, provided the beverage(s) meets the nutritional standards 
established under paragraph (d) of this section. Expenses incurred when 
providing substitutions for fluid milk that exceed program 
reimbursements must be paid by the school food authority.
    (ii) Requisites for fluid milk substitutions. (A) A school food 
authority must inform the State agency if any of its schools choose to 
offer fluid milk substitutes other than for students with disabilities; 
and
    (B) A medical authority or the student's parent or legal guardian 
must submit a written request for a fluid milk substitute identifying 
the medical or other special dietary need that restricts the student's 
diet.
    (iii) Substitution approval. The approval for fluid milk 
substitution must remain in effect until the medical authority or the 
student's parent or legal guardian revokes such request in writing, or 
until such time as the school changes its substitution policy for non-
disabled students.
    (3) 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 meal pattern in paragraph (c) of this 
section may be allowed by FNS. Any variations must be consistent with 
the food and nutrition requirements specified under this section and 
needed to meet ethnic, religious, or economic needs.
    (4) 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.
    (n) Nutrition disclosure. To the extent that school food authorities 
identify foods in a menu, or on the serving line or through other 
communications 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 meal requirements for school lunches.
    (o) Afterschool snacks. Eligible schools operating afterschool care 
programs may be reimbursed for one afterschool snack served to a child 
(as defined in Sec. 210.2) per day.
    (1) ``Eligible schools'' means schools that:
    (i) Operate school lunch programs under the Richard B. Russell 
National School Lunch Act; and

[[Page 31]]

    (ii) Sponsor afterschool care programs as defined in Sec. 210.2.
    (2) Afterschool snack requirements for grades K through 12. 
Afterschool snacks must 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, including nuts and seeds 
and their butters listed in FNS guidance that are nutritionally 
comparable to meat or other meat alternates based on available 
nutritional data.
    (A) Nut and seed meals or flours may be used only if they meet the 
requirements for alternate protein products established in appendix A of 
this part.
    (B) Acorns, chestnuts, and coconuts cannot be used as meat 
alternates due to their low protein and iron content.
    (iii) A serving of vegetable or fruit, or full-strength vegetable or 
fruit juice, or an equivalent quantity of any combination of these 
foods. Juice must not be served when fluid milk is served as the only 
other component.
    (iv) A serving of whole-grain or enriched bread; or an equivalent 
serving of a bread product, such as cornbread, biscuits, rolls, or 
muffins 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 enriched rice, bulgur, or enriched 
corn grits; or an equivalent quantity of any combination of these foods.
    (3) Afterschool snack requirements for preschoolers--(i) Snacks 
served to preschoolers. Schools serving afterschool snack to children 
ages 1 through 4 must serve the food components and quantities required 
in the snack meal pattern established for the Child and Adult Care Food 
Program, under Sec. 226.20(a), (c)(3), and (d) of this chapter. In 
addition, schools serving afterschool snacks to this age group must 
comply with the requirements set forth in paragraphs (a), (c)(3), (4), 
and (7), (d)(2) through (4), (g), and (m) of this section.
    (ii) Preschooler snack meal pattern table. The minimum amounts of 
food components to be served at snack are as follows:

[[Page 32]]

[GRAPHIC] [TIFF OMITTED] TR01NO16.140

    (4) Afterschool snack requirements for infants--(i) Snacks served to 
infants. Schools serving afterschool snacks to infants ages birth 
through 11 months must serve the food components and quantities required 
in the snack meal pattern established for the Child and Adult Care Food 
Program, under

[[Page 33]]

Sec. 226.20(a), (b), and (d) of this chapter. In addition, schools 
serving afterschool snacks to infants must comply with the requirements 
set forth in paragraphs (a), (c)(3), (4), and (7), (g), and (m) of this 
section.
    (ii) Infant snack meal pattern table. The minimum amounts of food 
components to be served at snack are as follows:
[GRAPHIC] [TIFF OMITTED] TR01NO16.141

    (5) Monitoring afterschool snacks. Compliance with the requirements 
of this paragraph is monitored by the State agency as part of the 
administrative review conducted under Sec. 210.18. If the snacks offered 
do not meet the requirements of this paragraph, the State agency or 
school food authority must provide technical assistance and require 
corrective action. In addition, the State agency must take fiscal 
action, as authorized in Secs. 210.18(l) and 210.19(c).
    (p) Lunch requirements for preschoolers--(1) Lunches served to 
preschoolers. Schools serving lunches to children ages 1 through 4 under 
the National School Lunch Program must serve the food components and 
quantities required in the lunch meal pattern established for the Child 
and Adult Care Food Program, under Sec. 226.20(a), (c)(2), and (d) of 
this chapter. In addition, schools serving lunches to this age group 
must comply with the requirements set forth in paragraphs (a), (c)(3), 
(4), and (7), (d)(2) through (4), (g), (k), (l), and (m) of this 
section.
    (2) Preschooler lunch meal pattern table. The minimum amounts of 
food

[[Page 34]]

components to be served at lunch are as follows:
[GRAPHIC] [TIFF OMITTED] TR01NO16.142


[[Page 35]]


    (q) Lunch requirements for infants--(1) Lunches served to infants. 
Schools serving lunches to infants ages birth through 11 months under 
the National School Lunch Program must serve the food components and 
quantities required in the lunch meal pattern established for the Child 
and Adult Care Food Program, under Sec. 226.20(a), (b), and (d) of this 
chapter. In addition, schools serving lunches to infants must comply 
with the requirements set forth in paragraphs (a), (c)(3), (4), and (7), 
(g), (l), and (m) of this section.
    (2) Infant lunch meal pattern table. The minimum amounts of food 
components to be served at lunch are as follows:
[GRAPHIC] [TIFF OMITTED] TR01NO16.143


[[Page 36]]



[77 FR 4143, Jan. 26, 2012, as amended at 78 FR 13448, Feb. 28, 2013; 78 
FR 39090, June 28, 2013; 81 FR 24372, Apr. 25, 2016; 81 FR 50185, July 
29, 2016; 81 FR 75671, Nov. 1, 2016]



Sec. 210.11  Competitive food service and standards.

    (a) Definitions. For the purpose of this section:
    (1) Combination foods means products that contain two or more 
components representing two or more of the recommended food groups: 
fruit, vegetable, dairy, protein or grains.
    (2) Competitive food means all food and beverages other than meals 
reimbursed under programs authorized by the Richard B. Russell National 
School Lunch Act and the Child Nutrition Act of 1966 available for sale 
to students on the School campus during the School day.
    (3) Entr[eacute]e item means an item that is intended as the main 
dish and is either:
    (i) A combination food of meat or meat alternate and whole grain 
rich food; or
    (ii) A combination food of vegetable or fruit and meat or meat 
alternate; or
    (iii) A meat or meat alternate alone with the exception of yogurt, 
low-fat or reduced fat cheese, nuts, seeds and nut or seed butters, and 
meat snacks (such as dried beef jerky); or
    (iv) A grain only, whole-grain rich entr[eacute]e that is served as 
the main dish of the School Breakfast Program reimbursable meal.
    (4) School campus means, for the purpose of competitive food 
standards implementation, all areas of the property under the 
jurisdiction of the school that are accessible to students during the 
school day.
    (5) School day means, for the purpose of competitive food standards 
implementation, the period from the midnight before, to 30 minutes after 
the end of the official school day.
    (6) Paired exempt foods mean food items that have been designated as 
exempt from one or more of the nutrient requirements individually which 
are packaged together without any additional ingredients. Such ``paired 
exempt foods'' retain their individually designated exemption for total 
fat, saturated fat, and/or sugar when packaged together and sold but are 
required to meet the designated calorie and sodium standards specified 
in Secs. 210.11(i) and (j) at all times.
    (b) General requirements for competitive food. (1) State and local 
educational agency policies. State agencies and/or local educational 
agencies must establish such policies and procedures as are necessary to 
ensure compliance with this section. State agencies and/or local 
educational agencies may impose additional restrictions on competitive 
foods, provided that they are not inconsistent with the requirements of 
this part.
    (2) Recordkeeping. The local educational agency is responsible for 
the maintenance of records that document compliance with the nutrition 
standards for all competitive food available for sale to students in 
areas under its jurisdiction that are outside of the control of the 
school food authority responsible for the service of reimbursable school 
meals. In addition, the local educational agency is responsible for 
ensuring that organizations designated as responsible for food service 
at the various venues in the schools maintain records in order to ensure 
and document compliance with the nutrition requirements for the foods 
and beverages sold to students at these venues during the school day as 
required by this section. The school food authority is responsible for 
maintaining records documenting compliance with these for foods sold 
under the auspices of the nonprofit school food service. At a minimum, 
records must include receipts, nutrition labels and/or product 
specifications for the competitive food available for sale to students.
    (3) Applicability. The nutrition standards for the sale of 
competitive food outlined in this section apply to competitive food for 
all programs authorized by the Richard B. Russell National School Lunch 
Act and the Child Nutrition Act of 1966 operating on the school campus 
during the school day.
    (4) Fundraiser restrictions. Competitive food and beverage items 
sold during the school day must meet the nutrition standards for 
competitive food as required in this section. A special exemption is 
allowed for the sale of food and/or beverages that do not meet the 
competitive food standards as required in this section for the purpose 
of

[[Page 37]]

conducting an infrequent school-sponsored fundraiser. Such specially 
exempted fundraisers must not take place more than the frequency 
specified by the State agency during such periods that schools are in 
session. No specially exempted fundraiser foods or beverages may be sold 
in competition with school meals in the food service area during the 
meal service.
    (c) General nutrition standards for competitive food. (1) General 
requirement. At a minimum, all competitive food sold to students on the 
school campus during the school day must meet the nutrition standards 
specified in this section. These standards apply to items as packaged 
and served to students.
    (2) General nutrition standards. To be allowable, a competitive food 
item must:
    (i) Meet all of the competitive food nutrient standards as outlined 
in this section; and
    (ii) Be a grain product that contains 50 percent or more whole 
grains by weight or have as the first ingredient a whole grain; or
    (iii) Have as the first ingredient one of the non-grain major food 
groups: fruits, vegetables, dairy or protein foods (meat, beans, 
poultry, seafood, eggs, nuts, seeds, etc.); or
    (iv) Be a combination food that contains \1/4\ cup of fruit and/or 
vegetable; or
    (v) If water is the first ingredient, the second ingredient must be 
one of the food items in paragraphs (c)(2)(ii), (iii) or (iv) of this 
section.
    (3) Exemptions. (i) Entr[eacute]e items offered as part of the lunch 
or breakfast program. Any entr[eacute]e item offered as part of the 
lunch program or the breakfast program under 7 CFR Part 220 is exempt 
from all competitive food standards if it is offered as a competitive 
food on the day of, or the school day after, it is offered in the lunch 
or breakfast program. Exempt entr[eacute]e items offered as a 
competitive food must be offered in the same or smaller portion sizes as 
in the lunch or breakfast program. Side dishes offered as part of the 
lunch or breakfast program and served [agrave] la carte must meet the 
nutrition standards in this section.
    (ii) Sugar-free chewing gum. Sugar-free chewing gum is exempt from 
all of the competitive food standards in this section and may be sold to 
students on the school campus during the school day, at the discretion 
of the local educational agency.
    (d) Fruits and vegetables. (1) Fresh, frozen and canned fruits with 
no added ingredients except water or packed in 100 percent fruit juice 
or light syrup or extra light syrup are exempt from the nutrient 
standards included in this section.
    (2) Fresh and frozen vegetables with no added ingredients except 
water and canned vegetables that are low sodium or no salt added that 
contain no added fat are exempt from the nutrient standards included in 
this section.
    (e) Grain products. Grain products acceptable as a competitive food 
must include 50 percent or more whole grains by weight or have whole 
grain as the first ingredient. Grain products must meet all of the other 
nutrient standards included in this section.
    (f) Total fat and saturated fat. (1) General requirements. (i) The 
total fat content of a competitive food must be not more than 35 percent 
of total calories from fat per item as packaged or served, except as 
specified in paragraphs (f)(2) and (3) of this section.
    (ii) The saturated fat content of a competitive food must be less 
than 10 percent of total calories per item as packaged or served, except 
as specified in paragraph (f)(3) of this section.
    (2) Exemptions to the total fat requirement. Seafood with no added 
fat is exempt from the total fat requirement, but subject to the 
saturated fat, trans fat, sugar, calorie and sodium standards.
    (3) Exemptions to the total fat and saturated fat requirements. (i) 
Reduced fat cheese and part skim mozzarella cheese are exempt from the 
total fat and saturated fat standards, but subject to the trans fat, 
sugar, calorie and sodium standards. This exemption does not apply to 
combination foods.
    (ii) Nuts and Seeds and Nut/Seed Butters are exempt from the total 
fat and saturated fat standards, but subject to the trans fat, sugar, 
calorie and sodium standards. This exemption does not apply to 
combination products that contain nuts, nut butters or seeds or seed 
butters with other ingredients

[[Page 38]]

such as peanut butter and crackers, trail mix, chocolate covered 
peanuts, etc.
    (iii) Products that consist of only dried fruit with nuts and/or 
seeds with no added nutritive sweeteners or fat are exempt from the 
total fat, saturated fat and sugar standards, but subject to the trans 
fat, calorie and sodium standards.
    (iv) Whole eggs with no added fat are exempt from the total fat and 
saturated fat standards but are subject to the trans fat, calorie and 
sodium standards.
    (g) Trans fat. The trans fat content of a competitive food must be 
zero grams trans fat per portion as packaged or served (not more than 
0.5 grams per portion).
    (h) Total sugars. (1) General requirement. The total sugar content 
of a competitive food must be not more than 35 percent of weight per 
item as packaged or served, except as specified in paragraph (h)(2) of 
this section.
    (2) Exemptions to the total sugar requirement. (i) Dried whole 
fruits or vegetables; dried whole fruit or vegetable pieces; and 
dehydrated fruits or vegetables with no added nutritive sweeteners are 
exempt from the sugar standard, but subject to the total fat, saturated 
fat,, trans fat, calorie and sodium standards. There is also an 
exemption from the sugar standard for dried fruits with nutritive 
sweeteners that are required for processing and/or palatability 
purposes;
    (ii) Products that consist of only dried fruit with nuts and/or 
seeds with no added nutritive sweeteners or fat are exempt from the 
total fat, saturated fat, and sugar standards, but subject to the 
calorie, trans fat, and sodium standards; and
    (i) Calorie and sodium content for snack items and side dishes sold 
as competitive foods. Snack items and side dishes sold as competitive 
foods must have not more than 200 calories and 200 mg of sodium per item 
as packaged or served, including the calories and sodium contained in 
any added accompaniments such as butter, cream cheese, salad dressing, 
etc., and must meet all of the other nutrient standards in this section. 
Effective July 1, 2016, these snack items and side dishes must have not 
more than 200 calories and 200 mg of sodium per item as packaged or 
served.
    (j) Calorie and sodium content for entr[eacute]e items sold as 
competitive foods. Entr[eacute]e items sold as competitive foods, other 
than those exempt from the competitive food nutrition standards in 
paragraph (c)(3)(i) of this section, must have not more than 350 
calories and 480 mg of sodium per item as packaged or served, including 
the calories and sodium contained in any added accompaniments such as 
butter, cream cheese, salad dressing, etc., and must meet all of the 
other nutrient standards in this section.
    (k) Caffeine. Foods and beverages available to elementary and middle 
school-aged students must be caffeine-free, with the exception of trace 
amounts of naturally occurring caffeine substances. Foods and beverages 
available to high school-aged students may contain caffeine.
    (l) Accompaniments. The use of accompaniments is limited when 
competitive food is sold to students in school. The accompaniments to a 
competitive food item must be included in the nutrient profile as a part 
of the food item served in determining if an item meets all of the 
nutrition standards for competitive food as required in this section. 
The contribution of the accompaniments may be based on the average 
amount of the accompaniment used per item at the site.
    (m) Beverages. (1) Elementary schools. Allowable beverages for 
elementary school-aged students are limited to:
    (i) Plain water or plain carbonated water (no size limit);
    (ii) Low fat milk, unflavored (no more than 8 fluid ounces);
    (iii) Non fat milk, flavored or unflavored (no more than 8 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec. 210.10 and Sec. 220.8 of this chapter (no more than 8 fluid 
ounces); and
    (v) 100 percent fruit/vegetable juice, and 100 percent fruit and/or 
vegetable juice diluted with water (with or without carbonation and with 
no added sweeteners) (no more than 8 fluid ounces).

[[Page 39]]

    (2) Middle schools. Allowable beverages for middle school-aged 
students are limited to:
    (i) Plain water or plain carbonated water (no size limit);
    (ii) Low fat milk, unflavored (no more than 12 fluid ounces);
    (iii) Non fat milk, flavored or unflavored (no more than 12 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec. 210.10 and Sec. 220.8 of this chapter (no more than 12 fluid 
ounces); and
    (v) 100 percent fruit/vegetable juice, and 100 percent fruit and/or 
vegetable juice diluted with water (with or without carbonation and with 
no added sweeteners) (no more than 12 fluid ounces).
    (3) High schools. Allowable beverages for high school-aged students 
are limited to:
    (i) Plain water or plain carbonated water (no size limit);
    (ii) Low fat milk, unflavored (no more than 12 fluid ounces);
    (iii) Non fat milk, flavored or unflavored (no more than 12 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec. 210.10 and Sec. 220.8 of this chapter (no more than 12 fluid 
ounces);
    (v) 100 percent fruit/vegetable juice, and 100 percent fruit and/or 
vegetable juice diluted with water (with or without carbonation and with 
no added sweeteners) (no more than 12 fluid ounces);
    (vi) Calorie-free, flavored water, with or without carbonation (no 
more than 20 fluid ounces);
    (vii) Other beverages that are labeled to contain less than 5 
calories per 8 fluid ounces, or less than or equal to 10 calories per 20 
fluid ounces (no more than 20 fluid ounces); and
    (viii) Other beverages that are labeled to contain no more than 40 
calories per 8 fluid ounces or 60 calories per 12 fluid ounces (no more 
than 12 fluid ounces).
    (n) Implementation date. This section is to be implemented beginning 
on July 1, 2014.

[78 FR 39091, June 28, 2013, as amended at 81 FR 50151, July 29, 2016]



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 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.
    (d) Outreach activities. (1) To the maximum extent practicable, 
school food authorities must inform families about the availability 
breakfasts for students. Information about the School Breakfast Program 
must be distributed just prior to or at the beginning of the school 
year. In addition, schools are encouraged to send reminders regarding 
the availability of the School Breakfast Program multiple times 
throughout the school year.
    (2) School food authorities must cooperate with Summer Food Service 
Program sponsors to distribute materials to inform families of the 
availability and location of free Summer Food Service Program meals for 
students when school is not in session.
    (e) Local school wellness policies. Local educational agencies must 
comply with the provisions of Sec. 210.30(d) regarding student, parent, 
and community involvement in the development, implementation, and 
periodic review and update of the local school wellness policy.

[53 FR 29147, Aug. 2, 1988, as amended at 78 FR 13448, Feb. 28, 2013; 81 
FR 50168, July 29, 2016]

[[Page 40]]



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. Schools shall obtain a minimum of two 
food safety inspections during each school year conducted by a State or 
local governmental agency responsible for food safety inspections. They 
shall post in a publicly visible location a report of the most recent 
inspection conducted, and provide a copy of the inspection report to a 
member of the public upon request. Sites participating in more than one 
child nutrition program shall only be required to obtain two food safety 
inspections per school year if the nutrition programs offered use the 
same facilities for the production and service of meals.
    (c) Food safety program. The school food authority must develop a 
written food safety program that covers any facility or part of a 
facility where food is stored, prepared, or served. The food safety 
program must meet the requirements in paragraph (c)(1) or paragraph 
(c)(2) of this section, and the requirements in Sec. 210.15(b)(5).
    (1) A school food authority with a food safety program based on 
traditional hazard analysis and critical control point (HACCP) 
principles must:
    (i) Perform a hazard analysis;
    (ii) Decide on critical control points;
    (iii) Determine the critical limits;
    (iv) Establish procedures to monitor critical control points;
    (v) Establish corrective actions;
    (vi) Establish verification procedures; and
    (vii) Establish a recordkeeping system.
    (2) A school food authority with a food safety program based on the 
process approach to HACCP must ensure that its program includes:
    (i) Standard operating procedures to provide a food safety 
foundation;
    (ii) Menu items grouped according to process categories;
    (iii) Critical control points and critical limits;
    (iv) Monitoring procedures;
    (v) Corrective action procedures;
    (vi) Recordkeeping procedures; and
    (vii) Periodic program review and revision.
    (d) 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; 
70 FR 34630, June 15, 2005; 74 FR 66216, Dec. 15, 2009; 78 FR 13448, 
Feb. 28, 2013]



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

[[Page 41]]

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. The school food 
authority's policies, procedures, and records must account for the 
receipt, full value, proper storage and use of donated foods.
    (e) Pricing paid lunches. For each school year beginning July 1, 
2011, school food authorities shall establish prices for paid lunches in 
accordance with this paragraph.
    (1) Calculation procedures. Each school food authority shall:
    (i) Determine the average price of paid lunches. The average shall 
be determined based on the total number of paid lunches claimed for the 
month of October in the previous school year, at each different price 
charged by the school food authority.
    (ii) Calculate the difference between the per meal Federal 
reimbursement for paid and free lunches received by the school food 
authority in the previous school year (i.e., the reimbursement 
difference);
    (iii) Compare the average price of a paid lunch under paragraph 
(e)(1)(i) of this section to the difference between reimbursement rates 
under paragraph (e)(1)(ii) of this section.
    (2) Average paid lunch price is equal to/greater than the 
reimbursement difference. When the average paid lunch price from the 
prior school year is equal to or greater than the difference in 
reimbursement rates as determined in paragraph (e)(1)(iii) of this 
section, the school food authority shall establish an average paid lunch 
price for the current school year that is not less than the difference 
identified in (e)(1)(iii) of this section; except that, the school food 
authority may use the procedure in paragraph (e)(4)(ii) of this section 
when establishing prices of paid lunches.
    (3) Average lunch price is lower than the reimbursement difference. 
When the average price from the prior school year is lower than the 
difference in reimbursement rates as determined in paragraph (e)(1)(iii) 
of this section, the school food authority shall establish an average 
price for the current school year that is not less than the average 
price charged in the previous school year as adjusted by a percentage 
equal to the sum obtained by adding:
    (i) 2 percent; and
    (ii) The percentage change in the Consumers Price Index for All 
Urban Consumers used to increase the Federal reimbursement rate under 
section 11 of the Act for the most recent school year for which data are 
available. The percentage to be used is found in the annual notice 
published in the Federal Register announcing the national average 
payment rates, from the prior year.
    (4) Price Adjustments. (i) Maximum required price increase. The 
maximum annual average price increase required under this paragraph 
shall not exceed ten cents.
    (ii) Rounding of paid lunch prices. Any school food authority may 
round the adjusted price of the paid lunches down to the nearest five 
cents.
    (iii) Optional price increases. A school food authority may increase 
the average price by more than ten cents.
    (5) Reduction in average price for paid lunches. (i) Any school food 
authority may reduce the average price of paid lunches as established 
under this paragraph if the State agency ensures that funds are added to 
the nonprofit school food service account in accordance with this 
paragraph.
    The minimum that must be added is the product of:
    (A) The number of paid lunches claimed by the school food authority 
in the previous school year multiplied by
    (B) The amount required under paragraph (e)(3) of this section, as 
adjusted under paragraph (e)(4) of this section, minus the average price 
charged.
    (ii) Prohibitions. The following shall not be used to reduce the 
average price charged for paid lunches:
    (A) Federal sources of revenue;
    (B) Revenue from foods sold in competition with lunches or with 
breakfasts offered under the School Breakfast Program authorized in 7 
CFR part 220. Requirements concerning foods sold in competition with 
lunches or breakfasts are found in Sec. 210.11 and Sec. 220.12 of this 
chapter, respectively;

[[Page 42]]

    (C) In-kind contributions;
    (D) Any in-kind contributions converted to direct cash expenditures 
after July 1, 2011; and
    (E) Per-meal reimbursements (non-Federal) specifically provided for 
support of programs other than the school lunch program.
    (iii) Allowable non-Federal revenue sources. Any contribution that 
is for the direct support of paid lunches that is not prohibited under 
paragraph (e)(5)(ii) of this section may be used as revenue for this 
purpose. Such contributions include, but are not limited to:
    (A) Per-lunch reimbursements for paid lunches provided by State or 
local governments;
    (B) Funds provided by organizations, such as school-related or 
community groups, to support paid lunches;
    (C) Any portion of State revenue matching funds that exceeds the 
minimum requirement, as provided in Sec. 210.17, and is provided for 
paid lunches; and
    (D) A proportion attributable to paid lunches from direct payments 
made from school district funds to support the lunch service.
    (6) Additional considerations. (i) In any given year, if a school 
food authority with an average price lower than the reimbursement 
difference is not required by paragraph (e)(4)(ii) of this section to 
increase its average price for paid lunches, the school food authority 
shall use the unrounded average price as the basis for calculations to 
meet paragraph (e)(3) of this section for the next school year.
    (ii) If a school food authority has an average price lower than the 
reimbursement difference and chooses to increase its average price for 
paid lunches in any school year more than is required by this section, 
the amount attributable to the additional voluntary increase may be 
carried forward to the next school year(s) to meet the requirements of 
this section.
    (iii) For the school year beginning July 1, 2011 only, the 
limitations for non-Federal contributions in paragraph (e)(5)(iii) of 
this section do not apply.
    (7) Reporting lunch prices. In accordance with guidelines provided 
by FNS:
    (i) School food authorities shall report prices charged for paid 
lunches to the State agency; and
    (ii) State agencies shall report these prices to FNS.
    (f) Revenue from nonprogram foods. Beginning July 1, 2011, school 
food authorities shall ensure that the revenue generated from the sale 
of nonprogram foods complies with the requirements in this paragraph.
    (1) Definition of nonprogram foods. For the purposes of this 
paragraph, nonprogram foods are those foods and beverages:
    (i) Sold in a participating school other than reimbursable meals and 
meal supplements; and
    (ii) Purchased using funds from the nonprofit school food service 
account.
    (2) Revenue from nonprogram foods. The proportion of total revenue 
from the sale of nonprogram foods to total revenue of the school food 
service account shall be equal to or greater than:
    (i) The proportion of total food costs associated with obtaining 
nonprogram foods to
    (ii) The total costs associated with obtaining program and 
nonprogram foods from the account.
    (3) All revenue from the sale of nonprogram foods shall accrue to 
the nonprofit school food service account of a participating school food 
authority.
    (g) Indirect costs. School food authorities must follow fair and 
consistent methodologies to identify and allocate allowable indirect 
costs to the nonprofit school food service account, in accordance with 2 
CFR part 200 as implemented by 2 CFR part 400.

[53 FR 29147, Aug. 2, 1988, as amended at 60 FR 31215, June 13, 1995; 76 
FR 35316, June 17, 2011; 81 FR 50185, July 29, 2016]



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:

[[Page 43]]

    (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, 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;
    (6) Information on civil rights complaints, if any, and their 
resolution as required under Sec. 210.23;
    (7) The number of food safety inspections obtained per school year 
by each school under its jurisdiction;
    (8) The prices of paid lunches charged by the school food authority; 
and
    (9) For any local educational agency required to conduct a second 
review of free and reduced price applications as required under 
Sec. 245.11 of this chapter, the number of free and reduced price 
applications subject to a second review, the number and percentage of 
reviewed applications for which the eligibility determination was 
changed, and a summary of the types of changes made.
    (b) Recordkeeping summary. In order to participate in the Program, a 
school food authority or a school, as applicable, must 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 as required under Sec. 210.10 and 
documentation to support performance-based cash assistance, as required 
under Sec. 210.7(d)(2).
    (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 certification documentation 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; and
    (5) Records from the food safety program for a period of six months 
following a month's temperature records to demonstrate compliance with 
Sec. 210.13(c), and records from the most recent food safety inspection 
to demonstrate compliance with Sec. 210.13(b);
    (6) Records to document compliance with the requirements in 
Sec. 210.14(e);
    (7) Records to document compliance with the requirements in 
Sec. 210.14(f); and
    (8) Records for a three year period to demonstrate the school food 
authority's compliance with the professional standards for school 
nutrition program directors, managers and personnel established in 
Sec. 210.30.
    (9) Records to document compliance with the local school wellness 
policy requirements as set forth in Sec. 210.30(f).

[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; 70 FR 34630, June 15, 2005; 74 FR 66216, Dec. 15, 2009; 76 
FR 35317, June 17, 2011; 77 FR 25035, Apr. 27, 2012; 79 FR 7053, Feb. 6, 
2014; 80 FR 11092, Mar. 2, 2015; 81 FR 50169, July 29, 2016; 81 FR 
50185, July 29, 2016]



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:

[[Page 44]]

    (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;
    (8) Establish an advisory board composed of parents, teachers, and 
students to assist in menu planning;
    (9) Obtain written approval of invitations for bids and requests for 
proposals before their issuance when required by the State agency. The 
school food authority must incorporate all State agency required changes 
to its solicitation documents before issuing those documents; and
    (10) Ensure that the State agency has reviewed and approved the 
contract terms and that the school food authority has incorporated all 
State agency required changes into the contract or amendment before any 
contract or amendment to an existing food service management company 
contract is executed. Any changes made by the school food authority or a 
food service management company to a State agency pre-approved prototype 
contract or State agency approved contract term must be approved in 
writing by the State agency before the contract is executed. When 
requested, the school food authority must submit all procurement 
documents, including responses submitted by potential contractors, to 
the State agency, by the due date established by the State agency.
    (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. A school food authority with no capability to 
prepare a cycle menu may, with State agency approval, require that each 
food service management company include a 21-day cycle menu, developed 
in accordance with the provisions of Sec. 210.10, with its bid or 
proposal. 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

[[Page 45]]

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 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; 72 FR 61491, Oct. 31, 2007]



          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 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

[[Page 46]]

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

[[Page 47]]

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

[[Page 48]]

free participation factor of 100 percent or more. In no event must the 
State agency review less than the minimum number of schools illustrated 
in Table A for the National School Lunch Program.

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

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

[[Page 49]]

    (iii) Fresh Fruit and Vegetable Program. The State agency must 
review the Fresh Fruit and Vegetable Program at one or more of the 
schools selected for an administrative review, as specified in Table B. 
If none of the schools selected for the administrative review operates 
the Fresh Fruit and Vegetable Program but the school food authority 
operates the Program elsewhere, the State agency must follow procedures 
in the FNS Administrative Review Manual to select one or more sites for 
the program review.

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

    (iv) Special Milk Program. If a school selected for review under 
this section operates the Special Milk Program, the State agency must 
review the school's program documentation off-site or on-site, as 
prescribed in the FNS Administrative Review Manual. On-site review is 
only required if the State agency has identified documentation problems 
or if the State agency has identified meal counting or claiming errors 
in the reviews conducted under the National School Lunch Program or 
School Breakfast Program.
    (4) Pervasive problems. If the State agency review finds pervasive 
problems in a school food authority, FNS may authorize the State agency 
to cease review activities prior to reviewing the required number of 
schools under paragraphs (e)(1) and (e)(3) of this section. Where FNS 
authorizes the State agency to cease review activity, FNS may either 
conduct the review activity itself or refer the school food authority to 
OIG.
    (5) Noncompliance with meal pattern requirements. If the State 
agency determines there is significant noncompliance with the meal 
pattern and nutrition requirements set forth in Sec. 210.10 and 
Sec. 220.8 of this chapter, as applicable, the State agency must select 
the school food authority for administrative review earlier in the 
review cycle.
    (f) Scope of review. During the course of an administrative review 
for the National School Lunch Program and the School Breakfast Program, 
the State agency must monitor compliance with the critical and general 
areas in paragraphs (g) and (h) of this section, respectively. State 
agencies may add additional review areas with FNS approval. Selected 
critical and general areas must be monitored when reviewing the National 
School Lunch Program's Afterschool Snacks and the Seamless Summer 
Option, the Special Milk Program, and the Fresh Fruit and Vegetable 
Program, as applicable and as specified in the FNS Administrative Review 
Manual.
    (1) Review forms. State agencies must use the administrative review 
forms, tools and workbooks prescribed by FNS.
    (2) Timeframes covered by the review. (i) The timeframes covered by 
the administrative review includes the review period and the day of 
review, as defined in paragraph (b) of this section.
    (ii) Subject to FNS approval, the State agency may conduct a review 
early in the school year, prior to the submission of a Claim for 
Reimbursement. In such cases, the review period must be the prior month 
of operation in the current school year, provided that such month 
includes at least 10 operating days.
    (3) Audit findings. To prevent duplication of effort, the State 
agency may use any recent and currently applicable findings from 
Federally-required audit activity or from any State-imposed audit 
requirements. Such findings may be used only insofar as they pertain to 
the reviewed school(s) or the overall operation of the school food 
authority and they are relevant to the review period. The State agency 
must document the source and the date of the audit.
    (g) Critical areas of review. The performance standards listed in 
this paragraph are directly linked to meal access and reimbursement, and 
to the meal pattern and nutritional quality of the reimbursable meals 
offered. These

[[Page 50]]

critical areas must be monitored by the State agency when conducting 
administrative reviews of the National School Lunch Program and the 
School Breakfast Program. Selected aspects of these critical areas must 
also be monitored, as applicable, when conducting administrative reviews 
of the National School Lunch Program's Afterschool Snacks and the 
Seamless Summer Option, and of the Special Milk Program.
    (1) Performance Standard 1 (All free, reduced price and paid school 
meals claimed for reimbursement are served only to children eligible for 
free, reduced price and paid school meals, respectively; and are 
counted, recorded, consolidated and reported through a system which 
consistently yields correct claims.) The State agency must follow review 
procedures stated in this section and as specified in the FNS 
Administrative Review Manual to ensure that the school food authority's 
certification and benefit issuance processes for school meals offered 
under the National School Lunch Program, and School Breakfast Program 
are conducted as required in part 245 of this chapter, as applicable. In 
addition, the State agency must ensure that benefit counting, 
consolidation, recording and claiming are conducted as required in this 
part and part 220 of this chapter for the National School Lunch Program 
and the School Breakfast Program, respectively. The State agency must 
also follow procedures consistent with this section, and as specified in 
the FNS Administrative Review Manual, to review applicable areas of 
Performance Standard 1 in the National School Lunch Program's 
Afterschool Snacks and Seamless Summer Option, and in the Special Milk 
Program.
    (i) Certification and benefit issuance. The State agency must gather 
information and monitor the school food authority's compliance with 
program requirements regarding benefit application, direct 
certification, and categorical eligibility, as well as the transfer of 
benefits to the point-of-service benefit issuance document. To review 
this area, the State agency must obtain the benefit issuance document 
for each participating school under the jurisdiction of the school food 
authority for the day of review or a day in the review period, review 
all or a statistically valid sample of student certifications, and 
validate that the eligibility certification for free and reduced price 
meals was properly transferred to the benefit issuance document and 
reflects changes due to verification findings, transfers, or a 
household's decision to decline benefits. If the State agency chooses to 
review a statistically valid sample of student certifications, the State 
agency must use a sample size with a 99 percent confidence level of 
accuracy. However, a sample size with a 95 percent confidence level of 
accuracy may be used if a school food authority uses an electronic 
benefit issuance and certification system with no manual data entry and 
the State agency has not identified any potential systemic 
noncompliance. Any sample size must be large enough so that there is a 
99 or 95 percent, as applicable, chance that the actual accuracy rate 
for all certifications is not less than 2 percentage points less than 
the accuracy rate found in the sample (i.e., the lower bound of the one-
sided 99/95 percent confidence interval is no more than 2 percentage 
points less than the point estimate).
    (ii) Meal counting and claiming. The State agency must gather 
information and conduct an on-site visit to ensure that the processes 
used by the school food authority and reviewed school(s) to count, 
record, consolidate, and report the number of reimbursable meals/snacks 
served to eligible students by category (i.e., free, reduced price or 
paid meal) are in compliance with program requirements and yield correct 
claims. The State agency must determine whether:
    (A) The daily meal 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 
meals for the review period times an attendance factor. If the meal 
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.

[[Page 51]]

    (B) For each school selected for review, each type of food service 
line provides accurate point of service meal counts, by type, and those 
meal 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 meals, by type, and is correctly implemented as approved by 
the State agency.
    (C) For each school selected for review, all meals are correctly 
counted, recorded, consolidated and reported for the day they are 
served.
    (2) Performance Standard 2 (Lunches claimed for reimbursement by the 
school food authority meet the meal requirements in Sec. 210.10, as 
applicable to the age/grade group reviewed. Breakfasts claimed for 
reimbursement by the school food authority meet the meal requirements in 
Sec. 220.8 of this chapter, as applicable to the age/grade group 
reviewed.) The State agency must follow review procedures, as stated in 
this section and detailed in the FNS Administrative Review Manual, to 
ensure that meals offered by the school food authority meet the food 
component and quantity requirements and the dietary specifications for 
each program, as applicable. Review of these critical areas may occur 
off-site or on-site. The State agency must also follow procedures 
consistent with this section, as specified in the FNS Administrative 
Review Manual, to review applicable areas of Performance Standard 2 in 
the National School Lunch Program's Afterschool Snacks and Seamless 
Summer Option, and in the Special Milk Program.
    (i) Food components and quantities. For each school selected for 
review, the State agency must complete a USDA-approved menu tool, review 
documentation, and observe the meal service to ensure that meals offered 
by the reviewed schools meet the meal patterns for each program. To 
review this area, the State agency must:
    (A) Review menu and production records for the reviewed schools for 
a minimum of one school week (i.e., a minimum number of three 
consecutive school days and a maximum of seven consecutive school days) 
from the review period. Documentation, including food crediting 
documentation, such as food labels, product formulation statements, CN 
labels and bid documentation, must be reviewed to ensure compliance with 
the lunch and breakfast meal patterns. If the documentation review 
reveals problems with food components or quantities, the State agency 
must expand the review to, at a minimum, the entire review period. The 
State agency should consider a school food authority compliant with the 
school meal pattern if:
    (1) When evaluating the daily and weekly range requirements for 
grains and meat/meat alternates, the documentation shows compliance with 
the daily and weekly minimums for these components, regardless of 
whether the school food authority has exceeded the recommended weekly 
maximums for the same components.
    (2) When evaluating the service of frozen fruit, the State agency 
determines that the school food authority serves frozen fruit with or 
without added sugar.
    (B) On the day of review, the State agency must:
    (1) Observe a significant number of program meals, as described in 
the FNS Administrative Review Manual, at each serving line and review 
the corresponding documentation to determine whether all reimbursable 
meal service lines offer all of the required food components/items and 
quantities for the age/grade groups being served, as required under 
Sec. 210.10, as applicable, and Sec. 220.8 of this chapter, as 
applicable. Observe meals at the beginning, middle and end of the meal 
service line, and confirm that signage or other methods are used to 
assist students in identifying the reimbursable meal. If the State 
agency identifies missing components or inadequate quantities prior to 
the beginning of the meal service, it must inform the school food 
authority and provide an opportunity to make corrections. Additionally, 
if visual observation suggests that quantities offered are insufficient 
or excessive, the State agency must require the reviewed schools to 
provide documentation demonstrating that the required amounts of each 
component were available for service for each day of the review period.

[[Page 52]]

    (2) Observe a significant number of the program meals counted at the 
point of service for each type of serving line to determine whether the 
meals selected by the students contain the food components and food 
quantities required for a reimbursable meal under Sec. 210.10, as 
applicable, and Sec. 220.8 of this chapter, as applicable.
    (3) If Offer versus Serve is in place, observe whether students 
select at least three food components at lunch and at least three food 
items at breakfasts, and that the lunches and breakfasts include at 
least \1/2\ cup of fruits or vegetables.
    (ii) Dietary specifications. The State agency must conduct a meal 
compliance risk assessment for each school selected for review to 
determine which school is at highest risk for nutrition-related 
violations. The State agency must conduct a targeted menu review for the 
school at highest risk for noncompliance using one of the options 
specified in the FNS Administrative Review Manual. Under the targeted 
menu review options, the State agency may conduct or validate an SFA-
conducted nutrient analysis for both lunch and breakfast, or further 
evaluate risk for noncompliance and, at a minimum, conduct a nutrient 
analysis if further examination shows the school is at high risk for 
noncompliance with the dietary specifications in Sec. 210.10 and 
Sec. 220.8 of this chapter. The State agency is not required to assess 
compliance with the dietary specifications when reviewing meals for 
preschoolers, and the National School Lunch Program's Afterschool Snacks 
and the Seamless Summer Option.
    (iii) Performance-based cash assistance. If the school food 
authority is receiving performance-based cash assistance under 
Sec. 210.7(d), the State agency must assess the school food authority's 
meal service and documentation of lunches served and determine its 
continued eligibility for the performance-based cash assistance.
    (h) General areas of review. The general areas listed in this 
paragraph reflect requirements that must be monitored by the State 
agency when conducting administrative reviews of the National School 
Lunch Program and the School Breakfast Program. Selected aspects of 
these general areas must also be monitored, as applicable and as 
specified in the FNS Administrative Review Manual, when conducting 
administrative reviews of the National School Lunch Program's 
Afterschool Snacks and Seamless Summer Option, the Fresh Fruit and 
Vegetable Program, and the Special Milk Program. The general areas of 
review must include, but are not limited to, the following:
    (1) Resource management. The State agency must conduct an off-site 
assessment of the school food authority's nonprofit school food service 
to evaluate the risk of noncompliance with resource management 
requirements. If risk indicators show that the school food authority is 
at high risk for noncompliance with resource management requirements, 
the State agency must conduct a comprehensive review including, but not 
limited to, the following areas using procedures specified in the FNS 
Administrative Review Manual.
    (i) Maintenance of the nonprofit school food service account. The 
State agency must confirm the school food authority's resource 
management is consistent with the maintenance of the nonprofit school 
food service account requirements in Secs. 210.2, 210.14, 210.19(a), and 
210.21.
    (ii) Paid lunch equity. The State agency must review compliance with 
the requirements for pricing paid lunches in Sec. 210.14(e).
    (iii) Revenue from nonprogram foods. The State agency must ensure 
that all non-reimbursable foods sold by the school food service, 
including, but not limited to, a la carte food items, adult meals, and 
vended meals, generate at least the same proportion of school food 
authority revenues as they contribute to school food authority food 
costs, as required in Sec. 210.14(f).
    (iv) Indirect costs. The State agency must ensure that the school 
food authority follows fair and consistent methodologies to identify and 
allocate allowable indirect costs to school food service accounts, as 
required in 2 CFR part 200 and Sec. 210.14(g).
    (2) General Program Compliance--(i) Free and reduced price process. 
In the

[[Page 53]]

course of the review of each school food authority, the State agency 
must:
    (A) Confirm the free and reduced price policy statement, as required 
in Sec. 245.10 of this chapter, is implemented as approved.
    (B) Ensure that the process used to verify children's eligibility 
for free and reduced price meals in a sample of household applications 
is consistent with the verification requirements, procedures, and 
deadlines established in Sec. 245.6a of this chapter.
    (C) Determine that, for each reviewed school, the meal count system 
does not overtly identify children eligible for free and reduced price 
meals, as required under Sec. 245.8 of this chapter.
    (D) Review at least 10 denied applications to evaluate whether the 
determining official correctly denied applicants for free and reduced 
price meals, and whether denied households were provided notification in 
accordance with Sec. 245.6(c)(7)of this chapter.
    (E) Confirm that a second review of applications has been conducted 
and that information has been correctly reported to the State agency as 
required in Sec. 245.11, if applicable.
    (ii) Civil rights. The State agency must examine the school food 
authority's compliance with the civil rights provisions specified in 
Sec. 210.23(b) to ensure that no child is denied benefits or otherwise 
discriminated against in any of the programs reviewed under this section 
because of race, color, national origin, age, sex, or disability.
    (iii) School food authority on-site monitoring. The State agency 
must ensure that the school food authority conducts on-site reviews of 
each school under its jurisdiction, as required by Secs. 210.8(a)(1) and 
220.11(d) of this chapter, and monitors claims and readily observable 
general areas of review in accordance with Secs. 210.8(a)(2) and (a)(3), 
and 220.11(d) of this chapter.
    (iv) Competitive food standards. The State agency must ensure that 
the local educational agency and school food authority comply with the 
nutrition standards for competitive foods in Secs. 210.11 and 220.12 of 
this chapter, and retain documentation demonstrating compliance with the 
competitive food service and standards.
    (v) Water. The State agency must ensure that water is available and 
accessible to children at no charge as specified in 
Secs. 210.10(a)(1)(i) and 220.8(a)(1) of this chapter.
    (vi) Food safety. The State agency must examine records to confirm 
that each school food authority under its jurisdiction meets the food 
safety requirements of Sec. 210.13.
    (vii) Reporting and recordkeeping. The State agency must determine 
that the school food authority submits reports and maintains records in 
accordance with program requirements in this part, and parts 220 and 245 
of this chapter, and as specified in the FNS Administrative Review 
Manual.
    (viii) Program outreach. The State agency must ensure the school 
food authority is conducting outreach activities to increase 
participation in the School Breakfast Program and the Summer Food 
Service Program, as required in Sec. 210.12(d). If the State agency 
administering the Summer Food Service Program is not the same State 
agency that administers the National School Lunch Program, then the two 
State agencies must work together to implement outreach measures.
    (ix) Professional standards. The State agency shall ensure the local 
educational agency and school food authority complies with the 
professional standards for school nutrition program directors, managers, 
and personnel established in Sec. 210.30.
    (x) Local school wellness. The State agency shall ensure the local 
educational agency complies with the local school wellness requirements 
set forth in Sec. 210.30.
    (i) Entrance and exit conferences and notification--(1) Entrance 
conference. The State agency may hold an entrance conference with the 
appropriate school food authority staff at the beginning of the on-site 
administrative review to discuss the results of any off-site 
assessments, the scope of the on-site review, and the number of schools 
to be reviewed.
    (2) Exit conference. The State agency must hold an exit conference 
at the close of the administrative review and of any subsequent follow-
up review to

[[Page 54]]

discuss the violations observed, the extent of the violations and a 
preliminary assessment of the actions needed to correct the violations. 
The State agency must discuss an appropriate deadline(s) for completion 
of corrective action, provided that the deadline(s) results in the 
completion of corrective action on a timely basis.
    (3) Notification. The State agency must provide written notification 
of the review findings to the school food authority's Superintendent (or 
equivalent in a non-public school food authority) or authorized 
representative, preferably no later than 30 days after the exit 
conference for each review. The written notification must include the 
date(s) of review, date of the exit conference, review findings, the 
needed corrective actions, the deadlines for completion of the 
corrective action, and the potential fiscal action. As a part of the 
denial of all or a part of a Claim for Reimbursement or withholding 
payment in accordance with the provisions of this section, the State 
agency must provide the school food authority a written notice which 
details the grounds on which the denial of all or a part of the Claim 
for Reimbursement or withholding payment is based. This notice, must be 
provided by certified mail, or its equivalent, or sent electronically by 
email or facsimile. The notice must also include a statement indicating 
that the school food authority may appeal the denial of all or a part of 
a Claim for Reimbursement or withholding payment and the entity (i.e., 
FNS or State agency) to which the appeal should be directed. The State 
agency must notify the school food authority, in writing, of the appeal 
procedures as specified in Sec. 210.18(p) for appeals of State agency 
findings, and for appeals of FNS findings, provide a copy of 
Sec. 210.29(d)(3) of the regulations.
    (j) Corrective action. Corrective action is required for any 
violation under either the critical or general areas of the review. 
Corrective action must be applied to all schools in the school food 
authority, as appropriate, to ensure that deficient practices and 
procedures are revised system-wide. Corrective actions may include 
training, technical assistance, recalculation of data to ensure the 
accuracy of any claim that the school food authority is preparing at the 
time of the review, or other actions. Fiscal action must be taken in 
accordance with paragraph (l) of this section.
    (1) Extensions of the timeframes. If the State agency determines 
that extraordinary circumstances make a school food authority unable to 
complete the required corrective action within the timeframes specified 
by the State agency, the State agency may extend the timeframes upon 
written request of the school food authority.
    (2) Documented corrective action. Documented corrective action is 
required for any degree of violation of general or critical areas 
identified in an administrative review. Documented corrective action may 
be provided at the time of the review; however, it must be postmarked or 
submitted to the State agency electronically by email or facsimile, no 
later than 30 days from the deadline for completion of each required 
corrective action, as specified under paragraph (i)(2) of this section 
or as otherwise extended by the State agency under paragraph (j)(1) of 
this section. The State agency must maintain any documented corrective 
action on file for review by FNS.
    (k) Withholding payment. At a minimum, the State agency must 
withhold all program payments to a school food authority as follows:
    (1) Cause for withholding. (i) The State agency must withhold all 
Program payments to a school food authority if documented corrective 
action for critical area violations is not provided with the deadlines 
specified in paragraph (j)(2) of this section;
    (ii) The State agency must withhold all Program payments to a school 
food authority if the State agency finds that corrective action for 
critical area violation was not completed;
    (iii) The State agency may withhold Program payments to a school 
food authority at its discretion, if the State agency found a critical 
area violation on a previous review and the school food authority 
continues to have the same error for the same cause; and
    (iv) For general area violations, the State agency may withhold 
Program payments to a school food authority at

[[Page 55]]

its discretion, if the State agency finds that documented corrective 
action is not provided within the deadlines specified in paragraph 
(j)(2) of this section, corrective action is not complete, or corrective 
action was not taken as specified in the documented corrective action.
    (2) Duration of withholding. In all cases, Program payments must be 
withheld until such time as corrective action is completed, documented 
corrective action is received and deemed acceptable by the State agency, 
or the State agency completes a follow-up review and confirms that the 
problem has been corrected. Subsequent to the State agency's acceptance 
of the corrective actions, payments will be released for all meals 
served in accordance with the provisions of this part during the period 
the payments were withheld. In very serious cases, the State agency will 
evaluate whether the degree of non-compliance warrants termination in 
accordance with Sec. 210.25.
    (3) Exceptions. The State agency may, at its discretion, reduce the 
amount required to be withheld from a school food authority pursuant to 
paragraph (k)(1)(i) through (iii) of this section by as much as 60 
percent of the total Program payments when it is determined to be in the 
best interest of the Program. FNS may authorize a State agency to limit 
withholding of funds to an amount less than 40 percent of the total 
Program payments, if FNS determines such action to be in the best 
interest of the Program.
    (4) Failure to withhold payments. FNS may suspend or withhold 
Program payments, in whole or in part, to those State agencies failing 
to withhold Program payments in accordance with paragraph (k)(1) of this 
section and may withhold administrative funds in accordance with 
Sec. 235.11(b) of this chapter. The withholding of Program payments will 
remain in effect until such time as the State agency documents 
compliance with paragraph (k)(1) of this section to FNS. Subsequent to 
the documentation of compliance, any withheld administrative funds will 
be released and payment will be released for any meals served in 
accordance with the provisions of this part during the period the 
payments were withheld.
    (l) Fiscal action. The State agency must take fiscal action for all 
Performance Standard 1 violations and specific Performance Standard 2 
violations identified during an administrative review as specified in 
this section. Fiscal action must be taken in accordance with the 
principles in Sec. 210.19(c) and the procedures established in the FNS 
Administrative Review Manual. The State agency must follow the fiscal 
action formula prescribed by FNS to calculate the correct entitlement 
for a school food authority or a school. While there is no fiscal action 
required for general area violations, the State agency has the ability 
to withhold funds for repeat or egregious violations occurring in the 
majority of the general areas as described in paragraph (k)(1)(iv).
    (1) Performance Standard 1 violations. A State agency is required to 
take fiscal action for Performance Standard 1 violations, in accordance 
with this paragraph and paragraph (l)(3).
    (i) For certification and benefit issuance errors cited under 
paragraph (g)(1)(i) of this section, the total number of free and 
reduced price meals claimed must be adjusted to according to procedures 
established by FNS.
    (ii) For meal counting and claiming errors cited under paragraph 
(g)(1)(ii) of this section, the State agency must apply fiscal action to 
the incorrect meal counts at the school food authority level, or only to 
the reviewed schools where violations were identified, as applicable.
    (2) Performance Standard 2 violations. Except as noted in paragraphs 
(l)(2)(iii) and (l)(2)(iv) of this section, a State agency is required 
to apply fiscal action for Performance Standard 2 violations as follows:
    (i) For missing food components or missing production records cited 
under paragraph (g)(2) of this section, the State agency must apply 
fiscal action.
    (ii) For repeated violations involving milk type and vegetable 
subgroups cited under paragraph (g)(2) of this section, the State agency 
must apply fiscal action as follows:
    (A) If an unallowable milk type is offered or there is no milk 
variety, any meals selected with the unallowable

[[Page 56]]

milk type or when there is no milk variety must also be disallowed/
reclaimed; and
    (B) If one vegetable subgroup is not offered over the course of the 
week reviewed, the reviewer should evaluate the cause(s) of the error to 
determine the appropriate fiscal action. All meals served in the 
deficient week may be disallowed/reclaimed.
    (iii) For repeated violations involving food quantities and whole 
grain-rich foods cited under paragraph (g)(2) of this section, the State 
agency has discretion to apply fiscal action as follows:
    (A) If the meals contain insufficient quantities of the required 
food components, the affected meals may be disallowed/reclaimed;
    (B) If no whole grain-rich foods are offered during the week of 
review, meals for the entire week of review may be disallowed and/or 
reclaimed;
    (C) If insufficient whole grain-rich foods are offered during the 
week of review, meals for one or more days during the week of review may 
be disallowed/reclaimed.
    (D) If a weekly vegetable subgroup is offered in insufficient 
quantity to meet the weekly vegetable subgroup requirement, meals for 
one day of the week of review may be disallowed/reclaimed; and
    (E) If the amount of juice offered exceeds the weekly limitation, 
meals for the entire week of review may be disallowed/reclaimed.
    (iv) For repeated violations of calorie, saturated fat, sodium, and 
trans fat dietary specifications cited under paragraph (g)(2)(ii) of 
this section, the State agency has discretion to apply fiscal action to 
the reviewed school as follows:
    (A) If the average meal offered over the course of the week of 
review does not meet one of the dietary specifications, meals for the 
entire week of review may be disallowed/reclaimed; and
    (B) Fiscal action is limited to the school selected for the targeted 
menu review and must be supported by a nutrient analysis of the meals at 
issue using USDA-approved software.
    (v) The following conditions must be met prior to applying fiscal 
action as described in paragraphs (l)(2)(ii) through (iv) of this 
section:
    (A) Technical assistance has been given by the State agency;
    (B) Corrective action has been previously required and monitored by 
the State agency; and
    (C) The school food authority remains noncompliant with the meal 
requirements established in part 210 and part 220 of this chapter.
    (3) Duration of fiscal action. Fiscal action must be extended back 
to the beginning of the school year or that point in time during the 
current school year when the infraction first occurred for all 
violations of Performance Standard 1 and specific violations of 
Performance Standard 2. Based on the severity and longevity of the 
problem, the State agency may extend fiscal action back to previous 
school years. If corrective action occurs, the State agency may limit 
the duration of fiscal action for Performance Standard 1 and Performance 
Standard 2 violations as follows:
    (i) Performance Standard 1 certification and benefit issuance 
violations. The total number of free and reduced price meals claimed for 
the review period and the month of the on-site review must be adjusted 
to reflect the State calculated certification and benefit issuance 
adjustment factors.
    (ii) Other Performance Standard 1 and Performance Standard 2 
violations. With the exception of violations described in paragraph 
(l)(3)(i) of this section, a State agency may limit fiscal action from 
the point corrective action occurs back through the beginning of the 
review period for errors.
    (A) If corrective action occurs during the on-site review month or 
after, the State agency would be required to apply fiscal action from 
the point corrective action occurs back through the beginning of the on-
site review month, and for the review period;
    (B) If corrective action occurs during the review period, the State 
agency would be required to apply fiscal action from the point 
corrective action occurs back through the beginning of the review 
period;
    (C) If corrective action occurs prior to the review period, no 
fiscal action would be required; and

[[Page 57]]

    (D) If corrective action occurs in a claim month between the review 
period and the on-site review month, the State agency would apply fiscal 
action only to the review period.
    (4) Performance-based cash assistance. In addition to fiscal action 
described in paragraphs (l)(2)(i) through (v) of this section, school 
food authorities found to be out of compliance with the meal patterns or 
nutrition standards set forth in Sec. 210.10 may not earn performance-
based cash assistance authorized under Sec. 210.4(b)(1) unless immediate 
corrective action occurs. School food authorities will not be eligible 
for the performance-based reimbursement beginning the month immediately 
following the administrative review and, at State discretion, for the 
month of review. Performance-based cash assistance may resume beginning 
in the first full month the school food authority demonstrates to the 
satisfaction of the State agency that corrective action has taken place.
    (m) Transparency requirement. The most recent administrative review 
final results must be easily available to the public.
    (1) The State agency must post a summary of the most recent results 
for each school food authority on the State agency's public Web site, 
and make a copy of the final administrative review report available to 
the public upon request. A State agency may also strongly encourage each 
school food authority to post a summary of the most recent results on 
its public Web site, and make a copy of the final administrative review 
report available to the public upon request.
    (2) The summary must cover meal access and reimbursement, meal 
patterns and nutritional quality of school meals, school nutrition 
environment (including food safety, local school wellness policy, and 
competitive foods), civil rights, and program participation.
    (3) The summary must be posted no later than 30 days after the State 
agency provides the results of administrative review to the school food 
authority.
    (n) Reporting requirement. Each State agency must report to FNS the 
results of the administrative reviews by March 1 of each school year on 
a form designated by FNS. In such annual reports, the State agency must 
include the results of all administrative reviews conducted in the 
preceding school year.
    (o) Recordkeeping. Each State agency must keep records which 
document the details of all reviews and demonstrate the degree of 
compliance with the critical and general areas of review. Records must 
be retained as specified in Sec. 210.23(c) and include documented 
corrective action, and documentation of withholding of payments and 
fiscal action, including recoveries made. Additionally, the State agency 
must have on file:
    (1) Criteria for selecting schools for administrative reviews in 
accordance with paragraphs (e)(2)(ii) and (i)(2)(ii) of this section.
    (2) Documentation demonstrating compliance with the statistical 
sampling requirements in accordance with paragraph (g)(1)(i) of this 
section, if applicable.
    (p) School food authority appeal of State agency findings. Except 
for FNS-conducted reviews authorized under Sec. 210.29(d)(2), each State 
agency shall establish an appeal procedure to be followed by a school 
food authority requesting a review of a denial of all or a part of the 
Claim for Reimbursement or withholding payment arising from 
administrative review activity conducted by the State agency under 
Sec. 210.18. State agencies may use their own appeal procedures provided 
the same procedures are applied to all appellants in the State and the 
procedures meet the following requirements: Appellants are assured of a 
fair and impartial hearing before an independent official at which they 
may be represented by legal counsel; decisions are rendered in a timely 
manner not to exceed 120 days from the date of the receipt of the 
request for review; appellants are afforded the right to either a review 
of the record with the right to file written information, or a hearing 
which they may attend in person; and adequate notice is given of the 
time, date, place and procedures of the hearing. If the State agency has 
not established its own appeal procedures or the

[[Page 58]]

procedures do not meet the above listed criteria, the State agency shall 
observe the following procedures at a minimum:
    (1) The written request for a review shall be postmarked within 15 
calendar days of the date the appellant received the notice of the 
denial of all or a part of the Claim for Reimbursement or withholding of 
payment, and the State agency shall acknowledge the receipt of the 
request for appeal within 10 calendar days;
    (2) The appellant may refute the action specified in the notice in 
person and by written documentation to the review official. In order to 
be considered, written documentation must be filed with the review 
official not later than 30 calendar days after the appellant received 
the notice. The appellant may retain legal counsel, or may be 
represented by another person. A hearing shall be held by the review 
official in addition to, or in lieu of, a review of written information 
submitted by the appellant only if the appellant so specifies in the 
letter of request for review. Failure of the appellant school food 
authority's representative to appear at a scheduled hearing shall 
constitute the appellant school food authority's waiver of the right to 
a personal appearance before the review official, unless the review 
official agrees to reschedule the hearing. A representative of the State 
agency shall be allowed to attend the hearing to respond to the 
appellant's testimony and to answer questions posed by the review 
official;
    (3) If the appellant has requested a hearing, the appellant and the 
State agency shall be provided with at least 10 calendar days advance 
written notice, sent by certified mail, or its equivalent, or sent 
electronically by email or facsimile, of the time, date and place of the 
hearing;
    (4) Any information on which the State agency's action was based 
shall be available to the appellant for inspection from the date of 
receipt of the request for review;
    (5) The review official shall be an independent and impartial 
official other than, and not accountable to, any person authorized to 
make decisions that are subject to appeal under the provisions of this 
section;
    (6) The review official shall make a determination based on 
information provided by the State agency and the appellant, and on 
program regulations;
    (7) Within 60 calendar days of the State agency's receipt of the 
request for review, by written notice, sent by certified mail, or its 
equivalent, or electronically by email or facsimile, the review official 
shall inform the State agency and the appellant of the determination of 
the review official. The final determination shall take effect upon 
receipt of the written notice of the final decision by the school food 
authority;
    (8) The State agency's action shall remain in effect during the 
appeal process; and
    (9) The determination by the State review official is the final 
administrative determination to be afforded to the appellant.
    (q) FNS review activity. The term ``State agency'' and all the 
provisions specified in paragraphs (a) through (h) of this section refer 
to FNS when FNS conducts administrative reviews in accordance with 
Sec. 210.29(d)(2). FNS will notify the State agency of the review 
findings and the need for corrective action and fiscal action. The State 
agency shall pursue any needed follow-up activity.

[81 FR 50185, July 29, 2016]



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) 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, 2 CFR part 200, subpart D and USDA implementing 
regulations 2 CFR part 400 and part 415, as applicable. All costs 
resulting from

[[Page 59]]

contracts that do not meet the requirements of this part are unallowable 
nonprofit school food service account expenses. When the school food 
authority fails to incorporate State agency required changes to 
solicitation or contract documents, all costs resulting from the 
subsequent contract award are unallowable charges to the nonprofit 
school food service account. 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 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, in a manner that is consistent with 
the paid lunch equity provision in Sec. 210.14(e) and corresponding FNS 
guidance, 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. Each State agency shall ensure that school food 
authorities comply with the requirements for pricing paid lunches and 
nonprogram foods as required in Sec. 210.14(e) and Sec. 210.14(f).
    (2) Improved management practices. The State agency must work with 
the school food authority toward improving the school food authority's 
management practices where the State agency has found poor food service 
management practices leading to decreasing or low child participation, 
menu acceptance, or program efficiency. The State agency should provide 
training and technical assistance to the school food authority or direct 
the school food authority to places to obtain such resources, such as 
the Institute of Child Nutrition.
    (3) 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.
    (4) 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.
    (5) Food service management companies. Each State agency shall 
annually review each contract (including all supporting documentation) 
between any school food authority and food service management company to 
ensure compliance with all the provisions and standards set forth in 
this part before execution of the contract by either party. When the 
State agency develops a prototype contract for use by the school food 
authority that meets the provisions and standards set forth in this 
part, this annual review may be limited to changes made to that 
contract. Each State agency shall review each contract amendment between 
a school food authority and food service management company to ensure 
compliance with all the provisions and standards set forth in this part 
before execution of the amended contract by either party. The State 
agency may establish due dates for submission of the contract or 
contract amendment documents. Each State agency shall perform a review 
of each school food authority contracting with a food service management 
company, at least once during each 3-year period. 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

[[Page 60]]

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 
must take fiscal action against school food authorities for Claims for 
Reimbursement that are not properly payable, including, if warranted, 
the disallowance of funds for failure to take corrective action to 
comply with requirements in parts 210, 215, and 220 of this chapter. In 
taking fiscal action, State agencies must use their own procedures 
within the constraints of this part and must maintain all records 
pertaining to action taken under this section. The State agency may 
refer to FNS for assistance in making a claim 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 to meet the meal 
requirements in parts 210, 215, and 220 of this chapter, including the 
disallowance of performance-based cash assistance described in 
Sec. 210.4(b)(1).
    (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 meals through 
available data, if possible. In the absence of reliable data, the State 
agency shall reconstruct the meal accounts in accordance with procedures 
established by FNS.
    (ii) Unless otherwise specified under Sec. 210.18(l) 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 meals 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 meals participated at the same rate as correctly 
approved children in the corresponding meal 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

[[Page 61]]

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 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 Supplemental Nutrition 
Assistance Program or TANF case numbers or FDPIR case numbers or other 
FDPIR identifiers but the applications are missing the information 
specified in paragraph (1)(ii) of the definition of Documentation in 
Sec. 245.2 of this chapter.
    (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 in a fiscal year, the State 
agency, FNS, or OIG may disregard an overpayment if the overpayment does 
not exceed $600. A State agency may establish, through State law, 
regulation or procedure, an alternate disregard threshold that does not 
exceed $600. This disregard may be made once per each management 
evaluation, review, or audit per Program within a fiscal year. 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 
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

[[Page 62]]

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 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]

    Editorial Note: For Federal Register citations affecting 
Sec. 210.19, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



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 (FNS-777) 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) Results of reviews and audits;
    (6) Results of the commodity preference survey and recommendations 
for commodity purchases as required under Sec. 250.13(k) of this 
chapter;
    (7) Results of the State agency's review of schools' compliance with 
the food safety inspection requirement in Sec. 210.13(b) by November 15 
following each of school years 2005-2006 through 2014-2015, beginning 
November 15, 2006. The report will be based on data supplied by the 
school food authorities in accordance with Sec. 210.15(a)(7);
    (8) The prices of paid lunches charged by each school food 
authority; and
    (9) For each local educational agency required to conduct a second 
review of applications under Sec. 245.11 of this chapter, the number of 
free and reduced price applications subject to a second review, the 
results of the reviews including the number and percentage of reviewed 
applications for which the eligibility determination was changed, and a 
summary of the types of changes made.
    (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) 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;
    (8) 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);
    (9) Records pertaining to civil rights responsibilities as defined 
under Sec. 210.23(b);
    (10) Records pertaining to the annual food preference survey of 
school food authorities as required by Sec. 250.13(k) of this chapter;

[[Page 63]]

    (11) Records supplied by the school food authorities showing the 
number of food safety inspections obtained by schools for the current 
and three most recent school years.
    (12) Records showing compliance with the requirements in 
Sec. 210.14(e)(5) and records supplied annually by school food 
authorities showing paid meal prices charged as required by 
Sec. 210.14(e)(6);
    (13) Records to document compliance with the requirements in 
Sec. 210.14(f); and
    (14) Records for a three year period to demonstrate compliance with 
the professional standards for State directors of school nutrition 
programs established in Sec. 235.11(g) 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; 70 FR 34630, June 
15, 2005; 76 FR 35318, June 17, 2011; 78 FR 13449, Feb. 28, 2013; 79 FR 
7054, Feb. 6, 2014; 80 FR 11092, Mar. 2, 2015; 81 FR 50193, July 29, 
2016]



    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 this part and 2 CFR part 200, subpart D and 
USDA implementing regulations 2 CFR part 400 and part 415, as 
applicable, which implement the applicable requirements, concerning the 
procurement of all goods and services with nonprofit school food service 
account funds.
    (b) Contractual responsibilities. The standards contained in this 
part and 2 CFR part 200, subpart D and USDA implementing regulations 2 
CFR part 400 and part 415, as applicable, do not relieve the State 
agency or 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) Procedures. The State agency may elect to follow either the 
State laws, policies and procedures as authorized by 2 CFR 200.317, or 
the procurement standards for other governmental grantees and all 
governmental subgrantees in accordance with 2 CFR 200.318 through 2 CFR 
200.326. Regardless of the option selected, States must ensure that all 
contracts include any clauses required by Federal statutes and executive 
orders and that the requirements 2 CFR 200.236 and Appendix II, Contract 
Provisions for Non-Federal Entity Contracts Under Federal Award are 
followed. A school food authority may use its own procurement procedures 
which reflect applicable State and local laws and regulations, provided 
that procurements made with nonprofit school food service account funds 
adhere to the standards set forth in this part and in 2 CFR part 200, 
subpart D, as applicable. School food authority procedures must include 
a written code of standards of conduct meeting the minimum standards of 
2 CFR 200.318, as applicable.
    (1) Pre-issuance review requirement. The State agency may impose a 
pre-issuance review requirement on a school food authority's proposed 
procurement. The school food authority must make available, upon request 
by the State agency, its procurement documents, including but not 
limited to solicitation documents, specifications, evaluation criteria, 
procurement procedures, proposed contracts and contract terms. School 
food authorities shall comply with State agency requests for changes to 
procurement procedures and solicitation and contract documents to ensure 
that, to the State agency's satisfaction, such procedures and documents 
reflect applicable procurement and contract requirements and the 
requirements of this part.
    (2) Prototype solicitation documents and contracts. The school food 
authority must obtain the State agency's prior written approval for any 
change made to prototype solicitation or contract documents before 
issuing the revised

[[Page 64]]

solicitation documents or execution of the revised contract.
    (3) Prohibited expenditures. No expenditure may be made from the 
nonprofit school food service account for any cost resulting from a 
procurement failing to meet the requirements of this part.
    (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.
    (e) Restrictions on the sale of milk. A school food authority 
participating in the Program, or a person approved by a school 
participating in the Program, must not directly or indirectly restrict 
the sale or marketing of fluid milk (as described in Sec. 210.10(d)(4) 
of this chapter) at any time or in any place on school premises or at 
any school-sponsored event.
    (f) Cost reimbursable contracts--(1) Required provisions. The school 
food authority must include the following provisions in all cost 
reimbursable contracts, including contracts with cost reimbursable 
provisions, and in solicitation documents prepared to obtain offers for 
such contracts:
    (i) Allowable costs will be paid from the nonprofit school food 
service account to the contractor net of all discounts, rebates and 
other applicable credits accruing to or received by the contractor or 
any assignee under the contract, to the extent those credits are 
allocable to the allowable portion of the costs billed to the school 
food authority;
    (ii)(A) The contractor must separately identify for each cost 
submitted for payment to the school food authority the amount of that 
cost that is allowable (can be paid from the nonprofit school food 
service account) and the amount that is unallowable (cannot be paid from 
the nonprofit school food service account); or
    (B) The contractor must exclude all unallowable costs from its 
billing documents and certify that only allowable costs are submitted 
for payment and records have been established that maintain the 
visibility of unallowable costs, including directly associated costs in 
a manner suitable for contract cost determination and verification;
    (iii) The contractor's determination of its allowable costs must be 
made in compliance with the applicable Departmental and Program 
regulations and Office of Management and Budget cost circulars;
    (iv) The contractor must identify the amount of each discount, 
rebate and other applicable credit on bills and invoices presented to 
the school food authority for payment and individually identify the 
amount as a discount, rebate, or in the case of other applicable 
credits, the nature of the credit. If approved by the State agency, the 
school food authority may permit the contractor to report this 
information on a less frequent basis than monthly, but no less 
frequently than annually;
    (v) The contractor must identify the method by which it will report 
discounts, rebates and other applicable credits allocable to the 
contract that are not reported prior to conclusion of the contract; and
    (vi) The contractor must maintain documentation of costs and 
discounts, rebates and other applicable credits, and must furnish such 
documentation upon request to the school food authority, the State 
agency, or the Department.

[[Page 65]]

    (2) Prohibited expenditures. No expenditure may be made from the 
nonprofit school food service account for any cost resulting from a cost 
reimbursable contract that fails to include the requirements of this 
section, nor may any expenditure be made from the nonprofit school food 
service account that permits or results in the contractor receiving 
payments in excess of the contractor's actual, net allowable costs.
    (g) Geographic preference. (1) A school food authority participating 
in the Program, as well as State agencies making purchases on behalf of 
such school food authorities, may apply a geographic preference when 
procuring unprocessed locally grown or locally raised agricultural 
products. When utilizing the geographic preference to procure such 
products, the school food authority making the purchase or the State 
agency making purchases on behalf of such school food authorities have 
the discretion to determine the local area to which the geographic 
preference option will be applied;
    (2) For the purpose of applying the optional geographic procurement 
preference in paragraph (g)(1) of this section, ``unprocessed locally 
grown or locally raised agricultural products'' means only those 
agricultural products that retain their inherent character. The effects 
of the following food handling and preservation techniques shall not be 
considered as changing an agricultural product into a product of a 
different kind or character: Cooling; refrigerating; freezing; size 
adjustment made by peeling, slicing, dicing, cutting, chopping, 
shucking, and grinding; forming ground products into patties without any 
additives or fillers; drying/dehydration; washing; packaging (such as 
placing eggs in cartons), vacuum packing and bagging (such as placing 
vegetables in bags or combining two or more types of vegetables or 
fruits in a single package); the addition of ascorbic acid or other 
preservatives to prevent oxidation of produce; butchering livestock and 
poultry; cleaning fish; and the pasteurization of milk.

[53 FR 29147, Aug. 2, 1988, as amended at 64 FR 50741, Sept. 20, 1999; 
70 FR 70033, Nov. 21, 2005; 71 FR 39516, July 13, 2006; 72 FR 61491, 
Oct. 31, 2007; 76 FR 22607, Apr. 22, 2011; 77 FR 4153, Jan. 26, 2012; 81 
FR 66489, Sept. 28, 2016]



Sec. 210.22  Audits.

    (a) General. Unless otherwise exempt, audits at the State and school 
food authority levels shall be conducted in accordance with 2 CFR part 
200, subpart F and Appendix XI (Compliance Supplement) and USDA 
implementing regulations 2 CFR part 400 and part 415.
    (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 2 CFR part 200, 
subpart F and Appendix XI, and USDA implementing regulations 2 CFR part 
400 and part 415.

[53 FR 29147, Aug. 2, 1988, as amended at 71 FR 39516, July 13, 2006; 81 
FR 66488, Sept. 28, 2016]



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

[[Page 66]]

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 
113-1.
    (c) Retention of records. State agencies and school food authorities 
may 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.
    (d) Program evaluations. States, State agencies, local educational 
agencies, school food authorities, schools and contractors must 
cooperate in studies and evaluations conducted by or on behalf of the 
Department, related to programs authorized under the Richard B. Russell 
National School Lunch Act and the Child Nutrition Act of 1966.

[53 FR 29147, Aug. 2, 1988, as amended at 58 FR 42489, Aug. 10, 1993; 64 
FR 50741, Sept. 20, 1999; 72 FR 24183, May 2, 2007; 76 FR 22797, Apr. 
25, 2011; 76 FR 37982, June 29, 2011; 81 FR 50193, July 29, 2016]



                     Subpart F_Additional Provisions



Sec. 210.24  Withholding payments.

    In accordance with Departmental regulations at 2 CFR 200.338 through 
200.342, 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, as amended at 71 FR 39516, July 13, 2006; 
72 FR 61492, Oct. 31, 2007; 81 FR 66488, Sept. 28, 2016]



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 2 CFR 
part 200, subpart D and USDA implementing regulations 2 CFR part 400 and 
part 415 concerning grant suspension, termination and closeout 
procedures. Furthermore, the State agency shall apply these provisions, 
as applicable, 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, 
and amended at 71 FR 39516, July 13, 2006; 81 FR 66488, 66490, Sept. 28, 
2016]



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]

[[Page 67]]



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 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, 
And 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 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 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 as required under this part. At State 
agency request, FNS may assist in the conduct of the review.

[[Page 68]]

    (2) Section 210.18 reviews. FNS will conduct administrative 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, 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

[[Page 69]]

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, as amended at 81 FR 50193, 
July 29, 2016]



Sec. 210.30  School nutrition program professional standards.

    (a) General. School food authorities that operate the National 
School Lunch Program, or the School Breakfast Program (7 CFR part 220), 
must establish and implement professional standards for school nutrition 
program directors, managers, and staff, as defined in Sec. 210.2.
    (b) Minimum standards for all school nutrition program directors. 
Each school food authority must ensure that all newly hired school 
nutrition program directors meet minimum hiring standards and ensure 
that all new and existing directors have completed the minimum annual 
training/education requirements for school nutrition program directors, 
as set forth below:
    (1) Hiring standards. All school nutrition program directors hired 
on or after July 1, 2015, must meet the following minimum educational 
requirements, as applicable:
    (i) School nutrition program directors with local educational agency 
enrollment of 2,499 students or fewer. Directors must meet the 
requirements in either paragraph (b)(1)(i)(A), (B), (C), or (D) of this 
section.
    (A) A bachelor's degree, or equivalent educational experience, with 
an academic major or concentration in food and nutrition, food service 
management, dietetics, family and consumer sciences, nutrition 
education, culinary arts, business, or a related field;
    (B) A bachelor's degree, or equivalent educational experience, with 
any academic major or area of concentration, and either a State-
recognized certificate for school nutrition directors or at least one 
year of relevant school nutrition program experience;
    (C) An associate's degree, or equivalent educational experience, 
with an academic major or area of concentration in food and nutrition, 
food service management, dietetics, family and consumer sciences, 
nutrition education, culinary arts, business, or a related field and at 
least one year of relevant school nutrition program experience; or
    (D) A high school diploma or equivalency (such as the general 
educational development diploma), and at least three years of relevant 
school nutrition program experience. For a local educational agency with 
less than 500 students, the State agency has discretion to approve the 
hire of a director that meets the minimum educational requirement but 
has less than the required relevant school nutrition program experience. 
Directors hired under the criteria listed in this paragraph are strongly 
encouraged to work toward attaining an associate's degree in an academic 
major in the fields listed in this paragraph.
    (ii) School nutrition program directors with local educational 
agency enrollment of 2,500 to 9,999 students. Directors must meet the 
requirements in either paragraph (b)(1)(ii)(A), (B), (C), or (D) of this 
section.
    (A) A bachelor's degree, or equivalent educational experience, with 
an academic major or concentration in food and nutrition, food service 
management, dietetics, family and consumer sciences, nutrition 
education, culinary arts, business, or a related field;
    (B) A bachelor's degree, or equivalent educational experience, with 
any academic major or area of concentration, and a State-recognized 
certificate for school nutrition directors;
    (C) A bachelor's degree in any academic major and at least two years 
of relevant experience in school nutrition programs; or
    (D) An associate's degree, or equivalent educational experience, 
with an academic major or area of concentration in food and nutrition, 
food service management, dietetics, family and consumer sciences, 
nutrition education, culinary arts, business, or a related field and at 
least two years of relevant school nutrition program experience. 
Directors hired with an associate's degree are strongly encouraged to

[[Page 70]]

work toward attaining a bachelor's degree in an academic major in the 
fields listed in this paragraph.
    (iii) School nutrition program directors with local educational 
agency enrollment of 10,000 or more students. Directors must meet the 
requirements in either paragraph (b)(1)(iii)(A), (B), or (C) of this 
section.
    (A) A bachelor's degree, or equivalent educational experience, with 
an academic major or area of concentration in food and nutrition, food 
service management, dietetics, family and consumer sciences, nutrition 
education, culinary arts, business, or a related field;
    (B) A bachelor's degree, or equivalent educational experience, with 
any academic major or area of concentration, and a State-recognized 
certificate for school nutrition directors; or
    (C) A bachelor's degree in any major and at least five years 
experience in management of school nutrition programs.
    (D) School food authorities are strongly encouraged to seek out 
individuals who possess a master's degree or are willing to work toward 
a master's degree in the fields listed in this paragraph. At least one 
year of management experience, preferably in school nutrition, is 
strongly recommended. It is also strongly recommended that directors 
have at least three credit hours at the university level in food service 
management and at least three credit hours in nutritional sciences at 
the time of hire.
    (iv) At the discretion of the State agency, acting school nutrition 
program directors expected to serve for more than 30 business days must 
meet the hiring standards established in Sec. 210.30(b)(1) of this 
chapter.
    (v) School nutrition program directors for all local educational 
agency sizes. All school nutrition program directors, for all local 
educational agency sizes, must have completed at least eight hours of 
food safety training within five years prior to their starting date or 
complete eight hours of food safety training within 30 calendar days of 
their starting date. At the discretion of the State agency, all school 
nutrition program directors, regardless of their starting date, may be 
required to complete eight hours of food safety training every five 
years.
    (2) Summary of school nutrition program director hiring/standards. 
The following chart summarizes the hiring standards established in this 
section:

      Summary of School Nutrition Program Director Professional Standards by Local Educational Agency Size
----------------------------------------------------------------------------------------------------------------
                                      Student enrollment 2,499  Student enrollment 2,500-   Student enrollment
 Minimum requirements for directors            or less                    9,999               10,000 or more
----------------------------------------------------------------------------------------------------------------
Minimum Education Standards           Bachelor's degree, or     Bachelor's degree, or     Bachelor's degree, or
 (required) (new directors only).      equivalent educational    equivalent educational    equivalent
                                       experience, with          experience, with          educational
                                       academic major or         academic major or         experience, with
                                       concentration in food     concentration in food     academic major or
                                       and nutrition, food       and nutrition, food       concentration in food
                                       service management,       service management,       and nutrition, food
                                       dietetics, family and     dietetics, family and     service management,
                                       consumer sciences,        consumer sciences,        dietetics, family and
                                       nutrition education,      nutrition education,      consumer sciences,
                                       culinary arts,            culinary arts,            nutrition education,
                                       business, or a related    business, or a related    culinary arts,
                                       field.                    field;                    business, or a
                                                                                           related field;
                                      OR                        OR                        OR
                                      Bachelor's degree, or     Bachelor's degree, or     Bachelor's degree, or
                                       equivalent educational    equivalent educational    equivalent
                                       experience, with any      experience, with any      educational
                                       academic major or area    academic major or area    experience, with any
                                       of concentration, and     of concentration, and a   academic major or
                                       either a State-           State-recognized          area of
                                       recognized certificate    certificate for school    concentration, and a
                                       for school nutrition      nutrition directors;      State-recognized
                                       directors or at least 1                             certificate for
                                       year of relevant school                             school nutrition
                                       nutrition program                                   directors;
                                       experience;
                                      OR                        OR                        OR

[[Page 71]]

 
                                      Associate's degree, or    Bachelor's degree in any  Bachelor's degree in
                                       equivalent educational    academic major and at     any major and at
                                       experience, with          least 2 years of          least 5 years of
                                       academic major or         relevant school           experience in
                                       concentration in food     nutrition program         management of school
                                       and nutrition, food       experience.               nutrition programs.
                                       service management,      OR
                                       dietetics, family and    Associate's degree, or
                                       consumer sciences,        equivalent educational
                                       nutrition education,      experience, with
                                       culinary arts,            academic major or
                                       business, or a related    concentration in food
                                       field; and at least 1     and nutrition, food
                                       year of relevant school   service management,
                                       nutrition program         dietetics, family and
                                       experience;               consumer sciences,
                                      OR                         nutrition education,
                                      High school diploma (or    culinary arts,
                                       GED) and 3 years of       business, or a related
                                       relevant school           field; and at least 2
                                       nutrition program         years of relevant
                                       experience.               school nutrition
                                                                 program experience.
Minimum Education Standards           Directors hired without   Directors hired without   Master's degree, or
 (preferred) (new directors only).     an associate's degree     a bachelor's degree       willingness to work
                                       are strongly encouraged   strongly encouraged to    toward master's
                                       to work toward            work toward attaining     degree, preferred.
                                       attaining associate's     bachelor's degree upon
                                       degree upon hiring.       hiring.
                                                                                          At least 1 year of
                                                                                           management
                                                                                           experience,
                                                                                           preferably in school
                                                                                           nutrition, strongly
                                                                                           recommended.
                                                                                          At least 3 credit
                                                                                           hours at the
                                                                                           university level in
                                                                                           food service
                                                                                           management plus at
                                                                                           least 3 credit hours
                                                                                           in nutritional
                                                                                           sciences at time of
                                                                                           hiring strongly
                                                                                           preferred.
                                     ---------------------------------------------------------------------------
Minimum Prior Training Standards       At least 8 hours of food safety training is required either not more than
 (required ) (new directors only).     5 years prior to their starting date or completed within 30 calendar days
                                                              of employee's starting date.
----------------------------------------------------------------------------------------------------------------

    (3) Continuing education/training standards for all school nutrition 
program directors. Each school year, the school food authority must 
ensure that all school nutrition program directors, (including acting 
directors, at the discretion of the State agency) complete annual 
continuing education/training. For the school year beginning July 1, 
2015, program directors must complete eight hours of annual training. 
Beginning July 1, 2016, twelve hours of annual training are required. 
The annual training must include, but is not limited to, administrative 
practices (including training in application, certification, 
verification, meal counting, and meal claiming procedures), as 
applicable, and any other specific topics identified by FNS, as needed, 
to address Program integrity or other critical issues. Continuing 
education/training required under this paragraph is in addition to the 
food safety training required in the first year of employment under 
paragraph (b)(1)(v) of this section.
    (c) Continuing education/training standards for all school nutrition 
program managers. Each school year, the school food authority must 
ensure that all school nutrition program managers have completed annual 
continuing education/training. For the school year beginning July 1, 
2015, program managers must complete six hours of annual training. 
Beginning July 1, 2016, ten hours of annual training are required. The 
annual training must include, but is not limited to, the following 
topics, as applicable:

[[Page 72]]

    (1) Administrative practices (including training in application, 
certification, verification, meal counting, and meal claiming 
procedures);
    (2) The identification of reimbursable meals at the point of 
service;
    (3) Nutrition;
    (4) Health and safety standards; and
    (5) Any specific topics identified by FNS, as needed, to address 
Program integrity or other critical issues.
    (d) Continuing education/training standards for all staff with 
responsibility for school nutrition programs. Each school year, the 
school food authority must ensure that all staff with responsibility for 
school nutrition programs that work an average of at least 20 hours per 
week, other than school nutrition program directors and managers, 
completes annual training in areas applicable to their job. For the 
school year beginning July 1, 2015, staff must complete four hours of 
annual training. Beginning July 1, 2016, six hours of annual training 
are required. Part-time staff working an average of less than 20 hours 
per week must complete four hours of annual training beginning July 1, 
2015. The annual training must include, but is not limited to, the 
following topics, as applicable to their position and responsibilities:
    (1) Free and reduced price eligibility;
    (2) Application, certification, and verification procedures;
    (3) The identification of reimbursable meals at the point of 
service;
    (4) Nutrition;
    (5) Health and safety standards; and
    (6) Any specific topics identified by FNS, as needed, to address 
Program integrity or other critical issues.
    (e) Summary of required minimum continued education/training 
standards and flexibilities. The annual training requirements for school 
nutrition program managers, directors, and staff summarized in the 
following chart are effective beginning July 1, 2015. Program managers, 
directors, and staff hired on or after January 1 of each school year 
must complete half of their required annual training hours before the 
end of the school year. At the discretion of the State agency:
    (1) Acting and temporary staff, substitutes, and volunteers must 
complete training in one or more of the topics listed in paragraph (d) 
of this section, as applicable, within 30 calendar days of their start 
date; and
    (2) School nutrition program personnel may carry over excess annual 
training hours to an immediately previous or subsequent school year and 
demonstrate compliance with the training requirements over a period of 
two school years, provided that some training hours are completed each 
school year.

[[Page 73]]

[GRAPHIC] [TIFF OMITTED] TR02MR15.001

    (f) Use of food service funds for training costs. Costs associated 
with annual continuing education/training required under paragraphs 
(b)(3), (c) and (d) of this section are allowed provided they are 
reasonable, allocable, and necessary in accordance with the cost 
principles set forth in 2 CFR part 225, Cost Principles for State, Local 
and Indian Tribal Governments (OMB Circular A-87). However, food service 
funds must not be used to pay for the cost of college credits incurred 
by an individual to meet the hiring requirements in paragraphs (b)(1)(i) 
through (iv) and in paragraph (b)(2) of this section.
    (g) School food authority oversight. Each school year, the school 
food authority director must document compliance with the requirements 
of this section for all staff with responsibility for school nutrition 
programs, including directors, managers, and staff. Documentation must 
be adequate to establish, to the State's satisfaction during 
administrative reviews, that employees are meeting the minimum 
professional standards. The school food authority must certify that:
    (1) The school nutrition programs director meets the hiring 
standards and training requirements set forth in paragraph (b) of this 
section; and
    (2) Each employee has completed the applicable training requirements 
in paragraphs (c) and (d) of this section no later than the end of each 
school year.

[80 FR 11092, Mar. 2, 2015; 80 FR 26181, May 7, 2015. Redesignated at 81 
FR 50169, July 29, 2016 and further redesignated and amended at 81 FR 
93792, Dec. 22, 2016]



Sec. 210.31  Local school wellness policy.

    (a) General. Each local educational agency must establish a local 
school wellness policy for all schools participating in the National 
School Lunch Program and/or School Breakfast Program under the 
jurisdiction of the local educational agency. The local school wellness 
policy is a written plan that includes methods to promote student 
wellness, prevent and reduce childhood obesity, and provide assurance 
that school meals and other food and beverages sold and otherwise made 
available on the school campus during the school day are consistent with 
applicable minimum Federal standards.
    (b) Definitions. For the purposes of this section:
    (1) School campus means the term as defined in Sec. 210.11(a)(4).

[[Page 74]]

    (2) School day means the term as defined in Sec. 210.11(a)(5).
    (c) Content of the plan. At a minimum, local school wellness 
policies must contain:
    (1) Specific goals for nutrition promotion and education, physical 
activity, and other school-based activities that promote student 
wellness. In developing these goals, local educational agencies must 
review and consider evidence-based strategies and techniques;
    (2) Standards for all foods and beverages provided, but not sold, to 
students during the school day on each participating school campus under 
the jurisdiction of the local educational agency;
    (3) Standards and nutrition guidelines for all foods and beverages 
sold to students during the school day on each participating school 
campus under the jurisdiction of the local educational agency that;
    (i) Are consistent with applicable requirements set forth under 
Secs. 210.10 and 220.8 of this chapter;
    (ii) Are consistent with the nutrition standards set forth under 
Sec. 210.11;
    (iii) Permit marketing on the school campus during the school day of 
only those foods and beverages that meet the nutrition standards under 
Sec. 210.11; and
    (iv) Promote student health and reduce childhood obesity.
    (4) Identification of the position of the LEA or school official(s) 
or school official(s) responsible for the implementation and oversight 
of the local school wellness policy to ensure each school's compliance 
with the policy;
    (5) A description of the manner in which parents, students, 
representatives of the school food authority, teachers of physical 
education, school health professionals, the school board, school 
administrators, and the general public are provided an opportunity to 
participate in the development, implementation, and periodic review and 
update of the local school wellness policy; and
    (6) A description of the plan for measuring the implementation of 
the local school wellness policy, and for reporting local school 
wellness policy content and implementation issues to the public, as 
required in paragraphs (d) and (e) of this section.
    (d) Public involvement and public notification. Each local 
educational agency must:
    (1) Permit parents, students, representatives of the school food 
authority, teachers of physical education, school health professionals, 
the school board, school administrators, and the general public to 
participate in the development, implementation, and periodic review and 
update of the local school wellness policy;
    (2) Inform the public about the content and implementation of the 
local school wellness policy, and make the policy and any updates to the 
policy available to the public on an annual basis;
    (3) Inform the public about progress toward meeting the goals of the 
local school wellness policy and compliance with the local school 
wellness policy by making the triennial assessment, as required in 
paragraph (e)(2) of this section, available to the public in an 
accessible and easily understood manner.
    (e) Implementation assessments and updates. Each local educational 
agency must:
    (1) Designate one or more local educational agency officials or 
school officials to ensure that each participating school complies with 
the local school wellness policy;
    (2) At least once every three years, assess schools' compliance with 
the local school wellness policy, and make assessment results available 
to the public. The assessment must measure the implementation of the 
local school wellness policy, and include:
    (i) The extent to which schools under the jurisdiction of the local 
educational agency are in compliance with the local school wellness 
policy;
    (ii) The extent to which the local educational agency's local school 
wellness policy compares to model local school wellness policies; and
    (iii) A description of the progress made in attaining the goals of 
the local school wellness policy.
    (3) Make appropriate updates or modifications to the local school 
wellness policy, based on the triennial assessment.

[[Page 75]]

    (f) Recordkeeping requirement. Each local educational agency must 
retain records to document compliance with the requirements of this 
section. These records include but are not limited to:
    (1) The written local school wellness policy;
    (2) Documentation demonstrating compliance with community 
involvement requirements, including requirements to make the local 
school wellness policy and triennial assessments available to the public 
as required in paragraph (e) of this section; and
    (3) Documentation of the triennial assessment of the local school 
wellness policy for each school under its jurisdiction.

[81 FR 51069, July 29, 2016. Redesignated at 81 FR 93792, Dec. 22, 2016]



Sec. 210.32  State agency and Regional office addresses.

    School food authorities and schools desiring information about the 
Program should contact their State educational agency or the appropriate 
FNS Regional Office at the address or telephone number listed on the FNS 
Web site (www.fns.usda.gov/cnd).

[77 FR 4153, Jan. 26, 2012. Redesignated at 80 FR 11092, Mar. 2, 2015, 
and further redesignated at 81 FR 50169, July 29, 2016]



Sec. 210.33  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, Public Law 
96-511.

------------------------------------------------------------------------
7 CFR section where requirements are
              described                     Current OMB control No.
------------------------------------------------------------------------
210.3(b)............................  0584-0067
210.4(b)............................  0584-0002
210.5(d)............................  0584-0006; 0584-0002; 0584-0067;
                                       0584-0567 (to be merged with 0584-
                                       0006)
210.7...............................  0584-0567 (to be merged with 0584-
                                       0006)
210.8...............................  0584-0284; 0584-0006
210.9...............................  0584-0006
210.10..............................  0584-0006; 0584-0494
210.11..............................  0584-0576 (to be merged with 0584-
                                       0006)
210.13..............................  0584-0006
210.14..............................  0584-0006
210.15..............................  0584-0006
210.17..............................  0584-0075
210.18..............................  0584-0006
210.19..............................  0584-0006
210.20..............................  0584-0006; 0584-0002; 0584-0067
210.23..............................  0584-0006
------------------------------------------------------------------------


[80 FR 11092, Mar. 2, 2015. Redesignated at 81 FR 50169, July 29, 2016]



         Sec. 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.
    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

[[Page 76]]

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 at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal_register/code_of_federal_regulations/ibr_locations.html.
    (i) The protein content (N  x  6.25) 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 National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal_register/code_of_federal_regulations/ibr_locations.html.
    (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 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.

[[Page 77]]

    (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.

                     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

[[Page 78]]

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; 69 FR 18803, Apr. 9, 2004]



                 Sec. Appendix B to Part 210 [Reserved]



      Sec. 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).

[[Page 79]]

[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, Secs. 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:
    (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

[[Page 80]]

applicable, Secs. 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.
215.7a  Fluid milk and non-dairy milk substitute requirements.
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  Withholding payments.
215.16  Suspension, termination and grant closeout procedures.
215.17  Program information.
215.18  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 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.

[[Page 81]]

    (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:
    2 CFR part 200, means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C) does not apply to the National School Lunch 
Program).
    Act means the Child Nutrition Act of 1966.
    Adults means those persons not included under the definition of 
children.
    Applicable credits shall have the meaning established in 2 CFR part 
200 and USDA implementing regulations 2 CFR part 400 and part 415.
    Child and Adult Care Food Program means the program authorized by 
section 17 of the National School Lunch Act, as amended.
    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'' of this section.
    Child means
    (1) A person under 19 chronological years of age in a Child care 
institution as defined in this section;
    (2) A person under 21 chronological years of age attending a school 
as defined in paragraphs (3) and (4) of the definition of School in this 
section;
    (3) A student of high school grade or under attending school as 
defined in paragraphs (1) and (2) of the definition of School in this 
section; or
    (4) A student who is mentally or physically disabled as determined 
by the State and who is 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 paragraphs (1) and (2) 
of the definition of School in this section.
    CND means the Child Nutrition Division of the Food and Nutrition 
Service of the Department.
    Contractor means a commercial enterprise, public or nonprofit 
private organization or individual that enters into a contract with a 
school food authority.
    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.
    Cost reimbursable contract means a contract that provides for 
payment of incurred costs to the extent prescribed in the contract, with 
or without a fixed fee.
    Department means the U.S. Department of Agriculture.
    Disclosure means reveal or use individual children's program 
eligibility information obtained through the free

[[Page 82]]

milk eligibility process 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.
    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.
    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.
    Fixed fee means an agreed upon amount that is fixed at the inception 
of the contract. In a cost reimbursable contract, the fixed fee includes 
the contractor's direct and indirect administrative costs and profit 
allocable to the contract.
    FNS means the Food and Nutrition Service of the U.S. Department of 
Agriculture.
    FNSRO means Food and Nutrition Services Regional Offices, of the 
Food and Nutrition Service of the U.S. Department of Agriculture.
    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.
    Local educational agency means a public board of education or other 
public or private nonprofit authority legally constituted within a State 
for either administrative control or direction of, or to perform a 
service function for, public or private nonprofit elementary schools or 
secondary schools in a city, county, township, school district, or other 
political subdivision of a State, or for a combination of school 
districts or counties that is recognized in a State as an administrative 
agency for its public or private nonprofit elementary schools or 
secondary schools. The term also includes any other public or private 
nonprofit institution or agency having administrative control and 
direction of a public or private nonprofit elementary school or 
secondary school, including residential child care institutions, Bureau 
of Indian Affairs schools, and educational service agencies and 
consortia of those agencies, as well as the State educational agency in 
a State or territory in which the State educational agency is the sole 
educational agency for all public or private nonprofit schools.
    Medicaid means the State medical assistance program under title XIX 
of the Social Security Act (42 U.S.C. 1396 et seq.).
    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.
    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.
    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.
    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.
    Nonprofit means, when applied to schools or institutions eligible 
for the Program, exempt from income tax

[[Page 83]]

under section 501(c)(3) of the Internal Revenue Code of 1986.
    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.
    Nonprofit school food service account means the restricted account 
in which all of the revenue from the nonprofit milk service maintained 
for the benefit of children is retained and used only for the operation 
or improvement of the nonprofit milk service.
    OA means the Office of Audit of the United States Department of 
Agriculture.
    OIG means the Office of the Inspector General of the Department.
    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.
    Program means the Special Milk Program for Children.
    Reimbursement means financial assistance paid or payable to 
participating schools and child care institutions for milk served to 
eligible children.
    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 intended for the care of 
children confined for 30 days or more.
    School Breakfast Program means the program authorized by section 4 
of the Child Nutrition Act of 1966, as amended.
    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.
    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.
    Split-session means an educational program operating for 
approximately one-half of the normal school day.
    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.
    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.
    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.).
    Summer Food Service Program for Children means the program 
authorized by section 13 of the National School Lunch Act, as amended.

[[Page 84]]

    USDA implementing regulations include the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations for Grants and Cooperative Agreements to 
State and Local Governments; and 2 CFR part 418, New Restrictions on 
Lobbying.

(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 at www.fdsys.gov.



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 
described in paragraph (3) of the definition of School in Sec. 215.2 or 
in child care institutions.
    (c) FNSRO shall administer the Program in any School or any Child 
care institution as defined in Sec. 215.2 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, 7 CFR parts 235, 245, 15, 15a, 15b and, as 
applicable, 2 CFR part 200, subpart D and USDA implementing regulations 
2 CFR part 400, subparts B and D and USDA implementing regulations 2 CFR 
part 400 and part 415, and FNS Instructions. 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; 71 FR 39516, 
July 13, 2006; 72 FR 63791, Nov. 13, 2007; 81 FR 66490, Sept. 28, 2016]



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

[[Page 85]]

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 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

[[Page 86]]

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 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.
    (f) Program evaluations. Local educational agencies, school food 
authorities, schools, child care institutions and contractors must 
cooperate in studies and evaluations conducted by or on behalf of the 
Department, related

[[Page 87]]

to programs authorized under the Richard B. Russell National School 
Lunch Act and the Child Nutrition Act of 1966.

(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]

    Editorial Note: For Federal Register citations affecting Sec. 215.7, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 215.7a  Fluid milk and non-dairy milk substitute requirements.

    Fluid milk and non-dairy fluid milk substitutes served must meet the 
requirements as outlined in this section.
    (a) Types of fluid milk. All fluid milk served in the Program must 
be pasteurized fluid milk which meets State and local standards for such 
milk, 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. Fluid milk must also meet the following requirements:
    (1) Children 1 year old. Children one year of age must be served 
unflavored whole milk.
    (2) Children 2 through 5 years old. Children two through five years 
old must be served either unflavored low-fat (1 percent) or unflavored 
fat-free (skim) milk.
    (3) Children 6 years old and older. Children six years old and older 
must be served unflavored low-fat (1 percent), unflavored fat-free 
(skim), or flavored fat-free (skim) milk.
    (b) Fluid milk substitutes. Non-dairy fluid milk substitutions that 
provide the nutrients listed in the following table and are fortified in 
accordance with fortification guidelines issued by the Food and Drug 
Administration may be provided for non-disabled children who cannot 
consume fluid milk due to medical or special dietary needs when 
requested in writing by the child's parent or guardian. A school or day 
care center need only offer the non-dairy beverage that it has 
identified as an allowable fluid milk substitute according to the 
following table.

------------------------------------------------------------------------
              Nutrient                         Per cup (8 fl oz)
------------------------------------------------------------------------
Calcium.............................  276 mg.
Protein.............................  8 g.
Vitamin A...........................  500 IU.
Vitamin D...........................  100 IU.
Magnesium...........................  24 mg.
Phosphorus..........................  222 mg.
Potassium...........................  349 mg.
Riboflavin..........................  0.44 mg.
Vitamin B-12........................  1.1 mcg.
------------------------------------------------------------------------


[81 FR 24375, Apr. 25, 2016]



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 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]

[[Page 88]]



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 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

[[Page 89]]

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 of this title. Compliance 
reviews of participating schools shall focus on the reviewed school's 
compliance with the required certification, counting, cla, aiming, 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 Secs. 215.8 
and 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 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 (FNS-777) 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.

[[Page 90]]

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.
    (f) Program evaluations. States, State agencies, and contractors 
must cooperate in studies and evaluations conducted by or on behalf of 
the Department, related to programs authorized under the Richard B. 
Russell National School Lunch Act and the Child Nutrition Act of 1966.

(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; 76 FR 
37982, June 29, 2011; 81 FR 50193, July 29, 2016; 81 FR 66490, Sept. 28, 
2016]



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 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

[[Page 91]]

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) Unless otherwise exempt, audits at the State and school food 
authority/child care institution levels shall be conducted in accordance 
with 2 CFR part 200, subpart F, and Appendix XI, Compliance Supplement 
and USDA's implementing regulations 2 CFR part 400 and part 415.
    (b) 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 OIG 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 OIG. OIG shall also have the right to make audits of the records and 
operations of any school or child-care institution.
    (c) 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))

[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; 71 FR 
39516, July 13, 2006; 81 FR 66490, Sept. 28, 2016]



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

[[Page 92]]

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) Statement requirements. The free milk application provided to 
households must include a statement informing households of how 
information provided on the application will be used. Each application 
must include substantially the following statement: ``The Richard B. 
Russell National School Lunch Act requires the information on this 
application. You do not have to give the information, but if you do not, 
we cannot approve your child for free milk. You must include the last 
four digits of the social security number of the adult household member 
who signs the application. The last four digits of the social security 
number are not required when you list a Supplemental Nutrition 
Assistance Program (SNAP), Temporary Assistance for Needy Families 
(TANF) Program or Food Distribution Program on Indian Reservations 
(FDPIR) case number for your child or other FDPIR identifier or when you 
indicate that the adult household member signing the application does 
not have a social security number. We will use your information to 
determine if your child is eligible for free milk, and for 
administration and enforcement of the Program.'' When the State agency 
or child care institution, as appropriate, plans to use or disclose 
children's eligibility information for non-program purposes, additional 
information, as specified in paragraph (i) of this section must be added 
to this statement. State agencies and child care institutions are 
responsible for drafting the appropriate statement.
    (g) Disclosure of children's free milk eligibility information to 
certain programs and individuals without parental consent. The State 
agency or child care institution, as appropriate, may disclose aggregate 
information about children eligible for free milk to any party without 
parental notification and consent when children cannot be identified 
through release of the aggregate data or by means of deduction. 
Additionally, the State agency or child care institution may disclose 
information that identifies children eligible for free milk to the 
programs and the individuals specified in this paragraph (g)

[[Page 93]]

without parent/guardian consent. The State agency or child care 
institution that makes the free milk eligibility determination is 
responsible for deciding whether to disclose program eligibility 
information.
    (1) Persons authorized to receive eligibility information. Only 
persons directly connected with the administration or enforcement of a 
program or activity listed in paragraphs (g)(2) or (g)(3) of this 
section may have access to children's free milk eligibility information, 
without parental consent. Persons considered directly connected with 
administration or enforcement of a program or activity listed in 
paragraphs (g)(2) or (g)(3) of this section are Federal, State, or local 
program operators responsible for the ongoing operation of the program 
or activity or persons responsible for program compliance. Program 
operators may include persons responsible for carrying out program 
requirements and monitoring, reviewing, auditing, or investigating the 
program. Program operators may include contractors, to the extent those 
persons have a need to know the information for program administration 
or enforcement. Contractors may include evaluators, auditors, and others 
with whom Federal or State agencies and program operators contract with 
to assist in the administration or enforcement of their program on their 
behalf.
    (2) Disclosure of children's names and free milk eligibility status. 
The State agency or child care institution, as appropriate, may 
disclose, without parental consent, only children's names and 
eligibility status (whether they are eligible for free milk) to persons 
directly connected with the administration or enforcement of:
    (i) A Federal education program;
    (ii) A State health program or State education program administered 
by the State or local education agency;
    (iii) A Federal, State, or local means-tested nutrition program with 
eligibility standards comparable to the National School Lunch Program 
(i.e., food assistance programs for households with incomes at or below 
185 percent of the Federal poverty level); or
    (iv) A third party contractor assisting in verification of 
eligibility efforts by contacting households who fail to respond to 
requests for verification of their eligibility.
    (3) Disclosure of all eligibility information. In addition to 
children's names and eligibility status, the State agency or child care 
institution, as appropriate, may disclose, without parental consent, all 
eligibility information obtained through the free milk eligibility 
process (including all information on the application or obtained 
through direct certification) to:
    (i) Persons directly connected with the administration or 
enforcement of programs authorized under the Richard B. Russell National 
School Lunch Act or the Child Nutrition Act of 1966. This means that all 
eligibility information obtained for the Special Milk Program may be 
disclosed to persons directly connected with administering or enforcing 
regulations under the National School Lunch Program, School Breakfast 
Program, Child and Adult Care Food Program, Summer Food Service Program 
and the Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC) (Parts 210, 220, 226, 225, and 246, respectively, of this 
chapter);
    (ii) The Comptroller General of the United States for purposes of 
audit and examination; and
    (iii) Federal, State, and local law enforcement officials for the 
purpose of investigating any alleged violation of the programs listed in 
paragraphs (g)(2) and (g)(3) of this section.
    (4) Use of free milk eligibility information by programs other than 
Medicaid or the State Children's Health Insurance Program (SCHIP). State 
agencies and child care institutions may use children's free milk 
eligibility information for administering or enforcing the Special Milk 
Program. Additionally, any other Federal, State, or local agency charged 
with administering or enforcing the Special Milk Program may use the 
information for that purpose. Individuals and programs to which 
children's free milk eligibility information has been disclosed under 
this section may use the information only in the administration or 
enforcement of the receiving program. No further disclosure of the 
information may be made.

[[Page 94]]

    (h) Disclosure of children's free milk eligibility information to 
Medicaid and/or SCHIP, unless parents decline. Children's free milk 
eligibility information only may 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 and the other provisions described in paragraph (h)(1) of this 
section are met. 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. Persons directly connected to the administration of 
Medicaid and SCHIP are 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 for Medicaid or SCHIP.
    (1) The State agency must ensure that:
    (i) The child care institution and health insurance program 
officials have a written agreement that requires the health insurance 
program agency to use the eligibility information to seek to enroll 
children in Medicaid and SCHIP; and
    (ii) Parents/guardians are notified that their eligibility 
information may be disclosed to Medicaid or SCHIP and given an 
opportunity to decline to have their children's eligibility information 
disclosed, prior to any disclosure.
    (2) Use of children's free milk eligibility information by Medicaid/
SCHIP. Medicaid and SCHIP agencies and health insurance program 
operators receiving children's free milk eligibility information must 
use the information to identify eligible children and enroll them 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. No further disclosure of the 
information may be made. Medicaid and SCHIP agencies and health 
insurance program operators also may verify children's eligibility in a 
program under the Child Nutrition Act of 1966 or the Richard B. Russell 
National School Lunch Act.
    (i) Notifying households of potential uses and disclosures of 
children's free milk eligibility information. Households must be 
informed that the information they provide on the free milk application 
will be used to determine eligibility for free milk and that their 
eligibility information may be disclosed to other programs.
    (1) For disclosures to programs, other than Medicaid or SCHIP, that 
are permitted access to children's eligibility information without 
parent/guardian consent, the State agency or child care institution, as 
appropriate, must notify parents/guardians at the time of application 
that their children's free milk eligibility information may be 
disclosed. The State agency or child care institution, as appropriate, 
must add substantially the following statement to the statement required 
under paragraph (f) of this section, ``We may share your eligibility 
information with education, health, and nutrition programs to help them 
evaluate, fund, or determine benefits for their programs; auditors for 
program reviews; and law enforcement officials to help them look into 
violations of program rules.'' For children determined eligible for free 
milk 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 
process.
    (2) For 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 and notifies the State agency or child care 
institution, as appropriate, by a date specified by the State agency or 
child care institution, as appropriate. Only the parent or guardian who 
is a member of the household or family for purposes of the free milk 
application may

[[Page 95]]

decline the disclosure of eligibility information to Medicaid or SCHIP. 
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 eligible children and seek to enroll 
them in Medicaid or SCHIP, 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 provided 
to parents/guardians. The notice must give parents/guardians adequate 
time to respond if they do not want their information disclosed. The 
State agency or child care institution, as appropriate, must add 
substantially the following statement to the statement required under 
paragraph (f) of this section, ``We may share your information with 
Medicaid or the State Children's Health Insurance Program, unless you 
tell us not to. The information, if disclosed, will be used to identify 
eligible children and seek to enroll them in Medicaid or SCHIP.'' For 
children determined eligible for free milk through direct certification, 
the notice of potential disclosure and opportunity to decline the 
disclosure may be included in the document informing parents/guardians 
of their children's eligibility for free milk through direct 
certification.
    (j) Other disclosures. State agencies and child care institutions 
that plan to use or disclose identifying information about children 
eligible for free milk to programs or individuals not specified in this 
section must obtain written consent from children's parents or guardians 
prior to the use or disclosure.
    (1) The consent must identify the information that will be shared 
and how the information will be used.
    (2) There must be a statement informing parents and guardians that 
failing to sign the consent will not affect the child's eligibility for 
free milk and that the individuals or programs receiving the information 
will not share the information with any other entity or program.
    (3) Parents/guardians must be permitted to limit the consent only to 
those programs with which they wish to share information.
    (4) The consent statement must be signed and dated by the child's 
parent or guardian who is a member of the household for purposes of the 
free milk application.
    (k) Agreements with programs/individuals receiving children's free 
milk eligibility information. Agreements or Memoranda of Understanding 
(MOU) are recommended or required as follows:
    (1) The State agency or child care institution, as appropriate, 
should have a written agreement or MOU with programs or individuals 
receiving eligibility information, prior to disclosing children's free 
milk eligibility information. The agreement or MOU should include 
information similar to that required for disclosures to Medicaid and 
SCHIP specified in paragraph (k)(2) of this section.
    (2) For disclosures to Medicaid or SCHIP, 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 to those 
agencies. 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 be used to seek to enroll 
children in Medicaid or SCHIP;
    (iv) Require that the Medicaid or SCHIP agency describe how they 
will use the information obtained;
    (v) Describe how the information will be protected from unauthorized 
uses and disclosures;
    (vi) Describe the penalties for unauthorized disclosure; and
    (vii) Be signed by both the Medicaid or SCHIP program or agency and 
the State agency or child care institution, as appropriate.
    (l) Penalties for unauthorized disclosure or misuse of children's 
free milk eligibility information. In accordance with section

[[Page 96]]

9(b)(6)(C) of the Richard B. Russell National School Lunch Act (42 
U.S.C. 1758(b)(6)(C)), 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 section will be 
fined not more than $1,000 or imprisoned for up to 1 year, or both.

(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; 72 FR 10892, Mar. 12, 2007; 76 
FR 22798, Apr. 25, 2011; 78 FR 13449, Feb. 28, 2013]



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) General. State agencies and school food authorities shall comply 
with the requirements of this part and 2 CFR part 200 and USDA 
implementing regulations 2 CFR part 400 and part 415, as applicable 
concerning the procurement of all goods and services with nonprofit 
school food service account funds.
    (b) Contractual responsibilities. The standards contained in this 
part and 2 CFR part 200, subpart D and USDA implementing regulations 2 
CFR part 200 subparts B and D and USDA implementing regulations 2 CFR 
part 400 and part 415, as applicable, 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) Procedures. The State agency may elect to follow either the 
State laws, policies and procedures as authorized by 2 CFR 200.317, or 
the procurement standards for other governmental grantees and all 
governmental subgrantees in accordance with 2 CFR 200.318 through 2 CFR 
200.326. Regardless of the option selected, States must ensure that all 
contracts include any clauses required by Federal statutes and executive 
orders and that the requirements of 2 CFR 200.236 and Appendix II, 
Contract Provisions for Non-Federal Entity Contracts Under Federal Award 
are followed. The school food authority or child care institution may 
use its own procurement procedures which reflect applicable State or 
local laws and regulations, provided that procurements made with 
nonprofit school food service account funds adhere to the standards set 
forth in this part and in 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415 as applicable. 
School food authority procedures must include a written code of 
standards of conduct meeting the minimum standards of 2 CFR 200.318, as 
applicable.
    (1) Pre-issuance review requirement. The State agency may impose a 
pre-issuance review requirement on a school food authority's proposed 
procurement. The school food authority must make available, upon request 
of the State agency, its procurement documents, including but not 
limited to

[[Page 97]]

solicitation documents, specifications, evaluation criteria, procurement 
procedures, proposed contracts and contract terms. School food 
authorities shall comply with State agency requests for changes to 
procurement procedures and solicitation and contract documents to ensure 
that, to the State agency's satisfaction, such procedures and documents 
reflect applicable procurement and contract requirements and the 
requirements of this part.
    (2) Prototype solicitation documents and contracts. The school food 
authority must obtain the State agency's prior written approval for any 
change made to prototype solicitation or contract documents before 
issuing the revised solicitation documents or execution of the revised 
contract.
    (3) Prohibited expenditures. No expenditure may be made from the 
nonprofit school food service account for any cost resulting from a 
procurement failing to meet the requirements of this part.
    (d) Cost reimbursable contracts--(1) Required provisions. The school 
food authority must include the following provisions in all cost 
reimbursable contracts, including contracts with cost reimbursable 
provisions, and in solicitation documents prepared to obtain offers for 
such contracts:
    (i) Allowable costs will be paid from the nonprofit school food 
service account to the contractor net of all discounts, rebates and 
other applicable credits accruing to or received by the contractor or 
any assignee under the contract, to the extent those credits are 
allocable to the allowable portion of the costs billed to the school 
food authority;
    (ii)(A) The contractor must separately identify for each cost 
submitted for payment to the school food authority the amount of that 
cost that is allowable (can be paid from the nonprofit school food 
service account) and the amount that is unallowable (cannot be paid from 
the nonprofit school food service account), or
    (B) The contractor must exclude all unallowable costs from its 
billing documents and certify that only allowable costs are submitted 
for payment and records have been established that maintain the 
visibility of unallowable costs, including directly associated costs in 
a manner suitable for contract cost determination and verification;
    (iii) The contractor's determination of its allowable costs must be 
made in compliance with the applicable Departmental and Program 
regulations and Office of Management and Budget cost circulars;
    (iv) The contractor must identify the amount of each discount, 
rebate and other applicable credit on bills and invoices presented to 
the school food authority for payment and identify the amount as a 
discount, rebate, or in the case of other applicable credits, the nature 
of the credit. If approved by the State agency, the school food 
authority may permit the contractor to report this information on a less 
frequent basis than monthly, but no less frequently than annually;
    (v) The contractor must identify the method by which it will report 
discounts, rebates and other applicable credits allocable to the 
contract that are not reported prior to conclusion of the contract; and
    (vi) The contractor must maintain documentation of costs and 
discounts, rebates and other applicable credits, and must furnish such 
documentation upon request to the school food authority, the State 
agency, or the Department.
    (2) Prohibited expenditures. No expenditure may be made from the 
nonprofit school food service account for any cost resulting from a cost 
reimbursable contract that fails to include the requirements of this 
section, nor may any expenditure be made from the nonprofit school food 
service account that permits or results in the contractor receiving 
payments in excess of the contractor's actual, net allowable costs.
    (e) Geographic preference. A school food authority participating in 
the Program may apply a geographic preference when procuring milk. When 
utilizing the geographic preference to procure milk, the school food 
authority making the purchase has the discretion to determine the local 
area to which

[[Page 98]]

the geographic preference option will be applied.

(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, as amended at 71 FR 39516, July 
13, 2006; 72 FR 61492, Oct. 31, 2007; 76 FR 22607, Apr. 22, 2011; 81 FR 
66490, Sept. 28, 2016]



Sec. 215.15  Withholding payments.

    In accordance with Departmental regulations 2 CFR 200.338 through 
200.342, 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 actions will be taken, or 
until the State agency terminates the grant in accordance with 
Sec. 215.16. Subsequent to the State agency's acceptance of the 
corrective actions, payments will be released for any milk served in 
accordance with the provisions of this part during the period the 
payments were withheld.

[72 FR 61493, Oct. 31, 2007, as amended at 81 FR 66490, Sept. 28, 2016]



Sec. 215.16  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 2 CFR 
part 200, subpart D and USDA implementing regulations 2 CFR subparts B 
and D and USDA implementing regulations 2 CFR part 400 and part 415, 
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, as amended at 71 FR 39517, July 13, 
2006. Redesignated at 72 FR 61493, Oct. 31, 2007, as amended at 81 FR 
66490, Sept. 28, 2016]



Sec. 215.17  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. 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, 90 Seventh Street, Suite 10-100, San 
Francisco, California 94103-6701.

[[Page 99]]

    (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. Redesignated at 72 FR 
61493, Oct. 31, 2007, as amended at 76 FR 34569, June 13, 2011]



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

------------------------------------------------------------------------
                                                            Current OMB
     7 CFR section where requirements are described         control No.
------------------------------------------------------------------------
215.3(d)................................................       0584-0067
215.5(a)................................................       0584-0005
215.7...................................................       0584-0005
215.10(a), (b), (d).....................................       0584-0005
215.11(c)(1)............................................       0584-0005
215.11(c)(2)............................................       0584-0594
215.12(d)...............................................       0584-0005
215.13a.................................................       0584-0026
215.14a.................................................       0584-0005
------------------------------------------------------------------------


[81 FR 50193, July 29, 2016]



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  Meal requirements 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  Withholding payments.
220.19  Suspension, termination and grant closeout procedures.
220.20  Free and reduced price breakfasts.
220.21  Program information.
220.22  Information collection/recordkeeping--OMB assigned control 
          numbers.

Appendix A to Part 220--Alternate Foods for Meals
Appendix B to Part 220 [Reserved]
Appendix C to Part 220--Child Nutrition (CN) Labeling Program

    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:
    2 CFR part 200, means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C) does not apply to the National School Lunch 
Program).
    Act means the Child Nutrition Act of 1966, as amended.
    Applicable credits shall have the meaning established in 2 CFR part 
200 and USDA implementing regulations 2 CFR part 400 and part 415.
    Breakfast means a meal which meets the meal requirements set out in 
Secs. 220.8 and 220.23, 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.
    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

[[Page 100]]

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 paragraph (3) of the definition of 
School in this section.
    CND means the Child Nutrition Division of the Food and Nutrition 
Service of the Department.
    Contractor means a commercial enterprise, public or nonprofit 
private organization or individual that enters into a contract with a 
school food authority.
    Cost reimbursable contract means a contract that provides for 
payment of incurred costs to the extent prescribed in the contract, with 
or without a fixed fee.
    Department means the U.S. Department of Agriculture.
    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.
    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.
    Fixed fee means an agreed upon amount that is fixed at the inception 
of the contract. In a cost reimbursable contract, the fixed fee includes 
the contractor's direct and indirect administrative costs and profit 
allocable to the contract.
    FNS means the Food and Nutrition Service of the Department.
    FNSRO means the appropriate Food and Nutrition Service Regional 
Office of the Food and Nutrition Service of the Department.
    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.
    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.
    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.
    Local educational agency means a public board of education or other 
public or private nonprofit authority legally constituted within a State 
for either administrative control or direction of, or to perform a 
service function for, public or private nonprofit elementary schools or 
secondary schools in a city, county, township, school district, or other 
political subdivision of a State, or for a combination of school 
districts or counties that is recognized in a State as an administrative 
agency for its public or private nonprofit elementary schools or 
secondary schools. The term also includes any other public or private 
nonprofit institution or agency having administrative control and 
direction of a public or private nonprofit elementary school or 
secondary school, including residential child care institutions, Bureau 
of Indian Affairs schools, and educational service agencies and 
consortia of those agencies, as well as the State educational agency in 
a State or territory in which the State educational agency is the sole 
educational agency for all public or private nonprofit schools.
    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. 220.23, except for those foods that are 
considered as foods of minimal nutritional value as provided for in the 
definition of Foods of minimal nutritional value in this section 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

[[Page 101]]

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.
    National School Lunch Program means the Program authorized by the 
National School Lunch Act.
    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.
    Nonprofit means, when applied to schools or institutions eligible 
for the Program, exempt from income tax under section 501(c)(3) of the 
Internal Revenue Code of 1986.
    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.
    Nonprofit school food service account means the restricted account 
in which all of the revenue from all food service operations conducted 
by the school food authority principally for the benefit of school 
children is retained and used only for the operation or improvement of 
the nonprofit school food service.
    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.
    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. 220.23(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. 220.23(f).
    OA means the Office of Audit of the Department.
    OI means the Office of Investigation of the Department.
    OIG means the Office of the Inspector General of the Department.
    Program means the School Breakfast Program.
    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.
    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.
    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: (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

[[Page 102]]

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.
    School Breakfast Program means the program authorized by section 4 
of the Child Nutrition Act of 1966.
    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(d).
    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.
    School week means the period of time used to determine compliance 
with the meal requirements in Sec. 220.8 and Sec. 220.23. The period 
must be a normal school week of five consecutive days; however, to 
accommodate shortened weeks resulting from holidays and other scheduling 
needs, the period must 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 must be combined with either the previous 
or the coming week.
    Secretary means the Secretary of Agriculture.
    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.
    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 the Program in schools as 
described in paragraph (3) of the definition of School in this section.
    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.
    Tofu means a soybean-derived food, made by a process in which 
soybeans are soaked, ground, mixed with water, heated, filtered, 
coagulated, and formed into cakes. Basic ingredients are whole soybeans, 
one or more food-grade coagulants (typically a salt or an acid), and 
water. Tofu products must conform to FNS guidance to count toward the 
meats/meat alternates component.
    USDA implementing regulations include the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations for Grants and Cooperative Agreements to 
State and Local Governments; and 2 CFR part 418, New Restrictions on 
Lobbying.
    Whole grains means grains that consist of the intact, ground, 
cracked, or flaked grain seed whose principal anatomical components--the 
starchy endosperm, germ and bran--are present in the same relative 
proportions as they exist in the intact grain seed. Whole grain-rich 
products must conform to FNS guidance to count toward the grains 
component.
    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.

[[Page 103]]

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 at www.fdsys.gov.



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 described in paragraphs (1) and (2) of the 
definition of School in Sec. 220.2 shall be in the State educational 
agency, except that FNSRO shall administer the Program with respect to 
nonprofit private schools and adding in their place the words ``as 
described in paragraph (1) of the definition of School in Sec. 220.2 in 
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 described in paragraph (3) of the definition of 
School in Sec. 220.2, 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, 7 CFR parts 235, 245, 15, 15a, 15b and, as 
applicable, 2 CFR part 200, subpart D and USDA implementing regulations 
2 CFR part 400 subparts B and D and USDA implementing regulations 2 CFR 
part 400 and part 415 and FNS Instructions. 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; 71 FR 39517, July 13, 2006; 72 FR 63792, Nov. 13, 2007; 81 FR 
66491, Sept. 28, 2016]



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 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.

[[Page 104]]

    (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 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

[[Page 105]]

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.
    (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.
    (2) Schools shall obtain a minimum of two food safety inspections 
per school year conducted by a State or local governmental agency 
responsible for food safety inspections. Schools participating in more 
than one child nutrition program shall only be required to obtain a 
minimum of two food safety inspections per school year if the food 
preparation and service for all meal programs take place at the same 
facility. Schools shall post in a publicly visible location a report of 
the most recent inspection conducted, and provide a copy of the 
inspection report to a member of the public upon request.
    (3) The school food authority must implement a food safety program 
meeting the requirements of Secs. 210.13(c) and 210.15(b)(5) of this 
chapter at each facility or part of a facility where food is stored, 
prepared, or served.
    (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)(1) 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 breakfasts 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:
    (i) Adhere to the procurement standards specified in Sec. 220.16 
when contracting with the food service management company;
    (ii) Ensure that the food service operation is in conformance with 
the school food authority's agreement under the Program;
    (iii) Monitor the food service operation through periodic on-site 
visits;
    (iv) Retain control of the quality, extent, and general nature of 
its food service, and the prices to be charged the children for meals;
    (v) Retain signature authority on the State agency-school food 
authority agreement, free and reduced price policy statement and claims;
    (vi) Ensure that all federally donated foods received by the school 
food authority and made available to the food

[[Page 106]]

service management company accrue only to the benefit of the school food 
authority's nonprofit school food service and are fully utilized 
therein;
    (vii) 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;
    (viii) Obtain written approval of invitations for bids and requests 
for proposals before their issuance when required by the State agency. 
The school food authority must incorporate all State agency required 
changes to its solicitation documents before issuing those documents; 
and
    (ix) Ensure that the State agency has reviewed and approved the 
contract terms and the school food authority has incorporated all State 
agency required changes into the contract or amendment before any 
contract or amendment to an existing food service management company 
contract is executed. Any changes made by the school food authority or a 
food service management company to a State agency pre-approved prototype 
contract or State agency approved contract term must be approved in 
writing by the State agency before the contract is executed. When 
requested, the school food authority must submit all procurement 
documents, including responses submitted by potential contractors, to 
the State agency, by the due date established by the State agency.
    (2) In addition to adhering to the procurement standards under this 
part, school food authorities contracting with food service management 
companies shall ensure that:
    (i) The invitation to bid or request for proposal contains a 21-day 
cycle menu developed in accordance with the provisions of Sec. 220.8, to 
be used as a standard for the purpose of basing bids or estimating 
average cost per meal. A school food authority with no capability to 
prepare a cycle menu may, with State agency approval, require that each 
food service management company include a 21-day cycle menu, developed 
in accordance with the provisions of Sec. 220.8, with its bid or 
proposal. 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; and
    (ii) 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. 220.16.
    (3) 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 requirements:
    (i) 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 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 Government Accountability Office at any 
reasonable time and place. 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);
    (ii) 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

[[Page 107]]

this health certification for the duration of the contract; and
    (iii) 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. 220.8, 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.
    (4) The contract between a school food authority and food service 
management company shall be of a duration of no longer than 1 year and 
options for the yearly renewal of the contract shall not exceed 4 
additional years. All contracts shall include a termination clause 
whereby either party may cancel for cause with 60-day notification.
    (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, and comply with the 
food safety requirements in paragraph (a)(2) and paragraph (a)(3) of 
this section;
    (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;

[[Page 108]]

    (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 documentation of free or reduced price eligibility as 
follows:
    (i) Maintain files of currently approved and denied free and reduced 
price applications which must be readily retrievable by school for a 
period of three years after the end of the fiscal year to which they 
pertain; or
    (ii) Maintain files with the names of children currently approved 
for free meals through direct certification with the supporting 
documentation, as specified in Sec. 245.6(b)(4) of this chapter, which 
must be readily retrievable by school. Documentation for direct 
certification must include information obtained directly from the 
appropriate State or local agency, or other appropriate individual, as 
specified by FNS, that:
    (A) A child in the Family, as defined in Sec. 245.2 of this chapter, 
is receiving benefits from SNAP, FDPIR or TANF, as defined in Sec. 245.2 
of this chapter; if one child is receiving such benefits, all children 
in that family are considered to be directly certified;
    (B) The child is a homeless child as defined in Sec. 245.2 of this 
chapter;
    (C) The child is a runaway child as defined in Sec. 245.2 of this 
chapter;
    (D) The child is a migrant child as defined in Sec. 245.2 of this 
chapter;
    (E) The child is a Head Start child, as defined in Sec. 245.2 of 
this chapter; or
    (F) The child is a foster child as defined in Sec. 245.2 of this 
chapter.
    (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 not inconsistent with the provisions of this part.
    (g) Program evaluations. Local educational agencies, school food 
authorities, schools, and contractors must cooperate in studies and 
evaluations conducted by or on behalf of the Department, related to 
programs authorized under the Richard B. Russell National School Lunch 
Act and the Child Nutrition Act of 1966.
    (h) Local educational agencies must comply with the provisions of 
Sec. 210.30 of this chapter regarding the development, implementation, 
periodic review and update, and public notification of the local school 
wellness policy.

(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 at www.fdsys.gov.



Sec. 220.8  Meal requirements for breakfasts.

    (a) General requirements. This section contains the meal 
requirements applicable to school breakfasts for students in grades K 
through 12, and for children under the age of 5. With the exception of 
the milk component, the meal requirements must be implemented beginning 
July 1, 2013 or as otherwise specified. School food authorities wishing 
to adopt the provisions of this section prior to the required date of 
compliance may do so with the approval of the State agency. In general, 
school food authorities must ensure that participating schools provide 
nutritious, well-balanced, and age-appropriate breakfasts to all the 
children they serve to improve their diet and safeguard their health.
    (1) General nutrition requirements. School breakfasts offered to 
children age 5 and older must meet, at a minimum, the meal requirements 
in paragraph (b) of this section. Schools must follow a food-based menu 
planning approach and produce enough food to offer each child the 
quantities specified

[[Page 109]]

in the meal pattern established in paragraph (c) of this section for 
each age/grade group served in the school. In addition, school 
breakfasts must meet the dietary specifications in paragraph (f) of this 
section. Schools offering breakfasts to children ages 1 to 4 and infants 
must meet the meal pattern requirements in paragraphs (o) and (p), as 
applicable, of this section. When breakfast is served in the cafeteria, 
schools must make potable water available and accessible without 
restriction to children at no charge.
    (2) Unit pricing. Schools must price each meal as a unit. The price 
of a reimbursable lunch does not change if the student does not take a 
food item or requests smaller portions. Schools must identify, near or 
at the beginning of the serving line(s), the food items that constitute 
the unit-priced reimbursable school meal(s).
    (3) Production and menu records. Schools or school food authorities, 
as applicable, must keep production and menu records for the meals they 
produce. These records must show how the meals offered contribute to the 
required food components and food quantities for each age/grade group 
every day. Labels or manufacturer specifications for food products and 
ingredients used to prepare school meals for students in grades K 
through 12 must indicate zero grams of trans fat per serving (less than 
0.5 grams). Schools or school food authorities must maintain records of 
the latest nutritional analysis of the school menus conducted by the 
State agency. Production and menu records must be maintained in 
accordance with FNS guidance.
    (b) Meal requirements for school breakfasts. School breakfasts for 
children ages 5 and older must reflect food and nutrition requirements 
specified by the Secretary. Compliance with these requirements, once 
fully implemented as specified in paragraphs (c), (d), (e), (f), (h), 
(i), and (j) of this section, is measured as follows:
    (1) On a daily basis:
    (i) Meals offered to each age/grade group must include the food 
components and food quantities specified in the meal pattern in 
paragraph (c) of this section;
    (ii) Food products or ingredients used to prepare meals must contain 
zero grams of trans fat per serving or a minimal amount of naturally 
occurring trans fat as specified in paragraph (f) of this section; and
    (iii) Meal selected by each student must have the number of food 
components required for a reimbursable meal and include at least one 
fruit or vegetable.
    (2) Over a 5-day school week:
    (i) Average calorie content of the meals offered to each age/grade 
group must be within the minimum and maximum calorie levels specified in 
paragraph (f) of this section;
    (ii) Average saturated fat content of the meals offered to each age/
grade group must be less than 10 percent of total calories as specified 
in paragraph (f) of this section;
    (iii) Average sodium content of the meals offered to each age/grade 
group must not exceed the maximum level specified in paragraph (f) of 
this section;
    (c) Meal pattern for school breakfasts for grades K through 12. A 
school must offer the food components and quantities required in the 
breakfast meal pattern established in the following table:

----------------------------------------------------------------------------------------------------------------
                                                                           Breakfast meal pattern
                                                           -----------------------------------------------------
                                                               Grades K-5        Grades 6-8        Grades 9-12
----------------------------------------------------------------------------------------------------------------
                       Meal pattern                                      Amount of food \a\ per week
                                                                              (Minimum per day)
----------------------------------------------------------------------------------------------------------------
Fruits (cups) \b c\.......................................             5 (1)             5 (1)             5 (1)
Vegetables (cups) \b c\...................................                 0                 0                 0
    Dark green............................................                 0                 0                 0
    Red/Orange............................................                 0                 0                 0
    Beans and peas (legumes)..............................                 0                 0                 0
    Starchy...............................................                 0                 0                 0
    Other.................................................                 0                 0                 0
Grains (oz eq) \d\........................................          7-10 (1)          8-10 (1)          9-10 (1)
Meats/Meat Alternates (oz eq) \e\.........................                 0                 0                 0

[[Page 110]]

 
Fluid milk \f\ (cups).....................................             5 (1)             5 (1)             5 (1)
----------------------------------------------------------------------------------------------------------------
                    Other Specifications: Daily Amount Based on the Average for a 5-Day Week
----------------------------------------------------------------------------------------------------------------
Min-max calories (kcal) \g h\.............................           350-500           400-550           450-600
Saturated fat (% of total calories) \h\...................               <10               <10               <10
Sodium (mg) \h i\.........................................               430               470               500
                                                           -----------------------------------------------------
Trans fat \h j\...........................................   Nutrition label or manufacturer specifications must
                                                                indicate zero grams of trans fat per serving.
----------------------------------------------------------------------------------------------------------------
\a\ Food items included in each group and subgroup and amount equivalents. Minimum creditable serving is \1/8\
  cup.
\b\ One quarter cup of dried fruit counts as \1/2\ cup of fruit; 1 cup of leafy greens counts as \1/2\ cup of
  vegetables. No more than half of the fruit or vegetable offerings may be in the form of juice. All juice must
  be 100% full-strength.
\c\ Beginning July 1, 2014 (SY 2014-2015) schools must offer 1 cup of fruit daily and 5 cups of fruit weekly.
  Vegetables may be substituted for fruits, but the first two cups per week of any such substitution must be
  from the dark green, red/orange, beans and peas (legumes) or ``Other vegetables'' subgroups, as defined in
  210.10(c)(2)(iii).
\d\ Beginning July 1, 2013 (SY 2013-2014), at least half of grains offered must be whole-grain-rich and schools
  must meet the grain ranges. Schools may substitute 1 oz. eq. of meat/meat alternate for 1 oz. eq. of grains
  after the minimum daily grains requirement is met. By July 1, 2014 (SY 2014-15) all grains must be whole-grain-
  rich.
\e\ There is no meat/meat alternate requirement.
\f\ Beginning July 1, 2012 (SY 2012-2013) all fluid milk must be low-fat (1 percent milk fat or less,
  unflavored) or fat-free (unflavored or flavored).
\g\ Beginning July 1, 2013 (SY 2013-2014), the average daily calories for a 5-day school week must be within the
  range (at least the minimum and no more than the maximum values).
\h\ Discretionary sources of calories (solid fats and added sugars) may be added to the meal pattern if within
  the specifications for calories, saturated fat, trans fat, and sodium. Foods of minimal nutritional value and
  fluid milk with fat content greater than 1 percent milk fat are not allowed.
\i\ Final sodium targets must be met no later than July 1, 2022 (SY 2022-2023). The first intermediate targets
  must be met no later than July 1, 2014 (SY 2014-2015) and the second intermediate targets must be met no later
  than July 1, 2017 (SY 2017-2018).
\j\ Trans fat restrictions must be implemented on July 1, 2013 (SY 2013-14).

    (1) Age/grade groups. Effective July 1, 2013 (SY 2013-2014), schools 
must plan menus for students using the following age/grade groups: 
Grades K-5 (ages 5-10), grades 6-8 (ages 11-13), and grades 9-12 (ages 
14-18). If an unusual grade configuration in a school prevents the use 
of the established age/grade groups, students in grades K-5 and grades 
6-8 may be offered the same food quantities at breakfast provided that 
the calorie and sodium standards for each age/grade group are met. No 
customization of the established age/grade groups is allowed.
    (2) Food components. Schools must offer students in each age/grade 
group the food components specified in meal pattern in paragraph (c). 
Food component descriptions in Sec. 210.10 of this chapter apply to this 
Program.
    (i) Meats/meat alternates component. Schools are not required to 
offer meats/meat alternates as part of the breakfast menu. Effective 
July 1, 2013 (SY 2013-2014), schools may substitute meats/meat 
alternates for grains, after the daily grains requirement is met, to 
meet the weekly grains requirement. One ounce equivalent of meat/meat 
alternate is equivalent to one ounce equivalent of grains.
    (A) Enriched macaroni. Enriched macaroni with fortified protein as 
defined in appendix A to part 210 may be used to meet part of the meats/
meat alternates requirement when used as specified in appendix A to part 
210. An enriched macaroni product with fortified protein as defined in 
appendix A to part 210 may be used to meet part of the meats/meat 
alternates component or the grains component but may not meet both food 
components in the same lunch.
    (B) Nuts and seeds. Nuts and seeds and their butters are allowed as 
meat alternates in accordance with program guidance. Acorns, chestnuts, 
and coconuts may not be used because of their low protein and iron 
content. Nut and seed meals or flours may be used only if they meet the 
requirements for Alternate Protein Products established in appendix A to 
part 220. Nuts or seeds may be used to meet no more than one-half (50 
percent) of the meats/meat alternates component with another meats/meat 
alternates to meet the full requirement.
    (C) Yogurt. Yogurt may be used to meet all or part of the meats/meat 
alternates component. Yogurt may be plain or flavored, unsweetened or

[[Page 111]]

sweetened. Noncommercial and/or non-standardized yogurt products, such 
as frozen yogurt, drinkable yogurt products, homemade yogurt, yogurt 
flavored products, yogurt bars, yogurt covered fruits and/or nuts or 
similar products are not creditable. Four ounces (weight) or \1/2\ cup 
(volume) of yogurt equals one ounce of the meats/meat alternates 
requirement.
    (D) Tofu and soy products. Commercial tofu and soy products may be 
used to meet all or part of the meats/meat alternates component in 
accordance with FNS guidance. Noncommercial and/or non-standardized tofu 
and products are not creditable.
    (E) Beans and peas (legumes). Cooked dry beans and peas (legumes) 
may be used to meet all or part of the meats/meat alternates component. 
Beans and peas (legumes) are identified in this section and include 
foods such as black beans, garbanzo beans, lentils, kidney beans, mature 
lima beans, navy beans, pinto beans, and split peas.
    (F) Other meat alternates. Other meat alternates, such as cheese and 
eggs, may be used to meet all or part of the meats/meat alternates 
component in accordance with FNS guidance.
    (ii) Fruits component. Effective July 1, 2014 (SY 2014-2015), 
schools must offer daily the fruit quantities specified in the breakfast 
meal pattern in paragraph (c) of this section. Fruits that are fresh; 
frozen without added sugar; canned in light syrup, water or fruit juice; 
or dried may be offered to meet the fruits component requirements. 
Vegetables may be offered in place of all or part of the required fruits 
at breakfast, but the first two cups per week of any such substitution 
must be from the dark green, red/orange, beans and peas (legumes) or 
other vegetable subgroups, as defined in this section. All fruits are 
credited based on their volume as served, except that \1/4\ cup of dried 
fruit counts as \1/2\ cup of fruit. Only pasteurized, full-strength 
fruit juice may be used, and may be credited to meet no more than one-
half of the fruit component.
    (iii) Vegetables component. Schools are not required to offer 
vegetables as part of the breakfast menu but may, effective July 1, 2014 
(SY 2014-2015), offer vegetables to meet part or all of the fruit 
requirement. Fresh, frozen, or canned vegetables and dry beans and peas 
(legumes) may be offered to meet the fruit requirement. All vegetables 
are credited based on their volume as served, except that 1 cup of leafy 
greens counts as \1/2\ cup of vegetables and tomato paste and tomato 
puree are credited based on calculated volume of the whole food 
equivalency. Pasteurized, full-strength vegetable juice may be used to 
meet no more than one-half of the vegetable component. Cooked dry beans 
or peas (legumes) may be counted as either a vegetable or as a meat 
alternate but not as both in the same meal.
    (iv) Grains component. (A) Enriched and whole grains. All grains 
must be made with enriched and whole grain meal or flour, in accordance 
with the most recent FNS guidance on grains. Whole grain-rich products 
must contain at least 50 percent whole grains and the remaining grains 
in the product must be enriched. Effective July 1, 2013 (SY 2013-2014), 
schools may substitute meats/meat alternates for grains, after the daily 
grains requirement is met, to meet the weekly grains requirement. One 
ounce equivalent of meat/meat alternate is equivalent to one ounce 
equivalent of grains.
    (B) Daily and weekly servings. Effective July 1, 2013 (SY 2013-
2014), the grains component is based on minimum daily servings plus 
total servings over a five-day school week. Beginning July 1, 2013 (SY 
2013-2014), half of the grains offered during the school week must meet 
the whole grain-rich criteria specified in FNS guidance. Beginning July 
1, 2014 (SY 2014-2015), all grains must meet the whole grain-rich 
criteria specified in FNS guidance. The whole grain-rich criteria 
provided in FNS guidance may be updated to reflect additional 
information provided voluntarily by industry on the food label or a 
whole grains definition by the Food and Drug Administration. Schools 
serving breakfast 6 or 7 days per week must increase the weekly grains 
quantity by approximately 20 percent (\1/5\) 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\) for each day less 
than five.

[[Page 112]]

The servings for biscuits, rolls, muffins, and other grain/bread 
varieties are specified in FNS guidance.
    (3) Food components in outlying areas. Schools in American Samoa, 
Puerto Rico and the Virgin Islands may serve a vegetable such as yams, 
plantains, or sweet potatoes to meet the grains component.
    (d) Fluid milk requirement. A serving of fluid milk as a beverage or 
on cereal or used in part for each purpose must be offered for 
breakfasts. Schools must offer students a variety (at least two 
different options) of fluid milk. Effective July 1, 2012 (SY 2012-2013), 
all milk must be fat-free or low-fat. Milk with higher fat content is 
not allowed. Fat-free fluid milk may be flavored or unflavored, and low-
fat fluid milk must be unflavored. Low fat or fat-free lactose-free and 
reduced-lactose fluid milk may also be offered. Schools must also comply 
with other applicable fluid milk requirements in Sec. 210.10(d)(1) 
through (4) of this chapter.
    (e) Offer versus serve for grades K through 12. School breakfast 
must offer daily at least the three food components required in the meal 
pattern in paragraph (c) of this section. To exercise the offer versus 
serve option at breakfast, a school food authority or school must offer 
a minimum of four food items daily as part of the required components. 
Under offer versus serve, students are allowed to decline one of the 
four food items, provided that students select at least \1/2\ cup of the 
fruit component for a reimbursable meal beginning July 1, 2014 (SY 2014-
2015). If only three food items are offered at breakfast, school food 
authorities or schools may not exercise the offer versus serve option.
    (f) Dietary specifications. (1) Calories. Effective July 1, 2013 (SY 
2013-2014), school breakfasts offered to each age/grade group must meet, 
on average over the school week, the minimum and maximum calorie levels 
specified in the following table:

                              Calorie Ranges for Breakfast--Effective SY 2013-2014
----------------------------------------------------------------------------------------------------------------
                                                             Grades K-5         Grades 6-8        Grades 9-12
----------------------------------------------------------------------------------------------------------------
Minimum-maximum calories (kcal) \a b\..................           350-500            400-550            450-600
----------------------------------------------------------------------------------------------------------------
\a\ The average daily amount for a 5-day school must fall within the minimum and maximum levels.
\b\ Discretionary sources of calories (solid fats and added sugars) may be added to the meal pattern if within
  the specifications for calories, saturated fat, trans fat, and sodium.

    (2) Saturated fat. Effective July 1, 2012 (SY 2012-2013), school 
breakfasts offered to all age/grade groups must, on average over the 
school week, provide less than 10 percent of total calories from 
saturated fat.
    (3) Sodium. School breakfasts offered to each age/grade group must 
meet, on average over the school week, the levels of sodium specified in 
the following table within the specified deadlines:

                                       Sodium Reduction: Timeline & Amount
----------------------------------------------------------------------------------------------------------------
                                       Baseline: average     Target 1: July    Target 2: July     Final Target:
          Age/grade group            current sodium levels  1, 2014 SY 2014-  1, 2017 SY 2017-   July 1, 2022 SY
                                      as offered \1\ (mg)       2015 (mg)         2018 (mg)      2022-2023 (mg)
----------------------------------------------------------------------------------------------------------------
                                            School Breakfast Program
----------------------------------------------------------------------------------------------------------------
K-5................................  573 (elementary).....               540               485               430
6-8................................  629 (middle).........               600               535               470
9-12...............................  686 (high)...........               640               570               500
----------------------------------------------------------------------------------------------------------------
\1\ SNDA-III.

    (4) Trans fat. Effective July 1, 2013 (SY 2013-2014), food products 
and ingredients used to prepare school meals must contain zero grams of 
trans fat (less than 0.5 grams) per serving. Schools must add the trans 
fat specification and request the required documentation (nutrition 
label or manufacturer specifications) in their procurement contracts. 
Documentation for

[[Page 113]]

food products and food ingredients must indicate zero grams of trans fat 
per serving. Meats that contain a minimal amount of naturally-occurring 
trans fats are allowed in the school meal programs.
    (g) Compliance assistance. The State agency and school food 
authority must provide technical assistance and training to assist 
schools in planning breakfasts that meet the meal pattern in paragraph 
(c) of this section, the dietary specifications for calorie, saturated 
fat, sodium, and trans fat established in paragraph (f) of this section, 
and the meal pattern in paragraphs (o) and (p) of this section, as 
applicable. Compliance assistance may be offered during training, onsite 
visits, and/or administrative reviews.
    (h) State agency responsibilities for monitoring dietary 
specifications--(1) Calories, saturated fat, and sodium. When required 
by the administrative review process set forth in Sec. 210.18, the State 
agency must conduct a weighted nutrient analysis to evaluate the average 
levels of calories, saturated fat, and sodium of the breakfasts offered 
during one week within the review period. The nutrient analysis must be 
conducted in accordance with the procedures established in 
Sec. 210.10(i) of this chapter. If the results of the review indicate 
that the school breakfasts are not meeting the standards for calories, 
saturated fat, or sodium specified in paragraph (f) of this section, the 
State agency or school food authority must provide technical assistance 
and require the reviewed school to take corrective action to meet the 
requirements.
    (2) Trans fat. Effective SY 2013-2014, State agencies conducting an 
administrative review must review product labels of manufacturer 
specifications to verify that the food products or ingredients used by 
the reviewed school(s) contain zero grams of trans fat (less than 0.5 
grams) per serving.
    (i) Nutrient analyses of school meals. Any nutrient analysis of 
school breakfasts conducted under the administrative review process set 
forth in Sec. 210.18 of this chapter must be performed in accordance 
with the procedures established in Sec. 210.10(i) of this chapter. The 
purpose of the nutrient analysis is to determine the average levels of 
calories, saturated fat, and sodium in the breakfasts offered to each 
age grade group over a school week.
    (j) Responsibility for monitoring meal requirements. Compliance with 
the applicable breakfast requirements in paragraph (b) of this section, 
including the dietary specifications for calories, saturated fat, sodium 
and trans fat, and paragraphs (o) and (p) of this section will be 
monitored by the State agency through administrative reviews authorized 
in Sec. 210.18 of this chapter.
    (k) Menu choices at breakfast. The requirements in Sec. 210.10(k) of 
this chapter also apply to this Program.
    (l) Requirements for breakfast period. (1) Timing. Schools must 
offer breakfasts meeting the requirements of this section at or near the 
beginning of the school day.
    (2) [Reserved]
    (m) Exceptions and variations allowed in reimbursable meals. The 
requirements in Sec. 210.10(m) of this chapter also apply to this 
Program.
    (n) Nutrition disclosure. The requirements in Sec. 210.10(n) of this 
chapter also apply to this Program.
    (o) Breakfast requirements for preschoolers--(1) Breakfasts served 
to preschoolers. Schools serving breakfast to children ages 1 through 4 
under the School Breakfast Program must serve the meal components and 
quantities required in the breakfast meal pattern established for the 
Child and Adult Care Food Program under Sec. 226.20(a), (c)(1), and (d) 
of this chapter. In addition, schools serving breakfasts to this age 
group must comply with the requirements set forth in paragraphs (a), 
(c)(3), (g), (k), (l), and (m) of this section as applicable.
    (2) Preschooler breakfast meal pattern table. The minimum amounts of 
food components to be served at breakfast are as follows:

[[Page 114]]

[GRAPHIC] [TIFF OMITTED] TR01NO16.144

    (p) Breakfast requirements for infants--(1) Breakfasts served to 
infants. Schools serving breakfasts to infants ages birth through 11 
months under the School Breakfast Program must serve the food components 
and quantities required in the breakfast meal pattern established for 
the Child and Adult Care Food Program, under Sec. 226.20(a), (b), and 
(d) of this chapter. In addition, schools serving breakfasts to infants 
must comply with the requirements set forth in paragraphs (a), (c)(3), 
(g), (k), (l), and (m) of this section as applicable.
    (2) Infant breakfast meal pattern table. The minimum amounts of food 
components to be served at breakfast are as follows:

[[Page 115]]

[GRAPHIC] [TIFF OMITTED] TR01NO16.145


[77 FR 4154, Jan. 26, 2012, as amended at 78 FR 39093, June 28, 2013; 81 
FR 24375, Apr. 25, 2016; 81 FR 50193, July 29, 2016; 81 FR 75675, Nov. 
1, 2016]



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 records 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 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.

[[Page 116]]

    (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 schools not in severe need, and schools in severe need 
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) The State agency, or FNSRO where applicable, shall determine 
whether a school is in severe need based on the following eligibility 
criteria:
    (1) The school is participating in or desiring to initiate a 
breakfast program; and
    (2) At least 40 percent of the lunches served to students at the 
school in the second preceding school year were served free or at a 
reduced price. Schools that did not serve lunches in the second 
preceding year and that would like to receive reimbursement at the 
severe need rate may apply to their administering State agency. The 
administering State agency shall approve or deny such requests in 
accordance with guidance, issued by the Secretary, that determines that 
the second preceding school year requirement would otherwise have been 
met.

(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. 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; 70 FR 66249, Nov. 2, 2005]



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 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

[[Page 117]]

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) The school food authority shall establish internal controls 
which ensure the accuracy of breakfast counts prior to the submission of 
the monthly Claim for Reimbursement. At a minimum, these internal 
controls shall include: an on-site review of the breakfast counting and 
claiming system employed by each school within the jurisdiction of the 
school food authority; comparisons of daily free, reduced price and paid 
breakfast counts against data which will assist in the identification of 
breakfast counts in excess of the number of free, reduced price and paid 
breakfasts served each day to children eligible for such breakfasts; and 
a system for following up on those breakfast counts which suggest the 
likelihood of breakfast counting problems.
    (1) On-site reviews. Every school year, each school food authority 
with more than one school shall perform no less than one on-site review 
of the breakfast counting and claiming system and the readily observable 
general areas of review identified under Sec. 210.18(h) of this chapter, 
as specified by FNS, for a minimum of 50 percent of schools under its 
jurisdiction with every school within the jurisdiction being reviewed at 
least once every two years. The on-site review shall take place prior to 
February 1 of each school year. Further, if the review discloses 
problems with a school's meal counting or claiming procedures or general 
review areas, the school food authority shall ensure that the school 
implements corrective action, and within 45 days of the review, conduct 
a follow-up on-site review to determine that the corrective action 
resolved the problems. Each on-site review shall ensure that the 
school's claim is based on the counting system and that the counting 
system, as implemented, yields the actual number of reimbursable free, 
reduced price and paid breakfasts, respectively, served for each day of 
operation.
    (2) School food authority claims review process. Prior to the 
submission of a monthly Claim for Reimbursement, each school food 
authority shall review the breakfast count data for each school under 
its jurisdiction to ensure the accuracy of the monthly Claim for 
Reimbursement. The objective of this review is to ensure that monthly 
claims include only the number of free, reduced price and paid 
breakfasts served on any day of operation to children currently eligible 
for such breakfasts.
    (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

[[Page 118]]

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 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; 81 FR 50193, July 29, 2016]



Sec. 220.12  Competitive food services.

    School food authorities must comply with the competitive food 
service and standards requirements specified in Sec. 210.11 of this 
chapter.

[78 FR 39093, June 28, 2013]



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 (FNS-777) 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.
    (3) For each of school years 2005-2006 through 2014-2015, each State 
agency shall monitor school food authority compliance with the food 
safety inspection requirement in Sec. 220.7(a)(2) and submit an annual 
report to FNS documenting school compliance based on data supplied by 
the school food authorities. The report must be filed by November 15 
following each of school years 2005-2006 through 2014-2015, beginning 
November 15, 2006. The State agency shall keep the records supplied by 
the school food authorities showing the number of food safety 
inspections obtained by schools for the current and three most recent 
school years.
    (c) Each State agency shall promptly investigate complaints received 
or irregularities noted in connection with the operation of either 
program, and

[[Page 119]]

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 
consultative, technical, and managerial personnel to administer 
programs, monitor performance, and measure progress toward achieving 
program goals.
    (2) State agencies must conduct administrative reviews of the school 
meal programs specified in Sec. 210.18 of this chapter to ensure that 
schools participating in the designated programs comply with the 
provisions of this title. The reviews of selected schools must focus on 
compliance with the critical and general areas of review identified in 
Sec. 210.18 for each program, as applicable, and must be conducted as 
specified in the FNS Administrative Review Manual for each program. 
School food authorities may appeal a denial of all or a part of the 
Claim for Reimbursement or withholding of payment arising from review 
activity conducted by the State agency under Sec. 210.18 of this chapter 
or by FNS under Sec. 210.29(d)(2) of this chapter. Any such appeal shall 
be subject to the procedures set forth under Sec. 210.18(p) of this 
chapter or Sec. 210.29(d)(3) of this chapter, as appropriate.
    (3) For the purposes of compliance with the meal requirements in 
Secs. 220.8 and 220.23, the State agency must follow the provisions 
specified in Sec. 210.18(g) of this chapter, as applicable.
    (4) State agency assistance must include visits to participating 
schools selected for administrative reviews under Sec. 210.18 of this 
chapter to ensure compliance with program regulations and with the 
Department's nondiscrimination regulations (part 15 of this title), 
issued under title VI, of the Civil Rights Act of 1964.
    (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 monitor 
resource management as required under Sec. 210.18 of this chapter, and 
in conformance with the procedures specified in the FNS Administrative 
Review Manual, to assure that assets are used solely for authorized 
purposes.
    (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 2 CFR part 
200, subpart D and E, as applicable, and USDA implementing regulations 2 
CFR part 400 and part 415, as applicable. 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, administrative 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

[[Page 120]]

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.
    (l) Data collection related to school food authorities. (1) Each 
State agency must collect data related to school food authorities that 
have an agreement with the State agency to participate in the program 
for each of Federal fiscal years 2006 through 2009, including those 
school food authorities that participated only for part of the fiscal 
year. Such data shall include:
    (i) The name of each school food authority;
    (ii) The city in which each participating school food authority was 
headquartered and the name of the state;
    (iii) The amount of funds provided to the participating 
organization, i.e., the amount of federal funds reimbursed to each 
participating school food authority; and
    (iv) The type of participating organization, e.g., government 
agency, educational institution, non-profit organization/secular, non-
profit organization/faith-based, and ``other.''
    (2) On or before August 31, 2007, and each subsequent year through 
2010, State agencies must report to FNS data as specified in paragraph 
(l)(1) of this section for the prior Federal fiscal year. State agencies 
must submit this data in a format designated by FNS.
    (m) Program evaluations. States, State agencies, and contractors 
must cooperate in studies and evaluations conducted by or on behalf of 
the Department, related to programs authorized under the Richard B. 
Russell National School Lunch Act and the Child Nutrition Act of 1966.

(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 at www.fdsys.gov.



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 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

[[Page 121]]

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 food authority is failing to meet the requirements 
of Sec. 220.8 of this part, 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; 81 FR 50194, 
July 29, 2016]



Sec. 220.15  Management evaluations and audits.

    (a) Unless otherwise exempt, audits at the State and institution 
levels shall be conducted in accordance with 2 CFR part 200, subpart F 
and Appendix XI, Compliance Supplement, and USDA implementing 
regulations 2 CFR part 400 and part 415.
    (b) 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 covered by this part 
and shall provide OIG 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 records, including 
records of the receipt and expenditure of funds under such programs, 
upon a reasonable request by FNS or OIG. OIG shall also have the right 
to make audits of the records and operations of any school.
    (c) In conducting management evaluations, reviews, or audits in a 
fiscal year, the State agency, FNS, or OIG may disregard an overpayment 
if the overpayment does not exceed $600. A State agency may establish, 
through State law, regulation or procedure, an alternate disregard 
threshold that does not exceed $600. This disregard may be made once per 
each management evaluation, review, or audit per Program within a fiscal 
year. 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; 71 FR 30563, May 30, 2006; 71 FR 
39517, July 13, 2006; 81 FR 66491, Sept. 28, 2016]



Sec. 220.16  Procurement standards.

    (a) General. State agencies and school food authorities shall comply 
with the requirements of this part 2 CFR part

[[Page 122]]

200, subpart D and USDA implementing regulations 2 CFR part 400 and part 
415, as applicable, which implement the applicable Office of Management 
and Budget Circulars, concerning the procurement of all goods and 
services with nonprofit school food service account funds.
    (b) Contractual responsibilities. The standards contained in 2 CFR 
part 200, subpart D and USDA implementing regulations 2 CFR part 400 and 
part 415, as applicable, 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) Procedures. The State agency may elect to follow either the 
State laws, policies and procedures as authorized by 2 CFR 200.317, or 
the procurement standards for other governmental grantees and all 
governmental subgrantees in accordance with 2 CFR 200.318 through 2 CFR 
200.326. Regardless of the option selected, States must ensure that all 
contracts include any clauses required by Federal statutes and executive 
orders and that the requirements of 2 CFR 200.326 are followed. The 
school food authority may use its own procurement procedures which 
reflect applicable State and local laws and regulations, provided that 
procurements made with nonprofit school food service account funds 
adhere to the standards set forth in this part 2 CFR 200.326 and 
Appendix II, Contract Provisions for Non-Federal Entity Contracts Under 
Federal Award as applicable. School food authority procedures must 
include a written code of standards of conduct meeting the minimum 
standards of 2 CFR 200.318, as applicable.
    (1) Pre-issuance review requirement. The State agency may impose a 
pre-issuance review requirement on a school food authority's proposed 
procurement. The school food authority must make available, upon request 
of the State agency, its procurement documents, including but not 
limited to solicitation documents, specifications, evaluation criteria, 
procurement procedures, proposed contracts and contract terms. School 
food authorities shall comply with State agency requests for changes to 
procurement procedures and solicitation and contract documents to ensure 
that, to the State agency's satisfaction, such procedures and documents 
reflect applicable procurement and contract requirements and the 
requirements of this part.
    (2) Prototype solicitation documents and contracts. The school food 
authority must obtain the State agency's prior written approval for any 
change made to prototype solicitation or contract documents before 
issuing the revised solicitation documents or execution of the revised 
contract.
    (3) Prohibited expenditures. No expenditure may be made from the 
nonprofit school food service account for any cost resulting from a 
procurement failing to meet the requirements of this part.
    (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

[[Page 123]]

products that are produced in Hawaii in sufficient quantities to meet 
the needs of meals provided under the school breakfast program under 
this part.
    (e) Cost reimbursable contracts--(1) Required provisions. The school 
food authority must include the following provisions in all cost 
reimbursable contracts, including contracts with cost reimbursable 
provisions, and in solicitation documents prepared to obtain offers for 
such contracts:
    (i) Allowable costs will be paid from the nonprofit school food 
service account to the contractor net of all discounts, rebates and 
other applicable credits accruing to or received by the contractor or 
any assignee under the contract, to the extent those credits are 
allocable to the allowable portion of the costs billed to the school 
food authority;
    (ii)(A) The contractor must separately identify for each cost 
submitted for payment to the school food authority the amount of that 
cost that is allowable (can be paid from the nonprofit school food 
service account) and the amount that is unallowable (cannot be paid from 
the nonprofit school food service account), or;
    (B) The contractor must exclude all unallowable costs from its 
billing documents and certify that only allowable costs are submitted 
for payment and records have been established that maintain the 
visibility of unallowable costs, including directly associated costs in 
a manner suitable for contract cost determination and verification;
    (iii) The contractor's determination of its allowable costs must be 
made in compliance with the applicable Departmental and Program 
regulations and Office of Management and Budget cost circulars;
    (iv) The contractor must identify the amount of each discount, 
rebate and other applicable credit on bills and invoices presented to 
the school food authority for payment and identify the amount as a 
discount, rebate, or in the case of other applicable credits, the nature 
of the credit. If approved by the State agency, the school food 
authority may permit the contractor to report this information on a less 
frequent basis than monthly, but no less frequently than annually;
    (v) The contractor must identify the method by which it will report 
discounts, rebates and other applicable credits allocable to the 
contract that are not reported prior to conclusion of the contract; and
    (vi) The contractor must maintain documentation of costs and 
discounts, rebates, and other applicable credits, and must furnish such 
documentation upon request to the school food authority, the State 
agency, or the Department.
    (2) Prohibited expenditures. No expenditure may be made from the 
nonprofit school food service account for any cost resulting from a cost 
reimbursable contract that fails to include the requirements of this 
section, nor may any expenditure be made from the nonprofit school food 
service account that permits or results in the contractor receiving 
payments in excess of the contractor's actual, net allowable costs.
    (f) Geographic preference. (1) School food authorities participating 
in the Program, as well as State agencies making purchases on behalf of 
such school food authorities, may apply a geographic preference when 
procuring unprocessed locally grown or locally raised agricultural 
products. When utilizing the geographic preference to procure such 
products, the school food authority making the purchase or the State 
agency making purchases on behalf of such school food authorities have 
the discretion to determine the local area to which the geographic 
preference option will be applied;
    (2) For the purpose of applying the optional geographic preference 
in paragraph (f)(1) of this section, ``unprocessed locally grown or 
locally raised agricultural products'' means only those agricultural 
products that retain their inherent character. The effects of the 
following food handling and preservation techniques shall not be 
considered as changing an agricultural product into a product of a 
different kind or character: Cooling; refrigerating; freezing; size 
adjustment made by peeling, slicing, dicing, cutting, chopping, 
shucking, and grinding; forming ground products into patties without

[[Page 124]]

any additives or fillers; drying/dehydration; washing; packaging (such 
as placing eggs in cartons), vacuum packing and bagging (such as placing 
vegetables in bags or combining two or more types of vegetables or 
fruits in a single package); addition of ascorbic acid or other 
preservatives to prevent oxidation of produce; butchering livestock and 
poultry; cleaning fish; and the pasteurization of milk.

(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; 71 FR 39517, July 13, 2006; 72 FR 61494, Oct. 31, 2007; 76 FR 
22607, Apr. 22, 2011; 81 FR 66491, Sept. 28, 2016]



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  Withholding payments.

    In accordance with 2 CFR 200.338 through 342, 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 actions will be taken, or until the State agency 
terminates the grant in accordance with Sec. 220.19. Subsequent to the 
State agency's acceptance of the corrective actions, payments will be 
released for any breakfasts served in accordance with the provisions of 
this part during the period the payments were withheld.

[72 FR 61495, Oct. 31, 2007, as amended at 81 FR 66491, Sept. 28, 2016]



Sec. 220.19  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 2 CFR 
part 200, subpart D and USDA implementing regulations 2 CFR part 400 
subparts B and D and USDA implementing regulations 2 CFR part 400 and 
part 415 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, as amended at 71 FR 39517, July 13, 
2006. Redesignated at 72 FR 61495, Oct. 31, 2007, as amended at 81 FR 
66491, Sept. 28, 2016]



Sec. 220.20  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. Redesignated at 72 FR 61495, Oct. 
31, 2007]



Sec. 220.21  Program information.

    School Food Authorities desiring information concerning the program 
should write to their State educational agency or to the appropriate 
Food and

[[Page 125]]

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, 90 Seventh Street, Suite 10-100, San 
Francisco, California 94103-6701.
    (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, and 
further redesignated at 72 FR 61495, Oct. 31, 2007, as amended at 76 FR 
34569, June 13, 2011]

    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 at www.fdsys.gov.



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

------------------------------------------------------------------------
                                                            Current OMB
     7 CFR section where requirements are described         control No.
------------------------------------------------------------------------
220.3(e)................................................       0584-0067
220.7(a),(d), (e).......................................       0584-0012
220.8(a)(3), (o)........................................       0584-0012
220.9(a)................................................       0584-0012
220.11 (a)-(b)..........................................       0584-0012
220.13 (a-1), (b), (c), (e), (f)........................       0584-0012
                                                               0584-0594
220.14(d)...............................................       0584-0012
220.15..................................................       0584-0012
------------------------------------------------------------------------


[81 FR 50194, July 29, 2016]



         Sec. Appendix A to Part 220--Alternate Foods for Meals

                       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

[[Page 126]]

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 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. Redesignated at 72 FR 61495, Oct. 31, 2007; 77 FR 
4167, Jan. 26, 2012]



                 Sec. Appendix B to Part 220 [Reserved]



   Sec. 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 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).

[[Page 127]]

[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 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

[[Page 128]]

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, Richard B. Russell National School 
Lunch Act, as amended (42 U.S.C. 1758, 1761 and 1762a).

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



                            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.

    2 CFR part 200, means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C)

[[Page 129]]

does not apply to the National School Lunch Program).
    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 the last four 
digits 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 attendance area of a school in which at least 50 percent of 
the enrolled children have been determined eligible for free or reduced-
price school meals under the National School Lunch Program and the 
School Breakfast Program;
    (b) A geographic area where, based on the most recent census data 
available or information provided from a department of welfare or zoning 
commission, at least 50 percent of the children residing in that area 
are eligible for free or reduced-price school meals under the National 
School Lunch Program and the School Breakfast Program;
    (c) A geographic area where a site demonstrates, based on other 
approved sources, that at least 50 percent of the children enrolled at 
the site are eligible for free or reduced-price meals under the National 
School Lunch Program and the School Breakfast Program; or
    (d) 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.
    Department means the U.S. Department of Agriculture.
    Disclosure means reveal or use individual children's program 
eligibility information obtained through the free and reduced price meal 
eligibility process 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,

[[Page 130]]

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 last four digits of the social security number of the adult 
household member who signs the application, or an indication that the 
adult does not possess a social security number; or
    (b) For a child who is a member of a household receiving SNAP, 
FDPIR, or TANF benefits, ``documentation'' means completion of only the 
following information on a free meal application:
    (1) The name(s) and appropriate SNAP, 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.
    Foster child means a child who is formally placed by a court or a 
State child welfare agency, as defined in Sec. 245.2 of this chapter.
    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 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

[[Page 131]]

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 section 501(a) of 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) that:
    (a) Exercises full control and authority over the operation of the 
Program at all sites under the sponsorship of the organization;
    (b) Provides ongoing year-round activities for children or families;
    (c) Demonstrates that the organization has adequate management and 
the fiscal capacity to operate the Program;
    (d) Is an organization described in section 501(c) of the Internal 
Revenue Code of 1986 and exempt from taxation under 501(a) of that Code; 
and
    (e) 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 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.

[[Page 132]]

    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.
    SNAP household means any individual or group of individuals which is 
currently certified to receive assistance as a household from SNAP, the 
Supplemental Nutrition Assistance Program, as defined in Sec. 245.2 of 
this chapter.
    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, 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.
    USDA implementing regulations include the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations

[[Page 133]]

for Grants and Cooperative Agreements to State and Local Governments; 
and 2 CFR part 418, New Restrictions on Lobbying.
    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; 71 FR 
39518, July 13, 2006; 72 FR 10895, Mar. 12, 2007; 76 FR 22798, Apr. 25, 
2011; 78 FR 13449, Feb. 28, 2013; 81 FR 66492, Sept. 28, 2016]



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 
calendar days following the initial submission of the plan. Upon 
approval of

[[Page 134]]

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 
management 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 applying the formula set 
forth in paragraph (a)(1) to the amount of Program funds estimated to be 
needed in the

[[Page 135]]

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.
    (5) Full use of Federal funds. States and State agencies must 
support the full use of Federal funds provided to State agencies for the 
administration of Child Nutrition Programs, and exclude such funds from 
State budget restrictions or limitations including, hiring freezes, work 
furloughs, and travel restrictions.
    (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.

[[Page 136]]

    (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 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.

[54 FR 18208, Apr. 27, 1989, as amended at 76 FR 37982, June 29, 2011]



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

[[Page 137]]

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 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

[[Page 138]]

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 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 State agency must not approve any sponsor 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.
    (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) 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

[[Page 139]]

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 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, SNAP benefits, 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

[[Page 140]]

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(m), 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 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:

[[Page 141]]

    (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(m), 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 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 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 SNAP, 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 disability.
    (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:
    (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;

[[Page 142]]

    (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.
    (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

[[Page 143]]

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 permanent written agreement with the State 
agency. 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;
    (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

[[Page 144]]

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 Secs. 225.15(h) 
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 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

[[Page 145]]

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. Government Accountability 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(h)(6) 
through (h)(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.
    (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.

[[Page 146]]

    (7) Failure by a sponsor to comply with the provisions of this 
paragraph or Sec. 225.15(h)(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; 72 FR 10895, 
Mar. 12, 2007; 76 FR 22798, Apr. 25, 2011; 78 FR 13450, Feb. 28, 2013]



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 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

[[Page 147]]

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 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)

[[Page 148]]

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 2 CFR part 200, subpart 
D and E, and USDA implementing regulations 2 CFR part 400 and part 415, 
as applicable, 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 
disability, 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; 71 FR 39518, 
July 13, 2006; 76 FR 22798, Apr. 25, 2011; 81 FR 66492, Sept. 28, 2016]



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 (FNS-777), 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 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

[[Page 149]]

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 (FNS-777) 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 (FNS-777) 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; 81 FR 66492, 
Sept. 28, 2016]



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-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

[[Page 150]]

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, 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

[[Page 151]]

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 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

[[Page 152]]

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 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]

[[Page 153]]



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 2 CFR part 200, subpart F 
and USDA implementing regulations 2 CFR part 400 and part 415. Unless 
otherwise exempt, sponsors shall arrange for audits to be conducted in 
accordance with 2 CFR part 200, subpart F and USDA implementing 
regulations 2 CFR part 400 and part 415. State agencies shall provide 
OIG with full opportunity to audit the State agency and sponsors. Unless 
otherwise exempt, audits at the State and sponsor levels shall be 
conducted in accordance with 2 CFR part 200, subpart F and Appendix XI, 
Compliance Supplement and USDA implementing regulations 2 CFR part 400 
and part 415. 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.

[54 FR 18208, Apr. 27, 1989, as amended at 71 FR 39518, July 13, 2006; 
81 FR 66492, Sept. 28, 2016]



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 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

[[Page 154]]

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 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]

[[Page 155]]



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)(6)); a State agency's refusal to forward to FNS an 
exception request by the sponsor for payment of a late claim or a 
request for an upward adjustment to a claim; a claim against a sponsor 
for remittance of a payment; 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)(6).
    (b) At a minimum, appeal procedures shall provide that:
    (1) The sponsor or food service management company be advised in 
writing 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;

[[Page 156]]

    (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 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; 
78 FR 13450, Feb. 28, 2013]



                  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

[[Page 157]]

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 Secs. 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 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) Exercises full control and authority over the operation of the 
Program at all sites under the sponsorship of the organization;
    (ii) Provides ongoing year-round activities for children or 
families;
    (iii) Demonstrates that the organization has adequate management and 
the fiscal capacity to operate the Program;

[[Page 158]]

    (iv) Is an organization described in section 501(c) of the Internal 
Revenue Code of 1986 and exempt from taxation under 501(a) of that Code; 
and
    (v) 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; 78 FR 13450, Feb. 28, 2013]



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 Secs. 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 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

[[Page 159]]

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 labeled ``SFSP Income Eligibility Standards''; a statement that a 
foster child and children who are members of households receiving SNAP, 
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 
disability.
    (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.

[[Page 160]]

    (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 last four digits of 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 SNAP, 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 SNAP, 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 foster child who is a member of a household 
that receives SNAP, FDPIR, or TANF benefits is automatically eligible to 
receive free meals in the Program;
    (iii) A statement informing households of how information provided 
on the application will be used. Each application for free meals must 
include substantially the following statement:
    (A) ``The Richard B. Russell National School Lunch Act requires the 
information on this application. You do not have to give the 
information, but if you do not, we cannot approve your child for free or 
reduced-price meals. You must include the last four digits of the social 
security number of the adult household member who signs the application. 
The last four digits of the social security number are not required when 
you apply on behalf of a foster child or you list a Supplemental 
Nutrition Assistance Program (SNAP), Temporary Assistance for Needy 
Families (TANF) Program or Food Distribution Program on Indian 
Reservations (FDPIR) case number or other FDPIR identifier for your 
child or when you indicate that the adult household member signing the 
application does not have a social security number. We MAY share your 
eligibility information with education, health, and nutrition programs 
to help them evaluate, fund, or determine benefits for their programs, 
and with auditors for program reviews and law enforcement officials to 
help them look into violations of program rules.''
    (B) When the State agency or sponsor, as appropriate, plans to use 
or disclose children's eligibility information for non-program purposes, 
additional information, as specified in paragraph (i) of this section, 
must be added to the statement. State agencies and sponsors are 
responsible for drafting the appropriate notice.
    (iv) 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 social security 
numbers for uses not described in paragraph (f)(4)(iv) of this section, 
the notice must be revised to explain those uses.
    (v) 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;
    (vi) A notice placed immediately above the signature block stating 
that

[[Page 161]]

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
    (vii) A statement that if SNAP, FDPIR, or TANF case numbers are 
provided, they may be used to verify the current SNAP, 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 that:
    (i) They will lose Program benefits or be terminated from 
participation if they do not cooperate with the verification process;
    (ii) They will be given the name and phone number of an official who 
can assist in the verification process;
    (iii) Verification may occur during program reviews, audits, and 
investigations;
    (iv) Verification may include contacting employers, SNAP or welfare 
offices, or State employment offices to determine the accuracy of 
statements on the application about income, receipt of SNAP, FDPIR, 
TANF, or unemployment benefits; and
    (v) They may lose benefits or face claims or legal action if 
incorrect information is reported on the application.
    (g) Disclosure of children's free and reduced price meal eligibility 
information to certain programs and individuals without parental 
consent. The State agency or sponsor, as appropriate, may disclose 
aggregate information about children eligible for free and reduced price 
meals to any party without parental notification and consent when 
children cannot be identified through release of the aggregate data or 
by means of deduction. Additionally, the State agency or sponsor may 
disclose information that identifies children eligible for free and 
reduced price meals to the programs and the individuals specified in 
this paragraph (g) without parent/guardian consent. The State agency or 
sponsor that makes the free and reduced price meal eligibility 
determination is responsible for deciding whether to disclose program 
eligibility information.
    (1) Persons authorized to receive eligibility information. Only 
persons directly connected with the administration or enforcement of a 
program or activity listed in paragraphs (g)(2) or (g)(3) of this 
section may have access to children's free and reduced price meal 
eligibility information, without parental consent. Persons considered 
directly connected with administration or enforcement of a program or 
activity listed in paragraphs (g)(2) or (g)(3) of this section are 
Federal, State, or local program operators responsible for the ongoing 
operation of the program or activity or persons responsible for program 
compliance. Program operators may include persons responsible for 
carrying out program requirements and monitoring, reviewing, auditing, 
or investigating the program. Program operators may include contractors, 
to the extent those persons have a need to know the information for 
program administration or enforcement. Contractors may include 
evaluators, auditors, and others with whom Federal or State agencies and 
program operators contract with to assist in the administration or 
enforcement of their program in their behalf.
    (2) Disclosure of children's names and free or reduced price meal 
eligibility status. The State agency or sponsor, as appropriate, may 
disclose, without parental consent, only children's names and 
eligibility status (whether they are eligible for free meals or reduced 
price meals) to persons directly connected with the administration or 
enforcement of:
    (i) A Federal education program;
    (ii) A State health program or State education program administered 
by the State or local education agency;
    (iii) A Federal, State, or local means-tested nutrition program with 
eligibility standards comparable to the National School Lunch Program 
(i.e., food assistance programs for households with incomes at or below 
185 percent of the Federal poverty level); or

[[Page 162]]

    (3) Disclosure of all eligibility information. In addition to 
children's names and eligibility status, the State agency or sponsor, as 
appropriate, may disclose, without parental consent, all eligibility 
information obtained through the free and reduced price meal eligibility 
process (including all information on the application or obtained 
through direct certification) to:
    (i) Persons directly connected with the administration or 
enforcement of programs authorized under the Richard B. Russell National 
School Lunch Act or the Child Nutrition Act of 1966. This means that all 
eligibility information obtained for the Summer Food Service Program may 
be disclosed to persons directly connected with administering or 
enforcing regulations under the National School Lunch Program, Special 
Milk Program, School Breakfast Program, Child and Adult Care Food 
Program, and the Special Supplemental Nutrition Program for Women, 
Infants and Children (WIC) (parts 210, 215, 220, 226 and 246, 
respectively, of this chapter);
    (ii) The Comptroller General of the United States for purposes of 
audit and examination; and
    (iii) Federal, State, and local law enforcement officials for the 
purpose of investigating any alleged violation of the programs listed in 
paragraphs (g)(2) and (g)(3) of this section.
    (4) Use of free and reduced price meals eligibility information by 
programs other than Medicaid or the State Children's Health Insurance 
Program (SCHIP). State agencies and sponsors may use children's free and 
reduced price meal eligibility information for administering or 
enforcing the Summer Food Service Program. Additionally, any other 
Federal, State, or local agency charged with administering or enforcing 
the Summer Food Service Program may use the information for that 
purpose. Individuals and programs to which children's free or reduced 
price meal eligibility information has been disclosed under this section 
may use the information only in the administration or enforcement of the 
receiving program. No further disclosure of the information may be made.
    (h) Disclosure of children's free or reduced price meal eligibility 
information to Medicaid and/or SCHIP, unless parents decline. Children's 
free or reduced price meal eligibility information only may be disclosed 
to Medicaid or SCHIP when both the State agency and the sponsor so 
elect, the parental/guardian does not decline to have their eligibility 
information disclosed and the other provisions described in paragraph 
(h)(1) of this section are met. 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 
applications or obtained through direct certification to persons 
directly connected with the administration of Medicaid or SCHIP. Persons 
directly connected to the administration of Medicaid and SCHIP are 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 for Medicaid or 
SCHIP.
    (1) The State agency must ensure that:
    (i) The sponsors and health insurance program officials have a 
written agreement that requires the health insurance program agency to 
use the eligibility information to seek to enroll children in Medicaid 
and SCHIP; and
    (ii) Parents/guardians are notified that their eligibility 
information may be disclosed to Medicaid or SCHIP and given an 
opportunity to decline to have their children's eligibility information 
disclosed, prior to any disclosure.
    (2) Use of children's free and reduced price meal eligibility 
information by Medicaid/SCHIP. Medicaid and SCHIP agencies and health 
insurance program operators receiving children's free and reduced price 
meal eligibility information must 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. No further 
disclosure of the information may be made. Medicaid and SCHIP agencies 
and

[[Page 163]]

health insurance program operators also may verify children's 
eligibility in a program under the Child Nutrition Act of 1966 or the 
Richard B. Russell National School Lunch Act.
    (i) Notifying households of potential uses and disclosures of 
children's free and reduced price meal eligibility information. 
Households must be informed that the information they provide on the 
free and reduced price meal application will be used to determine 
eligibility for free or reduced price meals and that their eligibility 
information may be disclosed to other programs.
    (1) For disclosures to programs, other than Medicaid or the State 
Children's Health Insurance Program (SCHIP), that are permitted access 
to children's eligibility information, without parental/guardian 
consent, the State agency or sponsor, as appropriate, must notify 
parents/guardians at the time of application that their children's free 
or reduced price meal eligibility information may be disclosed. The 
State agency or sponsor, as appropriate, must add substantially the 
following statement to the statement required under paragraph (f)(4)(iv) 
of this section, ``We may share your eligibility information with 
education, health, and nutrition programs to help them evaluate, fund, 
or determine benefits for their programs; auditors for program reviews; 
and law enforcement officials to help them look into violations of 
program rules.'' For children determined eligible for free meals through 
the 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.
    (2) For 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 and notifies the State agency or 
sponsor, as appropriate, by a date specified by the State agency or 
sponsor, as appropriate. Only the parent or guardian who is a member of 
the household or family for purposes of the free and reduced price meal 
application may decline the disclosure of eligibility information to 
Medicaid or SCHIP. 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 eligible children 
and seek to enroll them in Medicaid or SCHIP, 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 meal application, 
on the application itself or in a separate notice provided to parents/
guardians. The notice must give parents/guardians adequate time to 
respond if they do not want their information disclosed. The State 
agency or sponsor, as appropriate, must add substantially the following 
statement to the statement required under paragraph (f) of this section, 
``We may share your information with Medicaid or the State Children's 
Health Insurance Program, unless you tell us not to. The information, if 
disclosed, will be used to identify eligible children and seek to enroll 
them in Medicaid or SCHIP.'' For children determined eligible for free 
meals through direct certification, the notice of potential disclosure 
and opportunity to decline the disclosure may be included in the 
document informing parents/guardians of their children's eligibility for 
free meals through direct certification process.
    (j) Other disclosures. State agencies and sponsors that plan to use 
or disclose information about children eligible for free and reduced 
price meals in ways not specified in this section must obtain written 
consent from children's parents or guardians prior to the use or 
disclosure.
    (1) The consent must identify the information that will be shared 
and how the information will be used.
    (2) There must be a statement informing parents and guardians that 
failing to sign the consent will not affect the child's eligibility for 
free meals and that the individuals or programs receiving the 
information will not share the information with any other entity or 
program.

[[Page 164]]

    (3) Parents/guardians must be permitted to limit the consent only to 
those programs with which they wish to share information.
    (4) The consent statement must be signed and dated by the child's 
parent or guardian who is a member of the household for purposes of the 
free and reduced price meal application.
    (k) Agreements with programs/individuals receiving children's free 
or reduced price meal eligibility information. Agreements or Memoranda 
of Understanding (MOU) are recommended or required as follows:
    (1) The State agency or sponsor, as appropriate, should have a 
written agreement or MOU with programs or individuals receiving 
eligibility information, prior to disclosing children's free and reduced 
price meal eligibility information. The agreement or MOU should include 
information similar to that required for disclosures to Medicaid and 
SCHIP specified in paragraph (k)(2) of this section.
    (2) For disclosures to Medicaid or SCHIP, 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 or reduced price meal eligibility information 
to those agencies. 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 be used to seek to enroll 
children in Medicaid or SCHIP;
    (iv) Require that the Medicaid or SCHIP agency describe how they 
will use the information obtained;
    (v) Describe how the information will be protected from unauthorized 
uses and disclosures;
    (vi) Describe the penalties for unauthorized disclosure; and
    (vii) Be signed by both the Medicaid or SCHIP program or agency and 
the State agency or sponsor, as appropriate.
    (l) Penalties for unauthorized disclosure or misuse of children's 
free and reduced price meal eligibility information. In accordance with 
section 9(b)(6)(C) of the Richard B. Russell National School Lunch Act 
(42 U.S.C. 1758(b)(6)(C)), 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 section 
will be fined not more than $1,000 or imprisoned for up to 1 year, or 
both.
    (m) 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:

[[Page 165]]

    (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;
    (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.
    (n) 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; 72 FR 
10895, Mar. 12, 2007; 76 FR 22798, Apr. 25, 2011; 78 FR 13450, Feb. 28, 
2013]



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

[[Page 166]]

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;
    (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

[[Page 167]]

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.
------------------------------------------------------------------------
                     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.

[[Page 168]]

 
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.

    (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.

[[Page 169]]

    (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. 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

[[Page 170]]

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.
    (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 requirements 
of 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR 
part 400 and part 415, as applicable, 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. Sponsors may use their own 
procedures for procurement with Program funds to the extent that:
    (1) Procurements by public sponsors comply with applicable State or 
local laws and the standards set forth in 2 CFR part 200, subpart F and 
USDA implementing regulations 2 CFR part 400 and part 415; and
    (2) Procurements by private nonprofit sponsors comply with standards 
set forth in 2 CFR part 200, subpart F and USDA implementing regulations 
2 CFR part 400 and part 415.
    (b) The State agency shall make available to sponsors information on 
2 CFR part 200, subpart D and USDA implementing regulations 2 CFR part 
400 and part 415, as applicable.
    (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 each sponsor is aware of the 
following practices specified in 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415, as applicable, 
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.

[[Page 171]]

    (e) Geographic preference. (1) Sponsors participating in the Program 
may apply a geographic preference when procuring unprocessed locally 
grown or locally raised agricultural products. When utilizing the 
geographic preference to procure such products, the sponsor making the 
purchase has the discretion to determine the local area to which the 
geographic preference option will be applied;
    (2) For the purpose of applying the optional geographic preference 
in paragraph (e)(1) of this section, ``unprocessed locally grown or 
locally raised agricultural products'' means only those agricultural 
products that retain their inherent character. The effects of the 
following food handling and preservation techniques shall not be 
considered as changing an agricultural product into a product of a 
different kind or character: Cooling; refrigerating; freezing; size 
adjustment made by peeling, slicing, dicing, cutting, chopping, 
shucking, and grinding; forming ground products into patties without any 
additives or fillers; drying/dehydration; washing; packaging (such as 
placing eggs in cartons), vacuum packing and bagging (such as placing 
vegetables in bags or combining two or more types of vegetables or 
fruits in a single package); addition of ascorbic acid or other 
preservatives to prevent oxidation of produce; butchering livestock and 
poultry; cleaning fish; and the pasteurization of milk.

[54 FR 18208, Apr. 27, 1989, as amended at 71 FR 39518, July 13, 2006; 
76 FR 22607, Apr. 22, 2011; 81 FR 66492, Sept. 28, 2016]



Sec. 225.18  Miscellaneous administrative provisions.

    (a) Grant closeout procedures. Grant closeout procedures for the 
Program shall be in accordance with 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415, as applicable.
    (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 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,

[[Page 172]]

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 
$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.
    (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.
    (i) Data collection related to sponsors. (1) Each State agency must 
collect data related to sponsors that have an agreement with the State 
agency to participate in the program for each of Federal fiscal years 
2006 through 2009, including those sponsors that participated only for 
part of the fiscal year. Such data shall include:
    (i) The name of each sponsor;
    (ii) The city in which each participating sponsor was headquartered 
and the name of the state;
    (iii) The amount of funds provided to the participating 
organization, i.e., the sum of the amount of federal funds reimbursed 
for operating and administrative cost; and
    (iv) The type of participating organization, e.g., government 
agency, educational institution, non-profit organization/secular, non-
profit organization/faith-based, and ``other.''
    (2) On or before August 31, 2007, and each subsequent year through 
2010, State agencies must report to FNS data as specified in paragraph 
(i)(1) of this section for the prior Federal fiscal year. State agencies 
must submit this data in a format designated by FNS.
    (j) Program evaluations. States, State agencies, sponsors, sites and 
contractors must cooperate in studies and evaluations conducted by or on 
behalf of the Department, related to programs authorized under the 
Richard B. Russell National School Lunch Act and the Child Nutrition Act 
of 1966, as amended.

[54 FR 18208, Apr. 27, 1989, as amended at 55 FR 13471, Apr. 10, 1990; 
64 FR 72488, Dec. 28, 1999; 71 FR 39518, July 13, 2006; 72 FR 24183, May 
2, 2007; 76 FR 37982, June 29, 2011; 78 FR 13450, Feb. 28, 2013; 81 FR 
66492, Sept. 28, 2016]



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.

[[Page 173]]

    (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 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, 90 Seventh Street, Suite 10-100, San 
Francisco, California 94103-6701.

[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; 76 FR 34569, June 
13, 2011]



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]



         Sec. 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.

[[Page 174]]

    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]



                 Sec. Appendix B to Part 225 [Reserved]



   Sec. 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. 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:

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[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 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.

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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 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.
226.17a  At-risk afterschool 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

    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.

    Editorial Note: Nomenclature changes to part 226 appear at 70 FR 
43261, July 27, 2005.



                            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 Richard B. Russell 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 and adult participants in non-residential institutions 
which provide care. The Program is intended to provide aid to child and 
adult participants and family or group day care homes for provision of 
nutritious foods that contribute to the wellness, healthy growth, and 
development of young children, and the health and wellness of older 
adults and chronically impaired persons.

[81 FR 24377, Apr. 25, 2016]



Sec. 226.2  Definitions.

    2 CFR part 200, means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C) does not apply to the National School Lunch 
Program).
    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

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    (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 the last four 
digits 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 for-profit 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 the month in which such costs 
will be incurred.
    At-risk afterschool care center means a public or private nonprofit 
organization that is participating or is eligible to participate in the 
CACFP as an institution or as a sponsored facility and that provides 
nonresidential child care to children after school through an approved 
afterschool care program located in an eligible area. However, an 
Emergency shelter, as defined in this section, may participate as an at-
risk afterschool care center without regard to location.
    At-risk afterschool meal means a meal that meets the requirements 
described in Sec. 226.20(b)(6) and/or (c)(1), (c)(2), or (c)(3), that is 
reimbursed at the appropriate free rate and is served by an At-risk 
afterschool care center as defined in this section, which is located in 
a State designated by law or selected by the Secretary as directed by 
law.
    At-risk afterschool snack means a snack that meets the requirements 
described in Sec. 226.20(b)(6) and/or (c)(4) that is reimbursed at the 
free rate for snacks and is served by an At-risk afterschool care center 
as defined in this section.
    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, and day care homes by the State agency 
under the provisions of Sec. 226.6(d)(3) and (4).
    Center means a child care center, at-risk afterschool care center, 
an adult day care center, an emergency shelter, or an outside-school-
hours care center.
    Child care center means any public or private nonprofit institution 
or facility (except day care homes), or any for-profit center, as 
defined in this section, that is 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 disabilities. 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, 
at-risk afterschool care center, day care home, emergency shelter, or 
outside-school-hours care center under the auspices of a sponsoring 
organization.
    Children means:
    (a) Persons age 12 and under;
    (b) Persons age 15 and under who are children of migrant workers;
    (c) Persons with disabilities as defined in this section;

[[Page 178]]

    (d) For emergency shelters, persons age 18 and under; and
    (e) For at-risk afterschool care centers, persons age 18 and under 
at the start of the school year.
    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. In the case of an outside-school-hours care center that is 
not required to collect enrollment forms from each participating child, 
a claiming percentage is the ratio of the number of children in each 
reimbursement category (free, reduced-price or paid) to the total number 
of children participating in the program in that center.
    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 reveal or use individual children's program 
eligibility information obtained through the free and reduced price meal 
eligibility process 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 last four digits of the social security number of the adult 
household member who signs the application, or an indication that the 
adult does not possess a social security number; or
    (b) For a child who is a member of a SNAP or FDPIR household or who 
is a TANF recipient, ``documentation'' means the completion of only the 
following information on a free and reduced price application:
    (1) The name(s) and appropriate SNAP, FDPIR or TANF case number(s) 
for the child(ren); and
    (2) The signature of an adult member of the household; or
    (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 SNAP 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 SNAP or FDPIR case number(s) for the

[[Page 179]]

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.
    Eligible area means:
    (a) For the purpose of determining the eligibility of at-risk 
afterschool care centers, the attendance area of a school in which at 
least 50 percent of the enrolled children are certified eligible for 
free or reduced-price school meals; or
    (b) For the purpose of determining the tiering status of day care 
homes, the attendance area of a school in which at least 50 percent of 
the enrolled children are certified eligible for free or reduced-price 
meals, or the area based on the most recent census data in which at 
least 50 percent of the children residing in the area are members of 
households that meet the income standards for free or reduced-price 
meals.
    Emergency shelter means a public or private nonprofit organization 
or its site that provides temporary shelter and food services to 
homeless children, including a residential child care institution (RCCI) 
that serves a distinct group of homeless children who are not enrolled 
in the RCCI's regular program.
    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 Secs. 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. For at-risk afterschool care centers, outside-school-hours care 
centers, or emergency shelters, the term ``enrolled child'' or 
``enrolled participant'' does not apply.
    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 which an institution may 
contract for

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preparing and, unless otherwise provided for, delivering meals, with or 
without milk for use in the Program.
    For-profit center means a child care center, outside-school-hours 
care center, or adult day care center providing nonresidential care to 
adults or children that does not qualify for tax-exempt status under the 
Internal Revenue Code of 1986. For-profit centers serving adults must 
meet the criteria described in paragraph (a) of this definition. For-
profit centers serving children must meet the criteria described in 
paragraphs (b)(1) or (b)(2) of this definition, except that children who 
only participate in the at-risk afterschool snack and/or meal component 
of the Program must not be considered in determining the percentages 
under paragraphs (b)(1) or (b)(2) of this definition.
    (a) A for-profit center serving adults must meet the definition of 
Adult day care center as defined in this section and, during the 
calendar month preceding initial application or reapplication, the 
center receives compensation from amounts granted to the States under 
title XIX or title XX and twenty-five percent of the adults enrolled in 
care are beneficiaries of title XIX, title XX, or a combination of 
titles XIX and XX of the Social Security Act.
    (b) A for-profit center serving children must meet the definition of 
Child care center or Outside-school-hours care center as defined in this 
section and one of the following conditions during the calendar month 
preceding initial application or reapplication:
    (1) Twenty-five percent of the children in care (enrolled or 
licensed capacity, whichever is less) are eligible for free or reduced-
price meals; or
    (2) Twenty-five percent of the children in care (enrolled or 
licensed capacity, whichever is less) receive benefits from title XX of 
the Social Security Act and the center receives compensation from 
amounts granted to the States under title XX.
    Foster child means a child who is formally placed by a court or a 
State child welfare agency, as defined in Sec. 245.2 of this chapter.
    Free meal means a meal served under the Program to:
    (a) A participant from a family which meets the income standards for 
free school meals, or
    (b) A foster child, or
    (c) A child who is automatically eligible for free meals by virtue 
of SNAP, FDPIR, or TANF benefits, or
    (d) A child who is a Head Start participant, or
    (e) A child who is receiving temporary housing and meal services 
from an approved emergency shelter, or
    (f) A child participating in an approved at-risk afterschool care 
program, or
    (g) An adult participant who is automatically eligible for free 
meals by virtue of SNAP or FDPIR benefits, or
    (h) An adult who is an SSI or Medicaid participant.
    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.
    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.

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    Household means ``family'', as defined in Sec. 226.2 (``Family'').
    Household contact means a contact made by a sponsoring organization 
or a State agency to an adult member of a household with a child in a 
family day care home or a child care center in order to verify the 
attendance and enrollment of the child and the specific meal service(s) 
which the child routinely receives while in care.
    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, at-risk afterschool 
care center, emergency shelter, 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.
    Independent governing board of directors means, in the case of a 
nonprofit organization, or in the case of a for-profit institution 
required to have a board of directors, a governing board which meets 
regularly and has the authority to hire and fire the institution's 
executive director.
    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, at-
risk afterschool 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.
    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. However, 
children participating in at-risk afterschool care centers, emergency 
shelters, or outside-schools-hours care centers do not have to be 
enrolled.
    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

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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, child care facility, or 
adult day care facility 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 
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 
institution or facility (except day care homes), or a For-profit center 
as defined in this section, that is licensed or approved in accordance 
with Sec. 226.6(d)(1) to provide organized nonresidential child care 
services to children during hours outside of school. 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.
    Persons with disabilities means persons of any age who have one or 
more disabilities, as determined by the State, and who are enrolled in 
an institution or child care facility serving a majority of persons who 
are age 18 and under.
    Pricing program means an institution, child care facility, or adult 
day care facility 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.

[[Page 183]]

    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.
    Reduced-price meal means a meal served under the Program to a 
participant from a family that meets the income standards for reduced-
price school meals. Any separate charge imposed must 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 snack. Neither the 
participant nor any member of his family may be required to work in the 
food service program for a reduced-price meal.
    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.
    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.
    Snack means a meal supplement that meets the meal pattern 
requirements specified in Sec. 226.20(b)(6) or (c)(4).
    SNAP household means any individual or group of individuals which is 
currently certified to receive assistances as a household from SNAP, the 
Supplemental Nutrition Assistance Program, as defined in Sec. 245.2 of 
this chapter.
    Sponsoring organization means a public or nonprofit private 
organization that is entirely responsible for the administration of the 
food program in:
    (a) One or more day care homes;
    (b) A child care center, emergency shelter, at-risk afterschool care 
center, outside-school-hours care center, or adult day care center which 
is a legally distinct entity from the sponsoring organization;
    (c) Two or more child care centers, emergency shelters, at-risk 
afterschool care centers, outside-school-hours care center, or adult day 
care centers; or
    (d) Any combination of child care centers, emergency shelters, at-
risk afterschool care centers, outside-school-hours care centers, adult 
day care centers, and day care homes. The term ``sponsoring 
organization'' also includes an organization that is entirely 
responsible for administration of the Program in any combination of two 
or more child care centers, at-risk afterschool care centers, adult day 
care centers or outside-school-hours care centers, which meet the 
definition of For-profit center in this section and are part of the same 
legal entity as the sponsoring organization.
    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

[[Page 184]]

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.
    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.
    TANF recipient means an individual or household receiving assistance 
(as defined in 45 CFR 260.31) under a State-administered Temporary 
Assistance to Needy Families program.
    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 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

[[Page 185]]

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.
    Tofu means a commercially prepared soy-bean derived food, made by a 
process in which soybeans are soaked, ground, mixed with water, heated, 
filtered, coagulated, and formed into cakes. Basic ingredients are whole 
soybeans, one or more food-grade coagulates (typically a salt or acid), 
and water.
    Unannounced review means an on-site review for which no prior 
notification is given to the facility or institution.
    USDA implementing regulations include the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations for Grants and Cooperative Agreements to 
State and Local Governments; and 2 CFR part 418, New Restrictions on 
Lobbying.
    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 SNAP, FDPIR or TANF case number is provided for a child, 
verification for such child shall include only confirmation that the 
child is included in a currently certified SNAP or FDPIR household or is 
a TANF recipient. 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 SNAP 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 SNAP or FDPIR household or is a 
current SSI or Medicaid participant.
    Whole grains means foods that consist of intact, ground, cracked, or 
flaked grain seed whose principal anatomical components--the starchy 
endosperm, germ, and bran--are present in the same relative proportions 
as they exist in the intact grain seed.
    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]

    Editorial Note: For Federal Register citations affecting Sec. 226.2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



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.

[[Page 186]]

    (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 must 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 must be made available in an amount no less than the sum of the 
totals obtained under paragraphs (b), (c), (d), (e), (f), (g), and (j) 
of this section. However, in any fiscal year, the aggregate amount of 
assistance provided to a State under this part must 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 (j) and (l) 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 eligibility 
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 eligibility 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 eligibility 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 that satisfy the eligibility 
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 eligibility 
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 snacks served in the Program within the State to 
participants from families that do not satisfy the eligibility standards 
for free and reduced-price school meals enrolled in institutions by 2.75 
cents;
    (8) The number of snacks served in the Program within the State to 
participants from families that satisfy the eligibility standard for 
free school meals enrolled in institutions by 30 cents;
    (9) The number of snacks served in the Program within the State to 
participants from families that satisfy the eligibility standard for 
reduced-price school meals enrolled in institutions by 15 cents.
    (c) Emergency shelter funds. For meals and snacks served to children 
in emergency shelters, funds will be made available to each State agency 
in an

[[Page 187]]

amount equal to the total calculated by multiplying the number of meals 
and snacks served in the Program within the State to such children by 
the national average payment rate for free meals and free snacks under 
section 11 of the National School Lunch Act.
    (d) At-risk afterschool care center funds. For snacks served to 
children in at-risk afterschool care centers, funds will be made 
available to each State agency in an amount equal to the total 
calculated by multiplying the number of snacks served in the Program 
within the State to such children by the national average payment rate 
for free snacks under section 11 of the National School Lunch Act. For 
at-risk afterschool meals and at-risk afterschool snacks served to 
children, funds will be made available to each eligible State agency in 
an amount equal to the total calculated by multiplying the number of at-
risk afterschool meals and the number of at-risk afterschool snacks 
served in the Program within the State by the national average payment 
rate for free meals and free snacks, respectively, under section 11 of 
the Richard B. Russell National School Lunch Act.
    (e) 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 snacks 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 snacks;
    (8) The number of snacks 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 snacks; and
    (9) The number of snacks 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 snacks.
    (f) 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).
    (g) 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 188]]

for which reports are available for that State or on the basis of 
estimates by FNS.
    (h) 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.
    (i) 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, including snacks, 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 rates for meals, including snacks, served in child care 
centers, emergency shelters, at-risk afterschool care centers, adult day 
care centers and outside-school-hours care centers will 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 adjustment must be rounded to the 
nearest lower cent, based on changes measured over the most recent 
twelve-month period for which data are available. The adjustment to the 
rates must be computed using the unrounded rate in effect for the 
preceding year.
    (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.
    (j) Audit funds. For the expense of conducting audits and reviews 
under Sec. 226.8, funds shall be made available to each State agency in 
an amount equal to one and one-half percent of the Program 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.
    (k) Method of funding. FNS shall authorize funds for State agencies 
in accordance with 2 CFR part 200, subpart D, and USDA implementing 
regulations 2 CFR part 400 and part 415, as applicable.
    (l) 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; 69 FR 53536, Sept. 1, 2004; 71 FR 4, Jan. 3, 2006; 71 FR 39518, 
July 13, 2006; 72 FR 41603, 41604, July 31, 2007; 75 FR 16327, Apr. 1, 
2010; 76 FR 34569, June 13, 2011; 78 FR 13451, Feb. 28, 2013; 81 FR 
66492, Sept. 28, 2016]

    Editorial Note: At 75 FR 16327, Apr. 1, 2010, Sec. 226.4 was amended 
in paragraph (d) by inserting ``Richard B. Russell'' before ``National 
School Lunch Program'' in the first sentence;; however, the amendment 
could not be incorporated due to inaccurate amendatory instruction.



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

[[Page 189]]

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 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 must provide 
sufficient consultative, technical, and managerial personnel to:
    (1) Administer the Program;
    (2) Provide sufficient training and technical assistance to 
institutions;
    (3) Monitor Program performance;
    (4) Facilitate expansion of the Program in low-income and rural 
areas; and
    (5) Ensure effective operation of the Program by participating 
institutions.
    (b) Program applications and agreements. Each State agency must 
establish application review procedures, in accordance with paragraphs 
(b)(1) through (b)(3) of this section, to determine the eligibility of 
new institutions, renewing institutions, and facilities for which 
applications are submitted by sponsoring organizations. The State agency 
must enter into written agreements with institutions in accordance with 
paragraph (b)(4) of this section.
    (1) Application procedures for new institutions. Each State agency 
must establish application procedures to determine the eligibility of 
new institutions under this part. At a minimum, such procedures must 
require that institutions submit information to the State agency in 
accordance with paragraph (f) of this section. For new private nonprofit 
and proprietary child care institutions, such procedures must also 
include a pre-approval visit by the State agency to confirm the 
information in the institution's application and to further assess its 
ability to manage the Program. The State agency must establish factors, 
consistent with Sec. 226.16(b)(1), that it will consider in determining 
whether a new sponsoring organization has sufficient staff to perform 
required monitoring responsibilities at all of its sponsored facilities. 
As part of the review of the sponsoring organization's 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 at 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. In addition, the State agency's application review 
procedures must ensure that the following information is included in a 
new institution's application:
    (i) Participant eligibility information. Centers must submit current 
information on the number of enrolled participants who are eligible for 
free, reduced-price and paid meals;
    (ii) Enrollment information. Sponsoring organizations of day care 
homes must submit current information on:
    (A) The total number of children enrolled in all homes in the 
sponsorship;
    (B) An assurance that day care home providers' own children whose 
meals are claimed for reimbursement in the Program are eligible for free 
or reduced-price meals;
    (C) The total number of tier I and tier II day care homes that it 
sponsors;
    (D) The total number of children enrolled in tier I day care homes;

[[Page 190]]

    (E) The total number of children enrolled in tier II day care homes; 
and
    (F) The total number of children in tier II day care homes that have 
been identified as eligible for free or reduced-price meals;
    (iii) Nondiscrimination statement. Institutions must submit their 
nondiscrimination policy statement and a media release, unless the State 
agency has issued a Statewide media release on behalf of all 
institutions;
    (iv) Management plan. Sponsoring organizations must submit a 
complete management plan that includes:
    (A) Detailed information on the organization's management and 
administrative structure;
    (B) A list or description of the staff assigned to Program 
monitoring, in accordance with the requirements set forth at 
Sec. 226.16(b)(1);
    (C) An administrative budget that includes projected CACFP 
administrative earnings and expenses;
    (D) The procedures to be used by the organization to administer the 
Program in, and disburse payments to, the child care facilities under 
its sponsorship; and
    (E) For sponsoring organizations of family 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;
    (v) Budget. An institution must submit a budget that the State 
agency must review in accordance with Sec. 226.7(g);
    (vi) Documentation of licensing/approval. All centers and family day 
care homes must document that they meet Program licensing/approval 
requirements;
    (vii) Documentation of tax-exempt status. All private nonprofit 
institutions must document their tax-exempt status;
    (viii) At-risk afterschool care centers. Institutions (independent 
at-risk afterschool care centers and sponsoring organizations of at-risk 
afterschool care centers) must submit documentation sufficient to 
determine that each at-risk afterschool care center meets the program 
eligibility requirements in Sec. 226.17a(a), and sponsoring 
organizations must submit documentation that each sponsored at-risk 
afterschool care center meets the area eligibility requirements in 
Sec. 226.17a(i).
    (ix) Documentation of for-profit center eligibility. Institutions 
must document that each for-profit center for which application is made 
meets the definition of a For-profit center, as set forth at Sec. 226.2;
    (x) Preference for commodities/cash-in-lieu of commodities. 
Institutions must state their preference to receive commodities or cash-
in-lieu of commodities;
    (xi) Providing benefits to unserved facilities or participants--(A) 
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
    (B) Documentation. The new sponsoring organization must submit 
documentation that its participation will help ensure the delivery of 
benefits to otherwise unserved facilities or participants in accordance 
with the State agency's criteria;
    (xii) Presence on the National disqualified list. If an institution 
or one of its principals is on the National disqualified list and 
submits an application, the State agency may not approve the 
application. If a sponsoring organization submits an application on 
behalf of a facility, and either the facility or any of its principals 
is on the National disqualified list, the State agency may not approve 
the application. In accordance with paragraph (k)(3)(vii) of this 
section, in this circumstance, the State agency's refusal to consider 
the application is not subject to administrative review.
    (xiii) Ineligibility for other publicly funded programs--(A) 
General. A State agency is prohibited from approving an institution's 
application if, during the past seven years, the institution or any of 
its principals have been declared ineligible for any other publicly 
funded program by reason of violating that program's requirements. 
However, this

[[Page 191]]

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;
    (B) Certification. Institutions must submit:
    (1) A statement listing the publicly funded programs in which the 
institution and its principals have participated in the past seven 
years; and
    (2) 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
    (3) 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
    (C) 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;
    (xiv) Information on criminal convictions. (A) 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
    (B) Institutions must submit a certification 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;
    (xv) Certification of truth of applications and submission of names 
and addresses. Institutions must submit a certification that all 
information on the application is true and correct, along with the name, 
mailing address, and date of birth of the institution's executive 
director and chairman of the board of directors or, in the case of a 
for-profit center that does not have an executive director or is not 
required to have a board of directors, the owner of the for-profit 
center;
    (xvi) 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 will be effective unless disapproved by the State agency;
    (xvii) 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
    (xviii) Compliance with performance standards. Each new 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

[[Page 192]]

this, any new institution must demonstrate in its application that it is 
capable of operating in conformance with the following performance 
standards. The State agency must only approve the applications of those 
new institutions that meet these performance standards, and must deny 
the applications of those new institutions that do not meet the 
standards. In ensuring compliance with these performance standards, the 
State agency should use its discretion in determining whether the 
institution's application, in conjunction with its past performance in 
CACFP, establishes to the State agency's satisfaction that the 
institution meets the performance standards.
    (A) Performance Standard 1--Financial viability and financial 
management. The new 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''), 2 CFR part 200, subpart D 
and USDA implementing regulations 2 CFR part 400 and part 415. To 
demonstrate financial viability, the new institution must document that 
it meets the following criteria:
    (1) 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)(1)(x) of this section. A new sponsoring 
organization must demonstrate that it will use appropriate practices for 
recruiting facilities, consistent with paragraph (p) of this section and 
any State agency requirements;
    (2) Fiscal resources and financial history. A new institution must 
demonstrate that it has adequate financial resources to operate the 
CACFP on a daily basis, has adequate sources of funds to continue to pay 
employees and suppliers during periods of temporary interruptions in 
Program payments and/or to pay debts when fiscal claims have been 
assessed against the institution, and can document financial viability 
(for example, through audits, financial statements, etc.); and
    (3) Budgets. Costs in the institution's budget must be necessary, 
reasonable, allowable, and appropriately documented;
    (B) Performance Standard 2--Administrative capability. The new 
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 institution must document that it meets the 
following criteria:
    (1) Has an adequate number and type of qualified staff to ensure the 
operation of the Program in accordance with this part;
    (2) If a sponsoring organization, documents in its management plan 
that it employs staff sufficient to meet the ratio of monitors to 
facilities, taking into account the factors that the State agency will 
consider in determining a sponsoring organization's staffing needs, as 
set forth in Sec. 226.16(b)(1); and
    (3) If a sponsoring organization, has Program policies and 
procedures in writing that assign Program responsibilities and duties, 
and ensure compliance with civil rights requirements; and
    (C) Performance Standard 3--Program accountability. The new 
institution must have internal controls and other management systems in 
effect to ensure fiscal accountability and to ensure that the Program 
will operate in accordance with the requirements of this part. To 
demonstrate Program accountability, the new institution must document 
that it meets the following criteria:
    (1) Governing board of directors. Has adequate oversight of the 
Program by an independent governing board of directors as defined at 
Sec. 226.2;
    (2) Fiscal accountability. Has a financial system with management 
controls specified in writing. For new sponsoring organizations, these 
written operational policies must assure:
    (i) Fiscal integrity and accountability for all funds and property 
received, held, and disbursed;
    (ii) The integrity and accountability of all expenses incurred;

[[Page 193]]

    (iii) That claims will be processed accurately, and in a timely 
manner;
    (iv) That funds and property are properly safeguarded and used, and 
expenses incurred, for authorized Program purposes; and
    (v) That a system of safeguards and controls is in place to prevent 
and detect improper financial activities by employees;
    (3) Recordkeeping. Maintains appropriate records to document 
compliance with Program requirements, including budgets, accounting 
records, approved budget amendments, and, if a sponsoring organization, 
management plans and appropriate records on facility operations;
    (4) Sponsoring organization operations. If a new sponsoring 
organization, documents in its management plan that it will:
    (i) Provide adequate and regular training of sponsoring organization 
staff and sponsored facilities in accordance with Secs. 226.15(e)(12) 
and (e)(14) and 226.16(d)(2) and (d)(3);
    (ii) Perform monitoring in accordance with Sec. 226.16(d)(4), to 
ensure that sponsored facilities accountably and appropriately operate 
the Program;
    (iii) If a sponsor of family day care homes, accurately classify day 
care homes as tier I or tier II in accordance with Sec. 226.15(f); and
    (iv) Have a system in place to ensure that administrative costs 
funded from Program reimbursements do not exceed regulatory limits set 
forth at Secs. 226.12(a) and 226.16(b)(1); and
    (5) Meal service and other operational requirements. Independent 
centers and facilities will follow practices that 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:
    (i) Provide meals that meet the meal patterns set forth in 
Sec. 226.20;
    (ii) Comply with licensure or approval requirements set forth in 
paragraph (d) of this section;
    (iii) Have a food service that complies with applicable State and 
local health and sanitation requirements;
    (iv) Comply with civil rights requirements;
    (v) Maintain complete and appropriate records on file; and
    (vi) Claim reimbursement only for eligible meals.
    (2) Application procedures for renewing institutions. Each State 
agency must establish application procedures to determine the 
eligibility of renewing institutions under this part. Renewing 
institutions must not be required to submit a free and reduced-price 
policy statement or a nondiscrimination statement unless they make 
substantive changes to either statement. The State agency must require 
each renewing institution participating in the Program to reapply for 
participation at a time determined by the State agency, except that no 
institution may be allowed to participate for less than 12 or more than 
36 calendar months under an existing application, except when the State 
agency determines that unusual circumstances warrant reapplication in 
less than 12 months. The State agency must establish factors, consistent 
with Sec. 226.16(b)(1), that it will consider in determining whether a 
renewing sponsoring organization has sufficient staff to perform 
required monitoring responsibilities at all of its sponsored facilities. 
As part of the review of the renewing sponsoring organization's 
management plan, the State agency must determine the appropriate level 
of staffing for the sponsoring organization, consistent with the 
staffing range of monitors set forth at Sec. 226.16(b)(1) and the 
factors it has established. The State agency must ensure that each 
currently participating sponsoring organization meets this requirement 
no later than July 29, 2003. At a minimum, the application review 
procedures established by the State agency must require that renewing 
institutions submit information to the State agency in accordance with 
paragraph (f) of this section. In addition, the State agency's 
application review procedures must ensure that the following information 
is included in a renewing institution's application:

[[Page 194]]

    (i) Management plan. For renewing sponsoring organizations, a 
complete management plan that meets the requirements of paragraphs 
(b)(1)(iv), (b)(1)(v), (f)(1)(vi), and (f)(3)(i) of this section and 
Sec. 226.7(g);
    (ii) Presence on the National disqualified list. If, during the 
State agency's review of its application, a renewing institution or one 
of its principals is determined to be on the National disqualified list, 
the State agency may not approve the application. If a renewing 
sponsoring organization submits an application on behalf of a facility, 
and the State agency determines that either the facility or any of its 
principals is on the National disqualified list, the State agency may 
not approve the application. In accordance with paragraph (k)(3)(vii) of 
this section, in this circumstance, the State agency's refusal to 
consider the application is not subject to an administrative review.
    (iii) Ineligibility for other publicly funded programs--(A) General. 
A State agency is prohibited from approving a renewing institution's 
application if, during the past seven years, the institution or any of 
its principals have been declared ineligible for any other publicly 
funded program by reason of violating that program's requirements. 
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;
    (B) Certification. Renewing institutions must submit:
    (1) A statement listing any publicly funded programs in which the 
institution and its principals have begun to participate since the 
institution's previous application; and
    (2) 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
    (3) 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
    (C) Follow-up. If the State agency has reason to believe that the 
renewing institution or any of 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;
    (iv) Information on criminal convictions. (A) A State agency is 
prohibited from approving a renewing institution's application if the 
institution or any of its principals have 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
    (B) Renewing institutions must submit a certification that neither 
the institution nor any of its principals have 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;
    (v) Certification of truth of applications and submission of names 
and addresses. Renewing 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 or, in the case of a 
for-profit center that does not have an executive director or is not 
required to have a board of directors, the owner of the for-profit 
center;

[[Page 195]]

    (vi) Outside employment policy. Renewing 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 will be effective unless disapproved by the State agency;
    (vii) Compliance with performance standards. Each 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 renewing institution must 
demonstrate in its application that it is capable of operating in 
conformance with the following performance standards. The State agency 
must only approve the applications of those renewing institutions that 
meet these performance standards, and must deny the applications of 
those that do not meet the standards. In ensuring compliance with these 
performance standards, the State agency should use its discretion in 
determining whether the institution's application, in conjunction with 
its past performance in CACFP, establishes to the State agency's 
satisfaction that the institution meets the standards.
    (A) Performance Standard 1--Financial viability and financial 
management. The 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 2 CFR part 200, subpart 
D and USDA implementing regulations 2 CFR part 400 and part 415. To 
demonstrate financial viability, the renewing institution must document 
that it meets the following criteria:
    (1) Description of need/recruitment. A renewing sponsoring 
organization must demonstrate that it will use appropriate practices for 
recruiting facilities, consistent with paragraph (p) of this section and 
any State agency requirements;
    (2) Fiscal resources and financial history. A renewing institution 
must demonstrate that it has adequate financial resources to operate the 
CACFP on a daily basis, has adequate sources of funds to continue to pay 
employees and suppliers during periods of temporary interruptions in 
Program payments and/or to pay debts when fiscal claims have been 
assessed against the institution, and can document financial viability 
(for example, through audits, financial statements, etc.); and
    (3) Budgets. Costs in the renewing institution's budget must be 
necessary, reasonable, allowable, and appropriately documented;
    (B) Performance Standard 2--Administrative capability. The 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 renewing institution must document that it meets the 
following criteria:
    (1) Has an adequate number and type of qualified staff to ensure the 
operation of the Program in accordance with this part;
    (2) If a sponsoring organization, documents in its management plan 
that it employs staff sufficient to meet the ratio of monitors to 
facilities, taking into account the factors that the State agency will 
consider in determining a sponsoring organization's staffing needs, as 
set forth in Sec. 226.16(b)(1); and
    (3) If a sponsoring organization, has Program policies and 
procedures in writing that assign Program responsibilities and duties, 
and ensure compliance with civil rights requirements; and
    (C) Performance Standard 3--Program accountability. The 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 renewing institution must 
document that it meets the following criteria:

[[Page 196]]

    (1) Governing board of directors. Has adequate oversight of the 
Program by an independent governing board of directors as defined at 
Sec. 226.2;
    (2) Fiscal accountability. Has a financial system with management 
controls specified in writing. For sponsoring organizations, these 
written operational policies must assure:
    (i) Fiscal integrity and accountability for all funds and property 
received, held, and disbursed;
    (ii) The integrity and accountability of all expenses incurred;
    (iii) That claims are processed accurately, and in a timely manner;
    (iv) That funds and property are properly safeguarded and used, and 
expenses incurred, for authorized Program purposes; and
    (v) That a system of safeguards and controls is in place to prevent 
and detect improper financial activities by employees;
    (3) Recordkeeping. Maintains appropriate records to document 
compliance with Program requirements, including budgets, accounting 
records, approved budget amendments, and, if a sponsoring organization, 
management plans and appropriate records on facility operations;
    (4) Sponsoring organization operations. A renewing sponsoring 
organization must document in its management plan that it will:
    (i) Provide adequate and regular training of sponsoring organization 
staff and sponsored facilities in accordance with Secs. 226.15(e)(12) 
and (e)(14) and 226.16(d)(2) and (d)(3);
    (ii) Perform monitoring in accordance with Sec. 226.16(d)(4), to 
ensure that sponsored facilities accountably and appropriately operate 
the Program;
    (iii) If a sponsor of family day care homes, accurately classify day 
care homes as tier I or tier II in accordance with Sec. 226.15(f); and
    (iv) Have a system in place to ensure that administrative costs 
funded from Program reimbursements do not exceed regulatory limits set 
forth at Secs. 226.12(a) and 226.16(b)(1); and
    (5) Meal service and other operational requirements. All independent 
centers and facilities must follow practices that 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:
    (i) Provide meals that meet the meal patterns set forth in 
Sec. 226.20;
    (ii) Comply with licensure or approval requirements set forth in 
paragraph (d) of this section;
    (iii) Have a food service that complies with applicable State and 
local health and sanitation requirements;
    (iv) Comply with civil rights requirements;
    (v) Maintain complete and appropriate records on file; and
    (vi) Claim reimbursement only for eligible meals.
    (3) State agency notification requirements. Any new or renewing 
institution applying for participation in the Program must be notified 
in writing of approval or disapproval by the State agency, within 30 
calendar days of the State agency's receipt of a complete application. 
Whenever possible, State agencies should provide assistance to 
institutions that have submitted an incomplete application. Any 
disapproved applicant institution or family day care home must be 
notified of the reasons for its disapproval and its right to appeal 
under paragraph (k) or (l), respectively, of this section.
    (4) Program agreements. (i) The State agency must require each 
institution that has been approved for participation in the Program to 
enter into a permanent agreement governing the rights and 
responsibilities of each party. The existence of a valid permanent 
agreement, however, does not eliminate the need for an institution to 
comply with the reapplication and related provisions at paragraphs (b) 
and (f) of this section; nor does it limit the State agency's ability to 
terminate the agreement as provided under paragraph (c) of this section.
    (ii) The Program agreement must provide that the institution accepts 
final financial and administrative responsibility for management of a 
proper, efficient, and effective food service, and will comply with all 
requirements

[[Page 197]]

under this part. In addition, the agreement must state that the sponsor 
must 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 (parts 15, 15a and 
15b of this title), 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 may, on the grounds of race, color, 
national origin, sex, age, or disability, be excluded from participation 
in, be denied the benefits of, or be otherwise subjected to 
discrimination under, the Program.
    (iii) The Program agreement must also notify the institution of the 
right of the State agency, the Department, and other State or 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.
    (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 Secs. 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 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

[[Page 198]]

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;
    (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; and
    (7) That the institution's withdrawal of its application, after 
having been notified that it is seriously deficient, will still result 
in the institution's formal termination by the State agency and 
placement of the institution and its responsible principals and 
individuals on the National disqualified list; and
    (8) That, if the State agency does not possess the date of birth for 
any individual named as a ``responsible principal or individual'' in the 
serious deficiency notice, the submission of that person's date of birth 
is a condition of corrective action for the institution and/or 
individual.
    (B) 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 temporarily defer 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 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.
    (3) If the State agency initially determines that the institution's 
corrective action is complete, but later determines that the serious 
deficiency(ies) has recurred, the State agency must move immediately to 
issue a notice of intent to terminate and disqualify the institution, in 
accordance with paragraph (c)(1)(iii)(C) of this section.
    (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

[[Page 199]]

    (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 Secs. 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 paragraphs (b)(1)(xviii) and 
(b)(2)(vii) of this section;
    (C) Failure to comply with the bid procedures and contract 
requirements of applicable Federal procurement regulations;
    (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

[[Page 200]]

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 and the proposed 
disqualification of the institution and the responsible principals and 
responsible individuals;
    (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 institution's formal termination by 
the State agency and placement of the institution and its responsible 
principals and responsible individuals on the National disqualified 
list; and
    (7) That, if the State agency does not possess the date of birth for 
any individual named as a ``responsible principal or individual'' in the 
serious deficiency notice, the submission of that person's date of birth 
is a condition of corrective action for the institution and/or 
individual.
    (B) 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 temporarily defer 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;
    (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.
    (3) If the State agency initially determines that the institution's 
corrective action is complete, but later determines that the serious 
deficiency(ies) have recurred, the state agency must move immediately to 
issue a notice of intent to terminate and disqualify the institution, in 
accordance with paragraph (c)(2)(iii)(C) of this section.

[[Page 201]]

    (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 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) 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 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 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,

[[Page 202]]

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 paragraphs (b)(1)(xviii) and 
(b)(2)(vii) 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 for-profit child 
care center or a for-profit outside-school-hours care center during a 
calendar month in which less than 25 percent of the children in care 
(enrolled or licensed capacity, whichever is less) were eligible for 
free or reduced-price meals or were title XX beneficiaries;
    (M) Claiming reimbursement for meals served by a for-profit adult 
day care center during a calendar month in which less than 25 percent of 
its enrolled adult participants were title XIX or title XX 
beneficiaries;
    (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. 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

[[Page 203]]

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;
    (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; and
    (7) That, if the State agency does not possess the date of birth for 
any individual named as a ``responsible principal or individual'' in the 
serious deficiency notice, the submission of that person's date of birth 
is a condition of corrective action for the institution and/or 
individual.
    (B) 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 temporarily defer its serious 
deficiency determination; and
    (ii) Offer the participating institution the opportunity to resubmit 
its application. If the participating 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)(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 participating institution has corrected the serious 
deficiency(ies), offer it the opportunity to

[[Page 204]]

resubmit its application. If the participating institution resubmits its 
application, the State agency must complete its review of the 
application within 30 days after receiving a complete and correct 
application.
    (3) If the State agency initially determines that the institution's 
corrective action is complete, but later determines that the serious 
deficiency(ies) has recurred, the State agency must move immediately to 
issue a notice of intent to terminate and disqualify the institution, in 
accordance with paragraph (c)(1)(iii)(C) of this section.
    (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 and extended agreement. If the participating 
institution must renew its application, or its agreement expires, before 
the end of the time allotted for corrective action and/or the conclusion 
of any administrative review requested by the participating institution:
    (1) The State agency must temporarily extend its current agreement 
with the participating institution and continue to pay any valid unpaid 
claims for reimbursement for eligible meals served and allowable 
administrative expenses incurred; and
    (2) During this period, the State agency may base administrative 
payments to the institution on the institution's previous approved 
budget, or may base administrative payments to the institution on the 
budget submitted by the institution as part of its renewal application; 
and
    (3) The actions set forth in paragraphs (c)(3)(iii)(D)(1) and 
(c)(3)(iii)(D)(2) of this section must be taken either until the serious 
deficiency(ies) is corrected or until the institution's agreement is 
terminated, including the period of any administrative review;
    (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.

[[Page 205]]

    (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.
    (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

[[Page 206]]

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 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:

[[Page 207]]

    (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 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);

[[Page 208]]

    (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 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 
temporarily defer 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.
    (3) If FNS initially determines that the institution's corrective 
action is complete, but later determines that the serious 
deficiency(ies) has recurred, FNS will move immediately to issue a 
notice of intent to terminate and disqualify the institution, in 
accordance with paragraph (c)(6)(ii)(D) of this section.
    (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).

[[Page 209]]

    (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 
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 paragraphs (b)(1)(xii) and (b)(2)(ii) of this section, the 
State agency must must not approve 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 paragraphs (b)(1)(xii) and (b)(2)(ii) 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 paragraphs (b)(1)(xii) and (b)(2)(ii) of this section, the State 
agency must must not approve 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 paragraphs (b)(1)(xii) and (b)(2)(ii) of this section, a sponsoring 
organization is prohibited from submitting an application on behalf of a 
sponsored facility (or a State

[[Page 210]]

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 
paragraphs (b)(1)(xii) and (b)(2)(ii) 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 
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 institutions or facilities providing 
child care. This section prescribes State agency responsibilities to 
ensure that child care centers, at-risk afterschool care centers, 
outside-school-hours care centers, and day care homes meet the 
licensing/approval criteria set forth in this part. Emergency shelters 
are exempt from licensing/approval requirements contained in this 
section but must meet the requirements of paragraph (d)(2) to be 
eligible to participate in the Program. Independent centers shall submit 
such documentation to the State agency on their own behalf.

[[Page 211]]

    (1) General. Each State agency must establish procedures to annually 
review information submitted by institutions to ensure that all 
participating child care centers, at-risk afterschool care centers, 
outside-school hours care centers, and day care homes:
    (i) Are licensed or approved by Federal, State, or local 
authorities, provided that institutions that are approved for Federal 
programs on the basis of State or local licensing are not 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) Demonstrate compliance with applicable State or local child 
care standards to the State agency, if licensing is not available; or
    (iv) Demonstrate compliance with CACFP child care standards to the 
State agency, if licensing or approval is not available; or
    (v) If Federal, State or local licensing or approval is not 
otherwise required, at-risk afterschool care centers and outside-school-
hours care centers must meet State or local health and safety standards. 
When State or local health and safety standards have not been 
established, State agencies are encouraged to work with appropriate 
State and local officials to create such standards. Meeting these 
standards will remain a precondition for any afterschool center's 
eligibility for CACFP nutrition benefits.
    (2) Health and safety requirements for emergency shelters. To be 
eligible to participate in the Program, emergency shelters must meet 
applicable State or local health and safety standards.
    (3) CACFP child care standards. 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)(4) of this 
section:
    (i) Staff/child ratios. (A) 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.
    (B) Child care centers do not fall below the following staff/child 
ratios:
    (1) For children under 6 weeks of age--1:1;
    (2) For children ages 6 weeks up to 3 years--1:4;
    (3) For children ages 3 years up to 6 years--1:6;
    (4) For children ages 6 years up to 10 years--1:15; and
    (5) For children ages 10 and above--1:20.
    (ii) Nondiscrimination. Day care services are available without 
discrimination on the basis of race, color, national origin, sex, age, 
or handicap.
    (iii) Safety and sanitation. (A) A current health/sanitation permit 
or satisfactory report of an inspection conducted by local authorities 
within the past 12 months shall be submitted.
    (B) A current fire/building safety permit or satisfactory report of 
an inspection conducted by local authorities within the past 12 months 
shall be submitted.
    (C) Fire drills are held in accordance with local fire/building 
safety requirements.
    (iv) Suitability of facilities. (A) Ventilation, temperature, and 
lighting are adequate for children's safety and comfort.
    (B) Floors and walls are cleaned and maintained in a condition safe 
for children.
    (C) Space and equipment, including rest arrangements for preschool 
age children, are adequate for the number of age ranges of participating 
children.
    (v) 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.
    (vi) Health services. (A) Each child is observed daily for 
indications of difficulties in social adjustment, illness,

[[Page 212]]

neglect, and abuse, and appropriate action is initiated.
    (B) 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.
    (C) Health records, including records of medical examinations and 
immunizations, are maintained for each enrolled child. (Not applicable 
to day care homes.)
    (D) At least one full-time staff member is currently qualified in 
first aid, including artificial respiration techniques. (Not applicable 
to day care homes.)
    (E) First aid supplies are available.
    (F) Staff members undergo initial and periodic health assessments.
    (vii) Staff training. The institution provides for orientation and 
ongoing training in child care for all caregivers.
    (viii) Parental involvement. Parents are afforded the opportunity to 
observe their children in day care.
    (ix) Self-evaluation. The institution has established a procedure 
for periodic self-evaluation on the basis of CACFP child care standards.
    (4) 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, 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) Miscellaneous responsibilities. State agencies must require 
institutions to comply with the applicable provisions of this part and 
must provide or collect the information specified in this paragraph (f).
    (1) Annual responsibilities. In addition to its other 
responsibilities under this part, each State agency must annually:
    (i) Inform institutions that are pricing programs of their 
responsibility to ensure that free and reduced-price meals are served to 
participants unable to pay the full price;

[[Page 213]]

    (ii) 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;
    (iii) Require centers to submit current eligibility information on 
enrolled participants, in order to calculate a blended rate or claiming 
percentage in accordance with Sec. 226.9(b);
    (iv) Require each sponsoring organization to submit an 
administrative budget with sufficiently detailed information concerning 
projected CACFP administrative earnings and expenses, as well as other 
non-Program funds to be used in Program administration, for the State 
agency to determine the allowability, necessity, and reasonableness of 
all proposed expenditures, and to assess the sponsoring organization's 
capability to manage Program funds. The administrative budget must 
demonstrate that the sponsoring organization will expend and account for 
funds in accordance with regulatory requirements, FNS Instruction 796-2 
(``Financial Management in the Child and Adult Care Food Program''), 2 
CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 
and part 415, and applicable Office of Management and Budget circulars. 
In addition, the administrative budget submitted by a sponsor of centers 
must demonstrate that the administrative costs to be charged to the 
Program do 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. 226.7(g);
    (v) Require each institution to issue a media release, unless the 
State agency has issued a Statewide media release on behalf of all its 
institutions;
    (vi) Require each independent center to provide information 
concerning its licensing/approval status, and require each sponsoring 
organization to provide information concerning the licensing/approval 
status of its facilities, unless the State agency has other means of 
confirming the licensing/approval status of any independent center or 
facility providing care;
    (vii) Require each sponsoring organization to submit verification 
that all facilities under its sponsorship have adhered to the training 
requirements set forth in Program regulations; and
    (viii) Comply with the following requirements for tiering of day 
care homes:
    (A) Coordinate with the State agency that administers the National 
School Lunch Program (the NSLP State agency) to ensure the receipt of a 
list of 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 must provide the list of schools to sponsoring 
organizations of day care homes by February 15 each year unless the NSLP 
State agency has elected to base data for the list on a month other than 
October. In that case, the State agency must provide the list to 
sponsoring organizations of day care homes within 15 calendar days of 
its receipt from the NSLP State agency.
    (B) For tiering determinations of day care homes that are based on 
school or census data, the State agency must ensure that sponsoring 
organizations of day care homes use the most recent available data, as 
described in Sec. 226.15(f).
    (C) For tiering determinations of day care homes that are based on 
the provider's household income, the State agency must ensure that 
sponsoring organizations annually determine the eligibility of each day 
care home, as described in Sec. 226.15(f).
    (D) The State agency must 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.
    (E) The State agency must require each sponsoring organization of 
family day care homes to submit to the State agency a list of family day 
care home providers receiving tier I benefits on the basis of their 
participation in the SNAP. Within 30 days of receiving this list, the 
State agency will provide this list to the State agency responsible for 
the administration of the SNAP.
    (ix) Comply with the following requirements for determining the 
eligibility of at-risk afterschool care centers:

[[Page 214]]

    (A) Coordinate with the NSLP State agency to ensure the receipt of a 
list of 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 must provide the list of schools to independent at-risk 
afterschool care centers and sponsoring organizations of at-risk 
afterschool care centers upon request. The list must represent data from 
the preceding October, unless the NSLP State agency has elected to base 
data for the list on a month other than October. If the NSLP State 
agency chooses a month other than October, it must do so for the entire 
State.
    (B) The State agency must determine the area eligibility for each 
independent at-risk afterschool care center. The State agency must use 
the most recent data available, as described in Sec. 226.6(f)(1)(ix)(A). 
The State agency must use attendance area information that it has 
obtained, or verified with the appropriate school officials to be 
current, within the last school year.
    (C) The State agency must determine the area eligibility of each 
sponsored at-risk afterschool care center based on the documentation 
submitted by the sponsoring organization in accordance with 
Sec. 226.15(g).
    (D) The State agency must determine whether the afterschool care 
programs of at-risk afterschool care centers meet the requirements of 
Sec. 226.17a(b) before the centers begin participating in the Program.
    (2) Triennial Responsibilities--(i) General reapplication 
requirements. At intervals not to exceed 36 months, each State agency 
must require participating institutions to reapply to continue their 
participation and must require sponsoring organizations to submit a 
management plan with the elements set forth in Sec. 226.6(b)(1)(iv).
    (ii) Redeterminations of afterschool program eligibility. The State 
agency must determine whether institutions reapplying as at-risk 
afterschool care centers continue to meet the eligibility requirements, 
as described in Sec. 226.17a(b).
    (3) Responsibilities at other time intervals--(i) Day care home 
tiering redeterminations based on school data. As described in 
Sec. 226.15(f), tiering determinations are valid for five years if based 
on school data. The State agency must 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 data. The 
State agency must not routinely require annual redeterminations of the 
tiering status of tier I day care homes based on updated school data. 
However, a sponsoring organization, the State agency, or FNS may change 
the determination if information becomes available indicating that a day 
care home is no longer in a qualified area.
    (ii) Area eligibility redeterminations for at-risk afterschool care 
centers. Area eligibility determinations are valid for five years for 
at-risk afterschool care centers that are already participating in the 
Program. The State agency may determine the date in the fifth year when 
the next five-year cycle of area eligibility will begin. The State 
agency must redetermine the area eligibility for each independent at-
risk afterschool care center in accordance with Sec. 226.6(f)(1)(ix)(B). 
The State agency must redetermine the area eligibility of each sponsored 
at-risk afterschool care center based on the documentation submitted by 
the sponsoring organization in accordance with Sec. 226.15(g). The State 
agency must not routinely require annual redeterminations of area 
eligibility based on updated school data during the five-year period, 
except in cases where the State agency has determined it is most 
efficient to incorporate area eligibility decisions into the three-year 
application cycle. However, a sponsoring organization, the State agency, 
or FNS may change the determination if information becomes available 
indicating that an at-risk afterschool care center is no longer area 
eligible.
    (iii) State agency transmittal of census data. Upon receipt of 
census data from FNS (on a decennial basis), the State agency must 
provide each sponsoring organization of day care homes with census data 
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.

[[Page 215]]

    (iv) Additional institution requirements. At intervals and in a 
manner specified by the State agency, but not more frequently than 
annually, the State agency may:
    (A) Require independent centers to submit a budget with sufficiently 
detailed information and documentation to enable the State agency to 
make an assessment of the independent center's qualifications to manage 
Program funds. Such budget must demonstrate that the independent center 
will expend and account for funds in accordance with regulatory 
requirements, FNS Instruction 796-2 (``Financial Management in the Child 
and Adult Care Food Program''), and 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415 and applicable 
Office of Management and Budget circulars;
    (B) Request institutions to report their commodity preference;
    (C) Require a private nonprofit institution to submit evidence of 
tax exempt status in accordance with Sec. 226.15(a);
    (D) Require for-profit institutions to submit documentation on 
behalf of their centers of:
    (1) Eligibility of at least 25 percent of children in care (enrolled 
or licensed capacity, whichever is less) for free or reduced-price 
meals; or
    (2) Compensation received under title XX of the Social Security Act 
of nonresidential day care services and certification that at least 25 
percent of children in care (enrolled or licensed capacity, whichever is 
less) were title XX beneficiaries during the most recent calendar month.
    (E) Require for-profit adult care centers to submit documentation 
that they are currently providing nonresidential day care services for 
which they receive compensation under title XIX or title XX of the 
Social Security Act, and certification that not less than 25 percent of 
enrolled participants in each such center during the most recent 
calendar month were title XIX or title XX beneficiaries;
    (F) Request each institution to indicate its choice to receive all, 
part or none of advance payments, if the State agency chooses to make 
advance payments available; and
    (G) Perform verification in accordance with Sec. 226.23(h) and 
paragraph (m)(4) of this section. State agencies verifying the 
information on free and reduced-price applications must ensure that 
verification activities are conducted without regard to the 
participant's race, color, national origin, sex, age, or disability.
    (g) Program expansion. Each State agency must take action to expand 
the availability of benefits under this Program, and must conduct 
outreach to potential sponsoring organizations of family day care homes 
that might administer the Program in low-income or rural areas.
    (h) Commodity distribution. The State agency must require new 
institutions to state their preference to receive commodities or cash-
in-lieu of commodities when they apply, and may periodically inquire as 
to participating institutions' preference to receive commodities or 
cash-in-lieu of commodities. State agencies must annually provide 
institutions with information on foods available in plentiful supply, 
based on information provided by the Department. 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.

[[Page 216]]

    (i) Standard contract. Each State agency shall develop a standard 
contract in accordance with Sec. 226.21 and provide for its use between 
institutions 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 must require institutions 
to adhere to the procurement provisions set forth in Sec. 226.22 and 
must determine that all meal procurements with food service management 
companies are in conformance with bid and contractual requirements of 
Sec. 226.22.
    (k) Administrative reviews for institutions and responsible 
principals and responsible individuals--(1) General. The State agency 
must develop procedures

[[Page 217]]

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), 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 Secs. 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) State agency determination that corrective action is 
inadequate. A determination by the State agency that the corrective 
action taken by an institution or by a responsible principal or 
individual does not completely and permanently correct a serious 
deficiency;

[[Page 218]]

    (iv) 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);
    (v) Termination. Termination of a participating institution's 
agreement, including termination of a participating institution's 
agreement based on the disqualification of the institution by another 
State agency or FNS (see paragraphs (c)(3)(i) and (c)(7)(ii) of this 
section);
    (vi) State agency or FNS decision regarding removal from the 
National disqualified list. A determination, by either the State agency 
or by FNS, that the corrective action taken by an institution or a 
responsible principal or individual is not adequate to warrant the 
removal of the institution or the responsible principal or individual 
from the National disqualified list; or
    (vii) State agency's refusal to consider an application submitted by 
an institution or facility on the National disqualified list. The State 
agency's refusal to consider an institution's application when either 
the institution or one of its principals is on the National disqualified 
list, or the State agency's refusal to consider an institution's 
submission of an application on behalf of a facility when either the 
facility or one of its principals is on the National disqualified list.
    (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

[[Page 219]]

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.
    (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);

[[Page 220]]

    (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 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 
Secs. 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.

[[Page 221]]

    (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 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 (parts 15, 15a, and 15b of this title). 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)(6) 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. As part of its conduct of reviews, the State 
agency must assess each institution's compliance with the requirements 
of this part pertaining to:
    (i) Recordkeeping;
    (ii) Meal counts;
    (iii) Administrative costs;
    (iv) Any applicable instructions and handbooks issued by FNS and the 
Department to clarify or explain this part, and any instructions and 
handbooks issued by the State agency which are not inconsistent with the 
provisions of this part;
    (v) Facility licensing and approval;
    (vi) Compliance with the requirements for annual updating of 
enrollment forms;
    (vii) If an independent center, observation of a meal service;
    (viii) If a sponsoring organization, training and monitoring of 
facilities;
    (ix) If a sponsoring organization of day care homes, implementation 
of the serious deficiency and termination procedures for day care homes 
and, if such procedures have been delegated to sponsoring organizations 
in accordance with paragraph (l)(1) of this section, the administrative 
review procedures for day care homes;
    (x) If a sponsoring organization, implementation of the household 
contact system established by the State agency pursuant to paragraph 
(m)(5) of this section;
    (xi) If a sponsoring organization of day care homes, the 
requirements for classification of tier I and tier II day care homes; 
and
    (xii) All other Program requirements.

[[Page 222]]

    (4) Review of sponsored facilities. As part of each required review 
of a sponsoring organization, the State agency must select a sample of 
facilities, in accordance with paragraph (m)(6) of this section. As part 
of such reviews, the State agency must conduct verification of Program 
applications in accordance with Sec. 226.23(h) and must compare 
enrollment and attendance records (except in those outside-school-hours 
care centers, at-risk afterschool care centers, and emergency shelters 
where enrollment records are not required and the sponsoring 
organization's review results for that facility to meal counts submitted 
by those facilities for five days.
    (5) Household contacts. As part of their monitoring of institutions, 
State agencies must establish systems for making household contacts to 
verify the enrollment and attendance of participating children. Such 
systems must specify the circumstances under which household contacts 
will be made, as well as the procedures for conducting household 
contacts. In addition, State agencies must establish a system for 
sponsoring organizations to use in making household contacts as part of 
their review and oversight of participating facilities. Such systems 
must specify the circumstances under which household contacts will be 
made, as well as the procedures for conducting household contacts. State 
agencies must submit to FNSROs, no later than April 1, 2005, the 
policies and procedures they have developed governing household contacts 
conducted by both the State agency, as part of institution and facility 
reviews conducted in accordance with this paragraph (m), and by 
sponsoring organizations as part of the facility review process 
described in Sec. 226.16(d)(5).
    (6) Frequency and number of required institution reviews. The State 
agency must annually review at least 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 to 100 
facilities must be reviewed at least once every three years. A review of 
such a sponsoring organization must include reviews of 10 percent of the 
sponsoring organization's 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 
operations.
    (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, 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 the 
specified timeframe for corrective action, the State agency must issue a 
notice of serious deficiency in accordance with paragraph (c) of this 
section or Sec. 226.16(l), as appropriate. However, if the health or 
safety of the children is imminently threatened, the State agency or 
sponsoring organization must follow the procedures set forth at 
paragraph (c)(5)(i) of this section, or Sec. 226.16(l)(4), as 
appropriate. 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

[[Page 223]]

of written permanent agreement between each day care home sponsoring 
organization and all day care homes participating in the Program under 
such organization. Nothing in the preceding sentence shall be construed 
to limit the ability of the sponsoring organization to suspend or 
terminate the permanent agreement in accordance with Sec. 226.16(l). 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 
Secs. 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.
    (r) WIC program information. State agencies must provide information 
on the importance and benefits of the Special Supplemental Nutrition 
Program for Women, Infants, and Children (WIC) and WIC income 
eligibility guidelines, to participating institutions. In addition, the 
State agency must ensure that:
    (1) Participating family day care homes and sponsored child care 
centers receive this information, and periodic updates of this 
information, from their sponsoring organizations or the State agency; 
and
    (2) The parents of enrolled children also receive this information.

[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 at www.fdsys.gov.



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 in accordance with 2 
CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 
and part 415, as applicable. 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

[[Page 224]]

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 (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 (FNS-777) 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 must require institutions 
(other than emergency shelters, at-risk afterschool care centers, and 
sponsoring organizations of emergency shelters, at-risk afterschool care 
centers, or day care homes) to submit, not less frequently than 
annually, information necessary to assign rates of reimbursement as 
outlined in Sec. 226.9.
    (g) Budget approval. The State agency must review institution 
budgets and must limit allowable administrative claims by each 
sponsoring organization to the administrative costs approved in its 
budget. The budget must demonstrate the institution's ability to manage 
Program funds in accordance with this part, FNS Instruction 796-2 
(``Financial Management in the Child and Adult Care Food Program''), 2 
CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 
and part 415, and applicable Office of Management and Budget circulars. 
Sponsoring organizations must submit an administrative budget to the 
State agency annually, and independent centers must submit budgets as 
frequently as required by the State agency. Budget levels may be 
adjusted to reflect changes in Program activities. If the institution 
does not intend to use non-CACFP funds to support any required CACFP 
functions, the institution's budget must identify a source of non-
Program funds that could be used to pay overclaims or other unallowable 
costs. If the institution intends to use any non-Program resources to 
meet CACFP requirements, these non-Program funds should be accounted for 
in the institution's budget, and the institution's budget must identify 
a source of non-Program funds that could be used to pay overclaims or 
other unallowable costs. 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

[[Page 225]]

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.
    (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. Such 
procedures must include State agency edit checks, including but not 
limited to ensuring that payments are made only for approved meal types 
and that the number of meals for which reimbursement is provided does 
not exceed the product of the total enrollment times operating days 
times approved meal types. 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 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 must establish a 
financial management system in accordance with 2 CFR part 200, subpart 
D, and USDA implementing regulations 2 CFR parts 400, 415, and 416, as 
applicable, and FNS guidance to identify allowable Program costs and set 
standards for institutional recordkeeping and reporting. These standards 
must:
    (1) Prohibit claiming reimbursement for meals provided by a 
participant's family, except as authorized by Secs. 226.18(e) and 
226.20(b)(2), (g)(1)(ii), and (g)(2)(ii); and
    (2) Allow the cost of the meals served to adults who perform 
necessary food service labor under the Program, except in day care 
homes. The State agency must provide guidance on financial management 
requirements to each institution and facility.

[47 FR 36527, Aug. 20, 1982]

    Editorial Note: For Federal Register citations affecting Sec. 226.7, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 226.8  Audits.

    (a) Unless otherwise exempt, audits at the State and institution 
levels must be conducted in accordance with 2 CFR part 200, subpart F, 
Appendices X and XI, Data Collection Form and Compliance Supplement, 
respectively and USDA implementing regulations 2 CFR parts 400, 415 and 
416. State agencies must establish audit policy for for-profit 
institutions. However, the audit policy established by the State agency 
must not conflict with the authority of the State agency or the 
Department to perform, or cause to be performed, audits, reviews, 
agreed-upon procedures engagements, or other monitoring activities.
    (b) The funds provided to the State agency under Sec. 226.4(j) may 
be made

[[Page 226]]

available to institutions to fund a portion of organization-wide audits 
made in accordance with 2 CFR part 200, subpart F and USDA implementing 
regulations 2 CFR part 400 and part 415. The funds provided to an 
institution for an organization-wide audit must be determined in 
accordance with 2 CFR part 200, subpart F and USDA implementing 
regulations 2 CFR part 400 and part 415.
    (c) Funds provided under Sec. 226.4(j) 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 or agreed-upon procedures engagements 
of institutions.
    (d) Funds provided under Sec. 226.4(j) may only be obligated during 
the fiscal year for which those funds are allocated. If funds provided 
under Sec. 226.4(i) 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) Full use of Federal funds. States and State agencies must 
support the full use of Federal funds provided to State agencies under 
226.4(j) of this part to support State audit activities, and exclude 
such funds from State budget restrictions or limitations, including 
hiring freezes, work furloughs, and travel restrictions.
    (f) In conducting management evaluations, reviews, or audits in a 
fiscal year, the State agency, FNS, or OIG may disregard an overpayment 
if the overpayment does not exceed $600. A State agency may establish, 
through State law, regulation or procedure, an alternate disregard 
threshold that does not exceed $600. This disregard may be made once per 
each management evaluation, review, or audit per Program within a fiscal 
year. However, no overpayment is to be disregarded where there is 
substantial evidence of violations of criminal law or civil fraud 
statutes.
    (g) 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.
    (h) 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; 
69 FR 53543, Sept. 1, 2004; 70 FR 43261, July 27, 2005; 71 FR 5, Jan. 3, 
2006; 71 FR 30563, May 30, 2006; 72 FR 41607, July 31, 2007; 76 FR 
37982, June 29, 2011; 81 FR 66493, Sept. 28, 2016]



                      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. However, no rates should be 
assigned for emergency shelters and at-risk afterschool care centers. 
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) Except for emergency shelters and at-risk afterschool care 
centers, the State agency must 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

[[Page 227]]

    (2) Establish claiming percentages, not less frequently than 
annually, for each institution on the basis of the number of enrolled 
participants eligible for free, reduced-price, and paid meals, except 
that children who only participate in emergency shelters or the at-risk 
afterschool care component of the Program must not be considered to be 
enrolled participants for the purpose of establishing claiming 
percentages; 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; 71 FR 5, 
Jan. 3, 2006; 72 FR 41607, July 31, 2007; 75 FR 16327, Apr. 1, 2010]



Sec. 226.10  Program payment procedures.

    (a) If a State agency elects to issue advance payments to all or 
some of the participating institutions in the State, it must provide 
such advances no later than the first day of each month to those 
eligible institutions electing to receive advances in accordance with 
Sec. 226.6 (f)(3)(iv)(F). 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.
    (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

[[Page 228]]

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 2 CFR 
part 200, subpart D and USDA implementing regulations 2 CFR part 400 and 
part 415, as applicable, 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. For each month in which independent for-profit child care centers 
and independent for-profit outside-school-hours care centers claim 
reimbursement, they must submit the number and percentage of children in 
care (enrolled or licensed capacity, whichever is less) that documents 
at least 25 percent are eligible for free or reduced-price meals or are 
title XX beneficiaries. However, children who only receive at-risk 
afterschool snacks and/or at-risk afterschool meals must not be 
considered in determining this eligibility. Sponsoring organizations of 
for-profit child care centers or for-profit outside-school-hours care 
centers must submit the number and percentage of children in care 
(enrolled or licensed capacity, whichever is less) that documents that 
at least 25 percent are eligible for free or reduced-price meals or are 
title XX beneficiaries. Sponsoring organizations of such centers must 
not submit a claim for any for-profit center in which less than 25 
percent of the children in care (enrolled or licensed capacity, 
whichever is less) during the claim month were eligible for free or 
reduced-price meals or were title XX beneficiaries. Independent for-
profit adult day care centers shall submit the percentages of enrolled 
adult participants receiving title XIX or title XX benefits for the 
month claimed for months in which not less than 25 percent of enrolled 
adult participants were title XIX or title XX beneficiaries. Sponsoring 
organizations of such adult day care centers shall submit the percentage 
of enrolled adult participants receiving title XIX or title XX benefits 
for each center for the claim. Sponsoring organizations of such centers 
shall not submit claims for adult day care centers in which less than 25 
percent of enrolled adult participants were title XIX or title XX 
beneficiaries for the month claimed. Prior to submitting its 
consolidated monthly claim to the State agency, each sponsoring 
organization must perform edit checks on each facility's meal claim. At 
a minimum, the sponsoring organization's edit checks must:
    (1) Verify that each facility has been approved to serve the types 
of meals claimed; and
    (2) Compare the number of children enrolled for care at each 
facility, multiplied by the number of days on which the facility is 
approved to serve meals, to the total number of meals claimed by the 
facility for that month. Discrepancies between the facility's meal claim 
and its enrollment must be subjected to more thorough review to 
determine if the claim is accurate.
    (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. Government 
Accountability Office for audit or review, at a reasonable time and 
place.
    (e) Unless otherwise approved by FNS, the Claim for Reimbursement 
for

[[Page 229]]

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, based on the results of audits, investigations, or other 
reviews, a State agency has reason to believe that an institution, child 
or adult care facility, or food service management company has engaged 
in unlawful acts with respect to Program operations, the evidence found 
in audits, investigations, or other reviews is 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; 69 FR 53543, Sept. 
1, 2004; 70 FR 43261, July 27, 2005; 71 FR 39519, July 13, 2006; 72 FR 
41607, July 31, 2007; 75 FR 16327, Apr. 1, 2010; 76 FR 22798, Apr. 25, 
2011; 76 FR 34571, June 13, 2011; 81 FR 66492, Sept. 28, 2016]



Sec. 226.11  Program payments for centers.

    (a) Requirement for agreements. Payments must 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, at-risk afterschool care centers, adult day care centers, 
emergency shelters, and outside-school-hours care centers. A State 
agency may develop a policy under which centers are reimbursed for meals 
served in accordance with provisions of the Program in the calendar 
month preceding the calendar month in which the agreement is executed, 
or the State agency may develop a policy under which centers receive 
reimbursement only for meals served in approved centers on and after the 
effective date of the Program agreement. If the State agency's policy 
permits centers to earn reimbursement for meals served prior to the 
execution of a Program agreement, program reimbursement must not be 
received by the center until the agreement is executed.
    (b) Institutions--(1) Edit checks of sponsored centers. Prior to 
submitting its consolidated monthly claim to the State agency, each 
sponsoring organization must conduct reasonable edit checks on the 
sponsored centers' meal claims, which at a minimum, must include those 
edit checks specified at Sec. 226.10(c).
    (2) Child and adult care institutions. Each child care institution 
and each adult day care institution must report each month to the State 
agency the total number of Program meals, by type (breakfasts, lunches, 
suppers, and snacks), served to children or adult participants, 
respectively, except as provided in paragraph (b)(3) of this section.

[[Page 230]]

    (3) For-profit center exception. For-profit child care centers, 
including for-profit at-risk afterschool care centers and outside-
school-hours care centers, must provide the reports required in 
paragraph (b)(2) of this section only for calendar months during which 
at least 25 percent of the children in care (enrolled or licensed 
capacity, whichever is less) were eligible for free or reduced-price 
meals or were title XX beneficiaries. However, children who only receive 
at-risk afterschool snacks and/or at-risk afterschool meals must not be 
considered in determining this eligibility. For-profit adult day care 
centers must provide the reports required in paragraph (b)(2) of this 
section only for calendar months during which at least 25 percent of 
enrolled adult participants were beneficiaries of title XIX, title XX, 
or a combination of titles XIX and XX.
    (c) Reimbursement--(1) Child and adult care institutions. Each State 
agency must base reimbursement to each approved child care center and 
adult day care center on actual time of service meal counts of meals, by 
type, served to children or adult participants multiplied by the 
assigned rates of reimbursement, except as provided in paragraph (c)(4) 
of this section. In the case of a sponsoring organization of family day 
care homes, each State agency must base reimbursement to each approved 
family day care home on daily meal counts recorded by the provider.
    (2) At-risk afterschool care institutions. Except as provided in 
paragraph (c)(4) of this section, State agencies must base reimbursement 
to each at-risk afterschool care center on the number of at-risk 
afterschool snacks and/or at-risk afterschool meals that are served to 
children.
    (3) Emergency shelters. Each State agency must base reimbursement to 
each emergency shelter on the number of meals served to children 
multiplied by the free rates for meals and snacks.
    (4) For-profit center exception. For-profit child care centers, 
including for-profit at-risk and outside-school-hours care centers, must 
be reimbursed only for the calendar months during which at least 25 
percent of the children in care (enrolled or licensed capacity, 
whichever is less) were eligible for free or reduced-price meals or were 
title XX beneficiaries. However, children who only receive at-risk 
afterschool snacks and/or at-risk afterschool meals must not be 
considered in determining this eligibility. For-profit adult day care 
centers must be reimbursed only for the calendar months during which at 
least 25 percent of enrolled adult participants were beneficiaries of 
title XIX, title XX, or a combination of titles XIX and XX.
    (5) Computation of reimbursement. Except for at-risk afterschool 
care centers and emergency shelters, the State agency must compute 
reimbursement by either:
    (i) Actual counts. Base reimbursement to institutions on actual time 
of service counts of meals served, and multiply the number of meals, by 
type, served to participants that are eligible to receive free meals, 
participants eligible to receive reduced-price meals, and participants 
not eligible for free or reduced-price meals by the applicable national 
average payment rate; or
    (ii) Claiming percentages. 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
    (iii) Blended rates. Multiply the assigned blended per meal rate of 
reimbursement by the total number of meals, by type, served to 
participants.
    (d) Limits on reimbursement. 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.

[[Page 231]]

    (e) Institution recordkeeping. 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; 69 FR 53543, Sept. 1, 2004; 70 FR 43262, July 27, 2005; 71 FR 5, 
Jan. 3, 2006; 72 FR 41607, July 31, 2007; 75 FR 16327, Apr. 1, 2010; 76 
FR 34571, June 13, 2011]



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 
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

[[Page 232]]

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 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 snacks) and by category (tier I and tier

[[Page 233]]

II), served to children enrolled in approved day care homes. Prior to 
submitting its consolidated monthly claim to the State agency, each 
sponsoring organization must conduct reasonable edit checks on the day 
care homes' meal claims which, at a minimum, include those edit checks 
specified at Sec. 226.10(c).
    (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 based on daily meal counts 
taken in the home, 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 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.

[[Page 234]]

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; 69 FR 53544, Sept. 1, 
2004; 72 FR 41603, July 31, 2007]



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 date stipulated in the State agency's demand letter, or 30 days 
after the date of the demand letter, whichever date is later. 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. 226.7(g)), 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 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

[[Page 235]]

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; 69 FR 
53544, Sept. 1, 2004; 76 FR 34571, June 13, 2011]



                    Subpart E_Operational Provisions



Sec. 226.15  Institution provisions.

    (a) Tax exempt status. Except for for-profit 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. 226.6(b) and 226.6(f). Such information 
must demonstrate that a new institution has the administrative and 
financial capability to operate the Program in accordance with this part 
and with the performance standards set forth in Sec. 226.6(b)(1)(xviii), 
and that a renewing institution has the administrative and financial 
capability to operate the Program in accordance with this part and with 
the performance standards set forth in Sec. 226.6(b)(2)(vii).
    (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 centers 
(except for outside-school-hours care centers, emergency shelters, and 
at-risk afterschool care centers). All types of centers, except for 
emergency shelters and at-risk afterschool care centers, must maintain 
information used to determine eligibility for free or reduced-price 
meals in accordance with Sec. 226.23(e)(1). For child care centers, such 
documentation of enrollment must be updated annually, signed by a parent 
or legal guardian, and include information on each child's normal days 
and hours of care and the meals normally received while in care.
    (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 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). Such documentation of enrollment must 
be updated annually, signed by a parent or legal guardian, and include 
information on each child's normal days and hours of care and the meals 
normally received while in care.
    (4) Daily records indicating the number of participants in 
attendance and the daily meal counts, by type (breakfast, lunch, supper, 
and snacks), served to family day care home participants, or the time of 
service meal counts, by type (breakfast, lunch, supper, and snacks), 
served to center participants. State agencies may require family day 
care homes to record meal counts at the time of meal service only in day 
care homes providing care for more than 12 children in a single day, or 
in day care homes that have been found seriously deficient due to 
problems with their meal counts and claims.
    (5) Except at day care homes, daily records indicating the number of

[[Page 236]]

meals, by type, served to adults performing labor necessary to the food 
service;
    (6) 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.
    (7) Copies of all claims for reimbursement submitted to the State 
agency;
    (8) Receipts for all Program payments received from the State 
agency;
    (9) If applicable, information concerning the dates and amounts of 
disbursement to each child care facility or adult day care facility 
under its auspices;
    (10) Copies of menus, and any other food service records required by 
the State agency;
    (11) 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;
    (12) Information on training session date(s) and location(s), as 
well as topics presented and names of participants; and
    (13) 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.
    (14) For sponsoring organizations, records documenting the 
attendance at annual training of each staff member with monitoring 
responsibilities. Training must include instruction, appropriate to the 
level of staff experience and duties, on the Program's meal patterns, 
meal counts, claims submission and claim review procedures, 
recordkeeping requirements, and an explanation of the Program's 
reimbursement system.
    (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 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 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 school 
attendance areas, for other areas in which a 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 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, five years if based on school data, or 
until more current data are

[[Page 237]]

available if based on census data. However, a sponsoring organization, 
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 school data.
    (g) Area eligibility determinations for at-risk afterschool care 
centers. Sponsoring organizations of at-risk afterschool care centers 
must provide information, as required by the State agency, which permits 
the State agency to determine whether the centers they sponsor are 
located in eligible areas. Such information may include the most recent 
free and reduced-price school data available pursuant to 
Sec. 226.6(f)(1)(ix) and attendance area information that it has 
obtained, or verified with the appropriate school officials to be 
current, within the last school year.
    (h) Payment to employees. No institution that is a sponsoring 
organization of family day care homes and that employs more than one 
person is permitted to base payment (including bonuses or gratuities) to 
its employees, contractors, or family day care home providers solely on 
the number of new family day care homes recruited for the sponsoring 
organization's Program.
    (i) Claims submission. Each institution shall submit claims for 
reimbursement to the State agency in accordance with Sec. 226.10.
    (j) Program agreement. Each institution shall enter into a Program 
agreement with the State agency in accordance with Sec. 226.6(b)(4).
    (k) Commodities. Each institution receiving commodities shall ensure 
proper commodity utilization.
    (l) 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.
    (m) 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.).
    (n) Regulations and guidance. Each institution must comply with all 
regulations issued by FNS and the Department, all instructions and 
handbooks issued by FNS and the Department to clarify or explain 
existing regulations, and all regulations, instructions and handbooks 
issued by the State agency that are consistent with the provisions 
established in Program regulations.
    (o) Information on WIC. Each institution (other than outside-school-
hours care centers, at-risk afterschool care centers, emergency 
shelters, and adult day care centers) must ensure that parents of 
enrolled children are provided with current information on the benefits 
and importance of the Special Supplemental Nutrition Program for Women, 
Infants, and Children (WIC) and the eligibility requirements for WIC 
participation.

[47 FR 36527, Aug. 20, 1982]

    Editorial Note: For Federal Register citations affecting 
Sec. 226.15, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 226.16  Sponsoring organization provisions.

    (a) Each sponsoring organization shall comply with all provisions of 
Sec. 226.15.
    (b) Each sponsoring organization must submit to the State agency 
with its application all information required for its approval, and the 
approval of the facilities under its jurisdiction, as set forth in 
Secs. 226.6(b) and 226.6(f). The application must demonstrate that the 
institution has the administrative and financial capability to operate 
the Program in accordance with the Program regulations. In addition to 
the information required in Secs. 226.6(b) and 226.6(f), the application 
must include:
    (1) A sponsoring organization management plan and administrative 
budget, in accordance with Secs. 226.6(b)(1)(iv), 226.6(b)(1)(v), 
226.6(b)(2)(i), 226.6(f)(2)(i), and 226.7(g), which includes information 
sufficient to document the sponsoring organization's compliance with the 
performance standards set forth at Sec. 226.6(b)(1)(xviii) and 
226.6(b)(2)(vii). As

[[Page 238]]

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 management 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 these specified ranges and factors that 
the State agency will use to determine the appropriate level of 
monitoring staff for each sponsor. The monitoring staff equivalent may 
include the employee's time spent on scheduling, travel time, review 
time, follow-up activity, report writing, and activities related to the 
annual updating of children's enrollment forms. Sponsoring organizations 
that were participating in the Program on July 29, 2002, were to have 
submitted, no later than July 29, 2003, a management plan or plan 
amendment that meets the monitoring staffing requirement. For sponsoring 
organizations of centers, the portion of the administrative costs to be 
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. 226.7(g). A sponsoring organization of centers must include in the 
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 
(or any higher limit established pursuant to a waiver granted under 
Sec. 226.7(g)) 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

[[Page 239]]

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) Training on Program duties and responsibilities to key staff 
from all sponsored facilities prior to the beginning of Program 
operations. At a minimum, such training must include instruction, 
appropriate to the level of staff experience and duties, on the 
Program's meal patterns, meal counts, claims submission and review 
procedures, recordkeeping requirements, and reimbursement system. 
Attendance by key staff, as defined by the State agency, is mandatory;
    (3) Additional mandatory training sessions for key staff from all 
sponsored child care and adult day care facilities not less frequently 
than annually. At a minimum, such training must include instruction, 
appropriate to the level of staff experience and duties, on the 
Program's meal patterns, meal counts, claims submission and review 
procedures, recordkeeping requirements, and reimbursement system. 
Attendance by key staff, as defined by the State agency, is mandatory;
    (4)(i) Review elements. Reviews that assess whether the facility has 
corrected problems noted on the previous review(s), a reconciliation of 
the facility's meal counts with enrollment and attendance records for a 
five-day period, as specified in paragraph (d)(4)(ii) of this section, 
and an assessment of the facility's compliance with the Program 
requirements pertaining to:
    (A) The meal pattern;
    (B) Licensing or approval;
    (C) Attendance at training;
    (D) Meal counts;
    (E) Menu and meal records; and
    (F) The annual updating and content of enrollment forms (if the 
facility is required to have enrollment forms on file, as specified in 
Secs. 226.15(e)(2) and 226.15(e)(3)).
    (ii) Reconciliation of meal counts. Reviews must examine the meal 
counts recorded by the facility for five consecutive days during the 
current and/or prior claiming period. For each day examined, reviewers 
must use enrollment and attendance records (except in those outside-
school-hours care centers, at-risk afterschool care centers, and 
emergency shelters where enrollment records are not required) to 
determine the number of participants in care during each meal service 
and attempt to reconcile those numbers to the numbers of breakfasts, 
lunches, suppers, and/or snacks recorded in the facility's meal count 
for that day. Based on that comparison, reviewers must determine whether 
the meal counts were accurate. If there is a discrepancy between the 
number of participants enrolled or in attendance on the day of review 
and prior meal counting patterns, the reviewer must attempt to reconcile 
the difference and determine whether the establishment of an overclaim 
is necessary.
    (iii) Frequency and type of required facility reviews. Sponsoring 
organizations must review each facility three times each year, except as 
described in paragraph (d)(4)(iv) of this section. 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 each new facility's 
first four weeks of Program operations; and
    (D) Not more than six months may elapse between reviews.
    (iv) Averaging of required reviews. If a sponsoring organization 
conducts one unannounced review of a facility in a year and finds no 
serious deficiencies (as described in paragraph (l)(2) of this section, 
regardless of the type of facility), the sponsoring organization may 
choose not to conduct a third review of the facility that year, and may 
make its second review announced, provided

[[Page 240]]

that the sponsoring organization conducts an average of three reviews of 
all of its facilities that year, and that it conducts an average of two 
unannounced reviews of all of its facilities that year. When the 
sponsoring organization uses this averaging provision, and a specific 
facility receives two reviews in one review year, its first review in 
the next review year must occur no more than nine months after the 
previous review.
    (v) Follow-up reviews. If, in conducting a facility review, a 
sponsoring organization detects one or more serious deficiency, the next 
review of that facility must be unannounced. Serious deficiencies are 
those described at paragraph (l)(2) of this section, regardless of the 
type of facility.
    (vi) Notification of unannounced reviews. Sponsoring organizations 
of centers must provide each center with 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 its operations during the center's normal hours of operation, 
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 on July 
29, 2002, the sponsoring organization was to have provided this notice 
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).
    (vii) Other requirements pertaining to unannounced reviews. 
Unannounced reviews must be made only during the facility's normal hours 
of operation, and monitors making such reviews must show photo 
identification that demonstrates that they are employees of the 
sponsoring organization, the State agency, the Department, or other 
State and Federal agencies authorized to audit or investigate Program 
operations.
    (viii) Imminent threat to health or safety. Sponsoring organizations 
that discover in a facility conduct or conditions that pose an imminent 
threat to the health or safety of participating children or the public, 
must immediately notify the appropriate State or local licensing or 
health authorities and take action that is consistent with the 
recommendations and requirements of those authorities.
    (5) For sponsoring organizations, as part of their monitoring of 
facilities, compliance with the household contact requirements 
established pursuant to Sec. 226.6(m)(5) of this part.
    (e) Each sponsoring organization shall comply with the recordkeeping 
requirements established in Secs. 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, 
emergency shelters, at-risk afterschool 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

[[Page 241]]

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 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, emergency shelters, at-risk 
afterschool 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 for-profit centers which have the same legal 
identity as the organization, but shall not be eligible to sponsor for-
profit 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;
    (viii) Failure to participate in training; or
    (ix) 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.

[[Page 242]]

    (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. 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 sponsoring 
organization 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 sponsoring organization after having been notified that it is 
seriously deficient will still result in the day care home's formal 
termination by the sponsoring organization 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 temporarily defer its determination of serious 
deficiency. The sponsoring organization must also provide a copy of the 
notice to the State agency. However, if the sponsoring organization 
accepts the provider's corrective action, but later determines that the 
corrective action was not permanent or complete, the sponsoring 
organization must then propose to terminate the provider's Program 
agreement and disqualify the provider, as set forth in paragraph 
(l)(3)(iii) of this section.
    (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

[[Page 243]]

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 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.
    (m) Sponsoring organizations of family day care homes must not make 
payments to employees or contractors solely on the basis of the number 
of homes recruited. However, such employees or contractors may be paid 
or

[[Page 244]]

evaluated on the basis of recruitment activities accomplished.

[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; 69 FR 53544, Sept. 1, 
2004; 71 FR 5, Jan. 3, 2006; 72 FR 41608, July 31, 2007; 76 FR 34571, 
June 13, 2011; 78 FR 13451, Feb. 28, 2013]



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 must 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 renewal 
process, unless the State agency has information that indicates that 
renewal will be denied. If licensing or approval is not available, a 
child care center may participate if 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 for-profit 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 must serve 
one or more of the following meal types--breakfast; lunch; supper; and 
snack. Reimbursement must not be claimed for more than two meals and one 
snack or one meal and two snacks provided daily to each child.
    (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. For-profit 
child care centers may not claim reimbursement for meals served to 
children in any month in which less than 25 percent of the children in 
care (enrolled or licensed capacity, whichever is less) were eligible 
for free or reduced price meals or were title XX beneficiaries. However, 
children who only receive at-risk afterschool snacks and/or at-risk 
afterschool meals must not be included in this percentage. Menus and any 
other nutritional records required by the State agency shall be 
maintained to document compliance with such requirements.
    (5) A child care center with preschool children may also be approved 
to serve a breakfast, snack, and supper to school-age children 
participating in an outside-school-hours care program meeting the 
criteria of Sec. 226.19(b) that is distinct from its day care program 
for preschool-age children. The State agency may authorize the service 
of lunch to such participating children who attend a school that does 
not offer a lunch program, provided that the limit of two meals and one 
snack, or one meal and two snacks, per child per day is not exceeded.
    (6) A child care center with preschool children may also be approved 
to serve a snack to school age children participating in an afterschool 
care program meeting the requirements of Sec. 226.17a that is distinct 
from its day care program for preschool children, provided that the 
limit of two meals, and one snack, or one meal and two snacks, per child 
per day is not exceeded.
    (7) 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.
    (8) 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

[[Page 245]]

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. Such documentation of 
enrollment must be updated annually, signed by a parent or legal 
guardian, and include information on each child's normal days and hours 
of care and the meals normally received while in care.
    (9) Each child care center must maintain daily records of time of 
service meal counts by type (breakfast, lunch, supper, and snacks) 
served to enrolled children, and to adults performing labor necessary to 
the food service.
    (10) Each child care center must require key staff, as defined by 
the State agency, to attend Program training prior to the center's 
participation in the Program, and at least annually thereafter, on 
content areas established by the State agency.
    (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 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; 69 FR 53546, Sept. 1, 2004; 70 FR 43262, July 27, 
2005; 72 FR 41608, July 31, 2007; 75 FR 16328, Apr. 1, 2010; 78 FR 
13451, Feb. 28, 2013]



Sec. 226.17a  At-risk afterschool care center provisions.

    (a) Organizations eligible to receive reimbursement for at-risk 
afterschool snacks and at-risk afterschool meals--(1) Eligible 
organizations. To receive reimbursement for at-risk afterschool snacks, 
organizations must meet the criteria in paragraphs (a)(1)(i) through 
(a)(1)(iv) of this section. To receive reimbursement for at-risk 
afterschool meals, organizations must meet the criteria in paragraphs 
(a)(1)(i) through (a)(1)(v) of this section.
    (i) Organizations must meet the definition of an At-risk afterschool 
care center in Sec. 226.2. An organization may participate in the 
Program either as an independent center or as a child care facility 
under the auspices of a sponsoring organization. Public and private 
nonprofit centers may not participate under the auspices of a for-profit 
sponsoring organization.
    (ii) Organizations must operate an eligible afterschool care 
program, as described in paragraph (b) of this section.
    (iii) Organizations must meet the licensing/approval requirements in 
Sec. 226.6(d)(1).
    (iv) Except for for-profit centers, at-risk afterschool care centers 
must be public, or have tax-exempt status under the Internal Revenue 
Code of 1986 or be currently participating in another Federal program 
requiring nonprofit status.
    (v) Organizations eligible to be reimbursed for at-risk afterschool 
meals must be located in one of the eligible States designated by law or 
selected by the Secretary as directed by law.
    (2) Limitations. (i) To be reimbursed for at-risk afterschool snacks 
and/or at-risk afterschool meals, all organizations must:
    (A) Serve the at-risk afterschool snacks and/or at-risk afterschool 
meals to children who are participating in an approved afterschool care 
program; and
    (B) Not exceed the authorized capacity of the at-risk afterschool 
care center.
    (ii) In any calendar month, a for-profit center must be eligible to 
participate in the Program as described in the definition of For-profit 
center in Sec. 226.2. However, children who only receive at-risk 
afterschool snacks and/or at-risk afterschool meals must not be 
considered in determining this eligibility.
    (b) Eligible at-risk afterschool care programs--(1) Eligible 
programs. To be eligible for reimbursement, an afterschool care program 
must:
    (i) Be organized primarily to provide care for children after school 
or on weekends, holidays, or school vacations during the regular school 
year (an at-risk afterschool care center may

[[Page 246]]

not claim snacks during summer vacation, unless it is located in the 
attendance area of a school operating on a year-round calendar);
    (ii) Have organized, regularly scheduled activities (i.e., in a 
structured and supervised environment);
    (iii) Include education or enrichment activities; and
    (iv) Except for Emergency shelters as defined in Sec. 226.2, be 
located in an eligible area, as described in paragraph (i) of this 
section.
    (2) Eligibility limitation. Organized athletic programs engaged in 
interscholastic or community level competitive sports are not eligible 
afterschool care programs.
    (c) Eligibility requirements for children. At-risk afterschool 
snacks and/or at-risk afterschool meals are reimbursable only if served 
to children who are participating in an approved afterschool care 
program and who either are age 18 or under at the start of the school 
year or meet the definition of Persons with disabilities in Sec. 226.2.
    (d) Licensing requirements for at-risk afterschool care centers. In 
accordance with Sec. 226.6(d)(1), if Federal, State or local licensing 
or approval is not otherwise required, at-risk afterschool care centers 
must meet State or local health and safety standards. When State or 
local health and safety standards have not been established, State 
agencies are encouraged to work with appropriate State and local 
officials to create such standards. Meeting these standards will remain 
a precondition for any afterschool center's eligibility for CACFP 
nutrition benefits. In cases where Federal, State or local licensing or 
approval is required, at-risk afterschool care centers that 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 that indicates the renewal will be denied.
    (e) Application procedures--(1) Application. An official of the 
organization must make written application to the State agency for any 
afterschool care program that it wants to operate as an at-risk 
afterschool care center.
    (2) Required information. At a minimum, an organization must submit:
    (i) An indication that the applicant organization meets the 
eligibility criteria for organizations as specified in paragraph (a) of 
this section;
    (ii) A description of how the afterschool care program(s) meets the 
eligibility criteria in paragraph (b) of this section;
    (iii) In the case of a sponsoring organization, a list of all 
applicant afterschool care centers;
    (iv) Documentation that permits the State agency to confirm that all 
applicant afterschool care centers are located in an eligible area, as 
described in paragraph (i) of this section; and
    (v) Other information required as a condition of eligibility in the 
CACFP must be submitted with an application for participation in 
accordance with Sec. 226.6(b)(1).
    (f) State agency action on applications--(1) State agency approval. 
The State agency must determine the eligibility of the afterschool care 
program for each sponsored afterschool care center based on the 
information submitted by the sponsoring organization in accordance with 
Secs. 226.6(b)(1) and 226.15(g) and the requirements of this section. 
The State agency must determine the eligibility of the afterschool care 
programs of independent afterschool care centers based on the 
information submitted by the independent center in accordance with 
Sec. 226.6(b)(1) and the requirements of this section. The State agency 
must determine the area eligibility of independent at-risk afterschool 
care centers in accordance with the requirements of 
Sec. 226.6(f)(1)(ix)(B). An approved organization must enter into an 
agreement with the State agency as described in paragraph (f)(2) of this 
section.
    (2) Agreement. The State agency must enter into a permanent 
agreement with an institution approved to operate one or more at-risk 
afterschool care centers pursuant to Sec. 226.6(b)(4). The agreement 
must describe the approved afterschool care program(s) and list the 
approved center(s). The agreement must also require the institution to 
comply with the applicable requirements of this part.
    (g) Application process in subsequent years. To continue 
participating in the

[[Page 247]]

Program, independent at-risk afterschool care centers or sponsoring 
organizations of at-risk afterschool care centers must reapply at time 
intervals required by the State agency, as described in Sec. 226.6(b)(3) 
and (f)(2). Sponsoring organizations of at-risk afterschool care centers 
must provide area eligibility data in compliance with the provisions of 
Sec. 226.15(g). In accordance with Sec. 226.6(f)(3)(ii), State agencies 
must determine the area eligibility of each independent at-risk 
afterschool care center that is reapplying to participate in the 
Program.
    (h) Changes to participating centers. Independent at-risk 
afterschool care centers or sponsors of at-risk afterschool care centers 
must advise the State agency of any substantive changes to the 
afterschool care program. Sponsoring organizations that want to add new 
at-risk afterschool care centers must provide the State agency with the 
information sufficient to demonstrate that the new centers meet the 
requirements of this section.
    (i) Area eligibility. Except for emergency shelters, at-risk 
afterschool care centers must be located in an area described in 
paragraph (a) of the Eligible area definition in Sec. 226.2 and in 
paragraph (i)(1) of this section.
    (1) Definition. An at-risk afterschool care center is in an eligible 
area if it is located in the attendance area of a school in which at 
least 50 percent of the enrolled children are certified eligible for 
free or reduced-price school meals.
    (2) Data used. Area eligibility determinations must be based on the 
total number of children approved for free and reduced-price school 
meals for the preceding October, or another month designated by the 
State agency that administers the National School Lunch Program (the 
NSLP State agency). If the NSLP State agency chooses a month other than 
October, it must do so for the entire State.
    (3) Frequency of area eligibility determinations. Area eligibility 
determinations are valid for five years. The State agency may determine 
the date in the fifth year in which the next five-year cycle of area 
eligibility will begin. The State agency must not routinely require 
redeterminations of area eligibility based on updated school data during 
the five-year period, except in cases where the State agency has 
determined it is most efficient to incorporate area eligibility 
decisions into the three-year application cycle. However, a sponsoring 
organization, the State agency, or FNS may change the determination of 
area eligibility if information becomes available indicating that an at-
risk afterschool care center is no longer area eligible.
    (j) Cost of at-risk afterschool snacks and meals. All at-risk 
afterschool snacks and at-risk afterschool meals served under this 
section must be provided at no charge to participating children.
    (k) Limit on daily reimbursements. Only one at-risk afterschool 
snack and, in eligible States, one at-risk afterschool meal per child 
per day may be claimed for reimbursement. An at-risk afterschool care 
center that provides care to a child under another component of the 
Program during the same day may not claim reimbursement for more than 
two meals and one snack, or one meal and two snacks, per child per day, 
including the at-risk afterschool snack and the at-risk afterschool 
meal. All meals and snacks must be claimed in accordance with the 
requirements for the applicable component of the Program.
    (l) Meal pattern requirements for at-risk afterschool snacks and at-
risk afterschool meals. At-risk afterschool snacks must meet the meal 
pattern requirements for snacks in Sec. 226.20(b)(6) and/or (c)(4); at-
risk afterschool meals must meet the meal pattern requirements for meals 
in Sec. 226.20(b)(6) and/or (c)(1), (c)(2), or (c)(3).
    (m) Time periods for snack and meal services--(1) At-risk 
afterschool snacks. When school is in session, the snack must be served 
after the child's school day. With State agency approval, the snack may 
be served at any time on weekends and vacations during the regular 
school year. Afterschool snacks may not be claimed during summer 
vacation, unless an at-risk afterschool care center is located in the 
attendance area of a school operating on a year-round calendar.
    (2) At-risk afterschool meals. When school is in session, the meal 
must be

[[Page 248]]

served after the child's school day. With State agency approval, any one 
meal may be served (breakfast, lunch, or supper) per day on weekends and 
vacations during the regular school year. Afterschool meals may not be 
claimed during summer vacation, unless an at-risk afterschool care 
center is located in the attendance area of a school operating on a 
year-round calendar.
    (n) Reimbursement rates. At-risk afterschool snacks are reimbursed 
at the free rate for snacks. At-risk afterschool meals are reimbursed at 
the respective free rates for breakfast, lunch, or supper
    (o) Recordkeeping requirements. In addition to the other records 
required by this part, at-risk afterschool care centers must maintain:
    (1) Daily attendance rosters, sign-in sheets or, with State agency 
approval, other methods which result in accurate recording of daily 
attendance;
    (2) The number of at-risk afterschool snacks prepared or delivered 
for each snack service and/or, in eligible States, the number of at-risk 
afterschool meals prepared or delivered for each meal service;
    (3) The number of at-risk afterschool snacks served to participating 
children for each snack service and/or, in eligible States, the number 
of at-risk afterschool meals served to participating children for each 
meal service; and
    (4) Menus for each at-risk afterschool snack service and each at-
risk afterschool meal service.
    (p) Reporting requirements. In addition to other reporting 
requirements under this part, at-risk afterschool care centers must 
report the total number of at-risk afterschool snacks and/or (in 
eligible States) the total number of at-risk afterschool meals served to 
eligible children based on daily attendance rosters or sign-in sheets.
    (q) Monitoring requirements. State agencies must monitor independent 
centers in accordance with Sec. 226.6(m). Sponsoring organizations of 
at-risk afterschool care centers must monitor their centers in 
accordance with Sec. 226.16(d)(4).

[72 FR 41608, July 31, 2007, as amended at 75 FR 16328, Apr. 1, 2010; 78 
FR 13451, Feb. 28, 2013]



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) It receives title XX funds for providing child care; or
    (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 permanent agreement 
with each sponsored day care home which specifies the rights and 
responsibilities of both parties. Nothing in the preceding sentence 
shall be construed to limit the ability of the sponsoring organization 
to suspend or terminate the permanent agreement in accordance with 
Sec. 226.16(l). 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:

[[Page 249]]

    (1) The right of the sponsoring organization, the State agency, the 
Department, and other State and Federal officials to make announced or 
unannounced reviews of the day care home's operations and to have access 
to its meal service and records during normal hours of operation.
    (2) The responsibility of the sponsoring organization to require key 
staff, as defined by the State agency, to receive Program training prior 
to the day care home's participation in the Program, and at least 
annually thereafter, on content areas established by the State agency, 
and the responsibility of the day care home to participate in that 
training;
    (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. The sponsoring organization must not 
withhold Program payments to any family day care home for any other 
reason, except that the sponsoring organization may withhold from the 
provider any amounts that the sponsoring organization has reason to 
believe are invalid, due to the provider having submitted a false or 
erroneous meal count;
    (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;
    (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

[[Page 250]]

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 must serve one or more of the following meal 
types--breakfast, lunch, supper, and snack. Reimbursement may not be 
claimed for more than two meals and one snack, or one meal and two 
snacks, 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 must maintain on file documentation of each 
child's enrollment and must maintain daily records of the number of 
children in attendance and the number of meals, by type, served to 
enrolled children. Such documentation of enrollment must be updated 
annually, signed by a parent or legal guardian, and include information 
on each child's normal days and hours of care and the meals normally 
received while in care. 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 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]

    Editorial Note: For Federal Register citations affecting 
Sec. 226.18, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



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) In accordance with Sec. 226.6(d)(1), if Federal, State or local 
licensing or approval is not otherwise required, outside-school-hours 
care centers must meet State or local health and safety standards. When 
State or local health

[[Page 251]]

and safety standards have not been established, State agencies are 
encouraged to work with appropriate State and local officials to create 
such standards. Meeting these standards will remain a precondition for 
any outside-school-hours care center's eligibility for CACFP nutrition 
benefits. In cases where Federal, State or local licensing or approval 
is required, outside-school-hours care centers that 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 that indicates the renewal will be denied.
    (2) Except for for-profit 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 participate in a regularly scheduled program that meets 
the criteria of paragraph (b)(1) of this section. The program is 
organized for the purpose of providing services to children and is 
distinct from any extracurricular programs organized primarily for 
scholastic, cultural, or 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, snacks 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 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 may not be claimed for more than two meals 
and one snack provided daily to each child or for meals served to 
children at any one time in excess of authorized capacity. For-profit 
centers may not claim reimbursement for meals served to children in any 
month in which less than 25 percent of the children in care (enrolled or 
licensed capacity, whichever is less) were eligible for free or reduced 
price meals or were title XX beneficiaries.
    (6) Each outside-school-hours care center must require key 
operational staff, as defined by the State agency, to attend Program 
training prior to the center's participation in the Program, and at 
least annually thereafter, on content areas established by the State 
agency. Each meal service must be supervised by an adequate number of 
operational personnel who have been trained in Program requirements as 
outlined in this section. Operational personnel must ensure that:
    (i) Meals are served only to children and to adults who perform 
necessary food service labor;
    (ii) Meals served to children meet the meal pattern requirements 
specified in Sec. 226.20;
    (iii) Meals served are consumed on the premises of the centers;
    (iv) Accurate records are maintained; and
    (v) The number of meals prepared or ordered is promptly adjusted on 
the basis of participation trends.
    (7) Each outside-school-hours care center shall accurately maintain 
the following records:
    (i) 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 children at each meal service;
    (v) Number of children in attendance during each meal service;
    (vi) Number of meals served to adults performing necessary food 
service labor for each meal service; and

[[Page 252]]

    (vii) All other records required by the State agency financial 
management system.
    (8) 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; 69 FR 
53546, Sept. 1, 2004; 70 FR 43262, July 27, 2005; 72 FR 41603, 41610, 
July 31, 2007]



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 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 for-profit 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 must 
serve one or more of the following meal types--breakfast, lunch, supper, 
and snack. Reimbursement may not be claimed for more than two meals and 
one snack, or one snack and two meals, 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 for-
profit 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

[[Page 253]]

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 must maintain daily records of time 
of service meal counts by type (breakfast, lunch, supper, and snacks) 
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.
    (11) Each adult day care center must require key operational staff, 
as defined by the State agency, to attend Program training prior to the 
facility's participation in the Program, and at least annually 
thereafter, on content areas established by the State agency. Each meal 
service must be supervised by an adequate number of operational 
personnel who have been trained in Program requirements as outlined in 
this section.
    (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; 69 FR 53546, Sept. 1, 
2004; 72 FR 41610, July 31, 2007]



Sec. 226.20  Requirements for meals.

    (a) Food components. Except as otherwise provided in this section, 
each meal served in the Program must contain, at a minimum, the 
indicated food components:
    (1) Fluid milk. Fluid milk must be served as a beverage or on 
cereal, or a combination of both, as follows:
    (i) Children 1 year old. Children one year of age must be served 
unflavored whole milk.
    (ii) Children 2 through 5 years old. Children two through five years 
old must be served either unflavored low-fat (1 percent) or unflavored 
fat-free (skim) milk.
    (iii) Children 6 years old and older. Children six years old and 
older must be served unflavored low-fat (1 percent), unflavored fat-free 
(skim), or flavored fat-free (skim) milk.
    (iv) Adults. Adults must be served unflavored low-fat (1 percent), 
unflavored fat-free (skim), or flavored fat-free (skim) milk. Six ounces 
(weight) or \3/4\ cup (volume) of yogurt may be used to fulfill the 
equivalent of 8 ounces of fluid milk once per day. Yogurt may be counted 
as either a fluid milk substitute or as a meat alternate, but not as 
both in the same meal.
    (2) Vegetables. A serving may contain fresh, frozen, or canned 
vegetables, dry beans and peas (legumes), or vegetable juice. All 
vegetables are credited based on their volume as served, except that 1 
cup of leafy greens counts as \1/2\ cup of vegetables.
    (i) Pasteurized, full-strength vegetable juice may be used to 
fulfill the entire requirement. Vegetable juice or fruit juice may only 
be served at one meal, including snack, per day.
    (ii) Cooked dry beans or dry peas may be counted as either a 
vegetable or as a meat alternate, but not as both in the same meal.
    (3) Fruits. A serving may contain fresh, frozen, canned, dried 
fruits, or

[[Page 254]]

fruit juice. All fruits are based on their volume as served, except that 
\1/4\ cup of dried fruit counts as \1/2\ cup of fruit.
    (i) Pasteurized, full-strength fruit juice may be used to fulfill 
the entire requirement. Fruit juice or vegetable juice may only be 
served at one meal, including snack, per day.
    (ii) A vegetable may be used to meet the entire fruit requirement at 
lunch and supper. When two vegetables are served at lunch or supper, two 
different kinds of vegetables must be served.
    (4) Grains--(i) Enriched and whole grains. All grains must be made 
with enriched or whole grain meal or flour.
    (A) At least one serving per day, across all eating occasions of 
bread, cereals, and grains, must be whole grain-rich. Whole grain-rich 
foods contain at least 50 percent whole grains and the remaining grains 
in the food are enriched, and must meet the whole grain-rich criteria 
specified in FNS guidance.
    (B) A serving may contain whole grain-rich or enriched bread, 
cornbread, biscuits, rolls, muffins, and other bread products; or whole 
grain-rich, enriched, or fortified cereal grain, cooked pasta or noodle 
products, or breakfast cereal; or any combination of these foods.
    (ii) Breakfast cereals. Breakfast cereals are those as defined by 
the Food and Drug Administration in 21 CFR 170.3(n)(4) for ready-to-eat 
and instant and regular hot cereals. Breakfast cereals must contain no 
more than 6 grams of sugar per dry ounce (no more than 21.2 grams 
sucrose and other sugars per 100 grams of dry cereal).
    (iii) Desserts. Grain-based desserts do not count towards meeting 
the grains requirement.
    (5) Meat and meat alternates. (i) Meat and meat alternates must be 
served in a main dish, or in a main dish and one other menu item. The 
creditable quantity of meat and meat alternates must be the edible 
portion as served of:
    (A) Lean meat, poultry, or fish;
    (B) Alternate protein products;
    (C) Cheese, or an egg;
    (D) Cooked dry beans or peas;
    (E) Peanut butter; or
    (F) Any combination of these foods.
    (ii) Nuts and seeds. Nuts and seeds and their butters are allowed as 
meat alternates in accordance with FNS guidance. For lunch and supper 
meals, nuts or seeds may be used to meet one-half of the meat and meat 
alternate component. They must be combined with other meat and meat 
alternates to meet the full requirement for a reimbursable lunch or 
supper.
    (A) Nut and seed meals or flours may be used only if they meet the 
requirements for alternate protein products established in appendix A of 
this part.
    (B) Acorns, chestnuts, and coconuts cannot be used as meat 
alternates because of their low protein and iron content.
    (iii) Yogurt. Four ounces (weight) or \1/2\ cup (volume) of yogurt 
equals one ounce of the meat and meat alternate component. Yogurt may be 
used to meet all or part of the meat and meat alternate component as 
follows:
    (A) Yogurt may be plain or flavored, unsweetened, or sweetened;
    (B) Yogurt must contain no more than 23 grams of total sugars per 6 
ounces;
    (C) Noncommercial or commercial standardized yogurt products, such 
as frozen yogurt, drinkable yogurt products, homemade yogurt, yogurt 
flavored products, yogurt bars, yogurt covered fruits or nuts, or 
similar products are not creditable; and
    (D) For adults, yogurt may only be used as a meat alternate when it 
is not also being used as a fluid milk substitute in the same meal.
    (iv) Tofu and soy products. Commercial tofu and soy products may be 
used to meet all or part of the meat and meat alternate component in 
accordance with FNS guidance and appendix A of this part. Non-commercial 
and non-standardized tofu and soy products cannot be used.
    (v) Beans and peas (legumes). Cooked dry beans and peas may be used 
to meet all or part of the meat and meat alternate component. Beans and 
peas include black beans, garbanzo beans, lentils, kidney beans, mature 
lima beans, navy beans, pinto beans, and split peas. Beans and peas may 
be counted as either a meat alternate or as a vegetable, but not as both 
in the same meal.
    (vi) Other meat alternates. Other meat alternates, such as cheese, 
eggs, and nut butters may be used to meet all or

[[Page 255]]

part of the meat and meat alternate component.
    (b) Infant meals--(1) Feeding infants. Foods in reimbursable meals 
served to infants ages birth through 11 months must be of a texture and 
a consistency that are appropriate for the age and development of the 
infant being fed. Foods must also be served during a span of time 
consistent with the infant's eating habits.
    (2) Breastmilk and iron-fortified formula. Breastmilk or iron-
fortified infant formula, or portions of both, must be served to infants 
birth through 11 months of age. An institution or facility must offer at 
least one type of iron-fortified infant formula. Meals containing 
breastmilk or iron-fortified infant formula supplied by the institution 
or facility, or by the parent or guardian, are eligible for 
reimbursement.
    (i) Parent or guardian provided breastmilk or iron-fortified 
formula. A parent or guardian may choose to accept the offered formula, 
or decline the offered formula and supply expressed breastmilk or an 
iron-fortified infant formula instead. Meals in which a mother directly 
breastfeeds her child at the child care institution or facility are also 
eligible for reimbursement. When a parent or guardian chooses to provide 
breastmilk or iron-fortified infant formula and the infant is consuming 
solid foods, the institution or facility must supply all other required 
meal components in order for the meal to be reimbursable.
    (ii) Breastfed infants. 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 at a later time 
if the infant will consume more.
    (3) Solid foods. The gradual introduction of solid foods may begin 
at six months of age, or before or after six months of age if it is 
developmentally appropriate for the infant and in accordance with FNS 
guidance.
    (4) 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.
    (i) Birth through 5 months--(A) Breakfast. Four to 6 fluid ounces of 
breastmilk or iron-fortified infant formula, or portions of both.
    (B) Lunch or supper. Four to 6 fluid ounces of breastmilk or iron-
fortified infant formula, or portions of both.
    (C) Snack. Four to 6 fluid ounces of breastmilk or iron-fortified 
infant formula, or portions of both.
    (ii) 6 through 11 months. Breastmilk or iron-fortified formula, or 
portions of both, is required. Meals are reimbursable when institutions 
and facilities provide all the components in the meal pattern that the 
infant is developmentally ready to accept.
    (A) Breakfast, lunch, or supper. Six to 8 fluid ounces of breastmilk 
or iron-fortified infant formula, or portions of both; and 0 to 4 
tablespoons of iron-fortified dry infant cereal, meat, fish, poultry, 
whole egg, cooked dry beans, or cooked dry peas; or 0 to 2 ounces 
(weight) of cheese; or 0 to 4 ounces (volume) of cottage cheese; or 0 to 
4 ounces of yogurt; and 0 to 2 tablespoons of vegetable, fruit, or 
portions of both. Fruit juices and vegetable juices must not be served.
    (B) Snack. Two to 4 fluid ounces of breastmilk or iron-fortified 
infant formula; and 0 to \1/2\ slice bread; or 0-2 crackers; or 0-4 
tablespoons infant cereal or ready-to-eat cereals; and 0 to 2 
tablespoons of vegetable or fruit, or portions of both. Fruit juices and 
vegetable juices must not be served. A serving of grains must be whole 
grain-rich, enriched meal, or enriched flour.
    (5) Infant meal pattern table. The minimum amounts of food 
components to serve to infants, as described in paragraph (b)(4) of this 
section, are:

[[Page 256]]

[GRAPHIC] [TIFF OMITTED] TR01NO16.146

    (c) Meal patterns for children age 1 through 18 and adult 
participants. Institutions and facilities must serve the food components 
and quantities specified in the following meal patterns for children and 
adult participants in order to qualify for reimbursement.

[[Page 257]]

    (1) Breakfast. Fluid milk, vegetables or fruit, or portions of both, 
and grains are required components of the breakfast meal. Meat and meat 
alternates may be used to meet the entire grains requirement a maximum 
of three times per week. The minimum amounts of food components to be 
served at breakfast are as follows:
[GRAPHIC] [TIFF OMITTED] TR01NO16.147


[[Page 258]]


    (2) Lunch and supper. Fluid milk, meat and meat alternates, 
vegetables, fruits, and grains are required components in the lunch and 
supper meals. The minimum amounts of food components to be served at 
lunch and supper are as follows:
[GRAPHIC] [TIFF OMITTED] TR01NO16.148


[[Page 259]]


[GRAPHIC] [TIFF OMITTED] TR01NO16.149

    (3) Snack. Serve two of the following five components: Fluid milk, 
meat and meat alternates, vegetables, fruits, and grains. Fruit juice, 
vegetable juice, and milk may comprise only one component of the snack. 
The minimum amounts of food components to be served at snacks are as 
follows:

[[Page 260]]

[GRAPHIC] [TIFF OMITTED] TR01NO16.150


[[Page 261]]


[GRAPHIC] [TIFF OMITTED] TR01NO16.151

    (d) Food preparation. Deep-fat fried foods that are prepared on-site 
cannot be part of the reimbursable meal. For this purpose, deep-fat 
frying means cooking by submerging food in hot oil or other fat. Foods 
that are pre-fried, flash-fried, or par-fried by a commercial 
manufacturer may be served, but must be reheated by a method other than 
frying.
    (e) Unavailability of fluid milk--(1) Temporary. When emergency 
conditions prevent an institution or facility normally having a supply 
of milk from temporarily obtaining milk deliveries, the State agency may 
approve the service of breakfast, lunches, or suppers without milk 
during the emergency period.
    (2) Continuing. When an institution or facility is unable to obtain 
a supply of milk on a continuing basis, the State agency may approve 
service of meals without milk, provided an equivalent amount of canned, 
whole dry or fat-free dry milk is used in the preparation of the 
components of the meal set forth in paragraph (a) of this section.
    (f) Statewide substitutions. In American Samoa, Puerto Rico, Guam, 
and the Virgin Islands, the following variations from the meal 
requirements are authorized: a serving of starchy vegetable, such as 
yams, plantains, or sweet potatoes, may be substituted for the grains 
requirement.
    (g) Exceptions and variations in reimbursable meals--(1) Exceptions 
for disability reasons. Reasonable substitutions must be made on a case-
by-case basis for foods and meals described in paragraphs (a), (b), and 
(c) of this section for individual participants who are considered to 
have a disability under 7 CFR 15b.3 and whose disability restricts their 
diet.
    (i) A written statement must support the need for the substitution. 
The statement must include recommended alternate foods, unless otherwise 
exempted by FNS, and must be signed by a licensed physician or licensed 
health care professional who is authorized by State law to write medical 
prescriptions.
    (ii) A parent, guardian, adult participant, or a person on behalf of 
an adult participant may supply one or more components of the 
reimbursable meal as long as the institution or facility provides at 
least one required meal component.
    (2) Exceptions for non-disability reasons. Substitutions may be made 
on a case-by-case basis for foods and meals described in paragraphs (a), 
(b), and (c) of this section for individual participants without 
disabilities who cannot consume the regular meal because of medical or 
special dietary needs.
    (i) A written statement must support the need for the substitution. 
The statement must include recommended alternate foods, unless otherwise 
exempted by FNS. Except for substitutions of fluid milk, as set forth 
below, the statement must be signed by a recognized medical authority.
    (ii) A parent, guardian, adult participant, or a person on behalf of 
an adult participant may supply one component of the reimbursable meal 
as long as the component meets the requirements described in paragraphs 
(a), (b), and (c) of

[[Page 262]]

this section and the institution or facility provides the remaining 
components.
    (3) Fluid milk substitutions for non-disability reasons. Non-dairy 
fluid milk substitutions that provide the nutrients listed in the 
following table and are fortified in accordance with fortification 
guidelines issued by the Food and Drug Administration may be provided 
for non-disabled children and adults who cannot consume fluid milk due 
to medical or special dietary needs when requested in writing by the 
child's parent or guardian, or by, or on behalf of, an adult 
participant. An institution or facility need only offer the non-dairy 
beverage that it has identified as an allowable fluid milk substitute 
according to the following table.

------------------------------------------------------------------------
                 Nutrient                         Per cup (8 fl oz)
------------------------------------------------------------------------
Calcium...................................  276 mg.
Protein...................................  8 g.
Vitamin A.................................  500 IU.
Vitamin D.................................  100 IU.
Magnesium.................................  24 mg.
Phosphorus................................  222 mg.
Potassium.................................  349 mg.
Riboflavin................................  0.44 mg.
Vitamin B-12..............................  1.1 mcg.
------------------------------------------------------------------------

    (h) Special variations. FNS may approve variations in the food 
components of the meals on an experimental or continuing basis in any 
institution or facility where there is evidence that such variations are 
nutritionally sound and are necessary to meet ethnic, religious, 
economic, or physical needs.
    (i) Meals prepared in schools. The State agency must allow 
institutions and facilities which serve meals to children 5 years old 
and older and are 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 
parts 210 and 220, respectively) for the meal pattern requirements 
contained in this section.
    (j) Meal planning. Institutions and facilities must plan for and 
order meals on the basis of current participant trends, with the 
objective of providing only one meal per participant at each meal 
service. Records of participation and of ordering or preparing meals 
must 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 or facility has failed to plan 
and prepare or order meals with the objective of providing only one meal 
per participant at each meal service.
    (k) Time of meal service. State agencies may require any institution 
or facility to allow a specific amount of time to elapse between meal 
services or require that meal services not exceed a specified duration.
    (l) Sanitation. Institutions and facilities must 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 and facilities must ensure that adequate 
facilities are available to store food or hold meals.
    (m) Donated commodities. Institutions and facilities must 
efficiently use in the Program any foods donated by the Department and 
accepted by the institution or facility.
    (n) Family style meal service. Family style is a type of meal 
service which allows children and adults to serve themselves from common 
platters of food with the assistance of supervising adults. Institutions 
and facilities choosing to exercise this option must be in compliance 
with the following practices:
    (1) A sufficient amount of prepared food must be placed on each 
table to provide the full required portions of each of the components, 
as outlined in paragraphs (c)(1) and (2) of this section, for all 
children or adults at the table and to accommodate supervising adults if 
they wish to eat with the children and adults.
    (2) Children and adults must be allowed to serve the food components 
themselves, with the exception of fluids (such as milk). During the 
course of the meal, it is the responsibility of the supervising adults 
to actively encourage each child and adult to serve

[[Page 263]]

themselves the full required portion of each food component of the meal 
pattern. Supervising adults who choose to serve the fluids directly to 
the children or adults must serve the required minimum quantity to each 
child or adult.
    (3) Institutions and facilities which use family style meal service 
may not claim second meals for reimbursement.
    (o) Offer versus serve. (1) Each adult day care center and at-risk 
afterschool program must offer its participants all of the required food 
servings as set forth in paragraphs (c)(1) and (c)(2) of this section. 
However, at the discretion of the adult day care center or at-risk 
afterschool program, participants may be permitted to decline:
    (i) For adults. (A) One of the four food items required at breakfast 
(one serving of fluid milk; one serving of vegetable or fruit, or a 
combination of both; and two servings of grains, or meat or meat 
alternates);
    (B) Two of the five food components required at lunch (fluid milk; 
vegetables; fruit; grain; and meat or meat alternate); and
    (C) One of the four food components required at supper (vegetables; 
fruit; grain; and meat or meat alternate).
    (ii) For children. Two of the five food components required at 
supper (fluid milk; vegetables; fruit; grain; and meat or meat 
alternate).
    (2) In pricing programs, the price of the reimbursable meal must not 
be affected if a participant declines a food item.
    (p) Prohibition on using foods and beverages as punishments or 
rewards. Meals served under this part must contribute to the development 
and socialization of children. Institutions and facilities must not use 
foods and beverages as punishments or rewards.

[81 FR 24377, Apr. 25, 2016, as amended at 81 FR 75677, Nov. 1, 2016]



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;
    (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

[[Page 264]]

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 procedures for procurement with 
Program funds to the extent that:
    (1) Procurements by public institutions comply with applicable State 
or local laws and standards set forth in 2 CFR part 200, subpart D and 
USDA implementing regulations 2 CFR part 400 and part 415;
    (2) Procurements by private nonprofit institutions comply with 
standards set forth in 2 CFR part 200, subpart D and USDA implementing 
regulations 2 CFR part 400 and part 415; and
    (3) All procurements comply with the procurement requirements in 
paragraphs (d) through (m) of this section.
    (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.


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:

[[Page 265]]

    (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 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:

[[Page 266]]

    (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 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

[[Page 267]]

incurred or cost estimates included in negotiated prices are consistent 
with Federal cost principles.
    (k) Institutions 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 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 data. These 
requirements are found in 2 CFR part 200, subpart D and Appendix II, 
Contract Provisions for Non-Federal Entity Contracts Under Federal 
Awards and USDA implementing regulations 2CFR part 400 and part 415. 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

[[Page 268]]

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.
    (n) Geographic preference. (1) Institutions participating in the 
Program may apply a geographic preference when procuring unprocessed 
locally grown or locally raised agricultural products. When utilizing 
the geographic preference to procure such products, the institution 
making the purchase has the discretion to determine the local area to 
which the geographic preference option will be applied;
    (2) For the purpose of applying the optional geographic preference 
in paragraph (n)(1) of this section, ``unprocessed locally grown or 
locally raised agricultural products'' means only those agricultural 
products that retain their inherent character. The effects of the 
following food handling and preservation techniques shall not be 
considered as changing an agricultural product into a product of a 
different kind or character: Cooling; refrigerating; freezing; size 
adjustment made by peeling, slicing, dicing, cutting, chopping, 
shucking, and grinding; forming ground products into patties without any 
additives or fillers; drying/dehydration; washing; packaging (such as 
placing eggs in cartons), vacuum packing and bagging (such as placing 
vegetables in bags or combining two or more types of vegetables or 
fruits in a single package); addition of ascorbic acid or other 
preservatives to prevent oxidation of produce; butchering livestock and 
poultry; cleaning fish; and the pasteurization of milk.

[47 FR 36527, Aug. 20, 1982, as amended at 71 FR 39519, July 13, 2006; 
76 FR 22607, Apr. 22, 2011; 81 FR 66492, Sept. 28, 2016]



Sec. 226.23  Free and reduced-price meals.

    (a) The State agency must not enter into a Program agreement with a 
new institution until the institution has submitted, and the State 
agency has approved, a written policy statement concerning free and 
reduced-price meals to be used in all child and adult day care 
facilities under its jurisdiction, as described in paragraph (b) of this 
section. The State agency must not require an institution to revise its 
free and reduced-price policy statement or its nondiscrimination 
statement unless the institution makes a substantive change to either 
policy. Pending approval of a revision to these statements, the existing 
policy must remain in effect.
    (b) Institutions that may not serve meals at a separate charge to 
children (including emergency shelters, at-risk afterschool care 
centers, and sponsoring organizations of emergency shelters, at-risk 
afterschool care centers, and day care homes) and other institutions 
that elect to serve meals at no separate charge must 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 disability 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

[[Page 269]]

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. These 
methods will ensure that applications are accepted from households on 
behalf of a foster child and children who receive SNAP, FDPIR, or TANF 
assistance, or for adult participants who receive SNAP, FDPIR, SSI, or 
Medicaid assistance;
    (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 snack 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, unless the State agency has issued a Statewide media 
release on behalf of all institutions. All media releases issued by 
institutions other than emergency shelters, at-risk afterschool care 
centers, and sponsoring organizations of emergency shelters, at-risk 
afterschool care centers, or day care homes must include the Secretary's 
Income Eligibility Guidelines for Free and Reduced-Price Meals. The 
release issued by all emergency shelters, at-risk afterschool care 
centers, and sponsoring organizations of emergency

[[Page 270]]

shelters, at-risk afterschool care centers, or day care homes, and by 
other institutions which elect not to charge separately for meals, must 
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 a foster child, or a 
child who is a member of a household receiving SNAP, FDPIR, or TANF 
assistance, or a Head Start participant is 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 SNAP or FDPIR 
households or who are SSI or Medicaid participants are automatically 
eligible to receive free meal benefits. All releases shall state that 
meals are available to all participants without regard to race, color, 
national origin, sex, age or disability.
    (e)(1) Application for free and reduced-price meals. (i) For the 
purpose of determining eligibility for free and reduced price meals, 
institutions (other than emergency shelters and at-risk afterschool care 
centers) 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 SNAP or FDPIR household or is a 
TANF recipient, 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 SNAP 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

[[Page 271]]

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 a foster child is automatically eligible 
to receive free Program meal benefits, and a child who is a Head Start 
participant 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 last four digits of the social security number of the adult 
household member who signs the application, or an indication that the 
adult 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 which includes substantially the following 
information:
    (1) ``The Richard B. Russell National School Lunch Act requires the 
information on this application. You do not have to give the 
information, but if you do not, we cannot approve the participant for 
free or reduced-price meals. You must include the last four digits of 
the Social Security Number of the adult household member who signs the 
application. The last four digits of the Social Security Number are not 
required when you apply on behalf of a foster child or you list a 
Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance 
for Needy Families (TANF) Program or Food Distribution Program on Indian 
Reservations (FDPIR) case number for the participant or other (FDPIR) 
identifier or when you indicate that the adult household member signing 
the application does not have a Social Security Number. We will use your 
information to determine if the participant is eligible for free or 
reduced-price meals, and for administration and enforcement of the 
Program.''
    (2) When either the State agency or the child care institution plans 
to use or disclose children's eligibility information for non-program 
purposes, additional information, as specified in paragraph (k) of this 
section, must be added to this statement; 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.
    (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 last four digits of the social security number of the adult 
household member who signs the application, or an indication that the 
adult 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: ``The Richard B. Russell National

[[Page 272]]

School Lunch Act requires the information on this meal benefit form. You 
do not have to give the information, but if you do not, we cannot 
approve the participant for free or reduced-price meals. You must 
include the last four digits of the social security number of all adult 
household members, including the adult day care participant. The last 
four digits of the social security number are not required when you list 
a Supplemental Nutrition Assistance Program (SNAP), Food Distribution 
Program on Indian Reservations (FDPIR) or other FDPIR identifier, SSI or 
Medicaid case number for the participant receiving meal benefits or when 
you indicate that the adult household member signing the application 
does not have a social security number. We will use your information to 
determine if the participant is eligible for free or reduced-price 
meals, and for administration and enforcement of the CACFP;'' 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 SNAP or FDPIR households who are TANF recipients 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 members of 
SNAP or FDPIR households; children who are TANF recipients; 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 SNAP, FDPIR, or TANF 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 SNAP, FDPIR, or TANF 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 SNAP 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 SNAP or FDPIR 
households or SSI or Medicaid participants shall be required to provide:
    (A) The names and SNAP 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 SNAP or FDPIR case number or SSI or 
Medicaid assistance identification number is provided, it may be used to 
verify the current SNAP, 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 SNAP, FDPIR,

[[Page 273]]

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 disability'';
    (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) 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 
SNAP, FDPIR or TANF case number to establish a child's eligibility for 
free meals, any termination in the child's certification to participate 
in the SNAP, FDPIR or TANF 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 SNAP, 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. 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

[[Page 274]]

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 
disability. 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 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

[[Page 275]]

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 SNAP, FDPIR or TANF case number is provided for a child, 
verification for such child shall include only confirmation that the 
child is included in a currently certified SNAP or FDPIR household or is 
a TANF recipient; or
    (B) If a SNAP 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 SNAP 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.
    (iv) Households of enrolled children selected for verification shall 
also be informed that if they are currently certified to participate in 
SNAP, FDPIR or TANF 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 SNAP, FDPIR or TANF benefits or 
equivalent official documentation issued by a SNAP, Indian Tribal 
Organization, or welfare office which shows that the children are 
members of households or assistance units currently certified to 
participate in SNAP, FDPIR or TANF. 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 SNAP 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 SNAP or FDPIR benefits 
or equivalent official documentation issued by a SNAP, Indian Tribal 
Organization, or

[[Page 276]]

welfare office which shows that the adult participant is a member of a 
household currently certified to participate in the SNAP 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 SNAP, FDPIR or TANF Programs, or, 
for adult participants, current certification to participate in the 
SNAP, FDPIR, SSI or Medicaid Programs. Whenever written evidence is 
insufficient to confirm eligibility, the State agency may use collateral 
contacts.
    (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 SNAP/FDPIR/TANF certification for enrolled 
children, or SNAP/FDPIR/SSI/Medicaid certification 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 SNAP, FDPIR, TANF, 
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

[[Page 277]]

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).
    (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 children's free and reduced price meal eligibility 
information to certain programs and individuals without parental 
consent. The State agency or child care institution, as appropriate, may 
disclose aggregate information about children eligible for free and 
reduced price meals to any party without parental notification and 
consent when children cannot be identified through release of the 
aggregate data or by means of deduction. Additionally, the State agency 
or institution may disclose information that identifies children 
eligible for free and reduced price meals to the programs and the 
individuals specified in this paragraph (i) without parental/guardian 
consent. The State agency or child care institution that makes the free 
and reduced price meal eligibility determination is responsible for 
deciding whether to disclose program eligibility information.
    (1) Persons authorized to receive eligibility information. Only 
persons directly connected with the administration or enforcement of a 
program or activity listed in paragraphs (i)(2) or (i)(3) of this 
section may have access to children's free milk eligibility information, 
without parental consent. Persons considered directly connected with 
administration or enforcement of a program or activity listed in 
paragraphs (i)(2) or (i)(3) of this section are

[[Page 278]]

Federal, State, or local program operators responsible for the ongoing 
operation of the program or activity or persons responsible for program 
compliance. Program operators may include persons responsible for 
carrying out program requirements and monitoring, reviewing, auditing, 
or investigating the program. Program operators may include contractors, 
to the extent those persons have a need to know the information for 
program administration or enforcement. Contractors may include 
evaluators, auditors, and others with whom Federal or State agencies and 
program operators contract with to assist in the administration or 
enforcement of their program in their behalf.
    (2) Disclosure of children's names and free or reduced price meal 
eligibility status. The State agency or child care institution, as 
appropriate, may disclose, without parental consent, only children's 
names and eligibility status (whether they are eligible for free meals 
or reduced price meals) to persons directly connected with the 
administration or enforcement of:
    (i) A Federal education program;
    (ii) A State health program or State education program administered 
by the State or local education agency;
    (iii) A Federal, State, or local means-tested nutrition program with 
eligibility standards comparable to the National School Lunch Program 
(i.e., food assistance programs for households with incomes at or below 
185 percent of the Federal poverty level); or
    (iv) A third party contractor assisting in verification of 
eligibility efforts by contacting households who fail to respond to 
requests for verification of their eligibility.
    (3) Disclosure of all eligibility information. In addition to 
children's names and eligibility status, the State agency or child care 
institution, as appropriate, may disclose, without parental/guardian 
consent, all eligibility information obtained through the free and 
reduced price meal eligibility process (including all information on the 
application or obtained through direct certification) to:
    (i) Persons directly connected with the administration or 
enforcement of programs authorized under the Richard B. Russell National 
School Lunch Act or the Child Nutrition Act of 1966. This means that all 
eligibility information obtained for the Child and Adult Care Food 
Program may be disclosed to persons directly connected with 
administering or enforcing regulations under the National School Lunch 
Program, Special Milk Program, School Breakfast Program, Summer Food 
Service Program, and the Special Supplemental Nutrition Program for 
Women, Infants and Children (WIC) (Parts 210, 215, 220, 225 and 246, 
respectively, of this chapter);
    (ii) The Comptroller General of the United States for purposes of 
audit and examination; and
    (iii) Federal, State, and local law enforcement officials for the 
purpose of investigating any alleged violation of the programs listed in 
paragraphs (i)(2) and (i)(3) of this section.
    (4) Use of free and reduced price meals eligibility information by 
programs other than Medicaid or the State Children's Health Insurance 
Program (SCHIP). State agencies and child care institutions may use 
children's free milk eligibility information for administering or 
enforcing the Child and Adult Care Food Program. Additionally, any other 
Federal, State, or local agency charged with administering or enforcing 
the Child and Adult Care Food Program may use the information for that 
purpose. Individuals and programs to which children's free or reduced 
price meal eligibility information has been disclosed under this section 
may use the information only in the administration or enforcement of the 
receiving program. No further disclosure of the information may be made.
    (j) Disclosure of children's free or reduced price meal eligibility 
information to Medicaid and/or SCHIP, unless parents decline. Children's 
free or reduced price meal eligibility information only may 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 and the other provisions described in 
paragraph (j)(1) of this section are met.

[[Page 279]]

The State agency or child care 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 or obtained through 
direct certification to persons directly connected with the 
administration of Medicaid or SCHIP. Persons directly connected to the 
administration of Medicaid and SCHIP are 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 for Medicaid or SCHIP.
    (1) The State agency must ensure that:
    (i) The child care institution and health insurance program 
officials have a written agreement that requires the health insurance 
program agency to use the eligibility information to seek to enroll 
children in Medicaid and SCHIP; and
    (ii) Parents/guardians are notified that their eligibility 
information may be disclosed to Medicaid or SCHIP and given an 
opportunity to decline to have their children's eligibility information 
disclosed, prior to any disclosure.
    (2) Use of children's free and reduced price meal eligibility 
information by Medicaid/SCHIP. Medicaid and SCHIP agencies and health 
insurance program operators receiving children's free and reduced price 
meal eligibility information must 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. No further 
disclosure of the information may be made. Medicaid and SCHIP agencies 
and health insurance program operators also may verify children's 
eligibility in a program under the Child Nutrition Act of 1966 or the 
Richard B. Russell National School Lunch Act.
    (k) Notifying households of potential uses and disclosures of 
children's free and reduced price meal eligibility information. 
Households must be informed that the information they provide on the 
free and reduced price meal application will be used to determine 
eligibility for free or reduced price meals and that their eligibility 
information may be disclosed to other programs.
    (1) For disclosures to programs, other than Medicaid or SCHIP, that 
are permitted access to children's eligibility information, without 
parent/guardian consent, the State agency or child care institution, as 
appropriate, must notify parents/guardians at the time of application 
that their children's free or reduced price meal eligibility information 
may be disclosed. The State agency or child care institution, as 
appropriate, must add substantially the following statement to the 
statement required under paragraph (e)(1)(ii)(F) of this section, ``We 
may share your eligibility information with education, health, and 
nutrition programs to help them evaluate, fund, or determine benefits 
for their programs; auditors for program reviews; and law enforcement 
officials to help them look into violations of program rules.'' For 
children determined eligible for free meals 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.
    (2) For disclosure to Medicaid or SCHIP, the State agency or child 
care institution, 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 and notifies the State agency or 
child care institution, as appropriate, by a date specified by the State 
agency or child care institution, as appropriate. Only the parent or 
guardian who is a member of the household or family for purposes of the 
free and reduced price meal application may decline the disclosure of 
eligibility information to Medicaid or SCHIP. 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 
eligible children

[[Page 280]]

and seek to enroll them in Medicaid or SCHIP, 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 meal application, 
on the application itself or in a separate notice provided to parents/
guardians. The notice must give parents/guardians adequate time to 
respond if they do not want their information disclosed. The State 
agency or child care institution, as appropriate, must add substantially 
the following statement to the statement required under paragraph 
(e)(1)(ii)(F) of this section, ``We may share your information with 
Medicaid or the State Children's Health Insurance Program, unless you 
tell us not to. The information, if disclosed, will be used to identify 
eligible children and seek to enroll them in Medicaid or SCHIP.'' For 
children determined eligible for free meals through direct 
certification, the notice of potential disclosure and opportunity to 
decline the disclosure may be included in the document informing 
parents/guardians of their children's eligibility for free meals through 
direct certification process.
    (l) Other disclosures. State agencies and child care institutions 
that plan to use or disclose information about children eligible for 
free and reduced price meals in ways not specified in this section must 
obtain written consent from children's parents or guardians prior to the 
use or disclosure.
    (1) The consent must identify the information that will be shared 
and how the information will be used.
    (2) There must be a statement informing parents and guardians that 
failing to sign the consent will not affect the child's eligibility for 
free or reduced price meals and that the individuals or programs 
receiving the information will not share the information with any other 
entity or program.
    (3) Parents/guardians must be permitted to limit the consent only to 
those programs with which they wish to share information.
    (4) The consent statement must be signed and dated by the child's 
parent or guardian who is a member of the household for purposes of the 
free and reduced price meal application.
    (m) Agreements with programs/individuals receiving children's free 
or reduced price meal eligibility information. Agreements or Memoranda 
of Understanding (MOU) are recommended or required as follows:
    (1) The State agency or child care institution, as appropriate, 
should have a written agreement or MOU with programs or individuals 
receiving eligibility information, prior to disclosing children's free 
and reduced price meal eligibility information. The agreement or MOU 
should include information similar to that required for disclosures to 
Medicaid and SCHIP specified in paragraph (m)(2) of this section.
    (2) For disclosures to Medicaid or SCHIP, 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 or reduced price meal eligibility 
information to those agencies. 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 be used to seek to enroll 
children in Medicaid or SCHIP;
    (iv) Require that the Medicaid or SCHIP agency describe how they 
will use the information obtained;
    (v) Describe how the information will be protected from unauthorized 
uses and disclosures;
    (vi) Describe the penalties for unauthorized disclosure; and
    (vii) Be signed by both the Medicaid or SCHIP program or agency and 
the State agency or child care institution, as appropriate.
    (n) Penalties for unauthorized disclosure or misuse of children's 
free and reduced price meal eligibility information. In accordance with 
section 9(b)(6)(C) of the Richard B. Russell National School Lunch Act 
(42 U.S.C. 1758(b)(6)(C)), any individual who publishes, divulges, 
discloses or makes known in any manner,

[[Page 281]]

or to any extent not authorized by statute or this section, any 
information obtained under this section will be fined not more than 
$1,000 or imprisoned for up to 1 year, or both.

[47 FR 36527, Aug. 20, 1982]

    Editorial Note: For Federal Register citations affecting Sec. 226.3, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



               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 2 CFR part 200, 
subpart D and USDA implementing regulations 2 CFR part 400 and part 415, 
as applicable.

[48 FR 41142, Sept. 14, 1983, as amended at 71 FR 39519, July 13, 2006; 
81 FR 66492, Sept. 28, 2016]



                       Subpart G_Other Provisions



Sec. 226.25  Other provisions.

    (a) Grant closeout procedures. Grant closeout procedures for the 
Program shall be in accordance with 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415, as applicable.
    (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) Data collection related to organizations. (1) Each State agency 
must collect data related to institutions that have an agreement with 
the State agency to participate in the program for each of Federal 
fiscal years 2006 through 2009, including those institutions that 
participated only for part of the fiscal year. Such data shall include:
    (i) The name of each institution;
    (ii) The city in which each participating institution was 
headquartered and the name of the state;
    (iii) The amount of funds provided to the participating 
organization, i.e., the sum of the amount of federal funds reimbursed 
for operating and, where applicable, administrative costs; and

[[Page 282]]

    (iv) The type of participating organization, e.g., government 
agency, educational institution, for-profit organization, non-profit 
organization/secular, non-profit organization/faith-based, and 
``other.''
    (2) On or before August 31, 2007, and each subsequent year through 
2010, State agencies must report to FNS data as specified in paragraph 
(g)(1) of this section for the prior Federal fiscal year. State agencies 
must submit this data in a format designated by FNS.
    (h) Program evaluations. States, State agencies, institutions, 
facilities and contractors must cooperate in studies and evaluations 
conducted by or on behalf of the Department, related to programs 
authorized under the Richard B. Russell National School Lunch Act and 
the Child Nutrition Act of 1966.
    (i) Drinking water. A child care institution or facility must offer 
and make potable drinking water available to children throughout the 
day.

[47 FR 36527, Aug. 20, 1982, as amended at 53 FR 52597, Dec. 28, 1988; 
54 FR 13049, Mar. 30, 1989; 69 FR 53547, Sept. 1, 2004; 71 FR 39519, 
July 13, 2006; 72 FR 24183, May 2, 2007; 76 FR 37982, June 29, 2011; 81 
FR 24383, Apr. 25, 2016; 81 FR 66492, Sept. 28, 2016]



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 Agriculture, 90 Seventh Street, Suite 10-100, San 
Francisco, California 94103-6701.

[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; 76 FR 34572, June 13, 2011]



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]



         Sec. 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:

[[Page 283]]

    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]



                 Sec. Appendix B to Part 226 [Reserved]



   Sec. 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.
    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).

[[Page 284]]

[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:
[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

[[Page 285]]

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.



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.

[[Page 286]]

    (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 ``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

[[Page 287]]

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 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

[[Page 288]]

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 projects. 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 2 CFR part 200, 
subpart D, and USDA implementing regulations 2 CFR part 400 and part 
415, as applicable.
    (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 grant, part IV, Program Narrative, shall set forth the 
details for areas of the assessment and planning grant,

[[Page 289]]

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 
Secs. 227.30(b) and 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 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415.
    (2) Each State agency shall submit to FNS a quarterly Financial 
Status Report, FNS-777, as required 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415.
    (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 2 CFR part 200, subpart D and USDA implementing 
regulations 2 CFR part 400 and part 415.
    (5) Each State agency shall comply with the requirements of 2 CFR 
part 200, subpart D and USDA implementing regulations 2 CFR part 400 and 
part 415, 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 2 CFR part 200, subpart D and 
USDA implementing regulations 2 CFR part 400 and part 415.

[[Page 290]]

    (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; 81 FR 66493, Sept. 28, 2016]



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 2 CFR part 
200, subpart F and Appendix XI, Compliance Supplement.
    (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; 81 FR 66493, Sept. 28, 2016]



                 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 (FNS-777), and
    (k) Annual evaluation of the effectiveness of the State Plan.

[44 FR 28282, May 15, 1979, as amended at 81 FR 66493, Sept. 28, 2016]



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

[[Page 291]]

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:
    (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

[[Page 292]]

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 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 projects 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

[[Page 293]]

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.
    (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 2 CFR part 200, subpart D, and USDA implementing 
regulations 2 CFR part 400 and part 415, are applicable in the 
termination of any grant under this part.

[44 FR 28282, May 15, 1979, as amended at 81 FR 66493, Sept. 28, 2016]



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.

[[Page 294]]



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

[[Page 295]]

 
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.
\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:
    2 CFR part 200, means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C) does not apply to the National School Lunch 
Program).
    Act means the Child Nutrition Act of 1966, as amended.
    CND means the Child Nutrition Division of the Food and Nutrition 
Service of the U.S. Department of Agriculture.
    Department means the U.S. Department of Agriculture.
    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.
    FNS means the Food and Nutrition Service of the U.S. Department of 
Agriculture.

[[Page 296]]

    FNSRO means the appropriate Food and Nutrition Service Regional 
Office of the Food and Nutrition Service of the U.S. Department of 
Agriculture.
    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.
    Institution means a child or adult care center or a sponsoring 
organization as defined in part 226 of this chapter.
    Large school food authority means, in any State:
    (1) All school food authorities that participate in the National 
School Lunch Program (7 CFR part 210) and have enrollments of 40,000 
children or more each; or
    (2) If there are less than two school food authorities with 
enrollments of 40,000 or more, the two largest school food authorities 
that participate in the National School Lunch Program (7 CFR part 210) 
and have enrollments of 2,000 children or more each.
    Nonprofit means exempt from income tax under section 501(c)(3) of 
the Internal Revenue Code of 1986.
    OIG means the Office of the Inspector General of the Department.
    SAE means federally provided State administrative expense funds for 
State agencies under this part.
    School means the term as defined in Secs. 210.2, 215.2, and 220.2 of 
this chapter, as applicable.
    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.
    Secretary means the Secretary of Agriculture.
    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.
    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 this 
section,, when such agency is receiving funds directly from FNS under 
this part.
    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.
    USDA implementing regulations include the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations for Grants and Cooperative Agreements to 
State and Local Governments; and 2 CFR part 418, New Restrictions on 
Lobbying.

(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; 71 FR 39519, July 13, 2006; 72 FR 63792, Nov. 13, 2007; 81 FR 
50194, July 29, 2016; 81 FR 66494, Sept. 28, 2016]



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

[[Page 297]]

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 for the 
administration of the child nutrition programs in accordance with the 
applicable requirements of this part, 7 CFR parts 210, 215, 220, 225, 
226, 245, 15, 15a, 15b, and 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415. 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; 71 FR 39519, July 13, 2006; 81 FR 
66493, Sept. 28, 2016]



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 $200,000 or the amount allocated to the 
State in the fiscal year ending September 30, 1981, whichever is 
greater. On October 1, 2008 and each October 1 thereafter, the minimum 
dollar amount for a fiscal year for administrative costs shall be 
adjusted to reflect the percentage change between 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, and the value of 
that index for the 12-month period ending June 30 of the preceding 
fiscal year.
    (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.
    (3) For each of fiscal years 2005 through 2007 no State shall 
receive less than its fiscal year 2004 allocation for administrative 
costs for all child nutrition programs.
    (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, and 226 of this chapter; 
provided that the State meets the training requirements set forth in 
Sec. 235.11(g).
    (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)

[[Page 298]]

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 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

[[Page 299]]

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]

    Editorial Note: For Federal Register citations affecting Sec. 235.4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



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 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

[[Page 300]]

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 2 CFR part 200, 
subpart E and USDA implementing regulations 2 CFR part 400 and part 415.
    (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 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 FNS 777, 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

[[Page 301]]

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; 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, 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. State agencies 
may also use these funds for the purposes of State director annual 
continuing education/training as described in Sec. 235.11(g)(3); 
however, costs associated with obtaining college credits to meet the 
hiring standards in Sec. 235.11(g)(1) and (2) are not allowable.
    (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 2 CFR part 200, subpart E and 
USDA implementing regulations 2 CFR part 400 and part 415.
    (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

[[Page 302]]

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 Secs. 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 to the same penalties provided in paragraph 
(h) of this section.
    (i) Full use of Federal funds. States and State agencies must 
support the full use of Federal funds provided to State agencies for the 
administration of Child Nutrition Programs, and exclude such funds from 
State budget restrictions or limitations including hiring freezes, work 
furloughs, and travel restrictions.

(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]

    Editorial Note: For Federal Register citations affecting Sec. 235.6, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



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.

[[Page 303]]

    (b) Each State agency shall submit to FNS a quarterly Financial 
Status Report (FNS-777) 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 FNS-777 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; 81 FR 66493, Sept. 
28, 2016]



Sec. 235.8  Management evaluations and audits.

    (a) Unless otherwise exempt, audits at the State level shall be 
conducted in accordance with 2 CFR part 200, subpart F and Appendix XI, 
Compliance Supplement and USDA implementing regulations 2 CFR part 400 
and part 415.
    (b) While OIG 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.
    (c) 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 OIG 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, OIG, 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; 71 FR 39519, July 13, 2006; 81 FR 66493, 
Sept. 28, 2016]



Sec. 235.9  Procurement and property management standards.

    (a) Requirements. State agencies shall comply with the requirements 
of 2 CFR

[[Page 304]]

part 200, subpart D and USDA implementing regulations 2 CFR part 400 and 
part 415 concerning the procurement of supplies, equipment and other 
services with State Administrative Expense Funds.
    (b) Contractual responsibilities. The standards contained in 2 CFR 
part 200, subpart D and USDA implementing regulations 2 CFR part 400 and 
part 415 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 laws and 
regulations, in accordance with 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415.
    (d) Property acquired with State administrative expense funds. State 
Agencies shall comply with the requirements of 2 CFR part 200, subpart D 
and USDA implementing regulations 2 CFR part 400 and part 415in 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, as amended at 71 FR 39519, July 
13, 200; 81 FR 66493, Sept. 28, 2016]



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 
the provisions of 2 CFR part 200, subpart E and USDA implementing 
regulations 2 CFR part 400 and part 415 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 Secs. 210.18 and 210.19 of this title;
    (iv) Conducting reviews with sufficient thoroughness to identify 
violations of the areas of review identified in Sec. 210.18;
    (v) Meeting the reporting deadlines prescribed for the forms (FNS-10 
and FNS-777) required under Sec. 210.5(d) of this title; and
    (vi) Meeting the professional standards required in paragraph (g) of 
this section.
    (3) Furthermore, FNS may for any fiscal year, recover, withhold or 
cancel

[[Page 305]]

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 FNS-777) 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 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 2 CFR part 200, subpart D and 
USDA implementing regulations 2 CFR part 400 and part 415 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

[[Page 306]]

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 2 
CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 
and part 415 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 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.
    (g) Professional standards. State agencies must meet the minimum 
hiring and training standards established by FNS.
    (1) Hiring standards for State directors of school nutrition 
programs. Beginning July 1, 2015, newly hired State agency directors 
with responsibility for the administration of the National School Lunch 
Program under part 210 of this chapter and the School Breakfast Program 
under part 220 of this chapter must have:
    (i) Bachelor's degree with an academic major in areas including food 
and nutrition, food service management, dietetics, family and consumer 
sciences, nutrition education, culinary arts, business, or a related 
field;
    (ii) Extensive relevant knowledge and experience in areas such as 
institutional food service operations, management, business, and/or 
nutrition education (experience in three or more of these areas highly 
recommended); and
    (iii) Additional abilities and skills needed to lead, manage and 
supervise

[[Page 307]]

people to support the mission of Child Nutrition programs.
    (iv) It is also strongly preferred that new hires possess:
    (A) Master's degree with an academic major in areas including food 
and nutrition, food service management, dietetics, family and consumer 
sciences, nutrition education, culinary arts, business, or a related 
field;
    (B) At least five years of experience leading people in successfully 
accomplishing major multi-faceted projects related to child nutrition 
and/or institutional foodservice management; and
    (C) Professional certification in food and nutrition, food service 
management, school business management or a related field as determined 
by FNS.
    (2) Hiring standards for State directors of distributing agencies. 
Beginning July 1, 2015, newly hired State agency directors with 
responsibility for the administration of the distribution of USDA 
donated foods under part 250 of this chapter must have:
    (i) Bachelor's degree in any academic major;
    (ii) Extensive relevant knowledge and experience in areas such as 
institutional food service operations, management, business, and/or 
nutrition education; and
    (iii) Additional abilities and skills needed to lead, manage and 
supervise people to support the mission of Child Nutrition programs.
    (iv) It is also strongly preferred that new hires possess at least 
five years of experience in institutional food service operations.
    (3) Continuing education/training standards for State directors of 
school nutrition programs and distributing agencies. Each school year, 
all State directors with responsibility for the National School Lunch 
Program under part 210 of this chapter and the School Breakfast Program 
under part 220 of this chapter, as well as those responsible for the 
distribution of USDA donated foods under part 250 of this chapter, must 
complete a minimum of 15 hours of training in core areas that may 
include nutrition, operations, administration, communications and 
marketing. Additional hours and topics may be specified by FNS, as 
needed, to address Program integrity and other critical issues.
    (4) Provision of annual training. At least annually, State agencies 
with responsibility for the National School Lunch Program under part 210 
of this chapter and the School Breakfast Program under part 220 of this 
chapter, as well as State agencies with responsibility for the 
distribution of USDA donated foods under part 250 of this chapter, must 
provide or ensure that State agency staff receive annual continuing 
education/training.
    (i) Each State agency with responsibility for the National School 
Lunch Program under part 210 of this chapter and the School Breakfast 
Program under part 220 of this chapter must provide a minimum of 18 
hours of continuing education/training to school food authorities. 
Topics include administrative practices (including training in 
application, certification, verification, meal counting, and meal 
claiming procedures); the accuracy of approvals for free and reduced 
price meals; the identification of reimbursable meals at the point of 
service; nutrition; health and food safety standards; the efficient and 
effective use of USDA donated foods; and any other appropriate topics, 
as determined by FNS, to ensure program compliance and integrity or to 
address other critical issues.
    (ii) Each State agency with responsibility for the distribution of 
USDA donated foods under part 250 of this chapter must provide or ensure 
receipt of continuing education/training to State distribution agency 
staff on an annual basis. Topics may include the efficient and effective 
use of USDA donated foods; inventory rotation and control; health and 
food safety standards; and any other appropriate topics, as determined 
by FNS, to ensure program compliance and integrity or to address other 
critical issues.
    (5) Records and recordkeeping. State agencies must annually retain 
records for a period of three years to adequately demonstrate compliance 
with the professional standards for State directors of school nutrition 
programs established in this paragraph.
    (6) Failure to comply. Failure to comply with the professional 
standards in

[[Page 308]]

this paragraph may result in sanctions as specified in paragraph (b) of 
this section.

(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]

    Editorial Note: For Federal Register citations affecting 
Sec. 235.11, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



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

------------------------------------------------------------------------
7 CFR Section where requirements are
              described                     Current OMB control No.
------------------------------------------------------------------------
235.3(b)............................  0584-0067.
235.4...............................  0584-0067.
235.5(b), (d).......................  0584-0067.
235.7(a), (b).......................  0584-0067.
235.9(c), (d).......................  0584-0067.
235.11..............................  0584-0067.
210.7...............................  0584-0067.
------------------------------------------------------------------------


[80 FR 11096, Mar. 2, 2015]



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.

    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

[[Page 309]]

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 
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.

[[Page 310]]

    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 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

[[Page 311]]

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 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

[[Page 312]]

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 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

[[Page 313]]

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 
Secs. 240.3 and 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 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 2 CFR part 
200, subpart D and USDA implementing regulations 2 CFR part 400 and part 
415.

[47 FR 15982, Apr. 13, 1982, as amended at 81 FR 66494, Sept. 28, 2016]



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.

[[Page 314]]



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  Application, eligibility and certification of children for free 
          and reduced price meals and free milk.
245.6a  Verification requirements.
245.7  Hearing procedure for families and local educational agencies.
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 local educational agencies.
245.11  Second review of applications.
245.12  Action by State agencies and FNSROs.
245.13  State agencies and direct certification requirements.
245.14  Fraud penalties.
245.15  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, school food authorities or 
local educational agencies, as defined in Sec. 245.2, as applicable 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, school 
food authorities or local educational agencies, as applicable, 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; 72 FR 63792, Nov. 13, 
2007]



Sec. 245.2  Definitions.

    Adult means any individual 21 years of age or older.
    Categorically eligible means considered income eligible for free 
meals or free milk, as applicable, based on documentation that a child 
is a member of a Family, as defined in this section, and one or more 
children in that family are receiving assistance under SNAP, FDPIR or 
the TANF program, as defined in this section. A Foster child, Homeless 
child, a Migrant child, a Head Start child and a Runaway child, as 
defined in this section, are also categorically eligible. Categorical 
eligibility and automatic eligibility may be used synonymously.
    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.
    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.
    Direct certification means determining a child is eligible for free 
meals or free

[[Page 315]]

milk, as applicable, based on documentation obtained directly from the 
appropriate State or local agency or individuals authorized to certify 
that the child is a member of a household receiving assistance under 
SNAP, as defined in this section; is a member of a household receiving 
assistance under FDPIR or under the TANF program, as defined in this 
section; a Foster child, Homeless child, a Migrant child, a Head Start 
child and a Runaway child, as defined in this section.
    Disclosure means reveal or use individual children's program 
eligibility information obtained through the free and reduced price meal 
or free milk eligibility process 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:
    (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 last four digits of the social security number 
of the adult household member who signs the application or an indication 
that the adult does not possess a social security number; or
    (ii) For a child who is receiving assistance under SNAP, FDPIR or 
TANF, as defined in this section, the child's name and appropriate SNAP 
or TANF case number or FDPIR case number or other FDPIR identifier and 
signature of an adult household member.
    (2) In lieu of completion of the free and reduced price meal 
application:
    (i) Information obtained from the State or local agency responsible 
for administering SNAP, FDPIR or TANF, as defined in this section. 
Documentation for these programs includes the name of the child; a 
statement certifying that the child is a member of a household receiving 
assistance under SNAP, FDPIR or TANF, as defined in this section; 
information in sufficient detail to match the child attending school in 
the local educational agency with the name of a child who is a member of 
one of the applicable programs as defined in this section; the signature 
of the official from the applicable program who is authorized to provide 
such documentation on behalf of that program and the date that the 
official signed the certification statement;
    (ii) A letter or other document provided to the household by the 
agency administering FDPIR or the TANF program, as defined in this 
section or by the court, entity, or official authorized to administer an 
eligible program for a Foster child, a Homeless child, a Migrant child, 
a Head Start child, or a Runaway child as defined in this section.
    (iii) Information from the local educational agency, such as 
enrollment information or information from applications submitted for 
free or reduced price meals, or from SNAP, FDPIR or TANF program 
officials that indicate there are children in a Family, as defined in 
this section, who were not documented as receiving assistance under 
SNAP, FDPIR or TANF, in order to extend categorical eligibility to such 
children as found in Sec. 245.6(b)(7). Documentation for these purposes 
is the information discussed in paragraph (2)(i) of this definition, 
plus a written statement by a local educational agency official briefly 
explaining how the presence of additional children in the family was 
determined.
    (iv) Information obtained from an official responsible for 
determining if a child is a Foster child, a Homeless child, a Migrant 
child, a Head Start child, or a Runaway child, as defined in the 
section. Documentation for these children includes the name of the 
child; a statement certifying that the child has been determined 
eligible for that program or is enrolled in the Head Start Program; 
information in sufficient detail to match the child attending school in 
the local educational agency with the name of a child who has been 
determined eligible for that program or is enrolled in an eligible Head 
Start Program; the signature of the official from

[[Page 316]]

the program who is authorized to provide such documentation on behalf of 
that program and the date that the official signed the certification 
statement. Documentation may also be a list of children, a computer 
match, or a court document that includes this information.
    (v) When a signature is impracticable to obtain, such as in a 
computer match, the local educational agency shall have a method to 
ensure that a responsible official can attest to the accuracy of the 
information provided.
    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 means the food distribution program for households on Indian 
reservations operated under part 253 of this title.
    FNS means the Food and Nutrition Service, United States Department 
of Agriculture.
    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 with 
respect to nonprofit private schools.
    Foster child means a child who is formally placed by a court or an 
agency that administers a State plan under parts B or E of title IV of 
the Social Security Act (42 U.S.C. 621 et seq.). It does not include a 
child in an informal arrangement that may exist outside of State or 
court based systems.
    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.
    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.
    Head Start child means a child enrolled as a participant in a Head 
Start program authorized under the Head Start Act (42 U.S.C. 9831 et 
seq.)
    Homeless child means a child identified as lacking a fixed, regular 
and adequate nighttime residence, as specified under section 725(a) of 
the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11434a(2)) by the 
local educational agency liaison, director of a homeless shelter or 
other individual identified by FNS.
    Household means ``family'' as defined in this section.
    Household application means an application for free and reduced 
price meal or milk benefits, submitted by a household for a child or 
children who attend school(s) in the same local educational agency.
    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.
    Local educational agency means a public board of education or other 
public or private nonprofit authority legally constituted within a State 
for either administrative control or direction of, or to perform a 
service function for, public or private nonprofit elementary schools or 
secondary schools in a city, county, township, school district, or other 
political subdivision of a State, or for a combination of school 
districts or counties that is recognized in a State as an administrative 
agency for its public or private nonprofit elementary schools or 
secondary schools. The term also includes any other public or private 
nonprofit institution or agency having administrative control and 
direction of a public or private nonprofit elementary school or 
secondary school, including residential child care institutions, Bureau 
of Indian Affairs schools, and educational service agencies and 
consortia of those agencies, as well as the State educational agency in 
a State or territory in which the State educational agency is the sole 
educational agency for all public or private nonprofit schools.
    Meal means a lunch or meal supplement or a breakfast which meets the 
applicable requirements prescribed in Secs. 210.10, 210.15a, and 220.8 
of this chapter.
    Medicaid means the State medical assistance program under title XIX 
of the Social Security Act (42 U.S.C. 1396 et seq.).

[[Page 317]]

    Migrant child means a child identified as meeting the definition of 
migrant in section 1309 of the Elementary and Secondary Education Act of 
1965 (20 U.S.C. 6399) by the State or local Migrant Education Program 
coordinator or the local educational liaison, or other individual 
identified by FNS.
    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.
    Nonprofit means exempt from income tax under section 501(c)(3) of 
the Internal Revenue Code of 1986.
    Operating day means a day that reimbursable meals are offered to 
eligible students under the National School Lunch Program or School 
Breakfast Program.
    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.
    Runaway child means a child identified as a runaway receiving 
assistance under a program under the Runaway and Homeless Youth Act (42 
U.S.C. 5701 et seq.) by the local educational liaison, or other 
individual in accordance with guidance issued by FNS.
    Service institution shall have the meaning ascribed to it in part 
225 of this chapter.
    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.
    SNAP means the Supplemental Nutrition Assistance Program established 
under the Food and Nutrition Act of 2008 (7 U.S.C. 2011 et. seq.) and 
operated under parts 271 and 283 of this chapter.
    SNAP household means any individual or group of individuals 
currently certified to receive assistance as a household from SNAP.
    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.
    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, 1995. This program is commonly referred to as 
Temporary Assistance for Needy Families, although States may refer to 
the program by another name.
    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, 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. 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(a)(7). If a 
SNAP or TANF case

[[Page 318]]

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 a member of a household receiving SNAP, TANF or FDPIR 
benefits. Verification may also be completed through direct contact with 
one or more of the public agencies as specified in Sec. 245.6a(g).

(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 at www.fdsys.gov.



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 local 
educational agencies, as defined in Sec. 245.2, 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 participating local educational agency and all 
participating schools under its jurisdiction must adhere to the 
eligibility criteria specified in this part. Local educational agencies 
must include these eligibility criteria in their policy statement as 
required under Sec. 245.10 and it must be publicly announced in 
accordance with the provisions of Sec. 245.5. Additionally, each State 
agency, or FNSRO where applicable, must require that local educational 
agencies accept as income eligible for free meals and free milk, 
children who are categorically eligible for those benefits based on 
documentation of eligibility, as specified in Sec. 245.6 (b).
    (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), 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; 72 FR 63793, Nov. 13, 2007; 76 
FR 22800, Apr. 25, 2011]



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 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

[[Page 319]]

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 
local educational agency (as defined in Sec. 245.2) that its criteria 
for determining the eligibility of children for free and reduced price 
meals and for free milk have been approved, the local educational agency 
(as defined in Sec. 245.2) 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 information as 
described in paragraph (1)(i) of the definition of Documentation in 
Sec. 245.2;
    (iv) An explanation that households with children who are members of 
currently certified SNAP, FDPIR or TANF households may submit 
applications for these children with the abbreviated information 
described in paragraph (2)(ii) of the definition of Documentation in 
Sec. 245.2;
    (v) An explanation that the information on the application may be 
verified at any time during the school year;
    (vi) How a household may apply for benefits at any time during the 
school year as circumstances change;
    (vii) 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;
    (viii) 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;''
    (ix) An explanation that Head Start enrollees and foster, homeless, 
migrant, and runaway children, as defined

[[Page 320]]

in Sec. 245.2, are categorically eligible for free meals and free milk 
and their families should contact the school for more information;
    (x) How a household may appeal the decision of the local educational 
agencywith 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.
    (xi) A statement to the effect that the Special Supplemental 
Nutrition Program for Women, Infants and Children (WIC) participants may 
be eligible for free or reduced price meals.
    (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]

    Editorial Note: For Federal Register citations affecting Sec. 245.5, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 245.6  Application, eligibility and certification of children
for free and reduced price meals and free milk.

    (a) General requirements--content of application and descriptive 
materials. Each local educational agency, as defined in Sec. 245.2, for 
schools participating in the National School Lunch Program, School 
Breakfast Program or Special Milk Program or a commodity only school, 
shall provide meal benefit forms for use by families in making 
application for free or reduced price meals or free milk for their 
children.
    (1) Household applications. The State agency or local educational 
agency must provide a form that permits a household to apply for all 
children in that household who attend schools in the same local 
educational agency. The local educational agency must provide newly 
enrolled students with an application and determine eligibility 
promptly. The local educational agency cannot require the household to 
submit an application for each child attending its schools. The 
application shall be clear and simple in design and the information 
requested therein shall be limited to that required to demonstrate that 
the household does, or does not, meet the eligibility criteria for free 
or reduced price meals, respectively, or for free milk, provided by the 
local educational agency.
    (2) Understandable communications. Any communication with households 
for eligibility determination purposes must be in an understandable and 
uniform format and to the maximum extent practicable, in a language that 
parents and guardians can understand.
    (3) Electronic availability. In addition to the distribution of 
applications and descriptive materials in paper form as provided for in 
this section, the local educational agency may establish a system for 
executing household applications electronically and using electronic 
signatures. The electronic submission system must comply with the 
disclosure requirements in this section and with technical assistance 
and guidance provided by FNS. Descriptive materials may also be made 
available electronically by the local educational agency.
    (4) Transferring eligibility status. When a student transfers to a 
new school district, the new local educational agency may accept the 
eligibility determination from the student's former local educational 
agency without incurring liability for the accuracy of the initial 
determination. As required under paragraph (c)(3) of this section, the 
accepting local educational agency must make changes that occur as a 
result of verification activities or coordinated review findings 
conducted in that local educational agency.

[[Page 321]]

    (5) Required income information. The information requested on the 
application with respect to the current income of the household must be 
limited to:
    (i) The income received by each member identified by the household 
member who received the income or an indication which household members 
had no income; and
    (ii) 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 to pay for a child's 
meals or milk.
    (6) Household members and social security numbers. The application 
must require applicants to provide the names of all household members. 
In addition, the last four digits of the social security number of the 
adult household member who signs the application must be provided. If 
the adult member signing the application does not possess a social 
security number, the household must so indicate. However, if application 
is being made for a child(ren) who is a member of a household receiving 
assistance under the SNAP, or is in a FDPIR or TANF household, the 
application shall enable the household to provide the appropriate SNAP 
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.
    (7) Adult member's signature. The application must be signed by an 
adult member of the family. The application must contain clear 
instructions with respect to the submission of the completed application 
to the official or officials designated by the local educational agency 
to make eligibility determinations. A household must be permitted to 
file an application at any time during the school year. A household may, 
but is not required to, report any changes in income, household size or 
program participation during the school year.
    (8) Required statements for the application. (i) The application and 
descriptive materials must include substantially the following 
statements:
    (A) ``The Richard B. Russell National School Lunch Act requires the 
information on this application. You do not have to give the 
information, but if you do not, we cannot approve your child for free or 
reduced-price meals. You must include the last four digits of the social 
security number of the adult household member who signs the application. 
The last four digits of the social security number are not required when 
you list a Supplemental Nutrition Assistance Program (SNAP), Temporary 
Assistance for Needy Families (TANF) Program or Food Distribution 
Program on Indian Reservations (FDPIR) case number or other FDPIR 
identifier for your child or when you indicate that the adult household 
member signing the application does not have a social security number. 
We will use your information to determine if your child is eligible for 
free or reduced-price meals, and for administration and enforcement of 
the lunch and breakfast programs. We MAY share your eligibility 
information with education, health, and nutrition programs to help them 
evaluate, fund, or determine benefits for their programs, auditors for 
program reviews, and law enforcement officials to help them look into 
violations of program rules.''
    (B) ``Foster, migrant, homeless, and runaway children, and children 
enrolled in a Head Start program are categorically eligible for free 
meals and free milk. If you are completing an application for these 
children, contact the school for more information.''
    (ii) When either the State agency or the local educational agency 
plans to use or disclose children's eligibility information for non-
program purposes, additional information, as specified in paragraph (h) 
of this section, must be added to this statement. State agencies and 
local educational agencies are responsible for drafting the appropriate 
statement.
    (9) Attesting to information on the application. The application 
must also include a statement, immediately above the space for 
signature, that the person signing the application certifies that

[[Page 322]]

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. Applicants must attest to changes in 
information as specified in this paragraph (b), if changes are 
voluntarily reported in writing during the eligibility period.
    (b) Direct certification. In lieu of requiring a household to 
complete the free and reduced price meal or free milk application, as 
specified in paragraph (a) of this section, the local educational agency 
must certify children as eligible for free meals or free milk in 
accordance with paragraph (b)(1)(i) of this section or may certify 
children as eligible for free meals or free milk in accordance with 
paragraph (b)(2) of this section. If a household also submits an 
application for directly certified children, the direct certification 
eligibility determination will take precedence.
    (1) Mandatory direct certification of children in SNAP households. 
(i) All local educational agencies conducting eligibility determinations 
must directly certify children who are members of a household receiving 
assistance under SNAP, as defined in Sec. 245.2, in School Year 2008-
2009, which begins on July 1, 2008, and each subsequent school year.
    (ii) Schools participating only in the Special Milk Program 
authorized under part 215 of this chapter may directly certify children 
for that program but are not required to conduct direct certification 
with SNAP. In addition, residential child care institutions, as defined 
in paragraph (c) of the definition of School in Sec. 210.2 of this 
chapter, that do not have non-residential children are also not required 
to conduct direct certification with SNAP.
    (iii) Beginning in School Year 2012-2013, direct certification shall 
be conducted using a data matching technique only and letters to 
household for direct certification may be used only as an additional 
means to notify households of children's eligibility based on receipt of 
SNAP benefits. The last period that letters to households may be used as 
the primary method for direct certification is School Year 2011-12.
    (iv) Each State agency must enter into an agreement with the State 
agency conducting eligibility determinations for SNAP. The agreement 
must specify the procedures that will be used to facilitate the direct 
certification of children who are members of a household receiving 
assistance under SNAP, as defined in Sec. 245.2. The agreement must 
address procedures to comply with the requirements of paragraphs (b)(3) 
through (b)(9) of this section. Direct certification must allow for 
notifying parents that their children have been determined eligible for 
free meals or free milk, as applicable, and that no further application 
is required. Such agreements must address how phase-out of non-
electronic matches as the primary method for conducting direct 
certification for SNAP will be completed by School Year 2012-2013. The 
agreement shall be maintained by the State agency.
    (v) Local educational agencies and schools currently operating 
Provision 2 or Provision 3 in non-base years, or the community 
eligibility provision, as permitted under Sec. 245.9, are required to 
conduct a data match between Supplemental Nutrition Assistance Program 
records and student enrollment records at least once annually. State 
agencies may conduct data matching on behalf of LEAs and exempt LEAs 
from this requirement.
    (2) Children who may be directly certified. The local educational 
agency may directly certify children for free meals or free milk based 
on documentation received from the appropriate State or local agency 
that administers FDPIR or TANF, as defined in Sec. 245.2, when that 
agency indicates that the children are members of a household receiving 
assistance under one of these programs. In addition, the local 
educational agency may directly certify children for free meals or free 
milk based on documentation from the appropriate State or local agency 
or other appropriate individual, as specified by FNS, that the child is 
a Foster child, a Homeless child, a Migrant, a

[[Page 323]]

Runaway child, or a Head Start child, as defined in Sec. 245.2.
    (3) Frequency of direct certification contacts with SNAP. (i) Until 
School Year 2011-2012, local educational agencies must conduct direct 
certification activities with SNAP at least at the beginning of the 
school year.
    (ii) (A) Beginning in School Year 2011-2012, at a minimum, all local 
educational agencies must conduct direct certification as follows:
    (1) At or around the beginning of the school year;
    (2) Three months after the initial effort; and
    (3) Six months after the initial effort.
    (B) The information used shall be the most recent available.
    (iii) The names of all newly enrolled children and all children not 
certified for free meals shall be submitted for the direct certification 
required in paragraph (b)(3)(ii)(B) and paragraph (b)(3)(ii)(C) of this 
section. Newly enrolled children must be provided with application 
materials in order to alleviate a delay in receipt of free meals or free 
milk if direct certification for these children cannot be completed 
promptly upon enrollment.
    (iv) State agencies are encouraged to conduct direct certification 
more frequently to obtain information about newly enrolled children or 
children who may be newly certified for that program's benefits.
    (4) Frequency of direct certification with other programs. Local 
educational agencies opting to conduct direct certification activities 
with FDPIR or TANF should conduct such activities at or around the 
beginning of the school year. Obtaining information about foster, 
homeless, migrant, or runaway children or Head Start enrollees should be 
done, at a minimum, at or around the beginning of the school year and 
when newly enrolled children or children newly eligible for those 
programs are being certified.
    (5) Direct certification documentation. (i) The required 
documentation for direct certification is provided in paragraph (2) of 
the definition of Documentation in Sec. 245.2.
    (ii) (A) Beginning in School Year 2012-2013, direct certification 
with SNAP shall be conducted using a data matching technique only. 
Letters to households for direct certification may be used only as an 
additional means to notify households of children's eligibility based on 
receipt of SNAP benefits. The last period that letters to households may 
be used as the primary method for direct certification is School Year 
2011-2012. While such notices cannot be the primary method used by a 
state to document receipt of SNAP, the local educational agency shall 
accept such a letter if presented by a household.
    (B) Letters or other documents may be used as the primary method for 
direct certification to document receipt of FDPIR or TANF benefits.
    (iii) Individual notices from officials of eligible programs for a 
Foster child, a Homeless child, a Migrant child, a Runaway child, or a 
Head Start child, as defined in Sec. 245.2, may continue to be used. 
These notices are provided to school officials who must certify these 
children as eligible for free meals or free milk, as applicable, without 
further application, upon receipt of such notice.
    (6) Officials who can provide documentation for direct 
certification. (i) The local educational agency must accept 
documentation from officials of the State or local agency that 
administers SNAP, certifying that a child is a member of a household 
receiving assistance under SNAP as defined in Sec. 245.2, or officials 
of the State or local agency that administers FDPIR or TANF, as defined 
in Sec. 245.2, certifying that a child is a member of a household 
receiving assistance under one of those programs.
    (ii) For a Foster child, as defined in Sec. 245.2, an official 
document indicating the status of the child as a foster child from an 
appropriate State or local agency or a court where the foster child 
received placement may provide appropriate documentation. In the case of 
a child who is a Homeless child, as defined in Sec. 245.2, the director 
of a homeless shelter or the local educational liaison for homeless 
children and youth may provide the appropriate documentation. The 
Migrant Education Program coordinator or the local educational liaison, 
as applicable, may provide the supporting documentation

[[Page 324]]

for a Migrant child, as defined in Sec. 245.2. For a Head Start child, 
as defined in Sec. 245.2, an official from that program may supply the 
documentation indicating enrollment in the Head Start program. Once the 
appropriate official has provided the direct certification documentation 
to the local educational agency, the child must have free benefits made 
available as soon as possible but no later than three operating days 
after the date the local educational agency receives the direct 
certification documentation.
    (7) Extension of eligibility to all children in a family. If any 
child is identified as a member of a household receiving assistance 
under SNAP, FDPIR, or TANF, all children in the Family, as defined in 
Sec. 245.2, shall be categorically eligible for free meals or free milk. 
This applies to children identified through direct certification or 
through a free and reduced price application.
    (8) Foster, Homeless, Migrant, Runaway, or Head Start Children. To 
be categorically eligible as a Foster child, a Homeless child, a Migrant 
child, a Runaway child, or a Head Start child, the child's individual 
eligibility or participation for these programs shall be established. 
Categorical eligibility based on these programs shall not be extended to 
other children in the household.
    (9) Confidential nature of direct certification information. 
Information about children or their households obtained through the 
direct certification process must be kept confidential and is subject to 
the limitations on disclosure of information in section 9 of the Richard 
B. Russell National School Lunch Act, 42 U.S.C. 1758. Therefore, 
information that a household is receiving benefits from SNAP, FDPIR or 
TANF or that a child is participating in another program which makes 
children categorically eligible for free school meals or free milk must 
be used solely for the purposes of direct certification for determining 
children's eligibility for free school meals or free milk and as 
otherwise permitted under Sec. 245.6(f).
    (10) Notification to families. For children who are directly 
certified, local educational agencies are not required to provide 
application materials and notice to parents informing them of the 
availability of free and reduced price meal benefits, as specified in 
Sec. 245.5(a), when that information is distributed by mail, 
individualized student packets, or other method which prevents overt 
identification of children eligible for direct certification.
    (c) Determination of eligibility--(1) Duration of eligibility. 
Except as otherwise specified in paragraph (c)(3) of this section, 
eligibility for free or reduced price meals, as determined through an 
approved application or by direct certification, must remain in effect 
for the entire school year and for up to 30 operating days into the 
subsequent school year. The local educational agency must determine 
household eligibility for free or reduced price meals either through 
direct certification or the application process at or about the 
beginning of the school year. The local educational agency must 
determine eligibility for free or reduced price meals when a household 
submits an application or, if feasible, through direct certification, at 
any time during the school year.
    (2) Use of prior year's eligibility status. 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, shall be offered reimbursable free and reduced price 
meals or free milk, as appropriate. The local educational agency must 
extend eligibility to newly enrolled children when other children in 
their household (as defined in Sec. 245.2) were approved for benefits 
the previous year. However, applications and documentation of direct 
certification from the preceding year shall be used only to determine 
eligibility for the first 30 operating days following the first 
operating day at the beginning of the school year, or until a new 
eligibility determination is made in the current school year, whichever 
comes first. At the State agency's discretion, students who, in the 
preceding school year, attended a school operating a special assistance 
certification and reimbursement alternative (as permitted in 
Sec. 245.9)) may be offered free reimbursable meals for up to 30 
operating days

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or until a new eligibility determination is made in the current school 
year, whichever comes first.
    (3) Exceptions for year-long duration of eligibility--(i) Voluntary 
reporting of changes. Households are not required to report changes in 
circumstances during the school year, but a household may voluntarily 
contact the local educational agency to report any changes. If the 
household voluntarily reports a change in income or in program 
participation that would result in loss of categorical eligibility, the 
local educational agency may only reduce benefits if the household 
requests the reduction in writing, for example, by submitting a new 
application.
    (ii) Households must attest to changes in information as specified 
in Sec. 245.6(a)(9). In addition, benefits cannot be reduced by 
information received through other sources without the written consent 
of the household, except for information received through verification.
    (iii) Changes resulting from verification or administrative reviews. 
The local educational agency must change the children's eligibility 
status when a change is required as a result of verification activities 
conducted under Sec. 245.6a or as a result of a review conducted in 
accordance with Sec. 210.18 of this chapter.
    (4) Calculating income. The local educational agency must use the 
income information provided by the household on the application to 
calculate the household's total current income. When a household submits 
an application containing complete documentation, as defined in 
Sec. 245.2, and the household's total current income is at or below the 
eligibility limits specified in the Income Eligibility Guidelines as 
defined in Sec. 245.2, the children in that household must be approved 
for free or reduced price benefits, as applicable.
    (5) Categorical eligibility--(i) SNAP, FDPIR, TANF When a household 
submits an application containing the required SNAP, FDPIR or TANF 
documentation, as defined under Documentation in Sec. 245.2, all 
children in that household shall be categorically eligible for free 
meals or free milk. Additionally, when the local educational agency 
obtains confirmation of eligibility for these programs through direct 
certification, all children who are identified as members of a Family, 
as defined in Sec. 245.2, shall be categorically eligible for free meals 
or milk.
    (ii) Foster, homeless, migrant, andrunaway children and Head Start 
enrollees. Upon receipt of Documentation, as defined in paragraph 
(2)(ii) and (2)(iv) of the definition in Sec. 245.2, the local 
educational agency must approve such children for free benefits without 
further application.
    (6) Notice of approval--(i) Income applications. The local 
educational agency must notify the household of the children's 
eligibility and provide the eligible children the benefits to which they 
are entitled within 10 operating days of receiving the application from 
the household.
    (ii) Direct Certification. Households approved for benefits based on 
information provided by the appropriate State or local agency 
responsible for the administration of the SNAP, FDPIR or TANF must be 
notified, in writing, that their children are eligible for free meals or 
free milk, that no application for free and reduced price school meals 
or free milk is required. The notice of eligibility must also inform the 
household that the parent or guardian must notify the local educational 
agency if they do not want their children to receive free benefits. 
However, when the parent or guardian transmits a notice of eligibility 
provided by the SNAP, FDPIR or TANF office, the local educational agency 
is not required to provide a separate notice of eligibility. The local 
educational agency must notify, in writing, households with children who 
are approved on the basis of documentation that they are Categorically 
eligible, as defined in Sec. 245.2, that their children are eligible for 
free meals or free milk, and that no application is required.
    (iii) Households declining benefits. Children from households that 
notify the local educational agency that they do not want free or 
reduced price benefits must have their benefits discontinued as soon as 
possible. Any notification from the household declining benefits must be 
documented and maintained on file, as required under paragraph (e) of 
this section, to substantiate the eligibility determination.

[[Page 326]]

    (7) Denied applications and the notice of denial. When the 
application furnished by a family is not complete or does not meet the 
eligibility criteria for free or reduced price benefits, the local 
educational agency must document and retain the reasons for 
ineligibility and must retain the denied application. In addition, the 
local educational agency must promptly provide written notice to each 
family denied 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 parents that they may reapply for free or 
reduced price benefits at any time during the school year.
    (8) Appeals of denied benefits. A family that wishes to appeal an 
application that was denied may do so in accordance with the procedures 
established by the local educational agency as required by Sec. 245.7. 
However, prior to initiating the hearing procedure, the family may 
request a conference to provide the opportunity for the family and local 
educational agency 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 
local educational authority shall promptly schedule a fair hearing, if 
requested.
    (d) Households that fail to apply. After the letter to parents and 
the applications have been disseminated, the local educational agency 
may determine, based on information available to it, that a child for 
whom an application has not been submitted meets the local educational 
agency's eligibility criteria for free and reduced price meals or for 
free milk. In such a situation, the local educational agency shall 
complete and file an application for such child setting forth the basis 
of determining the child's eligibility. When a local educational agency 
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 local educational 
agency'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 local educational agency to make 
eligibility determinations or certifications by categories or groups of 
children.
    (e) Recordkeeping. The local educational agency 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 children's free and reduced price meal or free 
milk eligibility information to education and certain other programs and 
individuals without parental consent. The State agency or local 
educational agency, as appropriate, may disclose aggregate information 
about children eligible for free and reduced price meals or free milk to 
any party without parental notification and consent when children cannot 
be identified through release of the aggregate data or by means of 
deduction. Additionally, the State agency or local educational agency 
also may disclose information that identifies children eligible for free 
and reduced price meals or free milk to persons directly connected with 
the administration or enforcement of the programs and the individuals 
specified in this paragraph (f) without parent/guardian consent. The 
State agency or local educational agency that makes the free and reduced 
price meal or free milk eligibility determination is responsible for 
deciding whether to disclose children's free and reduced price meal or 
free milk eligibility information.
    (1) Persons authorized to receive eligibility information. Only 
persons directly connected with the administration or enforcement of a 
program or activity

[[Page 327]]

listed in paragraphs (f)(2) or (f)(3) of this section may have access to 
children's eligibility information, without parental consent. Persons 
considered directly connected with administration or enforcement of a 
program or activity listed in paragraphs (f)(2) or (f)(3) of this 
section are Federal, State, or local program operators responsible for 
the ongoing operation of the program or activity or responsible for 
program compliance. Program operators may include persons responsible 
for carrying out program requirements and monitoring, reviewing, 
auditing, or investigating the program. Program operators may include 
contractors, to the extent those persons have a need to know the 
information for program administration or enforcement. Contractors may 
include evaluators, auditors, and others with whom Federal or State 
agencies and program operators contract with to assist in the 
administration or enforcement of their program in their behalf.
    (2) Disclosure of children's names and eligibility status only. The 
State agency or local educational agency, as appropriate, may disclose, 
without parental consent, children's names and eligibility status 
(whether they are eligible for free or reduced price meals or free milk) 
to persons directly connected with the administration or enforcement of:
    (i) A Federal education program;
    (ii) A State health program or State education program administered 
by the State or local education agency;
    (iii) A Federal, State, or local means-tested nutrition program with 
eligibility standards comparable to the National School Lunch Program 
(i.e., food assistance programs for households with incomes at or below 
185 percent of the Federal poverty level); or
    (iv) A third party contractor assisting in verification of 
eligibility efforts by contacting households who fail to respond to 
requests for verification of their eligibility.
    (3) Disclosure of all eligibility information in addition to 
eligibility status. In addition to children's names and eligibility 
status, the State agency or local educational agency, as appropriate, 
may disclose, without parental consent, all eligibility information 
obtained through the free and reduced price meals or free milk 
eligibility process (including all information on the application or 
obtained through direct certification) to:
    (i) Persons directly connected with the administration or 
enforcement of programs authorized under the Richard B. Russell National 
School Lunch Act or the Child Nutrition Act of 1966. This means that all 
eligibility information obtained for the National School Lunch Program, 
School Breakfast Program or Special Milk Program may be disclosed to 
persons directly connected with administering or enforcing regulations 
under the National School Lunch or School Breakfast Programs (Parts 210 
and 220, respectively, of this chapter), Child and Adult Care Food 
Program (Part 226 of this chapter), Summer Food Service Program (Part 
225 of this chapter) and the Special Supplemental Nutrition Program for 
Women, Infants and Children (WIC) (Part 246 of this chapter);
    (ii) The Comptroller General of the United States for purposes of 
audit and examination; and
    (iii) Federal, State, and local law enforcement officials for the 
purpose of investigating any alleged violation of the programs listed in 
paragraphs (g)(3) and (g)(4) of this section.
    (4) Use of free and reduced price meal or free milk eligibility 
information by other programs other than Medicaid or the State 
Children's Health Insurance Program (SCHIP). State agencies and local 
educational agencies may use free and reduced price meal or free milk 
eligibility information for administering or enforcing the National 
School Lunch, Special Milk or School Breakfast Programs (Parts 210, 215 
and 220, respectively, of this chapter). Additionally, any other 
Federal, State, or local agency charged with administering or enforcing 
these programs may use the information for that purpose. Individuals and 
programs to which children's free and reduced price meal eligibility 
information has been disclosed under this section may use the 
information only in the administration or enforcement of the receiving 
program. No further disclosure of the information may be made.

[[Page 328]]

    (g) Disclosure of children's eligibility information to Medicaid 
and/or SCHIP, unless parents decline. Children's free or reduced price 
meal or free milk eligibility information only may be disclosed to 
Medicaid or SCHIP when both the State agency and the local educational 
agency so elect, the parent/guardian does not decline to have their 
eligibility information disclosed and the other provisions described in 
paragraph (i) of this section are met. Provided that both the State 
agency and local educational agency opt to allow the disclosure of 
eligibility information to Medicaid and/or SCHIP, the State agency or 
local educational agency, 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 or free milk application or 
obtained through direct certification to persons directly connected with 
the administration of Medicaid or SCHIP. Persons directly connected to 
the administration of Medicaid and SCHIP are 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 for Medicaid or SCHIP.
    (1) The State agency must ensure that:
    (i) The child care institution and health insurance program 
officials have a written agreement that requires the health insurance 
program agency to use the eligibility information to seek to enroll 
children in Medicaid and SCHIP; and
    (ii) Parents/guardians are notified that their eligibility 
information may be disclosed to Medicaid or SCHIP and given an 
opportunity to decline to have their children's eligibility information 
disclosed, prior to any disclosure.
    (2) Use of children's free and reduced price meal eligibility 
information by Medicaid/SCHIP. Medicaid and SCHIP agencies and health 
insurance program operators receiving children's free and reduced price 
meal or free milk eligibility information may 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. No 
further disclosure of the information may be made. Medicaid and SCHIP 
agencies and health insurance program operators also may verify 
children's eligibility in a program under the Child Nutrition Act of 
1966 or the Richard B. Russell National School Lunch Act.
    (h) Notifying households of potential uses and disclosures of 
children's eligibility information. Households must be informed that the 
information they provide on the free and reduced price meal or free milk 
application will be used to determine eligibility for free and reduced 
price meals or free milk and that eligibility information may be 
disclosed to other programs.
    (1) For disclosures to programs, other than Medicaid or SCHIP, that 
are permitted access to children's eligibility information, without 
parent/guardian consent, the State agency or local educational agency, 
as appropriate, must notify parents/guardians at the time of application 
that their children's free and reduced price meal or free milk 
eligibility information may be disclosed. The State agency or local 
educational agency, as appropriate, must add substantially the following 
statement to the statement required under paragraph (a)(8)(i) of this 
section, ``We may share your eligibility information with education, 
health, and nutrition programs to help them evaluate, fund, or determine 
benefits for their programs; auditors for program reviews; and law 
enforcement officials to help them look into violations of program 
rules.'' 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.
    (2) For disclosure to Medicaid or SCHIP, the State agency or local 
educational agency, as appropriate, must notify parents/guardians that 
their children's free and reduced price meal or free milk eligibility 
information

[[Page 329]]

will be disclosed to Medicaid and/or SCHIP unless the parent/guardian 
elects not to have their information disclosed. Additionally, the State 
agency or local educational agency, 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 to Medicaid or SCHIP. 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 and 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. The State agency or local educational agency, as 
appropriate, must add substantially the following statement to the 
statement required under paragraph (a)(8)(i) of this section, ``We may 
share your information with Medicaid or the State Children's Health 
Insurance Program, unless you tell us not to. The information, if 
disclosed, will be used to identify eligible children and seek to enroll 
them in Medicaid or SCHIP.'' For children determined eligible through 
direct certification, the notice of potential disclosure and opportunity 
to decline the disclosure may be included in the document informing 
parents/guardians of their children's eligibility for free meal or free 
milk through direct certification.
    (i) Other disclosures. State agencies and local educational agencies 
that plan to use or disclose information about children eligible for 
free or reduced price meals or free milk in ways not specified in this 
section must obtain written consent from the child's parent or guardian 
prior to the use or disclosure. Only a parent or guardian who is a 
member of the child's household for purposes of the free and reduced 
price meal or free milk application may give consent to the disclosure 
of free and reduced price meal eligibility information.
    (1) The consent must identify the information that will be shared 
and how the information will be used.
    (2) The consent statement must be signed and dated by the child's 
parent or guardian who is a member of the household for purposes of the 
free and reduced price meal or free milk application.
    (3) There must be a statement informing parents and guardians that 
failing to sign the consent will not affect the child's eligibility for 
free or reduced price meals or free milk and that the individuals or 
programs receiving the information will not share the information with 
any other entity or program.
    (4) Parents/guardians must be permitted to limit the consent only to 
those programs with which they wish to share information.
    (j) Agreements with programs/individuals receiving children's free 
and reduced price meal or free milk eligibility information. (1) An 
agreement with programs or individuals receiving free and reduced price 
meal or free milk eligibility information is recommended for programs 
other than Medicaid or SCHIP. The agreement or MOU should include 
information similar to that required for disclosures to Medicaid and 
SCHIP specified in paragraph (j)(2) of this section.
    (2) The State agency or school food authorities, 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 meal or 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

[[Page 330]]

must be used to seek to enroll children in Medicaid or SCHIP;
    (iv) Require that the Medicaid or SCHIP agency describe how they 
will use the information obtained;
    (v) Describe how the information will be protected from unauthorized 
uses and disclosures;
    (vi) Describe the penalties for unauthorized disclosure; and
    (vii) Be signed by both the Medicaid or SCHIP program or agency and 
the State agency or child care institution, as appropriate.
    (k) Penalties for unauthorized disclosure or misuse of information. 
In accordance with section 9(b)(6)(C) of the Richard B. Russell National 
School Lunch Act (42 U.S.C. 1758(b)(6)(C)), 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 section will be fined not more than $1,000 or 
imprisoned for up to 1 year, or both.

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

[35 FR 14065, Sept. 4, 1970]

    Editorial Note: For Federal Register citations affecting Sec. 245.6, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 245.6a  Verification requirements.

    (a) Definitions--(1) Eligible programs. For the purposes of this 
section, the following programs qualify as programs for which a case 
number may be provided in lieu of income information and that may be 
used for direct verification purposes:
    (i) SNAP, as defined in 245.2;
    (ii) The Food Distribution Program on Indian Reservations (FDPIR) as 
defined in Sec. 245.2; and
    (iii) A State program funded under the program of block grants to 
States for temporary assistance for needy families (TANF) as defined in 
Sec. 245.2.
    (2) Error prone application. For the purposes of this section, 
``error prone application'' means an approved household application that 
indicates monthly income within $100 or annual income within $1,200 of 
the applicable income eligibility limit for free or for reduced meals.
    (3) Non-response rate. For the purposes of this section, ``non-
response rate'' means the percentage of approved household applications 
for which verification information was not obtained by the local 
educational agency after verification was attempted. The non-response 
rate is reported on the FNS-742 in accordance with paragraph (h) of this 
section.
    (4) Official poverty line. For the purposes of this section, 
``official poverty line'' means that described in section 1902(l)(2)(A) 
of the Social Security Act (42 U.S.C. 1396a(l)(2)(A)).
    (5) Sample size. For the purposes of this section, ``sample size'' 
means the number of approved applications that a local educational 
agency is required to verify based on the number of approved 
applications on file as of October 1 of the current school year.
    (6) School year. For the purposes of this section, a school year 
means a period of 12 calendar months beginning July 1 of any year and 
ending June 30 of the following year.
    (7) Sources of information. For the purposes of this section, 
sources of information for verification may include written evidence, 
collateral contacts, and systems of records as follows:
    (i) 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 local educational agency may require collateral 
contacts.
    (ii) Collateral contacts are verbal confirmations of a household's 
circumstances by a person outside of the household. The collateral 
contact may be made in 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

[[Page 331]]

contact or provide acceptable documentation in another form. If the 
household refuses to 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.
    (iii) Agency records to which the State agency or local educational 
agency may have access are not considered collateral contacts. 
Information concerning income, household size, or SNAP, FDPIR, or TANF 
eligibility, maintained by other government agencies to which the State 
agency, the local educational agency, or school can legally gain access, 
may be used to confirm a household's income, size, or receipt of 
benefits. Information may also be obtained from individuals or agencies 
serving foster, homeless, migrant, or runaway children, as defined in 
Sec. 245.2. Agency records may be used for verification conducted after 
the household has been notified of its selection for verification or for 
the direct verification procedures in paragraph (g) of this section.
    (iv) Households which dispute the validity of income information 
acquired through collateral contacts or a system of records shall be 
given the opportunity to provide other documentation.
    (b) Deadline and extensions for local educational agencies--(1) 
Deadline. The local education agency must complete the verification 
efforts specified in paragraph (c) of this section not later than 
November 15 of each school year.
    (2) Deadline extensions. (i) The local educational agency may 
request an extension of the November 15 deadline, in writing, from the 
State agency. The State agency may approve an extension up to December 
15 of the current school year due to natural disaster, civil disorder, 
strike or other circumstances that prevent the local educational agency 
from timely completion of verification activities.
    (ii) In the case of natural disaster, civil disorder or other local 
conditions, USDA may substitute alternatives for the verification 
deadline in paragraph (b)(1) of this section.
    (3) Beginning verification activities. The local educational agency 
may conduct verification activity once it begins the application 
approval process for the current school year and has approved 
applications on file. However, the final required sample size must be 
based on the number of approved applications on file as of October 1.
    (c) Verification requirement--(1) General. The local educational 
agency must verify eligibility of children in a sample of household 
applications approved for free and reduced price meal benefits for that 
school year.
    (i) A State may, with the written approval of FNS, assume 
responsibility for complying with the verification requirements of this 
section on behalf of its local educational agencies. When assuming such 
responsibility, States may qualify, if approved by FNS, to use one of 
the alternative sample sizes provided for in paragraph (c)(4) of this 
section if qualified under paragraph (d) of this section.
    (ii) An application must be approved if it contains the essential 
documentation specified in the definition of Documentation in Sec. 245.2 
and, if applicable, the household meets the income eligibility criteria 
for free or reduced price benefits. Verification efforts must not delay 
the approval of applications.
    (2) Exceptions from verification. Verification is not required in 
residential child care institutions; in schools in which FNS has 
approved special cash assistance claims based on economic statistics 
regarding per capita income; or in schools in which all children are 
served with no separate charge for food service and no special cash 
assistance is claimed. Local educational agencies 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 if all children in the household are determined eligible 
based on documentation provided by the State or local agency responsible 
for the administration of the SNAP, FDPIR or TANF or if all children in

[[Page 332]]

the household are determined to be foster, homeless, migrant, or 
runaway, as defined in Sec. 245.2.
    (3) Standard sample size. Unless eligible for an alternative sample 
size under paragraph (d) of this section, the sample size for each local 
educational agency shall equal the lesser of:
    (i) Three (3) percent of all applications approved by the local 
educational agency for the school year, as of October 1 of the school 
year, selected from error prone applications; or
    (ii) 3,000 error prone applications approved by the local 
educational agency for the school year, as of October 1 of the school 
year.
    (iii) Local educational agencies shall not exceed the standard 
sample size in paragraphs (c)(3)(i) or (c)(3)(ii) of this section, as 
applicable, and, unless eligible for one of the alternative sample sizes 
provided in paragraph (c)(4) of this section, the local educational 
agency shall not use a smaller sample size than those in paragraphs 
(c)(3)(i) or (c)(3)(ii) of this section, as applicable.
    (iv) If the number of error-prone applications exceeds the required 
sample size, the local educational agency shall select the required 
sample at random, i.e., each application has an equal chance of being 
selected, from the total number of error-prone applications.
    (4) Alternative sample sizes. If eligible under paragraph (d) of 
this section for an alternative sample size, the local educational 
agency may use one of the following alternative sample sizes:
    (i) Alternative One. The sample size shall equal the lesser of:
    (A) 3,000 of all applications selected at random from applications 
approved by the local educational agency as of October 1 of the school 
year; or
    (B) Three (3) percent of all applications selected at random from 
applications approved by the local educational agency as of October 1 of 
the school year.
    (ii) Alternative Two. The sample size shall equal the lesser of the 
sum of:
    (A) 1,000 of all applications approved by the local educational 
agency as of October 1 of the school year, selected from error prone 
applications or
    (B) One (1) percent of all applications approved by the local 
educational agency as of October 1 of the school year, selected from 
error prone applications PLUS
    (C) The lesser of:
    (1) 500 applications approved by the local educational agency as of 
October 1 of the school year that provide a case number in lieu of 
income information showing participation in an eligible program as 
defined in paragraph (a)(1) of this section; or
    (2) One-half (\1/2\) of one (1) percent of applications approved by 
the local educational agency as of October 1 of the school year that 
provide a case number in lieu of income information showing 
participation in an eligible program as defined in paragraph (a)(1) of 
this section.
    (5) Completing the sample size. When there are an insufficient 
number of error prone applications or applications with case number to 
meet the sample sizes provided for in paragraphs (c)(3) or (c)(4) of 
this section, the local educational agency shall select, at random, 
additional approved applications to comply with the specified sample 
size requirements.
    (6) Local conditions. In the case of natural disaster, civil 
disorder, strike or other local conditions as determined by FNS, FNS may 
substitute alternatives for the sample size and sample selection 
criteria in paragraphs (c)(3) and (c)(4) of this section.
    (7) Verification for cause. In addition to the required verification 
sample, local educational agencies must verify any questionable 
application and should, on a case-by-case basis, verify any application 
for cause such as an application on which a household reports zero 
income or when the local educational agency is aware of additional 
income or persons in the household. Any application verified for cause 
is not considered part of the required sample size. If the local 
educational agency verifies a household's application for cause, all 
verification procedures in this section must be followed.
    (d) Eligibility for alternative sample sizes--(1) State agency 
oversight. At a minimum, the State agency shall establish a procedure 
for local educational agencies to designate use of an alternative sample 
size and may set a deadline for such notification. The

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State agency may also establish criteria for reviewing and approving the 
use of an alternative sample size, including deadlines for submissions.
    (2) Lowered non-response rate. Any local educational agency is 
eligible to use one of the alternative sample sizes in paragraph (c)(4) 
of this section for any school year when the non-response rate for the 
preceding school year is less than twenty percent.
    (3) Improved non-response rate. A local educational agency with more 
than 20,000 children approved by application as eligible for free or 
reduced price meals as of October 1 of the school year is eligible to 
use one of the alternative sample sizes in paragraph (c)(4) of this 
section for any school year when the non-response rate for the preceding 
school year is at least ten percent below the non-response rate for the 
second preceding school year.
    (4) Continuing eligibility for alternative sample sizes. The local 
educational agency must annually determine if it is eligible to use one 
of the alternative sample sizes provided in paragraph (c)(4) of this 
section. If qualified, the local educational agency shall contact the 
State agency in accordance with procedures established by the State 
agency under paragraph (d)(1) of this section.
    (e) Activities prior to household notification--(1) Confirmation of 
a household's initial eligibility. (i) Prior to conducting any other 
verification activity, an individual, other than the individual who made 
the initial eligibility determination, shall review for accuracy each 
approved application selected for verification to ensure that the 
initial determination was correct. If the initial determination was 
correct, the local educational agency shall verify the approved 
application. If the initial determination was incorrect, the local 
educational agency must:
    (A) If the eligibility status changes from reduced price to free, 
make the increased benefits immediately available and notify the 
household of the change in benefits; the local educational agency will 
then verify the application;
    (B) If the eligibility status changes from free to reduced price, 
first verify the application and then notify the household of the 
correct eligibility status after verification is completed and, if 
required, send the household a notice of adverse action in accordance 
with paragraph (j) of this section; or
    (C) If the eligibility status changes from free or reduced price to 
paid, send the household a notice of adverse action in accordance with 
paragraph (j) of this section and do not conduct verification on this 
application and select a similar application (for example, another 
error-prone application) to replace it.
    (ii) The requirements in paragraph (e)(1)(i) of this section are 
waived if the local educational agency is using a technology-based 
system that demonstrates a high level of accuracy in processing an 
initial eligibility determination based on the income eligibility 
guidelines for the National School Lunch Program. Any local educational 
agency that conducts a confirmation review of all applications at the 
time of certification meets this requirement. The State agency may 
request documentation to support the accuracy of the local educational 
agency's system. If the State agency determines that the technology-
based system is inadequate, it may require that the local educational 
agency conduct a confirmation review of each application selected for 
verification.
    (2) Replacing applications. The local educational agency may, on a 
case-by-case basis, replace up to five percent of applications selected 
and confirmed for verification. Applications may be replaced when the 
local educational agency determines that the household would be unable 
to satisfactorily respond to the verification request. Any application 
removed shall be replaced with another approved application selected on 
the same basis (i.e., an error-prone application must be substituted for 
a withdrawn error-prone application).
    (f) Verification procedures and assistance for households--(1) 
Notification of selection. Other than households verified through the 
direct verification process in paragraph (g) of this section, households 
selected for verification must be notified in writing that their 
applications were selected for verification. The written statement

[[Page 334]]

must include a telephone number for assistance as required in paragraph 
(f)(5) of this section. Any communications with households concerning 
verification must be in an understandable and uniform format and, to the 
maximum extent practicable, in a language that parents and guardians can 
understand. These households must be advised of the type of information 
or documents the school accepts. Households selected for verification 
must be informed that:
    (i) They are required to submit the requested information to verify 
eligibility for free or reduced-price meals, by the date determined by 
the local educational agency.
    (ii) They may, instead, submit proof that the children receive SNAP, 
FDPIR, or TANF assistance, as explained in paragraph (f)(3) of this 
section.
    (iii) They may, instead, request that the local educational agency 
contact the appropriate officials to confirm that their children are 
foster, homeless, migrant, or runaway, as defined in Sec. 245.2.
    (iv) Failure to cooperate with verification efforts will result in 
the termination of benefits.
    (2) Documentation timeframe. Households selected and notified of 
their selection for verification must provide documentation of income. 
The documentation must indicate the source, amount and frequency of all 
income and can be for any point in time between the month prior to 
application for school meal benefits and the time the household is 
requested to provide income documentation.
    (3) SNAP FDPIR or TANF recipients. On applications where households 
have furnished SNAP or TANF case numbers or FDPIR case numbers or other 
FDPIR identifiers, verification shall be accomplished by confirming with 
the SNAP, FDPIR, or TANF office that at least one child who is eligible 
because a case number was furnished, is a member of a household 
participating in one of the eligible programs in paragraph (a)(1) of 
this section. The household may also provide a copy of ``Notice of 
Eligibility'' for the SNAP, FDPIR or the TANF Program or equivalent 
official documentation issued by the SNAP, FDPIR or TANF office which 
confirms that at least one child who is eligible because a case number 
was provided is a member of a household receiving assistance under the 
SNAP, FDPIR or the TANF program. An identification card for these 
programs is not acceptable as verification unless it contains an 
expiration date. If it is not established that at least one child is a 
member of a household receiving assistance under the SNAP, FDPIR or the 
TANF program (in accordance with the timeframe in paragraph (f)(2) of 
this section), the procedures for adverse action specified in paragraph 
(j) of this section must be followed.
    (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 paragraph (j) of this section. 
Households which refuse to complete the verification process and which 
are consequently determined ineligible for such benefits shall be 
counted toward meeting the local educational agency's required sample of 
verified applications.
    (5) Telephone assistance. The local educational agency shall provide 
a telephone number to households selected for verification to call free 
of charge to obtain information about the verification process. The 
telephone number must be prominently displayed on the letter to 
households selected for verification.
    (6) Followup attempts. The local educational agency shall make at 
least one attempt to contact any household that does not respond to a 
verification request. The attempt may be through a telephone call, e-
mail, mail or in person and must be documented by the local educational 
agency. Non-response to the initial request for verification includes no 
response and incomplete or ambiguous responses that do not permit the 
local educational agency to resolve the children's eligibility for free 
or reduced price meal and milk benefits. The local educational agency 
may contract with another entity to conduct followup activity in 
accordance with Sec. 210.21 of this chapter, the use and disclosure of 
information requirements of the Richard B. Russell National School Lunch 
Act and this section.

[[Page 335]]

    (7) Eligibility changes. Based on the verification activities, the 
local educational agency shall make appropriate modifications to the 
eligibility determinations made initially. The local educational agency 
must notify the household of any change. Households must be notified of 
any reduction in benefits in accordance with paragraph (j) of this 
section. Households with reduced benefits or that are longer eligible 
for free or reduced price meals must be notified of their right to 
reapply at any time with documentation of income or participation in one 
of the eligible programs in paragraph (a)(1) of this section.
    (g) Direct verification. Local educational agencies may conduct 
direct verification activities with the eligible programs defined in 
paragraph (a)(1) of this section and with the public agency that 
administers the State plan for medical assistance under title XIX of the 
Social Security Act (42 U.S.C. 1396 et seq.), (Medicaid), and under 
title XXI of the Social Security Act (42 U.S.C. 1397aa et seq.), the 
State Children's Health Insurance Program (SCHIP) as defined in 
Sec. 245.2. Records from the public agency may be used to verify income 
and program participation. The public agency's records are subject to 
the timeframe in paragraph (g)(5) of this section. Direct verification 
must be conducted prior to contacting the household for documentation.
    (1) Names submitted. The local educational agency must only submit 
the names of school children certified for free or reduced price meal 
benefits or free milk to the agency administering an eligible program, 
the Medicaid program or the SCHIP program. Names and other identifiers 
of adult or non-school children must not be submitted for direct 
verification purposes.
    (2) Eligible programs. If information obtained through direct 
verification of an application for free or reduced price meal benefits 
indicates a child is participating in one of the eligible programs in 
paragraph (a)(1) of this section, no additional verification is 
required.
    (3) States with Medicaid Income Limits of 133%. In States in which 
the income eligibility limit applied in the Medicaid program or in SCHIP 
is not more than 133% of the official poverty line or in States that 
otherwise identify households that have income that is not more than 
133% of the official poverty line, records from these agencies may be 
used to verify eligibility. If information obtained through direct 
verification with these programs verifies the household's eligibility 
status, no additional verification is required.
    (4) States with Medicaid Income Limits between 133%-185%. In States 
in which the income eligibility limit applied in the Medicaid program or 
in SCHIP exceeds 133% of the official poverty line, direct verification 
information must include either the percentage of the official poverty 
line upon which the applicant's Medicaid participation is based or 
Medicaid income and Medicaid household size in order to determine that 
the applicant is either at or below 133% of the Federal poverty line, or 
is between 133% and 185% of the Federal poverty line. Verification for 
children approved for free meals is complete if Medicaid data indicates 
that the percentage is at or below 133% of the Federal poverty line. 
Verification for children approved for reduced price meals is complete 
if Medicaid data indicates that the percentage is at or below 185% of 
the Federal poverty line. If information obtained through direct 
verification with these programs verifies eligibility status, no 
additional verification is required.
    (5) Documentation timeframe. For the purposes of direct 
verification, documentation must be the most recent available but such 
documentation must indicate eligibility for participation or income 
within the 180-day period ending on the date of application. In 
addition, local educational agencies may use documentation, which must 
be within the 180-day period ending on the date of application, for any 
one month or for all months in the period from the month prior to 
application through the month direct verification is conducted. The 
information provided only needs to indicate eligibility for 
participation in the program at that point in time, not that the child 
was certified for that program's benefits within the 180-day period.

[[Page 336]]

    (6) Incomplete information. If it is the information provided by the 
public agency does not verify eligibility, the local educational agency 
must conduct verification in accordance with paragraph (f) of this 
section. In addition, households must be able to dispute the validity of 
income information acquired through direct verification and shall be 
given the opportunity to provide other documentation.
    (h) Verification reporting and recordkeeping requirements. By 
February 1, each local educational agency must report information 
related to its annual statutorily required verification activity, which 
excludes verification conducted in accordance with paragraph (c)(7) of 
this section, 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 local educational agency 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 local educational 
agencies, as long as all required data elements are collected from each 
local educational agency. Local educational agencies 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 local 
educational agency must be retained. Local educational agencies are 
encouraged to collect and report any or all verification data elements 
before the required dates.
    (i) Nondiscrimination. The verification efforts shall be applied 
without regard to race, sex, color, national origin, age, or disability.
    (j) 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 local 
educational agencyshall 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 local educational agency.

(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; 72 FR 63795, Nov. 13, 2007; 73 FR 76859, Dec. 18, 2008; 76 FR 
22802, Apr. 25, 2011; 78 FR 12230, Feb. 22, 2013; 78 FR 13453, Feb. 28, 
2013]



Sec. 245.7  Hearing procedure for families and local educational
agencies.

    (a) Each local educational agency of a school participating in the 
National School Lunch Program, School Breakfast Program or the Special 
Milk Program or of a commodity only school shall establish a hearing 
procedure under which:
    (1) A family can appeal from a decision made by the local 
educational agency with respect to an application the family has made 
for free or reduced price meals or for free milk, and
    (2) The local educational agency can challenge the continued 
eligibility of any child for a free or reduced price

[[Page 337]]

meal or for free milk. The hearing procedure shall provide for both the 
family and the local educational agency:
    (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; 72 FR 63796, Nov. 13, 2007]



Sec. 245.8  Nondiscrimination practices for children eligible to
receive free and reduced price meals and free milk.

    School Food Authorities and local educational agencies 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;
    (e) When more than one lunch or breakfast or type of milk is offered 
which meets the requirements prescribed in Sec. 210.10, Sec. 220.8 or 
the definition of Milk in Sec. 215.2 of this chapter, the children shall 
have the same choice of meals or milk that is available to

[[Page 338]]

those children who pay the full price for their meal or milk.

[Amdt. 6, 39 FR 30339, Aug. 22, 1974, as amended at 72 FR 63796, Nov. 
13, 2007]



Sec. 245.9  Special assistance certification and reimbursement
alternatives.

    (a) Provision 1. A Local educational agency 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 Local educational agency 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 Local educational agency 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 local educational agency 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 Secs. 245.5 and 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 local educational agency 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, local educational agencies 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 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,

[[Page 339]]

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) Local educational agency claims review process. During the 
Provision 2 base year (not including a streamlined base year under 
paragraph (c)(2)(iii) of this section), local educational agencies 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, local educational 
agencies must compare each Provision 2 school's total daily meal counts 
to the school's total enrollment, adjusted by an attendance factor. The 
local educational agency 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, local educational 
agencies 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), local educational agencies 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 local 
educational agency'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 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.

[[Page 340]]

    (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 local 
educational agency 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. Local educational agencies 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 local 
educational agencies 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 SNAP 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 local educational 
agency 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 local educational agency 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 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

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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 (m) 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 (m) 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 local educational agency 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 local educational agency of a school 
participating in 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.

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    (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 (h) of this section. State 
agencies may require the submission of the meal counts on the local 
educational agency's monthly Claim for Reimbursement or through other 
means. In addition, local educational agencies 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 local educational agency 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 local educational agency 
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 effect payment of reimbursement for Provision 3 
schools.
    (6) Local educational agency claims review process. During the 
Provision 3 base year (not including a streamlined base year under 
paragraph (e)(2)(iii) of

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this section), local educational agencies 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, local educational agencies 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 
local educational agency 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, local educational 
agencies 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), local educational agencies 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 local educational 
agency'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 local educational agency 
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. Local educational agencies 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 local 
educational agencies 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 SNAP 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 local educational agency 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 local educational agency 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 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.

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    (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 (m) 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 (m) 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) Community eligibility. The community eligibility provision is an 
alternative reimbursement option for eligible high poverty local 
educational agencies. Each CEP cycle lasts up to four years before the 
LEA or school is required to recalculate their reimbursement rate. LEAs 
and schools have the option to recalculate sooner, if desired. A local 
educational agency may elect this provision for all of its schools, a 
group of schools, or an individual school. Participating local 
educational agencies must offer free breakfasts and lunches for the 
length of their CEP cycle, not to exceed four successive years, to all 
children attending participating schools and receive meal reimbursement 
based on claiming

[[Page 345]]

percentages, as described in paragraph (f)(4)(v) of this section.
    (1) Definitions. For the purposes of this paragraph,
    (i) Enrolled students means students who are enrolled in and 
attending schools participating in the community eligibility provision 
and who have access to at least one meal service (breakfast or lunch) 
daily.
    (ii) Identified students means students with access to at least one 
meal service who are not subject to verification as prescribed in 
Sec. 245.6a(c)(2). Identified students are students approved for free 
meals based on documentation of their receipt of benefits from SNAP, 
TANF, the Food Distribution Program on Indian Reservations, or Medicaid 
where applicable (where approved by USDA to conduct matching with 
Medicaid data to identify children eligible for free meals). The term 
identified students also includes homeless children, migrant children, 
runaway children, or Head Start children (approved for free school meals 
without application and not subject to verification), as these terms are 
defined in Sec. 245.2. In addition, the term includes foster children 
certified for free meals through means other than an application for 
free and reduced price school meals. The term does not include students 
who are categorically eligible based on submission of an application for 
free and reduced price school meals.
    (iii) Identified student percentage means a percentage determined by 
dividing the number of identified students as of a specified period of 
time by the number of enrolled students as defined in paragraph 
(f)(1)(i) of this section as of the same period of time and multiplying 
the quotient by 100. The identified student percentage may be determined 
by an individual participating school, a group of participating schools 
in the local educational agency, or in the aggregate for the entire 
local educational agency if all schools participate, following 
procedures established in FNS guidance.
    (2) Implementation. A local educational agency may elect the 
community eligibility provision for all schools, a group of schools, or 
an individual school. Community eligibility may be implemented for one 
or more 4-year cycles.
    (3) Eligibility criteria. To be eligible to participate in the 
community eligibility provision, a local educational agency (except a 
residential child care institution, as defined under the definition of 
``School'' in Sec. 210.2), group of schools, or school must meet the 
eligibility criteria set forth in this paragraph.
    (i) Minimum identified student percentage. A local educational 
agency, group of schools, or school must have an identified student 
percentage of at least 40 percent, as of April 1 of the school year 
prior to participating in the community eligibility provision, unless 
otherwise specified by FNS. Individual schools participating in a group 
may have less than 40 percent identified students, provided that the 
average identified student percentage for the group is at least 40 
percent.
    (ii) Lunch and breakfast program participation. A local educational 
agency, group of schools, or school must participate in the National 
School Lunch Program and School Breakfast Program, under parts 210 and 
220 of this title, for the duration of the 4-year cycle. Schools that 
operate on a limited schedule, where it is not operationally feasible to 
offer both lunch and breakfast, may elect CEP with FNS approval.
    (iii) Compliance. A local educational agency, group of schools, or 
school must comply with the procedures and requirements specified in 
paragraph (f)(4) of this section to participate in the community 
eligibility provision.
    (4) Community eligibility provision procedures--(i) Election 
documentation and deadline. A local educational agency, group of 
schools, or school that intends to elect the community eligibility 
provision for the following year for one or more schools must submit to 
the State agency documentation demonstrating the LEA, group of schools, 
or school meets the identified student percentage, as specified under 
paragraph (f)(3)(i) of this section. Such documentation must be 
submitted no later than June 30 and must include, at a minimum, the 
counts of identified students and enrolled students as of April

[[Page 346]]

1 of the school year prior to CEP implementation.
    (ii) State agency review of election documentation. The State agency 
must review the identified student percentage documentation submitted by 
the local educational agency to confirm that the local educational 
agency, group of schools, or school meets the minimum identified student 
percentage, participates in the National School Lunch Program and School 
Breakfast Program, and has a record of administering the meal program in 
accordance with program regulations, as indicated by the most recent 
administrative review.
    (iii) Meals at no cost. A local educational agency must ensure 
participating schools offer reimbursable breakfasts and lunches at no 
cost to all students attending participating schools during the 4-year 
cycle, and count the number of reimbursable breakfasts and lunches 
served to students daily.
    (iv) Household applications. A local educational agency, group of 
schools, or school must not collect applications for free and reduced 
price school meals on behalf of children in schools participating in the 
community eligibility provision. Any local educational agency seeking to 
obtain socioeconomic data from children receiving free meals under this 
section must develop, conduct, and fund this effort entirely separate 
from, and not under the auspices of, the National School Lunch Program 
or School Breakfast Program.
    (v) Free and paid claiming percentages. Reimbursement is based on 
free and paid claiming percentages applied to the total number of 
reimbursable lunches and breakfasts served each month, respectively. 
Reduced price students are accounted for in the free claiming 
percentage, eliminating the need for a separate percentage.
    (A) To determine the free claiming percentage, multiply the 
applicable identified student percentage by a factor of 1.6. The product 
of this calculation may not exceed 100 percent. The difference between 
the free claiming percentage and 100 percent represents the paid 
claiming percentage. The applicable identified student percentage means:
    (1) In the first year of participation in the community eligibility 
provision, the identified student percentage as of April 1 of the prior 
school year.
    (2) In the second, third, and fourth year of the 4-year cycle, LEAs 
may choose the higher of the identified student percentage as of April 1 
of the prior school year or the identified student percentage as of 
April 1 of the year prior to the current 4-year cycle. LEAs and schools 
may begin a new 4-year cycle with a higher identified student percentage 
based on data as of the most recent April 1, as specified in paragraph 
(viii).
    (B) To determine the number of lunches to claim for reimbursement, 
multiply the free claiming percentage as described in this paragraph by 
the total number of reimbursable lunches served to determine the number 
of free lunches to claim for reimbursement. The paid claiming percentage 
is multiplied by the total number of reimbursable lunches served to 
determine the number of paid lunches to claim for reimbursement. In the 
breakfast meal service, the free and paid claiming percentages are 
multiplied by the total number of reimbursable breakfasts served to 
determine the number of free and paid breakfasts to claim for 
reimbursement. For any claim, if the total number of meals claimed for 
free and paid reimbursement does not equal the total number of meals 
served, the paid category must be adjusted so that all served meals are 
claimed for reimbursement.
    (vi) Multiplier factor. A 1.6 multiplier must be used for an entire 
4-year cycle to calculate the percentage of lunches and breakfasts to be 
claimed at the Federal free rate.
    (vii) Cost differential. If there is a difference between the cost 
of serving lunches and breakfasts at no cost to all participating 
children and the Federal assistance provided, the local educational 
agency must pay such difference with non-Federal sources of funds. 
Expenditure of additional non-federal funds is not required if all 
operating costs are covered by the Federal assistance provided.
    (viii) New 4-year cycle. To begin a new 4-year cycle, local 
educational agencies

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or schools must establish a new identified student percentage as of 
April 1 prior to the 4-year cycle. If the local educational agency, 
group of schools, or school meet the eligibility criteria set forth in 
paragraph (f)(3) of this section, a new 4-year cycle may begin.
    (ix) Grace year. A local educational agency, group of schools, or 
school with an identified student percentage of less than 40 percent but 
equal to or greater than 30 percent as of April 1 of the fourth year of 
a community eligibility cycle may continue using community eligibility 
for a grace year that continues the 4-year cycle for one additional, or 
fifth, year. If the local educational agency, group of schools, or 
school regains the 40 percent threshold as of April 1 of the grace year, 
the State agency may authorize a new 4-year cycle for the following 
school year. If the local educational agency, group of schools, or 
school does not regain the required threshold as of April 1 of the grace 
year, they must return to collecting household applications in the 
following school year in accordance with paragraph (j) of this section. 
Reimbursement in a grace year is determined by multiplying the 
identified student percentage at the local educational agency, group of 
schools, or school as of April 1 of the fourth year of the 4-year CEP 
cycle by the 1.6 multiplier.
    (5) Identification of potential community eligibility schools. No 
later than April 15 of each school year, each local educational agency 
must submit to the State agency a list(s) of schools as described in 
this paragraph. The State agency may exempt local educational agencies 
from this requirement if the State agency already collects the required 
information. The list(s) must include:
    (i) Schools with an identified student percentage of at least 40 
percent;
    (ii) Schools with an identified student percentage that is less than 
40 percent but greater than or equal to 30 percent; and
    (iii) Schools currently in year 4 of the community eligibility 
provision with an identified student percentage that is less than 40 
percent but greater than or equal to 30 percent.
    (6) State agency notification requirements. No later than April 15 
of each school year, the State agency must notify the local educational 
agencies described in this paragraph about their community eligibility 
status. Each State agency must notify:
    (i) Local educational agencies with an identified student percentage 
of at least 40 percent district wide, of the potential to participate in 
community eligibility in the subsequent year; the estimated cash 
assistance the local educational agency would receive; and the 
procedures to participate in community eligibility.
    (ii) Local educational agencies with an identified student 
percentage that is less than 40 percent district wide but greater than 
or equal to 30 percent, that they may be eligible to participate in 
community eligibility in the subsequent year if they meet the 
eligibility requirements set forth in paragraph (f)(3) of this section 
as of April 1.
    (iii) Local educational agencies currently using community 
eligibility district wide, of the options available in establishing 
claiming percentages for next school year.
    (iv) Local educational agencies currently in year 4 with an 
identified student percentage district wide that is less than 40 percent 
but greater than or equal to 30 percent, of the grace year eligibility.
    (7) Public notification requirements. By May 1 of each school year, 
the State agency must make the following information readily accessible 
on its Web site in a format prescribed by FNS:
    (i) The names of schools identified in paragraph (f)(5) of this 
section, grouped as follows: Schools with an identified student 
percentage of least 40 percent, schools with an identified student 
percentage of less than 40 percent but greater than or equal to 30 
percent, and schools currently in year 4 of the community eligibility 
provision with an identified student percentage that is less than 40 
percent but greater than or equal to 30 percent.
    (ii) The names of local educational agencies receiving State agency 
notification as required under paragraph (f)(6) of this section, grouped 
as follows: Local educational agencies with an identified student 
percentage of at

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least 40 percent district wide, local educational agencies with an 
identified student percentage that is less than 40 percent district wide 
but greater than or equal to 30 percent, local educational agencies 
currently using community eligibility district wide, and local 
educational agencies currently in year 4 with an identified student 
percentage district wide that is less than 40 percent but greater than 
or equal to 30 percent.
    (iii) The State agency must maintain eligibility lists as described 
in paragraphs (i) and (ii) of this section until such time as new lists 
are made available annually by May 1.
    (8) Notification data. For purposes of fulfilling the requirements 
in paragraphs (f)(5) and (6) of this section, the State agency must:
    (i) Obtain data representative of the current school year, and
    (ii) Use the identified student percentage as defined in paragraph 
(f)(1) of this section. If school-specific identified student percentage 
data are not readily available by school, use direct certifications as a 
percentage of enrolled students, i.e., the percentage derived by 
dividing the number of students directly certified under Sec. 245.6(b) 
by the number of enrolled students as defined in paragraph (f)(1) as an 
indicator of potential eligibility. If direct certification data are 
used, the State agency must clearly indicate that the data provided does 
not fully reflect the number of identified students.
    (iii) If data are not as of April 1 of the current school year, 
ensure the data includes a notation that the data are intended for 
informational purposes and do not confer eligibility for community 
eligibility. Local educational agencies must meet the eligibility 
requirements specified in paragraph (f)(3) of this section to 
participate in community eligibility.
    (9) Other uses of the free claiming percentage. For purposes of 
determining a school's or site's eligibility to participate in a Child 
Nutrition Program, a community eligibility provision school's free 
claiming percentage, i.e., the product of the school's identified 
student percentage multiplied by 1.6, serves as a proxy for free and 
reduced price certification data.
    (g) Policy statement requirement. A local educational agency that 
elects to participate in the special assistance provisions or the 
community eligibility provision set forth in this section must:
    (1) Amend its Free and Reduced Price Policy Statement, specified in 
Sec. 245.10 of this part, to include a list of all schools participating 
in each of the special assistance provisions specified in this section. 
The following information must also be included for each school:
    (i) The initial school year of implementing the special assistance 
provision;
    (ii) The school years the cycle is expected to remain in effect;
    (iii) The school year the special assistance provision must be 
reconsidered; and
    (iv) The available and approved data that will be used in 
reconsideration, as applicable.
    (2) Certify that the school(s) meet the criteria for participating 
in each of the special assistance provisions, as specified in paragraphs 
(a), (b), (c), (d), (e) or (f) of this section, as appropriate.
    (h) Recordkeeping. Local educational agencies that elect to 
participate in the special assistance provisions set forth in this 
section must retain implementation records for each of the participating 
schools. Failure to maintain sufficient records will result in the State 
agency requiring the school to return to standard meal counting and 
claiming procedures and/or fiscal action. Recordkeeping requirements 
include, as applicable:
    (1) Base year records. A local educational agency shall ensure that 
records as specified in Secs. 210.15(b) and 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. Local educational agencies that conduct a 
streamlined base year

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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. Local educational agencies 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 local educational agency 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 local 
educational agency 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 local 
educational agency 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.
    (3) Records for the community eligibility provision. Local 
educational agencies must ensure records are maintained, including: data 
used to calculate the identified student percentage, annual selection of 
the identified student percentage, total number of breakfasts and 
lunches served daily, percentages used to claim meal reimbursement, non-
Federal funding sources used to cover any excess meal costs, and school-
level information provided to the State agency for publication, if 
applicable. Documentation must be made available at any reasonable time 
for review and audit purposes. Such records shall be retained during the 
period the community eligibility provision is in effect, including all 
extensions, plus three fiscal years after the submission of the last 
Claim for Reimbursement which was based on the data. In any case, if 
audit findings have not been resolved, these records must be retained 
beyond the three-year period as long as required for the resolution of 
the issues raised by the audit.
    (i) Availability of documentation. Upon request, the local 
educational agency must make documentation available for review or audit 
to document compliance with the requirements of this section. Depending 
on the certification or reimbursement alternative used, such 
documentation includes, but is not limited to, enrollment data, 
participation data, identified student percentages, available and 
approved socioeconomic data that was used to grant an extension, if 
applicable, or other data. In addition, upon request from FNS, local 
educational agencies under Provision 2 or Provision 3, or State agencies 
must submit to FNS all data and documentation used in granting 
extensions including documentation as specified in paragraphs (c) and 
(e) of this section. Data used to establish a new cycle for the 
community eligibility provision must also be available for review.
    (j) Restoring standard meal counting and claiming. Under Provisions 
1, 2, or 3 or community eligibility provision, a local educational 
agency may restore a school to standard notification, certification, and 
counting and claiming procedures at any time during the school year or 
for the following school year if

[[Page 350]]

standard procedures better suit the school's program needs. If standard 
procedures are restored during a school year, the local educational 
agency must offer all students reimbursable, free meals for a period of 
at least 30 operating days following the date of restoration of standard 
procedures or until a new eligibility determination is made, whichever 
comes first. Prior to the change taking place, but no later than June 
30, the local educational agency must:
    (1) Notify the State agency of the intention to stop participating 
in a special assistance certification and reimbursement alternative 
under this section and seek State agency guidance and review regarding 
the restoration of standard operating procedures.
    (2) Notify the public and meet the certification and verification 
requirements of Secs. 245.6 and 245.6a in affected schools.
    (k) Puerto Rico and Virgin Islands. A local educational agency in 
Puerto Rico and the Virgin Islands, where a statistical survey procedure 
is permitted in lieu of eligibility determinations for each child, may: 
Maintain their standard procedures in accordance with Sec. 245.4, select 
Provision 2 or Provision 3, or elect the community eligibility provision 
provided the applicable eligibility requirements as set forth in 
paragraphs (a) through (f) of this section are met. For the community 
eligibility provision, current direct certification data must be 
available to determine the identified student percentage.
    (l) Transferring eligibility for free meals during the school year. 
For student transfers during the school year within a local educational 
agency, a student's access to free, reimbursable meals under the special 
assistance certification and reimbursement alternatives specified in 
this section must be extended by a receiving school using standard 
counting and claiming procedures for up to 10 operating school days or 
until a new eligibility determination for the current school year is 
made, whichever comes first. For student transfers between local 
educational agencies, this requirement applies not later than July 1, 
2019. At the State agency's discretion, students who transfer within or 
between local educational agencies may be offered free reimbursable 
meals for up to 30 operating days or until a new eligibility 
determination for the current school year is made, whichever comes 
first.
    (m) 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;

[[Page 351]]

    (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; 76 FR 22802, Apr. 25, 
2011; 81 FR 50206, July 29, 2016]



Sec. 245.10  Action by local educational agencies.

    (a) Each local educational agencyof 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 local educational 
agency 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 free and reduced price benefits the local educational 
agency 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 local educational agency will use in 
accepting applications from families for free and reduced price meals or 
for free milk. Additionally, the local educational agency must include 
the specific procedures it will use for obtaining documentation for 
determining children's eligibility through direct certification, in lieu 
of an application. Local educational agencies shall also provide 
households that are directly certified with a notice of eligibility, as 
specified in Sec. 245.6(c)(2) and shall include in their policy 
statement a copy of such notice.
    (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 local educational agency 
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 local educational agency 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 local educational agency 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 local educational agency'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 local 
educational agency's free and reduced price policy statement has been 
approved by the State agency, or FNSRO where applicable. Once the local 
educational agency's free and reduced price policy statement has been 
approved, reimbursement may be allowed, at the discretion of the State

[[Page 352]]

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 local educational agency to the State agency, or FNSRO 
where applicable, is determined to be not in compliance with the 
provisions of this part, the local educational agency 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 local educational agency'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 local educational 
agency 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 local 
educational agency'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 local educational 
agency's free and reduced price policy statement has been approved by 
the State agency, 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 local educational agency'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; 
Amdt. 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; 72 FR 63796, Nov. 13, 2007; 76 FR 22802, Apr. 25, 2011]



Sec. 245.11  Second review of applications.

    (a) General. On an annual basis not later than the end of each 
school year, State agencies must identify local educational agencies 
demonstrating a high level of, or risk for, administrative error 
associated with certification processes and notify the affected local 
educational agencies that they must conduct a second review of 
applications beginning in the following school year. The second review 
of applications must be completed prior to notifying the household of 
the eligibility or ineligibility of the household for free or reduced 
price meals.
    (b) State agency requirements--(1) Selection criteria. Local 
educational agencies subject to a second review must include:
    (i) Administrative review certification errors. All local 
educational agencies with 10 percent or more of the certification/
benefit issuances in error, as determined by the State agency during an 
administrative review; and
    (ii) State agency discretion. Local educational agencies not 
selected under paragraph (b)(1)(i) that are at risk for certification 
error, as determined by the State agency.
    (2) Reporting requirement. Beginning March 15, 2015, and every March 
15 thereafter, each State agency must submit a report, as specified by 
FNS, describing the results of the second reviews conducted by each 
local educational agency in their State. The report must provide 
information about applications reviewed in each local educational agency 
and include:
    (i) The number of free and reduced price applications subject to a 
second review;

[[Page 353]]

    (ii) The number of reviewed applications for which the eligibility 
determination was changed;
    (iii) The percentage of reviewed applications for which the 
eligibility determination was changed; and
    (iv) A summary of the types of changes that were made.
    (3) State agencies must provide technical assistance to ameliorate 
certification related problems at local educational agencies determined 
to be at risk for certification.
    (c) Local educational agency requirements. Beginning July 1, 2014, 
and each July 1 thereafter, local educational agencies selected by the 
State agency to conduct a second review of applications must ensure that 
the initial eligibility determination for each application is reviewed 
for accuracy prior to notifying the household of the eligibility or 
ineligibility of the household for free and reduced price meals. The 
second review must be conducted by an individual or entity who did not 
make the initial determination. This individual or entity is not 
required to be an employee of the local educational agency but must be 
trained on how to make application determinations. All individuals or 
entities who conduct a second review of applications are subject to the 
disclosure requirements set forth in Sec. 245.6(f) through (k).
    (1) Timeframes. The second review of initial determinations must be 
completed by the local educational agency in a timely manner and must 
not result in a delay in notifying the household, as set forth in 
Sec. 245.6(c)(6)(i).
    (2) Duration of requirement to conduct a second review of 
applications. Selected local educational agencies must conduct a second 
review of applications annually until the State agency determines that 
local educational agency-provided documentation provided in accordance 
with paragraph (c)(3) of this section or data obtained by the State 
agency during an administrative review, demonstrates that no more than 5 
percent of reviewed applications required a change in eligibility 
determination.
    (3) Reporting requirement. Each local educational agency required to 
conduct a second review of applications must annually submit to the 
State agency, on a date established by the State agency, the following 
information as of October 31st:
    (i) The number of free and reduced price applications subject to a 
second review;
    (ii) The number of reviewed applications for which the eligibility 
determination was changed;
    (iii) The percentage of reviewed applications for which the 
eligibility determination was changed; and
    (iv) A summary of the types of changes that were made.

[79 FR 7054, Feb. 6, 2014]



Sec. 245.12  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 local educational agency as defined in 
Sec. 245.2 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

[[Page 354]]

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 
local educational agencies 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 
local educational agencies 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 local educational agency 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 local educational agencies and of schools in fulfilling 
the requirements of this part, and shall advise local educational 
agencies 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 
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;

[[Page 355]]

    (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 SNAP/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 
Secs. 210.19(a)(4) and 220.13(k) of this chapter.
    (i) No later than February 1, 2013, and by February 1st each year 
thereafter, each State agency must collect annual verification data from 
each local educational agency as described in Sec. 245.6a(h) 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 March 15, 2013, and by 
March 15th each year thereafter, each State agency must report to FNS, 
in a consolidated electronic file by local educational agency, the 
verification information that has been reported to it as required under 
Sec. 245.6a(h), as well as any ameliorative actions the State agency has 
taken or intends to take in local educational agencies with high levels 
of applications changed due to verification. 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. Redesignated at 79 FR 7054, Feb. 6, 2014]

    Editorial Note: For Federal Register citations affecting 
Sec. 245.12, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 245.13  State agencies and direct certification requirements.

    (a) Direct certification requirements. State agencies are required 
to meet the direct certification performance benchmarks set forth in 
paragraph (b) of this section for directly certifying children who are 
members of households receiving assistance under SNAP. A State agency 
that fails to meet the benchmark must develop and submit to FNS a 
continuous improvement plan (CIP) to fully meet the requirements of this 
paragraph and to improve direct certification for the following school 
year in accordance with the provisions in paragraphs (e), (f), and (g) 
of this section.
    (b) Direct certification performance benchmarks. State agencies must 
meet performance benchmarks for directly certifying for free school 
meals children who are members of households receiving assistance under 
SNAP. The performance benchmarks are as follows:
    (1) 80% for the school year beginning July 1, 2011;
    (2) 90% for the school year beginning July 1, 2012; and
    (3) 95% for the school year beginning July 1, 2013, and for each 
school year thereafter.
    (c) Data elements required for direct certification rate 
calculation. Each State agency must provide FNS with specific data 
elements each year, as follows:
    (1) Data Element 1--The number of children who are members of 
households receiving assistance under SNAP that are directly certified 
for free

[[Page 356]]

school meals as of the last operating day in October, collected and 
reported in the same manner and timeframes as specified in 
Sec. 245.11(i).
    (2) Data Element 2--The unduplicated count of children ages 5 to 17 
years old who are members of households receiving assistance under SNAP 
at any time during the period July 1 through September 30. This data 
element must be provided by the SNAP State agency, as required under 7 
CFR 272.8(a)(5), and reported to FNS and to the State agency 
administering the NSLP in the State by December 1st each year, in 
accordance with guidelines provided by FNS.
    (3) Data Element 3--The count of the number of children who are 
members of households receiving assistance under SNAP who attend a 
school operating under the provisions of 7 CFR 245.9 in a year other 
than the base year or that is exercising the community eligibility 
provision (CEP). The proxy for this data element must be established 
each school year through the State's data matching efforts between SNAP 
records and student enrollment records for these special provision 
schools that are operating in a non-base year or that are exercising the 
CEP. Such matching efforts must occur in or close to October each year, 
but no later than the last operating day in October. However, States 
that have special provision schools exercising the CEP may alternatively 
choose to include, for these schools, the count from the SNAP match 
conducted as of April 1 of the same calendar year, whether or not it was 
used in the CEP claiming percentages. State agencies must report this 
aggregated data element to FNS by December 1 each year, in accordance 
with guidelines provided by FNS.
    (d) State notification. For each school year, FNS will notify State 
agencies that fail to meet the direct certification performance 
benchmark.
    (e) Continuous improvement plan required. A State agency having a 
direct certification rate with SNAP that is less than the direct 
certification performance benchmarks set forth in paragraph (b) of this 
section must submit to FNS for approval, within 90 days of notification, 
a CIP in accordance with paragraph (f) of this section.
    (f) Continuous improvement plan required components. CIPs must 
include, at a minimum:
    (1) The specific measures that the State will use to identify more 
children who are eligible for direct certification, including 
improvements or modifications to technology, information systems, or 
databases;
    (2) A multiyear timeline for the State to implement these measures;
    (3) Goals for the State to improve direct certification results for 
the following school year; and
    (4) Information about the State's progress toward implementing other 
direct certification requirements, as provided in FNS guidance.
    (g) Continuous improvement plan implementation. A State must 
maintain its CIP and implement it according to the timeframes in the 
approved plan.

[78 FR 12230, Feb. 22, 2013. Redesignated at 79 FR 7054, Feb. 6, 2014; 
81 FR 50210, July 29, 2016]



Sec. 245.14  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. Redesignated at 78 FR 12230, Feb. 22, 2013, and further 
redesignated at 79 FR 7054, Feb. 6, 2014]

[[Page 357]]



Sec. 245.15  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
------------------------------------------------------------------------


[72 FR 68985, Dec. 6, 2007, as amended at 73 FR 11312, Mar. 3, 2008. 
Redesignated at 78 FR 12230, Feb. 22, 2013, and further redesignated at 
79 FR 7054, Feb. 6, 2014]



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 methods.
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 and authorized foods 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: Nomenclature changes to part 246 appear at 76 FR 
35097, June 16, 2011.



                            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, 
including breastfeeding promotion and support, 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 
SNAP; any program under which foods are distributed to needy families in 
lieu of SNAP benefits; and receipt of food or meals from

[[Page 358]]

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; 76 FR 59888, Sept. 28, 2011]



Sec. 246.2  Definitions.

    For the purpose of this part and all contracts, guidelines, 
instructions, forms and other documents related hereto, the term:
    2 CFR part 200, means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C) does not apply to the National School Lunch 
Program).
    Above-50-percent vendors means vendors that derive more than 50 
percent of their annual food sales revenue from WIC food instruments, 
and new vendor applicants expected to meet this criterion under 
guidelines approved by FNS.
    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.
    Cash-value voucher means a fixed-dollar amount check, voucher, 
electronic benefit transfer (EBT) card or other document which is used 
by a participant to obtain authorized fruits and vegetables. Cash-value 
voucher is also known as cash-value benefit (CVB) in an EBT environment.
    Categorical eligibility means persons who meet the definitions of 
pregnant women, breastfeeding women, postpartum women, or infants or 
children.
    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

[[Page 359]]

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 or cash-value vouchers, 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.
    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.
    EBT Capable means the WIC vendor demonstrates their cash register 
system or payment device can accurately and securely obtain WIC food 
balances associated with an EBT card, maintain the necessary files such 
as the authorized product list, hot card file and claim file and 
successfully complete WIC EBT purchases.
    Electronic Benefit Transfer (EBT) means a method that permits 
electronic access to WIC food benefits using a card or other access 
device approved by the Secretary.
    Electronic signature means an electronic sound, symbol, or process, 
attached to or associated with an application or other record and 
executed

[[Page 360]]

and or adopted by a person with the intent to sign the record.
    Employee fraud and abuse means the intentional conduct of a State, 
local agency or clinic employee which violates program regulations, 
policies, or procedures, including, but not limited to, misappropriating 
or altering food instruments or cash-value vouchers, entering false or 
misleading information in case records, or creating case records for 
fictitious participants.
    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.
    Farmer means an individual authorized by the State agency to sell 
eligible fruits and vegetables to participants at a farmers' market or 
roadside stands. Individuals who exclusively sell produce grown by 
someone else, such as wholesale distributors, cannot be authorized.
    Farmers' market means an association of local farmers who assemble 
at a defined location for the purpose of selling their produce directly 
to consumers.
    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.
    Food sales means sales of all SNAP eligible foods intended for home 
preparation and consumption, including meat, fish, and poultry; bread 
and cereal products; dairy products; fruits and vegetables. Food items 
such as condiments and spices, coffee, tea, cocoa, and carbonated and 
noncarbonated drinks may be included in food sales when offered for sale 
along with foods in the categories identified above. Food sales do not 
include sales of any items that cannot be purchased with SNAP benefits, 
such as hot foods or food that will be eaten in the store.
    Full nutrition benefit means the minimum amount of reconstituted 
fluid ounces of liquid concentrate infant formula as specified in Table 
1 of Sec. 246.10(e)(9) for each food package category and infant feeding 
variation (e.g., Food Package IA fully formula fed, IA-FF).
    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:

[[Page 361]]

    (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 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.
    Multi-function equipment means Point-of-Sale equipment obtained by a 
WIC vendor through commercial suppliers, which is capable of supporting 
WIC EBT and other payment tender types.
    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 and group sessions and the 
provision of materials that are designed to improve health status and 
achieve positive change in dietary and physical activity habits, and 
that emphasize the relationship between nutrition, physical activity, 
and health, all in keeping with the personal and cultural preferences of 
the individual.
    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,

[[Page 362]]

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 and cash-value vouchers.
    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.
    Partially-redeemed food instrument means a paper food instrument 
which is redeemed for less than all of the supplemental foods authorized 
for that food instrument.
    Participant violation means any deliberate 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, but are not 
limited to, deliberately making false or misleading statements or 
deliberately misrepresenting, concealing, or withholding facts, to 
obtain benefits; selling or offering to sell WIC benefits, including 
cash-value vouchers, food instruments, EBT cards, or supplemental foods 
in person, in print, or online; exchanging or attempting to exchange WIC 
benefits, including cash-value vouchers, food instruments, EBT cards, or 
supplemental foods for cash, credit, services, 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, farmer, or vendor staff; and dual 
participation.
    Participants means pregnant women, breastfeeding women, postpartum 
women, infants and children who are receiving supplemental foods or food 
instruments or cash-value vouchers under the Program, and the breastfed 
infants of participant breastfeeding women.
    Participation means the sum of:
    (1) The number of persons who received supplemental foods or food 
instruments during the reporting period;
    (2) The number of infants who did not receive supplemental foods or 
food instruments but whose breastfeeding mother received supplemental 
foods or food instruments during the report period; and
    (3) The number of breastfeeding women who did not receive 
supplemental foods or food instruments but whose infant received 
supplemental foods or food instruments during the report 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.
    Primary contract infant formula means the specific infant formula 
for which

[[Page 363]]

manufacturers submit a bid to a State agency in response to a rebate 
solicitation and for which a contract is awarded by the State agency as 
a result of that bid.
    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 cash-value vouchers 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.
    Sign or signature means a handwritten signature on paper or an 
electronic signature. If the State agency chooses to use electronic 
signatures, the State agency must ensure the reliability and integrity 
of the technology used and the security and confidentiality of 
electronic signatures collected in accordance with sound management 
practices, and applicable Federal law and policy, and the 
confidentiality requirements in Sec. 246.26.
    Single-function equipment means Point-of-Sale equipment, such as 
barcode scanners, card readers, PIN pads and printers, provided to an 
authorized WIC vendor solely for use with the WIC Program.
    State means any of the fifty States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
or the Commonwealth of the Northern Mariana 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 alliance means two or more State agencies that join together 
for the purpose of procuring infant formula under the Program by 
soliciting competitive bids for infant formula.
    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.
    Statewide EBT means the State agency has converted all WIC clinics 
to an EBT delivery method and all authorized vendors are capable of 
transacting EBT purchases.
    Supplemental foods means those foods containing nutrients determined 
by nutritional research to be lacking in the diets of pregnant, 
breastfeeding and postpartum women, infants, and children, and foods 
that promote the health of the population served by the WIC Program as 
indicated by relevant nutrition science, public health concerns, and 
cultural eating patterns, as prescribed by the Secretary in Sec. 246.10.
    Supplemental Nutrition Assistance Program (SNAP), formerly known as 
the

[[Page 364]]

Food Stamp Program, is the program authorized by the Food and Nutrition 
Act of 2008 (7 U.S.C. 2011, et. seq.), in which eligible households 
receive benefits that can be used to purchase food items from authorized 
retail stores and farmers' markets.
    USDA implementing regulations include the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations for Grants and Cooperative Agreements to 
State and Local Governments; and 2 CFR part 418, New Restrictions on 
Lobbying.
    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 peer group system means a classification of authorized 
vendors into groups based on common characteristics or criteria that 
affect food prices, for the purpose of applying appropriate competitive 
price criteria to vendors at authorization and limiting payments for 
food to competitive levels.
    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) and (g)(4).
    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 nutritionals for participants with qualifying 
conditions (hereafter referred to as ``WIC-eligible nutritionals) means 
certain enteral products that are specifically formulated to provide 
nutritional support for individuals with a qualifying condition, when 
the use of conventional foods is precluded, restricted, or inadequate. 
Such WIC-eligible nutritionals must serve the purpose of a food, meal or 
diet (may be nutritionally complete or incomplete) and provide a source 
of calories and one or more nutrients; be designed for enteral digestion 
via an oral or tube feeding; and may not be a conventional food, drug, 
flavoring, or enzyme. WIC-eligible nutritionals 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]

    Editorial Note: For Federal Register citations affecting Sec. 246.2, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 246.3  Administration.

    (a) Delegation to FNS. Within the Department, FNS shall act on 
behalf of the Department in the administration

[[Page 365]]

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 the 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 (2 CFR part 200, subparts A through F 
and USDA implementing regulations 2 CFR part 400 and part 415); 
governing non-procurement debarment/suspension (2 CFR part 180, OMB 
Guidelines to Agencies on Government-wide Debarment and Suspension and 
USDA implementing regulations 2 CFR part 417); governing restrictions on 
lobbying (2 CFR part 200, subpart E and USDA implementing regulations 2 
CFR part 400, part 415, and part 418); and governing the drug-free 
workplace requirements (2 CFR part 182, Government-wide Requirements for 
Drug-Free Workplace); 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 regarding 
lobbying and, if applicable, a disclosure of lobbying activities, as 
required by 2 CFR part 200, subpart E and USDA implementing regulations 
2 CFR part 400, part 415, and part 418.
    (3) The written agreement must include a statement that supports 
full use of Federal funds provided to State agencies for the 
administration of the WIC Program, and excludes such funds from State 
budget restrictions or limitations including hiring freezes, work 
furloughs, and travel restrictions.
    (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, breastfeeding promotion and support, 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, an 
exception to these qualifications

[[Page 366]]

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 regulations 
governing the administration of grants (2 CFR part 200, subpart A-F and 
USDA implementing regulations 2 CFR part 400 and part 415), 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; 71 FR 56728, Sept. 27, 2006; 76 FR 37983, June 29, 2011; 76 FR 
59888, Sept. 28, 2011; 81 FR 10449, Mar. 1, 2016; 81 FR 66494, 66495, 
Sept. 28, 2016]



              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

[[Page 367]]

for approval substantive changes in the State Plan. A complete and 
approved Plan shall include:
    (1) An outline of the State agency's goals and objectives for 
improving Program operations, to include EBT and/or EBT implementation.
    (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 to 
include:
    (i) A description of the methods that will be used to provide drug 
and other harmful substance abuse information, to promote and support 
breastfeeding, and to meet the special nutrition education needs of 
migrant farmworkers and their families, Indians, and homeless persons.
    (ii) State agencies have the option to provide nutrition education 
materials to institutions participating in the CACFP at no cost, as long 
as a written agreement for sharing such materials is in place between 
the relevant WIC and CACFP entities. State agencies may initiate a 
sharing agreement with their State-level CACFP counterparts that would 
apply statewide, or may authorize their local agencies or clinics to 
initiate a sharing agreement at the local level with their local level 
CACFP counterparts.
    (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),

[[Page 368]]

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) A list of the specific nutritional risk criteria by priority 
level which explains how a person's nutritional risk is determined;
    (B) Hematological data requirements including timeframes for the 
collection of such data;
    (C) The procedures for requiring proof of pregnancy, consistent with 
Sec. 246.7(c)(2)(ii), if the State agency chooses to require such proof;
    (D) The State agency's income guidelines for Program eligibility;
    (E) Adjustments to the participant priority system (see 
Sec. 246.7(e)(4)) to accommodate high-risk postpartum women or the 
addition of Priority VII; and,
    (F) Alternate language for the statement of rights and 
responsibilities which is provided to applicants, parents, or caretakers 
when applying for benefits as outlined in Sec. 246.7(i)(10) and 
(j)(2)(i) through (j)(2)(iii). This alternate language must be approved 
by FNS before it can be used in the required statement.
    (ii) Methods for providing nutrition education, including 
breastfeeding promotion and support, to participants. Nutrition 
education will include information on drug abuse and other harmful 
substances. Participants will include homeless individuals.
    (iii) Instructions concerning all food delivery operations performed 
at the local level, including the list of acceptable foods and their 
maximum monthly quantities as required by Sec. 246.10(b)(2)(i).
    (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) and (g)(4);
    (iii) A sample vendor, farmer and/or farmers' market, if applicable, 
agreement. The sample vendor agreement must include the sanction 
schedule, the process for notification of violations in accordance with 
Sec. 246.12(l)(3), and the State agency's policies and procedures on 
incentive items in accordance with Sec. 246.12(g)(3)(iv), which may be 
incorporated as attachments or, if the sanction schedule, the process 
for notification of violations, or policies on incentive items are in 
the State agency's regulations, through citations to the regulations. 
State agencies that intend to delegate signing of vendor, farmer and/or 
farmers' market 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) Farmer monitoring. The system for monitoring farmers and/or 
farmers'

[[Page 369]]

markets within its jurisdiction, if applicable, for compliance with 
program requirements;
    (vi) Options regarding trafficking convictions. The option exercised 
by the State agency to sanction vendors pursuant to 
Sec. 246.12(l)(1)(i).
    (vii) Food instruments and cash-value vouchers. A facsimile of the 
food instrument and cash-value voucher, if used, and a description of 
the system the State agency will use to account for the disposition of 
food instruments and cash value vouchers in accordance with 
Sec. 246.12(q);
    (viii) 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;
    (ix) 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;
    (x) 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;
    (xi) Infant formula cost containment. A description of any infant 
formula 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 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);
    (xii) Vendor, farmer and/or farmers' market training. The procedures 
the State agency will use to train vendors (in accordance with 
Sec. 246.12(i)), farmers and/or farmers' markets (in accordance with 
Sec. 246.12(v)). State agencies that intend to delegate any aspect of 
training to a local agency, contractor, vendor or farmer representative 
must describe the supervision and instructions that will be provided by 
the State agency to ensure the uniformity and quality of vendor, farmer 
and/or farmers' market training;
    (xiii) Food instrument and cash-value voucher security. A 
description of the State agency's system for ensuring food instrument 
and cash-value voucher security in accordance with Sec. 246.12(p);
    (xiv) Participant access determination criteria. A description of 
the State agency's participant access determination criteria consistent 
with Sec. 246.12(l); and
    (xv) Mobile stores. The special needs necessitating the 
authorization of mobile stores, if the State agency chooses to authorize 
such stores.
    (xvi) Vendor cost containment. A description of the State agency's 
vendor peer group system, competitive price criteria, and allowable 
reimbursement levels that demonstrates that the State agency is in 
compliance with the cost containment provisions in Sec. 246.12(g)(4); 
information on non-profit above-50-percent vendors that the State agency 
has exempted from competitive price criteria and allowable reimbursement 
levels in Sec. 246.12(g)(4)(iv);

[[Page 370]]

a justification and documentation supporting the State agency's request 
for an exemption from the vendor peer group requirement in 
Sec. 246.12(g)(4), if applicable; and, if the State agency authorizes 
any above-50-percent vendors, information required by FNS to determine 
whether the State agency's vendor cost containment system meets the 
requirements in Sec. 246.12(g)(4)(i).
    (xvii) Other cost containment systems. A description of any other 
food cost containment systems (such as juice and cereal rebates and food 
item restrictions).
    (xviii) List of infant formula wholesalers, distributors, and 
retailers. The policies and procedures for compiling and distributing to 
authorized WIC retail vendors, on an annual or more frequent basis, as 
required by Sec. 246.12(g)(11), a list of infant formula wholesalers, 
distributors, and retailers licensed in the State in accordance with 
State law (including regulations), and infant formula manufacturers 
registered with the Food and Drug Administration (FDA) that provide 
infant formula. The vendor may provide only the authorized infant 
formula which the vendor has obtained from a source included on the list 
described in Sec. 246.12(g)(11) to participants in exchange for food 
instruments specifying infant formula.
    (xix) A description of how the State agency will replace lost, 
stolen, or damaged EBT cards and transfer the associated benefits within 
seven business days.
    (xx) A description of the procedures established by the State agency 
to provide customer service during non-business hours that enable 
participants or proxies to report a lost, stolen, or damaged card, 
report other card or benefit issues, receive information on the EBT food 
balance and receive the current benefit end date. The procedures shall 
address how the State agency will respond to reports of a lost, stolen, 
or damaged card within one business day of the date of report.
    (15) The State agency's procedures for accepting and processing 
vendor applications outside of its established timeframes if the State 
agency determines there will otherwise be inadequate participant access 
to the WIC Program.
    (16) 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.
    (17) 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.
    (18) A copy of the State agency's fair hearing procedures for 
participants and the administrative appeal procedures for local 
agencies, food vendors, farmers and farmers' markets.
    (19) The State agency's plan to ensure that participants receive 
required health and nutrition assessments when certified for a period of 
greater than six months.
    (20) The State agency's plan to reach and enroll migrants, and 
eligible women in the early months of pregnancy.
    (21) 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.
    (22) 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.
    (23) 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

[[Page 371]]

issuance of food instruments and cash-value vouchers 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. The State agency will also describe its policy for 
approving transportation of participants to and from WIC clinics.
    (24) Assurance that each local agency and any subgrantees of the 
State agency and/or local agencies are in compliance with the 
requirements of 2 CFR part 180, OMB Guidelines to Agencies on 
Government-wide Debarment and Suspension and USDA implementing 
regulations 2 CFR part 417 regarding nonprocurement debarment/
suspension.
    (25) A description of the State agency's plans to provide and 
maintain a drug-free workplace in compliance with requirements in 2 CFR 
part 180, Government-wide Requirements for Drug-Free Workplace 
(Financial Assistance) and USDA implementing regulation 2 CFR part 421.
    (26) A list of all organizations with which the State agency or its 
local agencies has executed or intends to execute a written agreement 
pursuant to Sec. 246.26(h) authorizing the use and disclosure of 
confidential applicant and participant information for non-WIC purposes.
    (27) The State agency's policies and procedures for preventing 
conflicts of interest at the local agency or clinic level in a 
reasonable manner. At a minimum, this plan must prohibit the following 
WIC certification practices by local agency or clinic employees, or 
provide effective alternative policies and procedures when such 
prohibition is not possible:
    (i) Certifying oneself;
    (ii) Certifying relatives or close friends; or,
    (iii) One employee determining eligibility for all certification 
criteria and issuing food instruments, cash-value vouchers or 
supplemental food for the same participant.
    (28) The State agency's plan for collecting and maintaining 
information on cases of participant and employee fraud and abuse. Such 
information should include the nature of the fraud detected and the 
associated dollar losses.
    (29) The State agency's Universal Identifier number.
    (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.
    (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]

    Editorial Note For Federal Register citations affecting Sec. 246.4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



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

[[Page 372]]

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 will consider the Affirmative Action Plan (see 
Sec. 246.4(a)(5)) when funding local agencies and expanding existing 
operations, and may consider how much of the current need is being met 
at each priority level. 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.
    (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.
    (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) The State agency must, when seeking new local agencies, publish 
a notice in the local media (unless it has received an application from 
a local public or nonprofit private health agency that can provide 
adequate services). The notice will include a brief explanation of the 
Program, a description of the local agency priority system (outlined in 
this paragraph (d)), and a request that potential local agencies

[[Page 373]]

notify the State agency of their interest. In addition, the State agency 
will contact all potential local agencies to make sure they are aware of 
the opportunity to apply. If an application is not submitted within 30 
days, the State agency may then select a local agency in another area. 
If sufficient funds are available, a State agency will give notice and 
consider applications outside the local area at the same time.
    (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
    (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; 71 FR 56728, Sept. 27, 2006]



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 
Secs. 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

[[Page 374]]

State agency shall provide local agencies with advance written notice of 
the expiration of an agreement as required under Secs. 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 debarment and suspension 
requirements and if applicable, the lobbying restrictions of 2 CFR part 
200, subpart E, and USDA implementing regulations 2 CFR part 400, part 
415, and part 417, 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, including breastfeeding 
promotion and support, 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 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

[[Page 375]]

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; 76 FR 59889, Sept. 28, 2011; 81 FR 66495, Sept. 
28, 2016]



                    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 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 and basic certification procedures. (1) To 
qualify for the

[[Page 376]]

Program, infants, children, and pregnant, postpartum, and breastfeeding 
women must:
    (i) Reside within the jurisdiction of the State (except for Indian 
State agencies). Indian State agencies may establish a similar 
requirement. 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)(i) 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, cash-value vouchers 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 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.
    (ii) For a State agency opting to require proof of pregnancy, the 
State agency may issue benefits to applicants who claim to be pregnant 
(assuming that all other eligibility criteria are met) but whose 
conditions (as pregnant) are not visibly noticeable and do not have 
documented proof of pregnancy at the time of the certification interview 
and determination. The State agency should then allow a reasonable 
period of time, not to exceed 60 days, for the applicant to provide the 
requested documentation. If such documentation is not provided as 
requested, the woman can no longer be considered categorically eligible, 
and the local agency would then be justified in terminating the woman's 
WIC participation in the middle of a certification period.
    (3) 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.
    (4) The certification procedure shall be performed at no cost to the 
applicant.
    (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 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

[[Page 377]]

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 agency uses State or local free or reduced-price health 
care income guidelines, it will ensure that the definitions of income 
(see paragraph (d)(2)(ii) of this section), family (see Sec. 246.2) and 
allowable exclusions from income (see paragraph (d)(2)(iv) of this 
section) are

[[Page 378]]

used uniformly to determine an applicant's income eligibility. This 
ensures that households with a gross income in excess of 185 percent of 
the Federal income guidelines (see paragraph (d)(1) of this section) are 
not eligible for Program benefits. The exception to this requirement is 
persons who are also income eligible under other programs (see paragraph 
(d)(2)(vi) of this section).
    (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) Loans, not including amounts to which the applicant has constant 
or unlimited access.
    (D) 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 and Nutrition Act of 
2008 (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 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

[[Page 379]]

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));
    (32) Payments to the Chippewas of Mississippi (Pub. L. 99-377, sec. 
4(b));
    (33) Payments received by members of the Armed Forces and their 
families under the Family Supplemental Subsistence Allowance from the 
Department of Defense (Pub. L. 109-163, sec. 608); and
    (34) Payments received by property owners under the National Flood 
Insurance Program (Pub. L. 109-64).
    (35) Combat pay received by the household member under Chapter 5 of 
Title 37 or as otherwise designated by the Secretary.

[[Page 380]]

    (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 SNAP benefits under the 
Food and Nutrition Act of 2008, 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 381]]

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, including 
breastfeeding promotion and support; 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 382]]

    (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

[[Page 383]]

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 WIC participant who is reapplying for WIC 
benefits may be considered to be at nutritional risk in the next 
certification period if the competent professional authority determines 
that the applicant's nutritional status may regress to the nutritional 
risk condition(s) certified for in the previous certification period 
without supplemental foods and/or WIC nutrition services, and if the 
nutritional risk condition(s) certified for in the previous 
certification period is/are appropriate to the category of the 
participant in the subsequent certification based on regression. 
However, such applicants shall not be considered at nutritional risk 
based on the possibility of regression for consecutive certification 
periods. Applicants who are certified based on the possibility of 
regression should be placed either in the same priority for which they 
were certified in the previous certification period; a priority level 
lower than the priority level assigned in the previous certification 
period, consistent with Sec. 246.7(e)(4); or in Priority VII, if the 
State agency is using that priority level.
    (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

[[Page 384]]

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 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, in accordance with 
the provisions of paragraph (e)(1)(vi) 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, cash-value vouchers or food instruments. All of these actions 
shall be accomplished within the timeframes set forth below.

[[Page 385]]

    (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:
    (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) and if applicable cash-value voucher(s) to the 
participant at the same time as notification of certification. Such food 
instrument(s) and cash-value vouchers 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) and if applicable cash-value vouchers 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 will be based upon 
certifications established in accordance with the following timeframes:

------------------------------------------------------------------------
               A/an:                         Will be certified:
------------------------------------------------------------------------
(i) Pregnant woman................  For the duration of her pregnancy,
                                     and up to the last day of the month
                                     in which the infant becomes six
                                     weeks old or the pregnancy ends
                                     (for example, if the infant is born
                                     June 4, six weeks after birth would
                                     be July 16, and certification would
                                     end July 31).
(ii) Postpartum woman.............  Up to the last day of the sixth
                                     month after the baby is born or the
                                     pregnancy ends (postpartum).
(iii) Breastfeeding woman.........  Approximately every six months. The
                                     State agency may permit its local
                                     agencies to certify a breastfeeding
                                     woman up to the last day of the
                                     month in which her infant turns 1
                                     year old, or until the woman ceases
                                     breastfeeding, whichever occurs
                                     first.
(iv) Infant.......................  Approximately every six months. The
                                     State agency may permit its local
                                     agencies to certify an infant under
                                     six months of age up to the last
                                     day of the month in which the
                                     infant turns 1 year old, provided
                                     the quality and accessibility of
                                     health care services are not
                                     diminished.
(v) Child.........................  Approximately every six months
                                     ending with the last day of the
                                     month in which a child reaches his/
                                     her fifth birthday. The State
                                     agency may permit its local
                                     agencies to certify a child for a
                                     period of up to one year, provided
                                     the local agency ensures that the
                                     child receives the required health
                                     and nutrition assessments, as set
                                     forth in Sec. 246.11(e)(3).
------------------------------------------------------------------------

    (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.

[[Page 386]]

    (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) Mandatory and optional mid-certification actions. Mid-
certification actions are either mandatory or optional as follows:
    (1) Mandatory reassessment of income eligibility mid-certification. 
(i) The local agency must reassess a participant's income eligibility 
during the current certification period if the local agency receives 
information indicating that the participant's household income has 
changed. However, such assessments are not required in cases where 
sufficient time does not exist to effect the change. Sufficient time 
means 90 days or less before the expiration of the certification period.
    (ii) Mandatory disqualification mid-certification for income 
ineligibility. The local agency must disqualify a participant and any 
other household members currently receiving WIC benefits who are 
determined ineligible based on the mid-certification income 
reassessment. However, adjunctively-eligible WIC participants (as 
defined in paragraphs (d)(2)(vi)(A) or (d)(2)(vi)(B) of this section) 
may not be disqualified from the WIC Program solely because they, or 
certain family members, no longer participate in one of the other 
specified programs. The State agency will ensure that such participants 
and other household members currently receiving WIC benefits are 
disqualified during a certification period only after their income 
eligibility has been reassessed based on the income screening procedures 
used for applicants who are not adjunctively eligible.
    (2) Mandatory sanctions or other actions for participant violations. 
The local agency must impose disqualifications, or take other actions in 
accordance with the procedures set forth in Sec. 246.12(u), in response 
to participant violations including, but not limited to, the violations 
listed in the definition of Participant violation in Sec. 246.2.
    (3) Optional mid-certification actions. A participant may be 
disqualified during a certification period for the following reasons:
    (i) A State agency may allow local agencies to disqualify a 
participant for failure to obtain food instruments, cash-value vouchers 
or supplemental foods for several consecutive months. As specified by 
the State agency, proof of such failure includes failure to pick up 
supplemental foods, cash-value vouchers or food instruments, nonreceipt 
of food instruments or cash-value vouchers (when mailed instruments or 
vouchers are returned), or failure to have an electronic benefit 
transfer card revalidated for purchase of supplemental foods; or
    (ii) If a State agency experiences funding shortages, it may be 
necessary to discontinue Program benefits to some certified 
participants. The State agency must explore alternatives (such as 
elimination of new certifications) before taking such action. In 
discontinuing benefits, the State agency will affect the least possible 
number of participants and those whose nutritional and health status 
would be least impaired by the action. When a State agency elects to 
discontinue benefits due to insufficient funds, it will not enroll new 
participants during that period. The State may discontinue benefits by:
    (A) Disqualifying a group of participants; and/or,
    (B) Withholding benefits from a group with the expectation of 
providing benefits again when funds are available.
    (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;

[[Page 387]]

    (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) A statement of the rights and obligations under the Program. 
The statement must contain a signature space, and must be read by or to 
the applicant, parent, or caretaker. It must contain the following 
language or alternate language as approved by FNS (see 
Sec. 246.4(a)(11)(i)), and be signed by the applicant, parent, or 
caretaker after the statement is read:

    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.

    (11) If the State agency exercises the authority to use and disclose 
confidential applicant and participant information for non-WIC purposes 
pursuant to Sec. 246.26(d)(2), a statement that:
    (i) Notifies applicants that the chief State health officer (or the 
governing authority, in the case of an Indian State agency) may 
authorize the use and disclosure of information about their 
participation in the WIC Program for non-WIC purposes;
    (ii) Must indicate that such information will be used by State and 
local WIC agencies and public organizations only in the administration 
of their programs that serve persons eligible for the WIC Program; and,
    (iii) Will be added to the statement required under paragraph 
(i)(10) of this section. This statement must also indicate that such 
information can be used by the recipient organizations only for the 
following:
    (A) To determine the eligibility of WIC applicants and participants 
for programs administered by such organizations;
    (B) To conduct outreach for such programs;
    (C) To enhance the health, education, or well-being of WIC 
applicants and participants currently enrolled in those programs;
    (D) To streamline administrative procedures in order to minimize 
burdens on participants and staff; and,
    (E) To assess and evaluate a State's health system in terms of 
responsiveness to participants' health care needs and health care 
outcomes.
    (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

[[Page 388]]

or caretaker shall be informed of the illegality of dual participation.
    (2) At the time of certification, each Program participant, parent 
or caretaker must read, or have read to him or her, the statement 
provided in paragraph (i)(10) of this section (or an alternate statement 
as approved by FNS). In addition, the following sentences (or alternate 
sentences as approved by FNS) must be read:
    (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, nutrition 
education and breastfeeding support 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, cash-value vouchers 
or food instruments in accordance with paragraph (h)(3)(i) of this 
section, it shall provide notice of this policy and of the importance of 
regularly picking up cash-value vouchers, 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 cash-value vouchers, supplemental foods or food 
instruments in accordance with paragraph (h)(3)(i) 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.
    (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.
    (10) During the certification procedure, every Program applicant, 
parent or caretaker shall be informed that selling or offering to sell 
WIC benefits, including cash value vouchers, food instruments, EBT 
cards, or supplemental foods in person, in print, or on-line is a 
participant violation.
    (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

[[Page 389]]

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. The State agency is responsible for the 
following:
    (1) 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;
    (2) 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;
    (3) Immediate termination from participation in one of the programs 
or clinics for participants found in violation due to dual 
participation; and
    (4) 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).
    (m) 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, nutrition 
education and breastfeeding support 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.

[[Page 390]]

    (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, including breastfeeding promotion and support, 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.
    (n) 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 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.
    (o) 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 is receiving ongoing health care.
    (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

[[Page 391]]

barrier to bringing the infant or child in to the WIC clinic.
    (iv) Infants under 8 weeks of age. The State agency may exempt from 
the physical presence requirement an infant under eight (8) weeks of age 
who cannot be present at certification for a reason determined 
appropriate by the local agency, and for whom all necessary 
certification information is provided.
    (p) 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]

    Editorial Note: For Federal Register citations affecting Sec. 246.7, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



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;
    (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 
should write to USDA, Director, Office of Adjudication and Compliance, 
1400 Independence Avenue, SW., Washington, DC 20250-9410, or call (800) 
795-3272 (voice) or (202) 720-6382 (TTY). 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.

[50 FR 6121, Feb. 13, 1985, as amended at 73 FR 11312, Mar. 3, 2008]

[[Page 392]]



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;
    (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. Participants who appeal the 
termination of benefits within the 15 days advance adverse action notice 
period provided by Sec. 246.7(j)(6) must continue to receive Program 
benefits until the hearing official reaches a decision or the 
certification period expires, whichever occurs first. This does not 
apply to applicants denied benefits at initial certification, 
participants whose certification periods have expired, or participants 
who become categorically ineligible for benefits. Applicants who are 
denied benefits at initial certification, participants whose 
certification periods have expired, or participants who become 
categorically ineligible during a certification period may appeal the 
denial or termination within the timeframes set by the State agency in 
accordance with paragraph (e) of this section, but must not receive 
benefits while awaiting the hearing or its results.
    (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

[[Page 393]]

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 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

[[Page 394]]

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; 71 FR 56730, Sept. 27, 2006; 73 FR 11312, Mar. 
3, 2008]



                     Subpart D_Participant Benefits



Sec. 246.10  Supplemental foods.

    (a) General. This section prescribes the requirements for providing 
supplemental foods to participants. The State agency must ensure that 
local agencies comply with this section.
    (b) State agency responsibilities. (1) State agencies may:
    (i) Establish criteria in addition to the minimum Federal 
requirements in Table 4 of paragraph (e)(12) of this section for the 
supplemental foods in their States, except that the State agency may not 
selectively choose which eligible fruits and vegetables are available to 
participants. These State agency criteria could address, but not be 
limited to, other nutritional standards, competitive cost, State-wide 
availability, and participant appeal. For eligible fruits and 
vegetables, State agencies may restrict packaging, e.g., plastic 
containers, and package sizes, such as single serving, of processed 
fruits and vegetables available for purchase with the cash-value 
voucher. In addition, State agencies may identify certain processed WIC-
eligible fruits and vegetables on food lists where the potential exists 
for vendor or participant confusion in determining authorized WIC-
eligible items.
    (ii) Make food package adjustments to better accommodate 
participants who are homeless. At the State agency's option, these 
adjustments would include, but not be limited to, issuing authorized 
supplemental foods in individual serving-size containers to accommodate 
lack of food storage or preparation facilities.
    (2) State agencies must:
    (i) Identify the brands of foods and package sizes that are 
acceptable for use in the Program in their States in accordance with the 
requirements of this section. State agencies must also provide to local 
agencies, and include in the State Plan, a list of acceptable foods and 
their maximum monthly allowances as specified in Tables 1 through 4 of 
paragraphs (e)(9) through (e)(12) of this section; and
    (ii) Ensure that local agencies:
    (A) Make available to participants the maximum monthly allowances of 
authorized supplemental foods, except as noted in paragraph (c) of this 
section, and abide by the authorized substitution rates for WIC food 
substitutions as specified in Tables 1 through 3 of paragraphs (e)(9) 
through (e)(11) of this section;
    (B) Make available to participants more than one food from each WIC 
food category except for the categories of peanut butter and eggs, and 
any of the WIC-eligible fruits and vegetables (fresh or processed) in 
each authorized food package as listed in paragraph (e) of this section;
    (C) Authorize only a competent professional authority to prescribe 
the categories of authorized supplemental foods in quantities that do 
not exceed the regulatory maximum and are appropriate for the 
participant, taking into consideration the participant's nutritional and 
breastfeeding needs; and
    (D) Advise participants or their caretaker, when appropriate, that 
the supplemental foods issued are only for their personal use. However, 
the supplemental foods are not authorized for participant use while 
hospitalized on an in-patient basis. In addition, consistent with 
Sec. 246.7(m)(1)(i)(B), supplemental foods are not authorized for use in 
the preparation of meals served in a communal food service. This 
restriction does not preclude the provision or use of supplemental foods 
for individual participants in a nonresidential setting (e.g., child 
care facility, family

[[Page 395]]

day care home, school, or other educational program); a homeless 
facility that meets the requirements of Sec. 246.7(m)(1); or, at the 
State agency's discretion, a residential institution (e.g., home for 
pregnant teens, prison, or residential drug treatment center) that meets 
the requirements currently set forth in Sec. 246.7(m)(1) and (m)(2).
    (c) Nutrition tailoring. The full maximum monthly allowances of all 
supplemental foods in all food packages must be made available to 
participants if medically or nutritionally warranted. Reductions in 
these amounts cannot be made for cost-savings, administrative 
convenience, caseload management, or to control vendor abuse. Reductions 
in these amounts cannot be made for categories, groups or subgroups of 
WIC participants. The provision of less than the maximum monthly 
allowances of supplemental foods to an individual WIC participant in all 
food packages is appropriate only when:
    (1) Medically or nutritionally warranted (e.g., to eliminate a food 
due to a food allergy);
    (2) A participant refuses or cannot use the maximum monthly 
allowances; or
    (3) The quantities necessary to supplement another programs' 
contribution to fill a medical prescription would be less than the 
maximum monthly allowances.
    (d) Medical documentation--(1) Supplemental foods requiring medical 
documentation. Medical documentation is required for the issuance of the 
following supplemental foods:
    (i) Any non-contract brand infant formula;
    (ii) Any infant formula prescribed to an infant, child, or adult who 
receives Food Package III;
    (iii) Any exempt infant formula;
    (iv) Any WIC-eligible nutritional;
    (v) Any authorized supplemental food issued to participants who 
receive Food Package III;
    (vi) Any contract brand infant formula that does not meet the 
requirements in Table 4 of paragraph (e)(12) of this section.
    (2) Medical documentation for other supplemental foods. (i) State 
agencies may authorize local agencies to issue a non-contract brand 
infant formula that meets the requirements in Table 4 of paragraph 
(e)(12) of this section without medical documentation in order to meet 
religious eating patterns; and
    (ii) The State agency has the discretion to require medical 
documentation for any contract brand infant formula other than the 
primary contract infant formula and may decide that some contract brand 
infant formula may not be issued under any circumstances.
    (3) Medical Determination. For purposes of this program, medical 
documentation means that a health care professional licensed to write 
medical prescriptions under State law has:
    (i) Made a medical determination that the participant has a 
qualifying condition as described in paragraphs (e)(1) through (e)(7) of 
this section that dictates the use of the supplemental foods, as 
described in paragraph (d)(1) of this section; and
    (ii) Provided the written documentation that meets the technical 
requirements described in paragraphs (d)(4)(ii) and (d)(4)(iii) of this 
section.
    (4) Technical Requirements--(i) Location. All medical documentation 
must be kept on file (electronic or hard copy) at the local clinic. The 
medical documentation kept on file must include the initial telephone 
documentation, when received as described in paragraph (d)(4)(iii)(B) of 
this section.
    (ii) Content. All medical documentation must include the following:
    (A) The name of the authorized WIC formula (infant formula, exempt 
infant formula, WIC-eligible nutritional) prescribed, including amount 
needed per day;
    (B) The authorized supplemental food(s) appropriate for the 
qualifying condition(s) and their prescribed amounts;
    (C) Length of time the prescribed WIC formula and/or supplemental 
food is required by the participant;
    (D) The qualifying condition(s) for issuance of the authorized 
supplemental food(s) requiring medical documentation, as described in 
paragraphs (e)(1) through (e)(7) of this section; and
    (E) Signature, date and contact information (or name, date and 
contact information), if the initial medical documentation was received 
by telephone

[[Page 396]]

and the signed document is forthcoming, of the health care professional 
licensed by the State to write prescriptions in accordance with State 
laws.
    (iii) Written confirmation--(A) General. Medical documentation must 
be written and may be provided as an original written document, an 
electronic document, by facsimile or by telephone to a competent 
professional authority until written confirmation is received.
    (B) Medical documentation provided by telephone. Medical 
documentation may be provided by telephone to a competent professional 
authority who must promptly document the information. The collection of 
the required information by telephone for medical documentation purposes 
may only be used until written confirmation is received from a health 
care professional licensed to write medical prescriptions and used only 
when absolutely necessary on an individual participant basis. The local 
clinic must obtain written confirmation of the medical documentation 
within a reasonable amount of time (i.e., one or two week's time) after 
accepting the initial medical documentation by telephone.
    (5) Medical supervision requirements. Due to the nature of the 
health conditions of participants who are issued supplemental foods that 
require medical documentation, close medical supervision is essential 
for each participant's dietary management. The responsibility remains 
with the participant's health care provider for this medical oversight 
and instruction. This responsibility cannot be assumed by personnel at 
the WIC State or local agency. However, it would be the responsibility 
of the WIC competent professional authority to ensure that only the 
amounts of supplemental foods prescribed by the participant's health 
care provider are issued in the participant's food package.
    (e) Food packages. There are seven food packages available under the 
Program that may be provided to participants. The authorized 
supplemental foods must be prescribed from food packages according to 
the category and nutritional needs of the participants. Breastfeeding 
assessment and the mother's plans for breastfeeding serve as the basis 
for determining food package issuance for all breastfeeding women. The 
intent of the WIC Program is that all breastfeeding women be supported 
to exclusively breastfeed their infants and to choose the fully 
breastfeeding food package without infant formula. Breastfeeding mothers 
whose infants receive formula from WIC are to be supported to breastfeed 
to the maximum extent possible with minimal supplementation with infant 
formula. Formula amounts issued to breastfed infants are to be tailored 
to meet but not exceed the infant's nutritional needs. The seven food 
packages are as follows:
    (1) Food Package I--Infants birth through 5 months--(i) Participant 
category served. This food package is designed for issuance to infant 
participants from birth through age 5 months who do not have a condition 
qualifying them to receive Food Package III. The following infant 
feeding variations are defined for the purposes of assigning food 
quantities and types in Food Packages I: Fully breastfeeding (the infant 
doesn't receive formula from the WIC Program); partially (mostly) 
breastfeeding (the infant is breastfed but also receives infant formula 
from WIC up to the maximum allowance described for partially (mostly) 
breastfed infants in Table 1 of paragraph (e)(9) of this section; and 
fully formula fed (the infant is not breastfed or is breastfed minimally 
(the infant receives infant formula from WIC in quantities that exceed 
those allowed for partially (mostly) breastfed infants).
    (ii) Infant feeding age categories--(A) Birth to one month. Two 
infant food packages are available during the first month after birth--
fully breastfeeding and fully formula-feeding. State agencies also have 
the option to make available a third food package containing not more 
than one can of powder infant formula in the container size that 
provides closest to 104 reconstituted fluid ounces to breastfed infants 
on a case-by-case basis. The infant receiving this food package is 
considered partially breastfeeding. State agencies choosing to make 
available a partially breastfeeding package in the first month may not 
standardize issuance of this food package. Infant formula may not be 
routinely provided during the

[[Page 397]]

first month after birth to breastfed infants in order to support the 
successful establishment of breastfeeding.
    (B) One through 5 months. Three infant food packages are available 
from 1 months through 5 months--fully breastfeeding, partially (mostly) 
breastfeeding, or fully formula-fed.
    (iii) Infant formula requirements. This food package provides iron-
fortified infant formula that is not an exempt infant formula and that 
meets the requirements in Table 4 of paragraph (e)(12) of this section. 
The issuance of any contract brand or noncontract brand infant formula 
that contains less than 10 milligrams of iron per liter (at least 1.5 
milligrams iron per 100 kilocalories) at standard dilution is 
prohibited. Except as specified in paragraph (d) of this section, local 
agencies must issue as the first choice of issuance the primary contract 
infant formula, as defined in Sec. 246.2, with all other infant formulas 
issued as an alternative to the primary contract infant formula. 
Noncontract brand infant formula and any contract brand infant formula 
that does not meet the requirements in Table 4 of paragraph (e)(12) of 
this section may be issued in this food package only with medical 
documentation of the qualifying condition. A health care professional 
licensed by the State to write prescriptions must make a medical 
determination and provide medical documentation that indicates the need 
for the infant formula. For situations that do not require the use of an 
exempt infant formula, such determinations include, but are not limited 
to, documented formula intolerance, food allergy or inappropriate growth 
pattern. Medical documentation must meet the requirements described in 
paragraph (d) of this section.
    (iv) Physical forms. Local agencies must issue all WIC formulas (WIC 
formulas mean all infant formula, exempt infant formula and WIC-eligible 
nutritionals) in concentrated liquid or powder physical forms. Ready-to-
feed WIC formulas may be authorized when the competent professional 
authority determines and documents that:
    (A) The participant's household has an unsanitary or restricted 
water supply or poor refrigeration;
    (B) The person caring for the participant may have difficulty in 
correctly diluting concentrated or powder forms; or
    (C) The WIC infant formula is only available in ready-to-feed.
    (v) Authorized category of supplemental foods. Infant formula is the 
only category of supplemental foods authorized in this food package. 
Exempt infant formulas and WIC-eligible nutritionals are authorized only 
in Food Package III. The maximum monthly allowances, allowed options and 
substitution rates of supplemental foods for infants in Food Packages I 
are stated in Table 1 of paragraph (e)(9) of this section.
    (2) Food Package II--Infants 6 through 11 months--(i) Participant 
category served. This food package is designed for issuance to infant 
participants from 6 through 11 months of age who do not have a condition 
qualifying them to receive Food Package III.
    (ii) Infant food packages. Three food packages for infants 6 through 
11 months are available -- fully breastfeeding, partially (mostly) 
breastfeeding, or fully formula fed.
    (iii) Infant formula requirements. The requirements for issuance of 
infant formula in Food Package I, specified in paragraphs (e)(1)(iii) 
and (e)(1)(iv) of this section, also apply to the issuance of infant 
formula in Food Package II.
    (iv) Authorized categories of supplemental foods. Infant formula, 
infant cereal, and infant foods are the categories of supplemental foods 
authorized in this food package. The maximum monthly allowances, allowed 
options and substitution rates of supplemental foods for infants in Food 
Packages II are stated in Table 1 of paragraph (e)(9) of this section.
    (3) Food Package III--Participants with qualifying conditions--(i) 
Participant category served and qualifying conditions. This food package 
is reserved for issuance to women, infants and child participants who 
have a documented qualifying condition that requires the use of a WIC 
formula (infant formula, exempt infant formula or WIC-eligible 
nutritional) because the use of conventional foods is precluded, 
restricted, or inadequate to address their special nutritional needs. 
Medical documentation must meet the requirements described

[[Page 398]]

in paragraph (d) of this section. Participants who are eligible to 
receive this food package must have one or more qualifying conditions, 
as determined by a health care professional licensed to write medical 
prescriptions under State law. The qualifying conditions include but are 
not limited to premature birth, low birth weight, failure to thrive, 
inborn errors of metabolism and metabolic disorders, gastrointestinal 
disorders, malabsorption syndromes, immune system disorders, severe food 
allergies that require an elemental formula, and life threatening 
disorders, diseases and medical conditions that impair ingestion, 
digestion, absorption or the utilization of nutrients that could 
adversely affect the participant's nutrition status. This food package 
may not be issued solely for the purpose of enhancing nutrient intake or 
managing body weight.
    (ii) Non-authorized issuance of Food Package III. This food package 
is not authorized for:
    (A) Infants whose only condition is:
    (1) A diagnosed formula intolerance or food allergy to lactose, 
sucrose, milk protein or soy protein that does not require the use of an 
exempt infant formula; or
    (2) A non-specific formula or food intolerance.
    (B) Women and children who have a food intolerance to lactose or 
milk protein that can be successfully managed with the use of one of the 
other WIC food packages (i.e., Food Packages IV-VII); or
    (C) Any participant solely for the purpose of enhancing nutrient 
intake or managing body weight without an underlying qualifying 
condition.
    (iii) Restrictions on the issuance of WIC formulas in ready-to-feed 
(RTF) forms. WIC State agencies must issue WIC formulas (infant formula, 
exempt infant formula and WIC-eligible nutritionals) in concentrated 
liquid or powder physical forms unless the requirements for issuing RTF 
are met as described in paragraph (e)(1)(iv) of this section. In 
addition to those requirements, there are two additional conditions 
which may be used to issue RTF in Food Package III:
    (A) If a ready-to-feed form better accommodates the participant's 
condition; or
    (B) If it improves the participant's compliance in consuming the 
prescribed WIC formula.
    (iv) Unauthorized WIC costs. All apparatus or devices (e.g., enteral 
feeding tubes, bags and pumps) designed to administer WIC formulas are 
not allowable WIC costs.
    (v) Authorized categories of supplemental foods. The supplemental 
foods authorized in this food package require medical documentation for 
issuance and include WIC formula (infant formula, exempt infant formula, 
and WIC-eligible nutritionals), infant cereal, infant foods, milk, 
cheese, eggs, canned fish, fresh fruits and vegetables, breakfast 
cereal, whole wheat/whole grain bread, juice, legumes and/or peanut 
butter. The maximum monthly allowances, allowed options and substitution 
rates of supplemental foods for infants in Food Package III are stated 
in Table 1 of paragraph (e)(9) of this section. The maximum monthly 
allowances, allowed options, and substitution rates of supplemental 
foods for children and women in Food Package III are stated in Table 3 
of paragraph (e)(11) of this section.
    (vi) Coordination with medical payors and other programs that 
provide or reimburse for formulas. WIC State agencies must coordinate 
with other Federal, State or local government agencies or with private 
agencies that operate programs that also provide or could reimburse for 
exempt infant formulas and WIC-eligible nutritionals benefits to mutual 
participants. At a minimum, a WIC State agency must coordinate with the 
State Medicaid Program for the provision of exempt infant formulas and 
WIC-eligible nutritionals that are authorized or could be authorized 
under the State Medicaid Program for reimbursement and that are 
prescribed for WIC participants who are also Medicaid recipients. The 
WIC State agency is responsible for providing up to the maximum amount 
of exempt infant formulas and WIC-eligible nutritionals under Food 
Package III in situations where reimbursement is not provided by another 
entity.

[[Page 399]]

    (4) Food Package IV--Children 1 through 4 years--(i) Participant 
category served. This food package is designed for issuance to 
participants 1 through 4 years of age who do not have a condition 
qualifying them to receive Food Package III.
    (ii) Authorized categories of supplemental foods. Milk, breakfast 
cereal, juice, fresh fruits and vegetables, whole wheat/whole grain 
bread, eggs, and legumes or peanut butter are the categories of 
supplemental foods authorized in this food package. The maximum monthly 
allowances, allowed options and substitution rates of supplemental foods 
for children in Food Package IV are stated in Table 2 of paragraph 
(e)(10) of this section.
    (5) Food Package V--Pregnant and partially (mostly) breastfeeding 
women--(i) Participant category served. This food package is designed 
for issuance to women participants with singleton pregnancies who do not 
have a condition qualifying them to receive Food Package III. This food 
package is also designed for issuance to partially (mostly) 
breastfeeding women participants, up to 1 year postpartum, who do not 
have a condition qualifying them to receive Food Package III and whose 
partially (mostly) breastfed infants receive formula from the WIC 
program in amounts that do not exceed the maximum allowances described 
in Table 1 of paragraph (e)(9) of this section. Women participants 
partially (mostly) breastfeeding more than one infant from the same 
pregnancy, pregnant women fully or partially breastfeeding singleton 
infants, and women participants pregnant with two or more fetuses, are 
eligible to receive Food Package VII as described in paragraph (e)(7) of 
this section.
    (ii) Authorized categories of supplemental foods. Milk, breakfast 
cereal, juice, fresh fruits and vegetables, whole wheat/whole grain 
bread, eggs, legumes and peanut butter are the categories of 
supplemental foods authorized in this food package. The maximum monthly 
allowances, allowed options and substitution rates of supplemental foods 
for women in Food Package V are stated in Table 2 of paragraph (e)(10) 
of this section.
    (6) Food Package VI--Postpartum women--(i) Participant category 
served. This food package is designed for issuance to women up to 6 
months postpartum who are not breastfeeding their infants, and to 
breastfeeding women up to 6 months postpartum whose participating infant 
receives more than the maximum amount of formula allowed for partially 
(mostly) breastfed infants as described in Table 1 of paragraph (e)(9) 
of this section, and who do not have a condition qualifying them to 
receive Food Package III.
    (ii) Authorized categories of supplemental foods. Milk, breakfast 
cereal, juice, fresh fruits and vegetables, eggs, and legumes or peanut 
butter are the categories of supplemental foods authorized in this food 
package. The maximum monthly allowances, allowed options and 
substitution rates of supplemental foods for women in Food Package VI 
are stated in Table 2 of paragraph (e)(10) of this section.
    (7) Food Package VII--Fully breastfeeding--(i) Participant category 
served. This food package is designed for issuance to breastfeeding 
women up to 1 year postpartum whose infants do not receive infant 
formula from WIC (these breastfeeding women are assumed to be 
exclusively breastfeeding their infants), and who do not have a 
condition qualifying them to receive Food Package III. This food package 
is also designed for issuance to women participants pregnant with two or 
more fetuses, women participants partially (mostly) breastfeeding 
multiple infants from the same pregnancy, and pregnant women who are 
also partially (mostly) breastfeeding singleton infants, and who do not 
have a condition qualifying them to receive Food Package III. Women 
participants fully breastfeeding multiple infants from the same 
pregnancy receive 1.5 times the supplemental foods provided in Food 
Package VII.
    (ii) Authorized categories of supplemental foods. Milk, cheese, 
breakfast cereal, juice, fresh fruits and vegetables, whole wheat/whole 
grain bread, eggs, legumes, peanut butter, and canned fish are the 
categories of supplemental foods authorized in this food

[[Page 400]]

package. The maximum monthly allowances, allowed options and 
substitution rates of supplemental foods for women in Food Package VII 
are stated in Table 2 of paragraph (e)(10) of this section.
    (8) Supplemental Foods--Maximum monthly allowances, options and 
substitution rates, and minimum requirements. Tables 1 through 3 of 
paragraphs (e)(9) through (e)(11) of this section specify the maximum 
monthly allowances of foods in WIC food packages and identify WIC food 
options and substitution rates. Table 4 of paragraph (e)(12) of this 
section describes the minimum requirements and specifications of 
supplemental foods in the WIC food packages.
    (9) Full nutrition benefit and maximum monthly allowances, options 
and substitution rates of supplemental foods for infants in Food 
Packages I, II and III are stated in Table 1 as follows:

       Table 1--Full Nutrition Benefit (FNB) and Maximum Monthly Allowances (MMA) of Supplemental Foods for Infants in Food Packages I, II and III
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          Fully formula fed (FF)           Partially (mostly) breastfed (BF/FF)            Fully breastfed (BF)
                                 -----------------------------------------------------------------------------------------------------------------------
                                                                          Food Packages I-BF/
                                  Food Packages I-FF                      FF & III BF/FF (A:   Food Packages II-
            Foods \1\                & III-FF A: 0     Food Packages II-   0 to 1 month 2 3)   BF/FF & III BF/FF   Food Package I-BF  Food Package II-BF
                                   through 3 months      FF & III-FF 6      B: 1 through 3       6 through 11     0 through 5 months     6 through 11
                                    B: 4 through 5     through 11 months      months C: 4           months                                  months
                                        months                             through 5 months
--------------------------------------------------------------------------------------------------------------------------------------------------------
WIC Formula 4 5 6 7 8...........  A: FNB = 806 fl     FNB = 624 fl oz,    A: 104 fl oz        FNB = 312 fl oz,
                                   oz, MMA = 823 fl    MMA = 630 fl oz,    reconstituted       MMA = 315 fl oz,
                                   oz, reconstituted   reconstituted       powder.             reconstituted
                                   liquid              liquid             B: FNB = 364 fl      liquid
                                   concentrate or      concentrate.        oz, MMA = 388 fl    concentrate or
                                   832 fl. oz. RTF    or 643 fl. oz RTF    oz, reconstituted   338 fl oz RTF or
                                   or 870 fl oz        or 696 fl oz        liquid              384 fl oz
                                   reconstituted       reconstituted       concentrate or      reconstituted
                                   powder.             powder.             384 fl oz RTF or    powder.
                                                                           435 fl oz
                                                                           reconstituted
                                                                           powder.
                                  B: FNB = 884 fl
                                   oz, MMA = 896 fl
                                   oz, reconstituted
                                   liquid
                                   concentrate or
                                   913 fl oz RTF or
                                   960 fl oz
                                   reconstituted
                                   powder.
                                                                          C: FNB = 442 fl
                                                                           oz, MMA = 460 fl
                                                                           oz, reconstituted
                                                                           liquid
                                                                           concentrate or
                                                                           474 fl oz RTF or
                                                                           522 fl oz
                                                                           reconstituted
                                                                           powder.
Infant Cereal 9 11..............  ..................  24 oz.............  ..................  24 oz.............  ..................  24 oz.
Infant food fruits and            ..................  128 oz............  ..................  128 oz............  ..................  256 oz.
 vegetables 9 10 11 12 13.
Infant food meat \9\............  ..................  ..................  ..................  ..................  ..................  77.5 oz.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 1 footnotes: (Abbreviations in order of appearance in table): FF = fully formula fed; BF/FF = partially (mostly) breastfed; BF = fully breastfed;
  RTF = Ready-to-feed; N/A = the supplemental food is not authorized in the corresponding food package.
\1\ Table 4 of paragraph (e)(12) of this section describes the minimum requirements and specifications for the supplemental foods. The competent
  professional authority (CPA) is authorized to determine nutritional risk and prescribe supplemental foods as established by State agency policy in
  Food Packages I and II. In Food Package III, the CPA, as established by State agency policy, is authorized to determine nutritional risk and prescribe
  supplemental foods per medical documentation.
\2\ State agencies have the option to issue not more than one can of powder infant formula in the container size that provides closest to 104
  reconstituted fluid ounces to breastfed infants on a case-by-case basis.
\3\ Liquid concentrate and ready-to-feed (RTF) may be substituted at rates that provide comparable nutritive value.

[[Page 401]]

 
\4\ WIC formula means infant formula, exempt infant formula, or WIC-eligible nutritionals. Infant formula may be issued for infants in Food Packages I,
  II and III. Medical documentation is required for issuance of infant formula, exempt infant formula, WIC-eligible nutritionals, and other supplemental
  foods in Food Package III. Only infant formula may be issued for infants in Food Packages I and II.
\5\ The full nutrition benefit is defined as the minimum amount of reconstituted fluid ounces of liquid concentrate infant formula as specified for each
  infant food package category and feeding variation (e.g., Food Package IA-fully formula fed).
\6\ The maximum monthly allowance is specified in reconstituted fluid ounces for liquid concentrate, RTF liquid, and powder forms of infant formula and
  exempt infant formula. Reconstituted fluid ounce is the form prepared for consumption as directed on the container.
\7\ State agencies must provide at least the full nutrition benefit authorized to non-breastfed infants up to the maximum monthly allowance for the
  physical form of the product specified for each food package category. State agencies must issue whole containers that are all the same size of the
  same physical form. Infant formula amounts for breastfed infants, even those in the fully formula fed category should be individually tailored to the
  amounts that meet their nutritional needs.
\8\ State agencies may round up and disperse whole containers of infant formula over the food package timeframe to allow participants to receive the
  full nutrition benefit. State agencies must use the methodology described in accordance with paragraph (h)(1) of this section.
\9\ State agencies may round up and disperse whole containers of infant foods (infant cereal, fruits and vegetables, and meat) over the Food Package
  timeframe. State agencies must use the methodology described in accordance with paragraph (h)(2) of this section.
\10\ At State agency option, for infants 6-12 months of age, fresh banana may replace up to 16 ounces of infant food fruit at a rate of 1 pound of
  bananas per 8 ounces of infant food fruit. State agencies may also substitute fresh bananas at a rate of 1 banana per 4 ounces of jarred infant food
  fruit, up to a maximum of 16 ounces.
\11\ In lieu of infant foods (cereal, fruit and vegetables), infants greater than 6 months of age in Food Package III may receive infant formula, exempt
  infant formula or WIC-eligible nutritionals at the same maximum monthly allowance as infants ages 4 through 5 months of age of the same feeding
  option.
\12\ At State agency option, infants 9 months through 11 months in Food Packages II and III may receive a cash-value voucher to purchase fresh (only)
  fruits and vegetables in lieu of a portion of the infant food fruits and vegetables. Partially (mostly) breastfed infants and fully formula fed
  infants may receive a $4 cash-value voucher plus 64 ounces of infant food fruits and vegetables; fully breastfeeding infants may receive a $8 cash-
  value voucher plus 128 ounces of infant food fruit and vegetables.
\13\ State agencies may not categorically issue cash-value vouchers for infants 9 months through 11 months. The cash-value voucher is to be provided to
  the participant only after an individual nutrition assessment, as established by State agency policy, and is optional for the participant, i.e., the
  mother may choose to receive either the maximum allowance of jarred foods or a combination of jarred foods and a fruit and vegetable cash-value
  voucher for her infant. State agencies must ensure that appropriate nutrition education is provided to the caregiver addressing safe food preparation,
  storage techniques, and feeding practices to make certain participants are meeting their nutritional needs in a safe and effective manner.

    (10) Maximum monthly allowances of supplemental foods in Food 
Packages IV through VII. The maximum monthly allowances, options and 
substitution rates of supplemental foods for children and women in Food 
Package IV through VII are stated in Table 2 as follows:

 Table 2--Maximum Monthly Allowances of Supplemental Foods for Children and Women in Food Packages IV, V, VI and
                                                       VII
----------------------------------------------------------------------------------------------------------------
                                       Children                                  Women
                                 -------------------------------------------------------------------------------
                                                        Food Package V:
                                                         Pregnant and      Food Package VI:    Food Package VII:
            Foods \1\             Food Package IV: 1  Partially (Mostly)   Postpartum (up to         Fully
                                    through 4 years    Breastfeeding (up       6 months        Breastfeeding (up
                                                           to 1 year        postpartum) \3\     to 1 year post-
                                                        postpartum) \2\                           partum) 4 5
----------------------------------------------------------------------------------------------------------------
Juice, single strength \6\......  128 fl oz.........  144 fl oz.........  96 fl oz..........  144 fl oz.
Milk, fluid.....................  16 qt 7 8 9 10 11.  22 qt 7 8 9 10 12.  16 qt 7 8 9 10 12.  24 qt 7 8 9 10 12.
Breakfast cereal \13\...........  36 oz.............  36 oz.............  36 oz.............  36 oz.
Cheese..........................  N/A...............  N/A...............  N/A...............  1 lb.
Eggs............................  1 dozen...........  1 dozen...........  1 dozen...........  2 dozen.
Fresh fruits and vegetables 14    $8.00 in cash-      $10.00 in cash-     $10.00 in cash-     $10.00 in cash-
 15.                               value vouchers.     value vouchers.     value vouchers.     value vouchers.
Whole wheat or whole grain bread  2 lb..............  1 lb..............  N/A...............  1 lb.
 \16\.
Fish (canned)...................  N/A...............  N/A...............  N/A...............  30 oz.
Legumes, dry \17\ and/or Peanut   1 lb or 18 oz.....  1 lb and 18 oz....  1 lb or 18 oz.....  1 lb and 18 oz.
 butter.
----------------------------------------------------------------------------------------------------------------
Table 2 Footnotes: N/A = the supplemental food is not authorized in the corresponding food package.
\1\ Table 4 of paragraph (e)(12) of this section describes the minimum requirements and specifications for the
  supplemental foods. The competent professional authority (CPA) is authorized to determine nutritional risk and
  prescribe supplemental foods as established by State agency policy.
\2\ Food Package V is issued to two categories of WIC participants: Women participants with singleton
  pregnancies; breastfeeding women whose partially (mostly) breastfed infants receive formula from the WIC
  Program in amounts that do not exceed the maximum formula allowances, as appropriate for the age of the infant
  as described in Table 1 of paragraph (e)(9) of this section.
\3\ Food Package VI is issued to two categories of WIC participants: Non-breastfeeding postpartum women and
  breastfeeding postpartum women whose infants receive more than the maximum infant formula allowances, as
  appropriate for the age of the infant as described in Table 1 of paragraph (e)(9) of this section.
\4\ Food Package VII is issued to four categories of WIC participants: Fully breastfeeding women whose infants
  do not receive formula from the WIC Program; women pregnant with two or more fetuses; women partially (mostly)
  breastfeeding multiple infants from the same pregnancy; and pregnant women who are also fully or partially
  (mostly) breastfeeding singleton infants.
\5\ Women fully breastfeeding multiple infants from the same pregnancy are prescribed 1.5 times the maximum
  allowances.

[[Page 402]]

 
\6\ Combinations of single-strength and concentrated juices may be issued provided that the total volume does
  not exceed the maximum monthly allowance for single-strength juice.
\7\ Whole milk is the standard milk for issuance to 1-year-old children (12 through 23 months). At State agency
  option, fat-reduced milks may be issued to 1-year-old children for whom overweight or obesity is a concern.
  The need for fat-reduced milks for 1-year-old children must be based on an individual nutritional assessment
  and consultation with the child's health care provider if necessary, as established by State agency policy.
  Lowfat (1%) or nonfat milks are the standard milk for issuance to children 24 months of age and women. Reduced
  fat (2%) milk is authorized only for participants with certain conditions, including but not limited to,
  underweight and maternal weight loss during pregnancy. The need for reduced fat (2%) milk for children 24
  months of age (Food Package IV) and women (Food Packages V-VII) must be based on an individual nutritional
  assessment as established by State agency policy.
\8\ Evaporated milk may be substituted at the rate of 16 fluid ounces of evaporated milk per 32 fluid ounces of
  fluid milk or a 1:2 fluid ounce substitution ratio. Dry milk may be substituted at an equal reconstituted rate
  to fluid milk.
\9\ For children and women, cheese may be substituted for milk at the rate of 1 pound of cheese per 3 quarts of
  milk. For children and women in Food Packages IV-VI, no more than 1 pound of cheese may be substituted. For
  fully breastfeeding women in Food Package VII, no more than 2 pounds of cheese may be substituted for milk.
  State agencies do not have the option to issue additional amounts of cheese beyond these maximums even with
  medical documentation. (No more than a total of 4 quarts of milk may be substituted for a combination of
  cheese, yogurt or tofu for children and women in Food Packages IV-VI. No more than a total of 6 quarts of milk
  may be substituted for a combination of cheese, yogurt or tofu for women in Food Package VII.)
\10\ For children and women, yogurt may be substituted for fluid milk at the rate of 1 quart of yogurt per 1
  quart of milk; a maximum of 1 quart of milk can be substituted. Additional amounts of yogurt are not
  authorized. Whole yogurt is the standard yogurt for issuance to 1-year-old children (12 through 23 months). At
  State agency option, lowfat or nonfat yogurt may be issued to 1-year-old children for whom overweight and
  obesity is a concern. The need for lowfat or nonfat yogurt for 1-year-old children must be based on an
  individual nutritional assessment and consultation with the child's health care provider if necessary, as
  established by State agency policy. Lowfat or nonfat yogurts are the only types of yogurt authorized for
  children 24 months of age and women. (No more than a total of 4 quarts of milk may be substituted for a
  combination of cheese, yogurt or tofu for children and women in Food Packages IV-VI. No more than a total of 6
  quarts of milk may be substituted for a combination of cheese, yogurt or tofu for women in Food Package VII.)
\11\ For children, issuance of tofu and soy-based beverage as substitutes for milk must be based on an
  individual nutritional assessment and consultation with the participant's health care provider if necessary,
  as established by State agency policy. Such determination can be made for situations that include, but are not
  limited to, milk allergy, lactose intolerance, and vegan diets. Soy-based beverage may be substituted for milk
  for children on a quart for quart basis up to the total maximum allowance of milk. Tofu may be substituted for
  milk for children at the rate of 1 pound of tofu per 1 quart of milk. (No more than a total of 4 quarts of
  milk may be substituted for a combination of cheese, yogurt or tofu for children in Food Package IV.)
  Additional amounts of tofu may be substituted, up to the maximum allowance for fluid milk for lactose
  intolerance or other reasons, as established by State agency policy.
\12\ For women, soy-based beverage may be substituted for milk on a quart for quart basis up to the total
  maximum allowance of milk. Tofu may be substituted for milk at the rate of 1 pound of tofu per 1 quart of
  milk. (No more than a total of 4 quarts of milk may be substituted for a combination of cheese, yogurt or tofu
  for women in Food Packages V and VI. No more than a total of 6 quarts of milk may be substituted for a
  combination of cheese, yogurt or tofu for women in Food Package VII.). Additional amounts of tofu may be
  substituted, up to the maximum allowances for fluid milk, for lactose intolerance or other reasons, as
  established by State agency policy.
\13\ At least one-half of the total number of breakfast cereals on the State agency's authorized food list must
  have whole grain as the primary ingredient and meet labeling requirements for making a health claim as a
  ``whole grain food with moderate fat content'' as defined in Table 4 of paragraph (e)(12) of this section.
\14\ Both fresh fruits and fresh vegetables must be authorized by State agencies. Processed fruits and
  vegetables, i.e., canned (shelf-stable), frozen, and/or dried fruits and vegetables may also be authorized to
  offer a wider variety and choice for participants. State agencies may choose to authorize one or more of the
  following processed fruits and vegetables: canned fruit, canned vegetables, frozen fruit, frozen vegetables,
  dried fruit, and/or dried vegetables. The cash-value voucher may be redeemed for any eligible fruit and
  vegetable (refer to Table 4 of paragraph (e)(12) of this section and its footnotes). Except as authorized in
  paragraph (b)(1)(i) of this section, State agencies may not selectively choose which fruits and vegetables are
  available to participants. For example, if a State agency chooses to offer dried fruits, it must authorize all
  WIC-eligible dried fruits.
\15\ The monthly value of the fruit/vegetable cash-value vouchers will be adjusted annually for inflation as
  described in Sec. 246.16(j).
\16\ Whole wheat and/or whole grain bread must be authorized. State agencies have the option to also authorize
  brown rice, bulgur, oatmeal, whole-grain barley, whole wheat macaroni products, or soft corn or whole wheat
  tortillas on an equal weight basis.
\17\ Canned legumes may be substituted for dry legumes at the rate of 64 oz. (e.g., four 16-oz cans) of canned
  beans for 1 pound dry beans. In Food Packages V and VII, both beans and peanut butter must be provided.
  However, when individually tailoring Food Packages V or VII for nutritional reasons (e.g., food allergy,
  underweight, participant preference), State agencies have the option to authorize the following substitutions:
  1 pound dry and 64 oz. canned beans/peas (and no peanut butter); or 2 pounds dry or 128 oz. canned beans/peas
  (and no peanut butter); or 36 oz. peanut butter (and no beans).

    (11) Maximum monthly allowances of supplemental foods for children 
and women with qualifying conditions in Food Package III. The maximum 
monthly allowances, options and substitution rates of supplemental foods 
for participants with qualifying conditions in Food Package III are 
stated in Table 3 as follows:

     Table 3--Maximum Monthly Allowances (MMA) of Supplemental Foods for Children and Women With Qualifying
                                         Conditions in Food Package III
----------------------------------------------------------------------------------------------------------------
                                       Children                                  Women
                                 -------------------------------------------------------------------------------
                                                         Pregnant and
            Foods \1\                                      partially       Postpartum (up to         Fully
                                   1 through 4 years   breastfeeding (up       6 months       breastfeeding, (up
                                                           to 1 year        postpartum) \3\     to 1 year post-
                                                        postpartum) \2\                         partum) \4\ \5\
----------------------------------------------------------------------------------------------------------------
Juice, single strength \6\......  128 fl oz.........  144 fl oz.........  96 fl oz..........  144 fl oz.
WIC Formula \7\ \8\.............  455 fl oz liquid    455 fl oz liquid    455 fl oz liquid    455 fl oz liquid
                                   concentrate.        concentrate.        concentrate.        concentrate.
Milk............................  16 qt \9\ \10\      22 qt \9\ \10\      16 qt \9\ \10\      24 qt \9\ \10\
                                   \11\ \12\ \13\.     \11\ \12\ \14\.     \11\ \12\ \14\.     \11\ \12\ \14\.

[[Page 403]]

 
Breakfast cereal \15\ \16\......  36 oz.............  36 oz.............  36 oz.............  36 oz.
Cheese..........................  N/A...............  N/A...............  N/A...............  1 lb.
Eggs............................  1 dozen...........  1 dozen...........  1 dozen...........  2 dozen.
Fruits and vegetables \17\ \18\   $8.00 in cash-      $10.00 in cash-     $10.00 in cash-     $10.00 in cash-
 \19\.                             value vouchers.     value vouchers.     value vouchers.     value vouchers.
Whole wheat or whole grain bread  2 lb..............  1 lb..............  N/A...............  1 lb.
 \20\.
Fish (canned)...................  N/A...............  N/A...............  N/A...............  30 oz.
Legumes, dry \21\ and/or Peanut   1 lb or 18 oz.....  1 lb and 18 oz....  1 lb or 18 oz.....  1 lb and 18 oz.
 butter.
----------------------------------------------------------------------------------------------------------------
Table 3 Footnotes: N/A = the supplemental food is not authorized in the corresponding food package.
\1\ Table 4 of paragraph (e)(12) of this section describes the minimum requirements and specifications for the
  supplemental foods. The competent professional authority (CPA), as established by State agency policy, is
  authorized to determine nutritional risk and prescribe supplemental foods per medical documentation.
\2\ This food package is issued to two categories of WIC participants: Women participants with singleton
  pregnancies and breastfeeding women whose partially (mostly) breastfed infants receive formula from the WIC
  Program in amounts that do not exceed the maximum formula allowances as appropriate for the age of the infant
  as described in Table 1 of paragraph (e)(9) of this section.
\3\ This food package is issued to two categories of WIC participants: Non-breastfeeding postpartum women and
  breastfeeding postpartum women whose breastfed infants receive more than the maximum infant formula allowances
  as appropriate for the age of the infant as described in Table 1 of paragraph (e)(9) of this section.
\4\ This food package is issued to four categories of WIC participants: Fully breastfeeding women whose infants
  do not receive formula from the WIC Program; women pregnant with two or more fetuses; women partially (mostly)
  breastfeeding multiple infants from the same pregnancy, and pregnant women who are also partially (mostly)
  breastfeeding singleton infants.
\5\ Women fully breastfeeding multiple infants from the same pregnancy are prescribed 1.5 times the maximum
  allowances.
\6\ Combinations of single-strength and concentrated juices may be issued provided that the total volume does
  not exceed the maximum monthly allowance for single-strength juice.
\7\ WIC formula means infant formula, exempt infant formula, or WIC-eligible nutritionals.
\8\ Powder and ready-to-feed may be substituted at rates that provide comparable nutritive value.
\9\ Whole milk is the standard milk for issuance to 1-year-old children (12 through 23 months). Fat-reduced
  milks may be issued to 1-year old children as determined appropriate by the health care provider per medical
  documentation. Lowfat (1%) or nonfat milks are the standard milks for issuance for children 24 months of age
  and women. Whole milk or reduced fat (2%) milk may be substituted for lowfat (1%) or nonfat milk for children
  24 months of age and women as determined appropriate by the health care provider per medical documentation.
\10\ Evaporated milk may be substituted at the rate of 16 fluid ounces of evaporated milk per 32 fluid ounces of
  fluid milk or a 1:2 fluid ounce substitution ratio. Dry milk may be substituted at an equal reconstituted rate
  to fluid milk.
\11\ For children and women, cheese may be substituted for milk at the rate of 1 pound of cheese per 3 quarts of
  milk. For children and women in the pregnant, partially breastfeeding and postpartum food packages, no more
  than 1 pound of cheese may be substituted. For women in the fully breastfeeding food package, no more than 2
  pounds of cheese may be substituted for milk. State agencies do not have the option to issue additional
  amounts of cheese beyond these maximums even with medical documentation. (No more than a total of 4 quarts of
  milk may be substituted for a combination of cheese, yogurt or tofu for children and women in the pregnant,
  partially breastfeeding and postpartum food packages. No more than a total of 6 quarts of milk may be
  substituted for a combination of cheese, yogurt or tofu for women in the fully breastfeeding food package.)
\12\ For children and women, yogurt may be substituted for fluid milk at the rate of 1 quart of yogurt per 1
  quart of milk; a maximum of 1 quart of milk can be substituted. Additional amounts of yogurt are not
  authorized. Whole yogurt is the standard yogurt for issuance to 1-year-old children (12 through 23 months).
  Lowfat or nonfat yogurt may be issued to 1-year-old children (12 months to 23 months) as determined
  appropriate by the health care provider per medical documentation. Lowfat or nonfat yogurts are the standard
  yogurt for issuance to children 24 months of age and women. Whole yogurt may be substituted for lowfat or
  nonfat yogurt for children 24 months of age and women as determined appropriate by the health care provider
  per medical documentation. (No more than a total of 4 quarts of milk may be substituted for a combination of
  cheese, yogurt or tofu for children and women in the pregnant, partially breastfeeding and postpartum food
  packages. No more than a total of 6 quarts of milk may be substituted for a combination of cheese, yogurt or
  tofu for women in the fully breastfeeding food package.)
\13\ For children, soy-based beverage and tofu may be substituted for milk as determined appropriate by the
  health care provider per medical documentation. Soy-based beverage may be substituted for milk on a quart for
  quart basis up to the total maximum allowance of milk. Tofu may be substituted for milk for children at the
  rate of 1 pound of tofu per 1 quart of milk. (No more than a total of 4 quarts of milk may be substituted for
  a combination of cheese, yogurt or tofu for children.) Additional amounts of tofu may be substituted, up to
  the maximum allowance for fluid milk for children, as determined appropriate by the health care provider per
  medical documentation.
\14\ For women, soy-based beverage may be substituted for milk on a quart for quart basis up to the total
  maximum monthly allowance of milk. Tofu may be substituted for milk at the rate of 1 pound of tofu per 1 quart
  of milk. (No more than a total of 4 quarts of milk may be substituted for a combination of cheese, yogurt or
  tofu for women in the pregnant, partially breastfeeding and postpartum food packages. No more than a total of
  6 quarts of milk may be substituted for a combination of cheese, yogurt or tofu for women in the fully
  breastfeeding food package.) Additional amounts of tofu may be substituted, up to the maximum allowances for
  fluid milk, as determined appropriate by the health care provider per medical documentation.
\15\ 32 dry ounces of infant cereal may be substituted for 36 ounces of breakfast cereal as determined
  appropriate by the health care provider per medical documentation.
\16\ At least one half of the total number of breakfast cereals on the State agency's authorized food list must
  have whole grain as the primary ingredient and meet labeling requirements for making a health claim as a
  ``whole grain food with moderate fat content'' as defined in Table 4 of paragraph (e)(12) of this section.
\17\ Both fresh fruits and fresh vegetables must be authorized by State agencies. Processed fruits and
  vegetables, i.e., canned (shelf-stable), frozen, and/or dried fruits and vegetables may also be authorized to
  offer a wider variety and choice for participants. State agencies may choose to authorize one or more of the
  following processed fruits and vegetables: canned fruit, canned vegetables, frozen fruit, frozen vegetables,
  dried fruit, and/or dried vegetables. The cash-value voucher may be redeemed for any eligible fruit and
  vegetable (refer to Table 4 of paragraph (e)(12) of this section and its footnotes). Except as authorized in
  paragraph (b)(1)(i) of this section, State agencies may not selectively choose which fruits and vegetables are
  available to participants. For example, if a State agency chooses to offer dried fruits, it must authorize all
  WIC-eligible dried fruits.

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\18\ Children and women whose special dietary needs require the use of pureed foods may receive commercial
  jarred infant food fruits and vegetables in lieu of the cash-value voucher. Children may receive 128 oz of
  commercial jarred infant food fruits and vegetables and women may receive 160 oz of commercial jarred infant
  food fruits and vegetables in lieu of the cash-value voucher. Infant food fruits and vegetables may be
  substituted for the cash-value voucher as determined appropriate by the health care provider per medical
  documentation.
\19\ The monthly value of the fruit/vegetable cash-value vouchers will be adjusted annually for inflation as
  described in Sec. 246.16(j).
\20\ Whole wheat and/or whole grain bread must be authorized. State agencies have the option to also authorize
  brown rice, bulgur, oatmeal, whole-grain barley, whole wheat macaroni products, or soft corn or whole wheat
  tortillas on an equal weight basis.
\21\ Canned legumes may be substituted for dry legumes at the rate of 64 oz. (e.g., four 16-oz cans) of canned
  beans for 1 pound dry beans. In Food Packages V and VII, both beans and peanut butter must be provided.
  However, when individually tailoring Food Packages V or VII for nutritional reasons (e.g., food allergy,
  underweight, participant preference), State agencies have the option to authorize the following substitutions:
  1 pound dry and 64 oz. canned beans/peas (and no peanut butter); or 2 pounds dry or 128 oz. canned beans/peas
  (and no peanut butter); or 36 oz. peanut butter (and no beans).

    (12) Minimum requirements and specifications for supplemental foods. 
Table 4 describes the minimum requirements and specifications for 
supplemental foods in all food packages:

 Table 4--Minimum Requirements and Specifications for Supplemental Foods
------------------------------------------------------------------------
       Categories/foods         Minimum requirements and specifications
------------------------------------------------------------------------
WIC FORMULA:
    Infant formula...........  All authorized infant formulas must:
                               (1) Meet the definition for an infant
                                formula in section 201(z) of the Federal
                                Food, Drug, and Cosmetic Act (21 U.S.C.
                                321(z)) and meet the requirements for an
                                infant formula under section 412 of the
                                Federal Food, Drug and Cosmetic Act, as
                                amended (21 U.S.C. 350a) and the
                                regulations at 21 CFR parts 106 and 107;
                               (2) Be designed for enteral digestion via
                                an oral or tube feeding;
                               (3) Provide at least 10 mg iron per liter
                                (at least 1.5 mg iron/100 kilocalories)
                                at standard dilution;
                               (4) Provide at least 67 kilocalories per
                                100 milliliters (approximately 20
                                kilocalories per fluid ounce) at
                                standard dilution.
                               (5) Not require the addition of any
                                ingredients other than water prior to
                                being served in a liquid state.
    Exempt infant formula....  All authorized exempt infant formula
                                must:
                               (1) Meet the definition and requirements
                                for an exempt infant formula under
                                section 412(h) of the Federal Food,
                                Drug, and Cosmetic Act as amended (21
                                U.S.C. 350a(h)) and the regulations at
                                21 CFR parts 106 and 107; and
                               (2) Be designed for enteral digestion via
                                an oral or tube feeding.
    WIC-eligible               Certain enteral products that are
     nutritionals.\1\.          specifically formulated to provide
                                nutritional support for individuals with
                                a qualifying condition, when the use of
                                conventional foods is precluded,
                                restricted, or inadequate. Such WIC-
                                eligible nutritionals must serve the
                                purpose of a food, meal or diet (may be
                                nutritionally complete or incomplete)
                                and provide a source of calories and one
                                or more nutrients; be designed for
                                enteral digestion via an oral or tube
                                feeding; and may not be a conventional
                                food, drug, flavoring, or enzyme.
 
MILK AND MILK ALTERNATIVES:
  Cow's milk \2\.............  Must conform to FDA standard of identity
                                for whole, reduced fat, lowfat, or
                                nonfat milks (21 CFR 131.110). Must be
                                pasteurized. May be flavored or
                                unflavored. May be fluid, shelf-stable,
                                evaporated (21 CFR 131.130), or dry.
                               Dry whole milk must conform to FDA
                                standard of identity (21 CFR 131.147).
                                Nonfat dry milk must conform to FDA
                                standard of identity (21 CFR 131.127).
                               Cultured milks must conform to FDA
                                standard of identity for cultured milk,
                                e.g. cultured buttermilk, kefir cultured
                                milk, acidophilus cultured milk (21 CFR
                                131.112).
                               Acidified milk must conform to FDA
                                standard of identity for acidified milk,
                                e.g., acidified kefir milk, acidified
                                acidophilus milk or acidified buttermilk
                                (21 CFR 131.111).
                               All reduced fat, lowfat, and nonfat cow's
                                milk types and varieties must contain at
                                least 400 IU of vitamin D per quart (100
                                IU per cup) and 2000 IU of vitamin A per
                                quart (500 IU per cup).
Goat's milk..................  Must be pasteurized. May be flavored or
                                unflavored. May be fluid, shelf-stable,
                                evaporated or dry (i.e., powdered).
                               All reduced fat, lowfat, and nonfat
                                goat's milk must contain at least 400 IU
                                of vitamin D per quart (100 IU per cup)
                                and 2000 IU of vitamin A per quart (500
                                IU per cup).
Cheese.......................  Domestic cheese made from 100 percent
                                pasteurized milk. Must conform to FDA
                                standard of identity (21 CFR part 133);
                                Monterey Jack, Colby, natural Cheddar,
                                Swiss, Brick, Muenster, Provolone, part-
                                skim or whole Mozzarella, pasteurized
                                process American, or blends of any of
                                these cheeses are authorized.
                               Cheeses that are labeled low, free,
                                reduced, less or light in sodium, fat or
                                cholesterol are WIC eligible.

[[Page 405]]

 
Yogurt (cow's milk)..........  Yogurt must be pasteurized and conform to
                                FDA standard of identity for whole fat
                                (21 CFR 131.200), lowfat (21 CFR
                                131.203), or nonfat (21 CFR 131.206);
                                plain or flavored with 40 g of total
                                sugars per 1 cup yogurt. Yogurts that
                                are fortified with vitamin A and D and
                                other nutrients may be allowed at the
                                State agency's option. Yogurts sold with
                                accompanying mix-in ingredients such as
                                granola, candy pieces, honey, nuts and
                                similar ingredients are not authorized.
                                Drinkable yogurts are not authorized.
Tofu.........................  Calcium-set tofu prepared with calcium
                                salts (e.g., calcium sulfate). May not
                                contain added fats, sugars, oils, or
                                sodium. Tofu must be calcium-set, i.e.,
                                contain calcium salts, but may also
                                contain other coagulants, i.e.,
                                magnesium chloride.
Soy-based beverage...........  Must be fortified to meet the following
                                nutrient levels: 276 mg calcium per cup,
                                8 g protein per cup, 500 IU vitamin A
                                per cup, 100 IU vitamin D per cup, 24 mg
                                magnesium per cup, 222 mg phosphorus per
                                cup, 349 mg potassium per cup, 0.44 mg
                                riboflavin per cup, and 1.1 mcg vitamin
                                B12 per cup, in accordance with
                                fortification guidelines issued by FDA.
                                May be flavored or unflavored.
JUICE........................  Must be pasteurized 100% unsweetened
                                fruit juice. Must contain at least 30 mg
                                of vitamin C per 100 mL of juice. Must
                                conform to FDA standard of identity as
                                appropriate (21 CFR part 146) or
                                vegetable juice must conform to FDA
                                standard of identity as appropriate (21
                                CFR part 156). With the exception of
                                100% citrus juices, State agencies must
                                verify the vitamin C content of all
                                State-approved juices. Juices that are
                                fortified with other nutrients may be
                                allowed at the State agency's option.
                                Juice may be fresh, from concentrate,
                                frozen, canned, or shelf-stable. Blends
                                of authorized juices are allowed.
                               Vegetable juice may be regular or lower
                                in sodium.
EGGS.........................  Fresh shell domestic hens' eggs or dried
                                eggs mix (must conform to FDA standard
                                of identity in 21 CFR 160.105) or
                                pasteurized liquid whole eggs (must
                                conform to FDA standard of identity in
                                21 CFR 160.115).
                               Hard boiled eggs, where readily available
                                for purchase in small quantities, may be
                                provided for homeless participants.
BREAKFAST CEREAL (READY-TO-    Must contain a minimum of 28 mg iron per
 EAT AND INSTANT AND REGULAR    100 g dry cereal.
 HOT CEREALS).                 Must contain 21.2 g sucrose and other
                                sugars per 100 g dry cereal (6 g per dry
                                oz).
                               At least half of the cereals authorized
                                on a State agency's food list must have
                                whole grain as the primary ingredient by
                                weight AND meet labeling requirements
                                for making a health claim as a ``whole
                                grain food with moderate fat
                                content''.\3\
FRUITS AND VEGETABLES (FRESH   Any variety of fresh (as defined by 21
 AND PROCESSED) 4 5 6 8 9.      CFR 101.95) whole or cut fruit without
                                added sugars.
                               Any variety of fresh (as defined by 21
                                CFR 101.95) whole or cut vegetable,
                                except white potatoes, without added
                                sugars, fats, or oils (orange yams and
                                sweet potatoes are allowed).
                               Any variety of canned fruits (must
                                conform to FDA standard of identity as
                                appropriate (21 CFR part 145));
                                including applesauce, juice pack or
                                water pack without added sugars, fats,
                                oils, or salt (i.e., sodium). The fruit
                                must be listed as the first ingredient.
                               Any variety of frozen fruits without
                                added sugars, fats, oils, or salt (i.e.,
                                sodium).
                               Any variety of canned or frozen
                                vegetables, except white potatoes
                                (orange yams and sweet potatoes are
                                allowed); without added sugars, fats, or
                                oils. Vegetable must be listed as the
                                first ingredient. May be regular or
                                lower in sodium. Must conform to FDA
                                standard of identity as appropriate (21
                                CFR part 155).
                               Any type of dried fruits or dried
                                vegetable, except white potatoes (orange
                                yams and sweet potatoes are allowed);
                                without added sugars, fats, oils, or
                                salt (i.e., sodium).
                               Any type of immature beans, peas, or
                                lentils, fresh or in canned \5\ forms.
                               Any type of frozen beans (immature or
                                mature). Beans purchased with the CVV
                                may contain added vegetables and fruits,
                                but may not contain added sugars, fats,
                                oils, or meat as purchased. Canned
                                beans, peas, or lentils may be regular
                                or lower in sodium content.
                               State agencies must allow organic forms
                                of WIC-eligible fruits and vegetables.
WHOLE WHEAT BREAD, WHOLE
 GRAIN BREAD, AND WHOLE GRAIN
 OPTIONS:
    Bread....................  Whole wheat bread must conform to FDA
                                standard of identity (21 CFR 136.180).
                                (Includes whole wheat buns and rolls.)
                                ``Whole wheat flour'' and/or ``bromated
                                whole wheat flour'' must be the only
                                flours listed in the ingredient list.
                               OR
                               Whole grain bread must conform to FDA
                                standard of identity (21 CFR 136.110)
                                (includes whole grain buns and rolls).
                               AND
                               Whole grain must be the primary
                                ingredient by weight in all whole grain
                                bread products.
                               AND
                               Must meet FDA labeling requirements for
                                making a health claim as a ``whole grain
                                food with moderate fat content''.\3\

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    Whole Grain Options......  Brown rice, bulgur, oats, and whole-grain
                                barley without added sugars, fats, oils,
                                or salt (i.e., sodium). May be instant-,
                                quick-, or regular-cooking.
                               Soft corn or whole wheat tortillas. Soft
                                corn tortillas made from ground masa
                                flour (corn flour) using traditional
                                processing methods are WIC-eligible,
                                e.g., whole corn, corn (masa), whole
                                ground corn, corn masa flour, masa
                                harina, and white corn flour. For whole
                                wheat tortillas, ``whole wheat flour''
                                must be the only flour listed in the
                                ingredient list.
                               Whole wheat macaroni products. Must
                                conform to FDA standard of identity (21
                                CFR 139.138) and have no added sugars,
                                fats, oils, or salt (i.e., sodium).
                                ``Whole wheat flour'' and/or ``whole
                                durum wheat flour'' must be the only
                                flours listed in the ingredient list.
                                Other shapes and sizes that otherwise
                                meet the FDA standard of identity for
                                whole wheat macaroni (pasta) products
                                (139.138), and have no added sugars,
                                fats, oils, or salt (i.e., sodium), are
                                also authorized (e.g., whole wheat
                                rotini, and whole wheat penne).
FISH (CANNED) \5\............  Canned only:
                               Light tuna (must conform to FDA standard
                                of identity (21 CFR 161.190));
                               Salmon (Pacific salmon must conform to
                                FDA standard of identity (21 CFR
                                161.170));
                               Sardines; and
                               Mackerel (N. Atlantic Scomber scombrus;
                                Chub Pacific Scomber japonicas; Jack
                                Mackerel \10\
                               May be packed in water or oil. Pack may
                                include bones or skin. Added sauces and
                                flavorings, e.g., tomato sauce, mustard,
                                lemon, are authorized at the State
                                agency's option. May be regular or lower
                                in sodium content.
MATURE LEGUMES (DRY BEANS AND  Any type of mature dry beans, peas, or
 PEAS) \7\.                     lentils in dry-packaged or canned \5\
                                forms. Examples include but are not
                                limited to black beans, black-eyed peas,
                                garbanzo beans (chickpeas), great
                                northern beans, white beans (navy and
                                pea beans), kidney beans, mature lima
                                (``butter beans''), fava and mung beans,
                                pinto beans, soybeans/edamame, split
                                peas, lentils, and refried beans. All
                                categories exclude soups. May not
                                contain added sugars, fats, oils,
                                vegetables, fruits or meat as purchased.
                                Canned legumes may be regular or lower
                                in sodium content.\11\
                               Baked beans may only be provided for
                                participants with limited cooking
                                facilities.\11\
PEANUT BUTTER................  Peanut butter and reduced fat peanut
                                butter (must conform to FDA Standard of
                                Identity (21 CFR 164.150)); creamy or
                                chunky, regular or reduced fat, salted
                                or unsalted forms are allowed. Peanut
                                butters with added marshmallows, honey,
                                jelly, chocolate or similar ingredients
                                are not authorized.
INFANT FOODS:
    Infant Cereal............  Infant cereal must contain a minimum of
                                45 mg of iron per 100 g of dry
                                cereal.\12\
    Infant Fruits............  Any variety of single ingredient
                                commercial infant food fruit without
                                added sugars, starches, or salt (i.e.,
                                sodium). Texture may range from strained
                                through diced. The fruit must be listed
                                as the first ingredient.\13\
    Infant Vegetables........  Any variety of single ingredient
                                commercial infant food vegetables
                                without added sugars, starches, or salt
                                (i.e., sodium). Texture may range from
                                strained through diced. The vegetable
                                must be listed as the first
                                ingredient.\14\
    Infant Meat..............  Any variety of commercial infant food
                                meat or poultry, as a single major
                                ingredient, with added broth or gravy.
                                Added sugars or salt (i.e. sodium) are
                                not allowed. Texture may range from
                                pureed through diced.\15\
------------------------------------------------------------------------
Table 4 Footnotes: FDA = Food and Drug Administration of the U.S.
  Department of Health and Human Services.
\1\ The following are not considered a WIC-eligible nutritional:
  Formulas used solely for the purpose of enhancing nutrient intake,
  managing body weight, addressing picky eaters or used for a condition
  other than a qualifying condition (e.g., vitamin pills, weight control
  products, etc.); medicines or drugs, as defined by the Food, Drug and
  Cosmetic Act (21 U.S.C. 350a) as amended; enzymes, herbs, or
  botanicals; oral rehydration fluids or electrolyte solutions;
  flavoring or thickening agents; and feeding utensils or devices (e.g.,
  feeding tubes, bags, pumps) designed to administer a WIC-eligible
  formula.
\2\ All authorized milks must conform to FDA standards of identity for
  milks as defined by 21 CFR part 131 and meet WIC's requirements for
  vitamin fortification as specified in Table 4 of paragraph (e)(12) of
  this section. Additional authorized milks include, but are not limited
  to: calcium-fortified, lactose-reduced and lactose-free, organic and
  UHT pasteurized milks. Other milks are permitted at the State agency's
  discretion provided that the State agency determines that the milk
  meets the minimum requirements for authorized milk.
\3\ FDA Health Claim Notification for Whole Grain Foods with Moderate
  Fat Content at http://www.fda.gov/food/ingredientspackaginglabeling/
  labelingnutrition/ucm073634.htm
\4\ Processed refers to frozen, canned,\5\ or dried.
\5\ ``Canned'' refers to processed food items in cans or other shelf-
  stable containers, e.g., jars, pouches.
\6\ The following are not authorized: herbs and spices; creamed
  vegetables or vegetables with added sauces; mixed vegetables
  containing noodles, nuts or sauce packets, vegetable-grain (pasta or
  rice) mixtures; fruit-nut mixtures; breaded vegetables; fruits and
  vegetables for purchase on salad bars; peanuts or other nuts;
  ornamental and decorative fruits and vegetables such as chili peppers
  on a string; garlic on a string; gourds; painted pumpkins; fruit
  baskets and party vegetable trays; decorative blossoms and flowers,
  and foods containing fruits such as blueberry muffins and other baked
  goods. Home-canned and home-preserved fruits and vegetables are not
  authorized.
\7\ Mature legumes in dry-packed or canned forms may be purchased with
  the WIC food instrument only. Immature varieties of fresh or canned
  beans and frozen beans of any type (immature or mature) may be
  purchased with the cash-value voucher only. Juices are provided as
  separate food WIC categories and are not authorized under the fruit
  and vegetable category.
\8\ Excludes white potatoes, mixed vegetables containing white potatoes,
  dried white potatoes; catsup or other condiments; pickled vegetables;
  olives; soups; juices; and fruit leathers and fruit roll-ups. Canned
  tomato sauce, tomato paste, salsa and spaghetti sauce without added
  sugar, fats, or oils are authorized.
\9\ State agencies have the option to allow only lower sodium canned
  vegetables for purchase with the cash-value voucher.
\10\ FDA defines jack mackerel as any of the following six species:
  Trachurus declivis, trachurus japonicas, trachurur symmetricus,
  trachurus murphyi, trachurus novaezelandiae, and trachurus lathami in
  The Seafood List at http://www.fda.gov/Food/GuidanceRegulation/
  GuidanceDocumentsRegulatoryInformation/Seafood/ucm113260.htm. King
  mackerel is not authorized.
\11\ The following are not authorized in the mature legume category:
  soups; immature varieties of legumes, such as those used in canned
  green peas, green beans, snap beans, yellow beans, and wax beans;
  baked beans with meat, e.g., beans and franks; and beans containing
  added sugars (with the exception of baked beans), fats, oils, meats,
  fruits or vegetables.
\12\ Infant cereals containing infant formula, milk, fruit, or other non-
  cereal ingredients are not allowed.

[[Page 407]]

 
\13\ Mixtures with cereal or infant food desserts (e.g., peach cobbler)
  are not authorized; however, combinations of single ingredients (e.g.,
  apple-banana) and combinations of single ingredients of fruits and/or
  vegetables (e.g., apples and squash) are allowed.
\14\ Combinations of single ingredients (e.g., peas and carrots) and
  combinations of single ingredients of fruits and/or vegetables (e.g.,
  apples and squash) are allowed. Mixed vegetables with white potato as
  an ingredient (e.g., mixed vegetables) are authorized. Infant foods
  containing white potatoes as the primary ingredient are not
  authorized.
\15\ No infant food combinations (e.g., meat and vegetables) or dinners
  (e.g., spaghetti and meatballs) are allowed.

    (f) USDA purchase of commodity foods. (1) At the request of a State 
agency, FNS may 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 must be equivalent to the foods 
specified in Table 4 of paragraph (e)(12) of this section.
    (2) The State agency must:
    (i) Distribute the commodity foods to its local agencies or 
participants; and
    (ii) Ensure satisfactory storage facilities and conditions for the 
commodity foods, including documentation of proper insurance.
    (g) Infant formula manufacturer registration. Infant formula 
manufacturers supplying formula to the WIC Program must be registered 
with the Secretary of Health and Human Services under the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 301 et seq.). Such manufacturers 
wishing to bid for a State contract to supply infant formula to the 
program must 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.
    (h) Rounding up. State agencies may round up to the next whole 
container for either infant formula or infant foods (infant cereal, 
fruits, vegetables and meat). State agencies that use the rounding up 
option must calculate the amount of infant formula or infant foods 
provided according to the requirements and methodology as described in 
this section.
    (1) Infant Formula. State agencies must use the maximum monthly 
allowance of reconstituted fluid ounces of liquid concentrate infant 
formula as specified in Table 1 of paragraph (e)(9) of this section as 
the full nutritional benefit (FNB) provided by infant formula for each 
food package category and infant feeding option (e.g., Food Package I A 
fully formula fed, IA-FF).
    (i) For State agencies that use rounding up of infant formula, the 
FNB is determined over the timeframe (the number of months) that the 
participant receives the food package. In any given month of the 
timeframe, the monthly issuance of reconstituted fluid ounces of infant 
formula may exceed the maximum monthly allowance or fall below the FNB; 
however, the cumulative average over the timeframe may not fall below 
the FNB. In addition, the State agency must:
    (A) Use the methodology described in paragraph (h)(1)(ii) of this 
section for calculating and dispersing the rounding up option;
    (B) Issue infant formula in whole containers that are all the same 
size; and
    (C) Disperse the number of whole containers as evenly as possible 
over the timeframe with the largest monthly issuances given in the 
beginning of the timeframe.
    (ii) The methodology to calculate rounding up and dispersing infant 
formula to the next whole container over the food package timeframe is 
as follows:
    (A) Multiply the FNB amount for the appropriate food package and 
feeding option (e.g. Food Package I A fully formula fed, IA-FF) by the 
timeframe the participant will receive the food package to determine the 
total amount of infant formula to be provided.
    (B) Divide the total amount of infant formula to be provided by the 
yield of the container (in reconstituted fluid ounces) issued by the 
State agency to determine the total number of containers to be issued 
during the timeframe that the food package is prescribed.
    (C) If the number of containers to be issued does not result in a 
whole number of containers, the State agency must round up to the next 
whole container in order to issue whole containers.
    (2) Infant foods. (i) State agencies may use the rounding up option 
to the

[[Page 408]]

next whole container of infant food (infant cereal, fruits, vegetables 
and meats) when the maximum monthly allowance cannot be issued due to 
varying container sizes of authorized infant foods.
    (ii) State agencies that use the rounding up option for infant foods 
must:
    (A) Use the methodology described in paragraph (h)(2)(iii) of this 
section for calculating and dispersing the rounding up option;
    (B) Issue infant foods in whole containers; and
    (C) Disperse the number of whole containers as evenly as possible 
over the timeframe (the number of months the participant will receive 
the food package).
    (iii) The methodology to round up and disperse infant food is as 
follows:
    (A) Multiply the maximum monthly allowance for the infant food by 
the timeframe the participant will receive the food package to determine 
the total amount of food to be provided.
    (B) Divide the total amount of food provided by the container size 
issued by the State agency (e.g., ounces) to determine the total number 
of food containers to be issued during the timeframe that the food 
package is prescribed.
    (C) If the number of containers to be issued does not result in a 
whole number of containers, the State agency must round up to the next 
whole container in order to issue whole containers.
    (i) Plans for substitutions. (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. The plan shall provide the 
State agency's justification, including a specific explanation of the 
cultural eating pattern and other information necessary for FNS to 
evaluate the plan as specified in paragraph (i)(2) of this section.
    (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 food must be widely available to 
participants in the areas where the substitute is intended to be used.
    (iii) The cost of the substitute food must be equivalent to or less 
than the cost of the food it is intended to replace.
    (3) FNS will make a determination on the proposed plan based on the 
evaluation criteria specified in paragraph (i)(2) of this section, as 
appropriate. The State agency shall substitute foods only after 
receiving the written approval of FNS.

[50 FR 6121, Feb. 13, 1985, as amended at 73 FR 11312, Mar. 3, 2008; 74 
FR 48845, Sept. 25, 2009; 74 FR 69245, Dec. 31, 2009; 79 FR 12290, Mar. 
4, 2014; 79 FR 15625, Mar. 20, 2014]



Sec. 246.11  Nutrition education.

    (a) General. (1) Nutrition education including breastfeeding 
promotion and support, shall be considered a benefit of the Program, and 
shall be made available at no cost to the participant. Nutrition 
education including breastfeeding promotion and support, 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 
including breastfeeding promotion and support, 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, 
including breastfeeding promotion and support, as appropriate, 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.

[[Page 409]]

    (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 including breastfeeding promotion and 
support, shall be designed to achieve the following two broad goals:
    (1) Emphasize the relationship between nutrition, physical activity 
and 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 improving 
health status and achieving a positive change in dietary and physical 
activity habits, 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.
    (c) State agency responsibilities. The State agency shall perform 
the following activities in carrying out nutrition education 
responsibilities, including breastfeeding promotion and support,:
    (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)(7), (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.
    (8) Determine if local agencies or clinics can share nutrition 
educational materials with institutions participating in the Child and 
Adult Care

[[Page 410]]

Food Program established under section 17 of the Richard B. Russell 
National School Lunch Act (42 U.S.C. 1766) at no cost to that program, 
if a written materials sharing agreement exists between the relevant 
agencies.
    (d) Local agency responsibilities. Local agencies shall perform the 
following activities in carrying out their nutrition education 
responsibilities, including breastfeeding promotion and support,:
    (1) Make nutrition education, including breastfeeding promotion and 
support, 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 and appropriate, 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, 
including breastfeeding promotion and support, consistent with the State 
agency'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 including 
breastfeeding promotion and support, 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 to parents or caretakers of infant and child participants 
certified for a period in excess of six months. Nutrition education 
contacts shall be scheduled on a periodic basis by the local agency, but 
such contacts do not necessarily need to take place in each quarter of 
the certification period.
    (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; 71 FR 56731, Sept. 27, 2006; 73 FR 11312, Mar. 3, 2008; 76 FR 
59889, Sept. 28, 2011]



                    Subpart E_State Agency Provisions



Sec. 246.12  Food delivery methods.

    (a) General. This section sets forth design and operational 
requirements for food delivery systems. In recognition of emergent 
electronic benefit 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. By October 1, 2020, each

[[Page 411]]

State agency shall implement EBT statewide, unless granted an exemption 
under paragraph (w)(2) of this section.
    (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, 
farmers and farmers' markets, home food delivery contractors, and direct 
distribution sites to accept food instruments and cash-value vouchers.
    (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) 2 CFR part 200, subpart D, and USDA implementing regulations 2 
CFR part 400 and part 415. 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 2 CFR part 200, 
subpart D, and USDA implementing regulations 2 CFR part 400 and part 
415.
    (b) Uniform food delivery systems. The State agency may operate up 
to four types of food delivery systems under its jurisdiction--retail, 
home delivery, direct distribution, or EBT. 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, and breastfeeding counseling 
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 or cash-value voucher 
to an authorized vendor.
    (f) Retail food delivery systems: Food instrument and cash-value 
voucher requirements--(1) General. State agencies using retail food 
delivery systems must use food instruments and cash-value vouchers that 
comply with the requirements of paragraph (f)(2) of this section.
    (2) Printed food instruments and cash-value vouchers. Each printed 
food instrument and cash-value voucher must clearly bear on its face the 
following information:
    (i) Authorized supplemental foods. The supplemental foods authorized 
to be obtained with the food instrument or cash-value voucher;
    (ii) First date of use. The first date on which the food instrument 
or cash-value voucher may be used to obtain supplemental foods;
    (iii) Last date of use. The last date on which the food instrument 
or cash-value vouchers 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 or in the month of February, 28 or 29 days, 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 or cash-value voucher 
is valid. Rather than entering a specific last date of use on each 
instrument or cash-value voucher, all instruments or cash-value vouchers 
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 or cash-value voucher may be used;
    (iv) Redemption period. The date by which the vendor must submit the 
food instrument or cash-value voucher for redemption. This date must be 
no more than 60 days from the first date on which the food instrument or 
cash-value voucher may be used. If the date is fewer than 60 days, then 
the State agency must ensure that the allotted time provides the vendor 
sufficient time to submit the food instrument or cash-value voucher for 
redemption without undue burden;

[[Page 412]]

    (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 and cash-value voucher 
submitted for redemption can be identified by the vendor or farmer that 
submitted the food instrument or cash-value voucher. 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 or cash-value vouchers prior to submitting them for 
redemption.
    (4) Split tender transactions. The State agency must implement 
procedures that allow the participant, authorized representative or 
proxy to pay the difference when a fruit and vegetable purchase exceeds 
the value of the cash-value vouchers.
    (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 the lowest practicable food prices 
consistent with 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) 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. These requirements include that the vendor stock at least 
two different fruits, two different vegetables, and at least one whole 
grain cereal authorized by the State agency. 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. The State agency may not 
authorize a vendor applicant unless it determines that the vendor 
applicant obtains infant formula only from sources included on the State 
agency's list described in paragraph (g)(11) of this section.
    (ii) 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

[[Page 413]]

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.
    (iii) Current SNAP 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 SNAP or 
that has been assessed a SNAP civil money penalty for hardship and the 
disqualification period that would otherwise have been imposed has not 
expired.
    (iv) Provision of incentive items. The State agency may not 
authorize or continue the authorization of an above-50-percent vendor, 
or make payments to an above-50-percent vendor, which provides or 
indicates an intention to provide prohibited incentive items to 
customers. Evidence of such intent includes, but is not necessarily 
limited to, advertising the availability of prohibited incentive items.
    (A) The State agency may approve any of the following incentive 
items to be provided by above-50-percent vendors to customers, at the 
discretion of the State agency:
    (1) Food, merchandise, or services obtained at no cost to the 
vendor, subject to documentation;
    (2) Food, merchandise, or services of nominal value, i.e., having a 
per item cost of less than $2, subject to documentation;
    (3) Food sales and specials which involve no cost or less than $2 in 
cost to the vendor for the food items involved, subject to 
documentation, and do not result in a charge to a WIC food instrument 
for foods in excess of the foods listed on the food instrument;
    (4) Minimal customary courtesies of the retail food trade, such as 
helping the customer to obtain an item from a shelf or from behind a 
counter, bagging food for the customer, and assisting the customer with 
loading the food into a vehicle.
    (B) The following incentive items are prohibited for above-50-
percent vendors to provide to customers:
    (1) Services which result in a conflict of interest or the 
appearance of such conflict for the above-50-percent vendor, such as 
assistance with applying for WIC benefits;
    (2) Lottery tickets provided to customers at no charge or below face 
value;
    (3) Cash gifts in any amount for any reason;
    (4) Anything made available in a public area as a complimentary gift 
which may be consumed or taken without charge;
    (5) An allowable incentive item provided more than once per customer 
per shopping visit, regardless of the number of customers or food 
instruments involved, unless the incentive items had been obtained by 
the vendor at no cost or the total value of multiple incentive items 
provided during one shopping visit would not exceed the less-than-$2 
nominal value limit;
    (6) Food, merchandise or services of greater than nominal value 
provided to the customer;
    (7) Food, merchandise sold to customers below cost, or services 
purchased by customers below fair market value;
    (8) Any kind of incentive item which incurs a liability for the WIC 
Program;
    (9) Any kind of incentive item which violates any Federal, State, or 
local law or regulations.
    (C) For-profit goods or services offered by the above-50-percent 
vendor to WIC participants at a fair market value based on comparable 
for-profit goods or services of other businesses are not incentive items 
subject to approval or prohibition, except that such goods or services 
must not constitute a conflict of interest or result in a liability for 
the WIC Program.

[[Page 414]]

    (4) Vendor selection criteria: competitive price. The State agency 
must establish a vendor peer group system and distinct competitive price 
criteria and allowable reimbursement levels for each peer group. The 
State agency must use the competitive price criteria to evaluate the 
prices a vendor applicant charges for supplemental foods as compared to 
the prices charged by other vendor applicants and authorized vendors, 
and must authorize vendors selected from among those that offer the 
program the most competitive prices. The State agency must consider a 
vendor applicant's shelf prices or the prices it bids for supplemental 
foods, which may not exceed its shelf prices. In establishing 
competitive price criteria and allowable reimbursement levels, the State 
agency must consider participant access by geographic area. The State 
agency must inform all vendors of the criteria for peer groups, and must 
inform each individual vendor of its peer group assignment.
    (i) Vendors that meet the above-50-percent criterion. Vendors that 
derive more than 50 percent of their annual food sales revenue from WIC 
food instruments, and new vendor applicants expected to meet this 
criterion under guidelines approved by FNS, are defined as above-50-
percent vendors. Each State agency annually must implement procedures 
approved by FNS to identify authorized vendors and vendor applicants as 
either above-50-percent vendors or regular vendors, in accordance with 
paragraphs (g)(4)(i)(E) and (g)(4)(i)(F) of this section. The State 
agency must receive FNS certification of its vendor cost containment 
system under section 246.12(g)(4)(vi) prior to authorizing any above-50-
percent vendors. The State agency that chooses to authorize any above-
50-percent vendors:
    (A) Must distinguish these vendors from other authorized vendors in 
its peer group system or its alternative cost containment system 
approved by FNS by establishing separate peer groups for above-50-
percent vendors or by placing above-50-percent vendors in peer groups 
with other vendors and establishing distinct competitive price selection 
criteria and allowable reimbursement levels for the above-50-percent 
vendors;
    (B) Must reassess the status of new vendors within six months after 
authorization to determine whether or not the vendors are above-50-
percent vendors, and must take necessary follow-up action, such as 
terminating vendor agreements or reassigning vendors to the appropriate 
peer group;
    (C) Must compare above-50-percent vendors' prices against the prices 
of vendors that do not meet the above-50-percent criterion in 
determining whether the above-50-percent vendors have competitive prices 
and in establishing allowable reimbursement levels for such vendors; and
    (D) Must ensure that the prices of above-50-percent vendors do not 
inflate the competitive price criteria and allowable reimbursement 
levels for the peer groups or result in higher total food costs if 
program participants transact their food instruments at above-50-percent 
vendors rather than at other vendors that do not meet the above-50-
percent criterion. To comply with this requirement, the State agency 
must compare the average cost of each type of food instrument redeemed 
by above-50-percent vendors against the average cost of the same type of 
food instrument redeemed by regular vendors. The average cost per food 
instrument may be weighted to reflect the relative proportion of food 
instruments redeemed by each category of vendors in the peer group 
system. The State agency must compute statewide average costs per food 
instrument at least quarterly to monitor compliance with this 
requirement. If average payments per food instrument for above-50-
percent vendors exceed average payments per food instrument to regular 
vendors, then the State agency must take necessary action to ensure 
compliance, such as adjusting payment levels. Where EBT systems are in 
use, it may be more appropriate to compare prices of individual WIC food 
items to ensure that average payments to above-50-percent vendors do not 
exceed average payments for the same food item to comparable vendors. If 
FNS determines that a State agency has failed to ensure that above-50-
percent vendors do not result in higher costs to the

[[Page 415]]

program than if participants transact their food instruments at regular 
vendors, FNS will establish a claim against the State agency to recover 
excess food funds expended and will require remedial action. A State 
agency may exclude partially-redeemed food instruments from a quarterly 
cost neutrality assessment based on an empirical methodology approved by 
FNS. A State agency may not exclude food instruments from the quarterly 
cost neutrality assessment based on a rate of partially-redeemed food 
instruments.
    (E) Must determine whether vendor applicants are expected to be 
above-50-percent vendors. The State agency must ask vendor applicants 
whether they expect to derive more than 50 percent of their annual 
revenue from the sale of food items from transactions involving WIC food 
instruments. This question applies whether or not the State agency 
chooses to authorize above-50-percent vendors. A vendor who answers in 
the affirmative must be treated as an above-50-percent vendor. The State 
agency must further assess a vendor who answers in the negative, by 
first calculating WIC redemptions as a percent of total food sales in 
existing WIC-authorized stores owned by the vendor applicant. Second, 
the State agency must calculate or request from the vendor applicant the 
percentage of anticipated food sales by type of payment, i.e., cash, 
Supplemental Nutrition Assistance Program, WIC, and credit/debit card. 
Third, the State agency must review either the inventory invoices for 
food items, or the actual food items present at the preauthorization 
visit required by paragraph (g)(5) of this section, or both. Fourth, the 
State agency must determine whether WIC authorization is required in 
order for the store to open for business. If the vendor would be 
expected to be an above-50-percent vendor under any of these criteria, 
then the vendor must be treated as an above-50-percent vendor. State 
agencies may use additional data sources and methodologies, if approved 
by FNS.
    (F) Must determine whether a currently authorized vendor meets the 
above-50-percent criterion, based on the State agency's calculation of 
WIC redemptions as a percent of the vendor's total foods sales for the 
same period. If WIC redemptions are more than 50 percent of the total 
food sales, the vendor must be deemed to be an above-50-percent vendor. 
As an initial step in identifying above-50-percent vendors, the State 
agency may compare each vendor's WIC redemptions to Supplemental 
Nutrition Assistance Program redemptions for the same period. If more 
than one WIC State agency authorizes a particular vendor, then each 
State agency must obtain and add the WIC redemptions for each State 
agency that authorizes the vendor to derive the total WIC redemptions. 
If Supplemental Nutrition Assistance Program redemptions exceed WIC 
redemptions, no further assessment is required since the vendor would 
not be an above-50-percent vendor. For vendors whose WIC redemptions 
exceed their Supplemental Nutrition Assistance Program redemptions, or 
if this comparison of redemptions was not made, the State agency must 
obtain from these vendors a statement of the total amount of revenue 
derived from the sale of foods that could be purchased using 
Supplemental Nutrition Assistance Program benefits. The State agency 
must also obtain from these vendors documentation (such as tax documents 
or other verifiable documentation) to support the amount of food sales 
claimed by the vendor. After evaluating the documentation received from 
the vendor, the State agency must calculate WIC redemptions as a percent 
of total food sales and classify the vendor as meeting or not meeting 
the above-50- percent criterion. State agencies may use additional 
methods, if approved by FNS.
    (ii) Implementing effective peer groups. The State agency's 
methodology for establishing a vendor peer group system must include the 
following:
    (A) At least two criteria for establishing peer groups, one of which 
must be a measure of geography, such as metropolitan or other 
statistical areas that form distinct labor and products markets, unless 
the State agency receives FNS approval to use a single criterion;

[[Page 416]]

    (B) Routine collection of vendor shelf prices at least every six 
months following authorization to monitor vendor compliance with 
paragraphs (g)(4)(i)(C), (g)(4)(ii)(C), and (g)(4)(iii) of this section 
and to ensure State agency policies and procedures dependent on shelf 
price data are efficient and effective. FNS may grant an exemption from 
this shelf price collection requirement if the State agency demonstrates 
to FNSs' satisfaction that an alternative methodology for monitoring 
vendor compliance with paragraphs (g)(4)(i)(C), (g)(4)(ii)(C), and 
(g)(4)(iii) of this section is efficient and effective and other State 
agency policies and procedures are not dependent on frequent collection 
of shelf price data. Such exemption would remain in effect until the 
State agency no longer meets the conditions on which the exemption was 
based, until FNS revokes the exemption, or for three years, whichever 
occurs first;
    (C) Assessment of the effectiveness of the peer groupings and 
competitive price criteria at least every three years and modification, 
as necessary, to enhance system performance. The State agency may change 
a vendor's peer group whenever the State agency determines that 
placement in an alternate peer group is warranted.
    (iii) Subsequent price increases. The State agency must establish 
procedures to ensure that a vendor selected for participation in the 
program does not, subsequent to selection, increase prices to levels 
that would make the vendor ineligible for authorization.
    (iv) Exceptions to competitive price criteria. The State agency may 
except from the competitive price criteria and allowable reimbursement 
levels pharmacy vendors that supply only exempt infant formula and/or 
WIC-eligible nutritionals, and non-profit vendors for which more than 50 
percent of their annual revenue from food sales consists of revenue 
derived from WIC food instruments. A State agency that elects to exempt 
non-profit vendors from competitive price criteria and/or allowable 
reimbursements levels must notify FNS, in writing, at least 30 days 
prior to the effective date of the exemption. The State agency's 
notification must indicate the reason for the exemption, including 
whether the vendor is needed to ensure participant access, why other 
vendors that are subject to competitive price criteria and allowable 
reimbursement levels cannot provide the required supplemental foods, the 
benefits to the program of exempting the non-profit vendor from the 
competitive price criteria and/or allowable reimbursement levels, the 
criteria the State agency used to assess the competitiveness of the non-
profit vendor's prices, and how the State agency will determine the 
reimbursement level for the non-profit vendor. This notification 
requirement does not apply to State agency contracts and agreements with 
non-profit health and/or human service agencies or organizations.
    (v) Exemptions from the vendor peer group system requirement. With 
prior written approval from FNS, a State agency may use a vendor cost 
containment approach other than a peer group system if it meets certain 
conditions. A State agency that obtains an exemption from the peer group 
requirement still must establish competitive pricing criteria for vendor 
selection and allowable reimbursement levels. An exemption from the peer 
group requirement would remain in effect until the State agency no 
longer meets the conditions on which the exemption was based, until FNS 
revokes the exemption, or for three years, whichever occurs first. 
During the period of the exemption, the State agency must provide 
annually to FNS documentation that it either authorizes no above-50-
percent vendors, or that such vendors' redemptions continue to represent 
less than five percent of total WIC redemptions, depending on the terms 
of the exemption. The conditions for obtaining an exemption from the 
vendor peer group system are as follows:
    (A) The State agency chooses not to authorize any vendors that 
derive more than 50 percent of their revenue from food sales from WIC 
food instruments, and the State agency demonstrates to FNS that 
establishing a vendor peer group system would be inconsistent with 
efficient and effective operation of the program, or that its 
alternative cost containment system would be as effective as a peer 
group system; or

[[Page 417]]

    (B) The State agency determines that food instruments redeemed by 
vendors that meet the above-50-percent criterion comprise less than five 
percent of the total WIC redemptions in the State in the fiscal year 
prior to a fiscal year in which the exemption is effective; and the 
State agency demonstrates to FNS that its alternative vendor cost 
containment system would be as effective as a vendor peer group system 
and would not result in higher costs if program participants redeem food 
instruments at vendors that meet the above-50-percent criterion rather 
than at vendors that do not meet this criterion.
    (vi) Cost containment certification. If a State agency elects to 
authorize any above-50-percent vendors, the State agency must submit 
information, in accordance with guidance provided by FNS, to demonstrate 
that its competitive price criteria and allowable reimbursement levels 
do not result in average payments per food instrument to these vendors 
that are higher than average payments per food instrument to comparable 
vendors that are not above-50-percent vendors. To calculate average 
payments per food instrument, the State agency must include either all 
food instruments redeemed by all authorized vendors or a representative 
sample of the redeemed food instruments. The State agency must add the 
redemption amounts for all redeemed food instruments of the same type 
and divide the sum by the number of food instruments of that type. If 
the State agency does not designate food instruments by type, it must 
calculate the average payment for each distinct combination of foods 
prescribed on the food instrument. The State agency may calculate 
average payments per food instrument type for groups of vendors that 
meet the above-50-percent criterion and comparable vendors, or the State 
agency may calculate average payments for each food instrument type for 
each vendor. State agencies with EBT systems must compare the average 
cost of each WIC food purchased by participants at above-50-percent 
vendors with the average cost of each food purchased from comparable 
vendors. If FNS determines, based on its review of the information 
provided by the State agency and any other relevant data, that the 
requirements in this paragraph have been met, FNS will certify that the 
State agency's competitive price criteria and allowable reimbursement 
levels established for above-50-percent vendors do not result in higher 
average payments per food instrument (or higher costs for each WIC food 
item in EBT systems). If the State agency's methodology for establishing 
competitive price criteria and allowable reimbursement levels fails to 
meet the requirement of this section regarding average food instrument 
payments to above-50-percent vendors, FNS will disapprove the State 
agency's request to authorize above-50-percent vendors. At least every 
three years following initial certification, the State agency must 
submit information which demonstrates that it continues to meet the 
requirements of this section relative to average payments to above-50-
percent vendors. FNS may require annual updates of selected food 
instrument redemption data.
    (vii) Limitation on private rights of action. The competitive 
pricing provisions of this paragraph do not create a private right of 
action.
    (5) 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.
    (6) 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.
    (7) Impact on small businesses. The State agency is encouraged to 
consider the impact of authorization decisions on small businesses.
    (8) 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

[[Page 418]]

vendor applications outside of its timeframes when it determines there 
will be inadequate participant access unless additional vendors are 
authorized.
    (9) Data collection at authorization. At the time of application, 
the State agency must collect the vendor applicant's SNAP 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.
    (10) List of infant formula wholesalers, distributors, and retailers 
licensed under State law or regulations, and infant formula 
manufacturers registered with the Food and Drug Administration (FDA). 
The State agency must provide a list in writing or by other effective 
means to all authorized WIC retail vendors of the names and addresses of 
infant formula wholesalers, distributors, and retailers licensed in the 
State in accordance with State law (including regulations), and infant 
formula manufacturers registered with the Food and Drug Administration 
(FDA) that provide infant formula, on at least an annual basis.
    (i) Notification to vendors. The State agency is required to notify 
vendors that they must purchase infant formula only from a source 
included on the State agency's list, or from a source on another State 
agency's list if the vendor's State agency permits this, and must only 
provide such infant formula to participants in exchange for food 
instruments specifying infant formula. For the purposes of paragraph 
(g)(11) of this section, ``infant formula'' means Infant formula, 
Contract brand infant formula and Non-contract brand infant formula as 
defined in Sec. 246.2, and infant formula covered by a waiver granted 
under Sec. 246.16a(e).
    (ii) Type of license. If more than one type of license applies, the 
State agency may choose which one to use.
    (iii) Exclusions from list. The State agency may not exclude a 
State-licensed entity from the list except when:
    (A) Specifically required or authorized by State law or regulations; 
or
    (B) The entity does not carry infant formula.
    (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 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 and cash value vouchers. The 
vendor may accept food instruments and cash-value vouchers 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 and cash-value voucher.
    (A) The vendor may not provide unauthorized food items, nonfood 
items, cash, or credit (including rain checks)

[[Page 419]]

in exchange for food instruments or cash-value vouchers. The vendor may 
not provide refunds or permit exchanges for authorized supplemental 
foods obtained with food instruments or cash-value vouchers, 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.
    (B) The vendor may provide only the authorized infant formula which 
the vendor has obtained from sources included on the list described in 
paragraph (g)(11) of this section to participants in exchange for food 
instruments specifying infant formula.
    (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 and cash-value 
vouchers. The vendor may accept a food instrument or cash-value voucher 
only within the specified time period.
    (v) Purchase price on food instruments and cash-value vouchers. The 
vendor must ensure that the purchase price is entered on food 
instruments and cash-value vouchers 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 
or cash-value voucher before it is signed.
    (vi) Signature on food instruments and cash-value vouchers. For 
printed food instruments and cash-value vouchers, the vendor must ensure 
the participant, parent or caretaker of an infant or child participant, 
or proxy signs the food instrument or cash-value voucher 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, or cash-
value vouchers.
    (viii) Food instrument and cash-value voucher redemption. The vendor 
must submit food instruments and cash-value vouchers for redemption in 
accordance with the redemption procedures described in the vendor 
agreement. The vendor may redeem a food instrument or cash-value voucher 
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 price limitations applicable to the vendor. 
As part of the redemption procedures, the State agency must establish 
and apply limits on the amount of reimbursement allowed for food 
instruments based on a vendor's peer group and competitive price 
criteria. In setting allowable reimbursement levels, the State agency 
must consider participant access in a geographic area and may include a 
factor to reflect fluctuations in wholesale prices. In establishing 
allowable reimbursement levels for above-50-percent vendors the State 
agency must ensure that reimbursements do not result in higher food 
costs than if participants transacted their food instruments at vendors 
that are not above-50-percent vendors, or in higher average payments per 
food instrument to above-50-percent vendors than average payments to 
comparable vendors. 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 allowable reimbursement level 
applicable to the vendor. A vendor's failure to remain price competitive 
is cause for termination of the vendor agreement, even if actual 
payments to the vendor are within the maximum reimbursement amount. The 
State agency may exempt vendors that supply only exempt infant formula 
and/or WIC-eligible nutritionals and non-profit above-50-percent vendors 
from the allowable reimbursement limits.

[[Page 420]]

    (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 or cash-value voucher 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 or cash-value 
vouchers. In addition, the vendor may not seek restitution from these 
individuals for food instruments or cash-value vouchers not paid or 
partially paid by the State agency.
    (xi) Split tender for cash-value vouchers. The vendor must allow the 
participant, authorized representative or proxy to pay the difference 
when a fruit and vegetable purchase exceeds the value of the cash-value 
vouchers (also known as a split tender transaction).
    (xii) 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.
    (xiii) Vendor training of staff. The vendor must inform and train 
cashiers and other staff on program requirements.
    (xiv) Accountability for owners, officers, managers, and employees. 
The vendor is accountable for its owners, officers, managers, agents, 
and employees who commit vendor violations.
    (xv) Monitoring. The vendor may be monitored for compliance with 
program requirements.
    (xvi) 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 and cash-value vouchers in 
the vendor's possession and all program-related records.
    (xvii) 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.
    (xviii) 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.
    (xix) Sanctions. In addition to claims collection, the vendor may be 
sanctioned for vendor violations in accordance with the State agency's 
sanction

[[Page 421]]

schedule. Sanctions may include administrative fines, disqualification, 
and civil money penalties in lieu of disqualification. The State agency 
must notify a vendor in writing when an investigation reveals an initial 
incidence of a violation for which a pattern of incidences must be 
established in order to impose a sanction, before another such incidence 
is documented, unless the State agency determines, in its discretion, on 
a case-by-case basis, that notifying the vendor would compromise an 
investigation.
    (xx) 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.
    (xxi) 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 
$25,000 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.
    (xxii) 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.
    (xxiii) 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.
    (xxiv) Nondiscrimination regulations. The vendor must comply with 
the nondiscrimination provisions of Departmental regulations (parts 15, 
15a and 15b of this title).
    (xxv) 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.
    (xxvi) Reciprocal SNAP disqualification for WIC Program 
disqualifications. Disqualification from the WIC Program may result in 
disqualification as a retailer in SNAP. Such disqualification may not be 
subject to administrative or judicial review under SNAP.
    (xxvii) EBT minimum lane coverage. Point of Sale (POS) terminals 
used to support the WIC Program shall be deployed in accordance with the 
minimum lane coverage provisions of Sec. 246.12(z)(2). The State agency 
may remove excess terminals if actual redemption activity warrants a 
reduction consistent with the redemption levels outlined in 
Sec. 246.12(z)(2)(i) and (z)(2)(ii).
    (xxviii) EBT third-party processing costs and fees. The vendor shall 
not charge to the State agency any third-party commercial processing 
costs and fees incurred by the vendor from EBT multi-function equipment. 
Commercial transaction processing costs and fees imposed by a third-
party processor that the vendor elects to use to connect to the EBT 
system of the State shall be borne by the vendor.
    (xxix) EBT interchange fees. The State agency shall not pay or 
reimburse the vendor for interchange fees related to WIC EBT 
transactions.
    (xxx) EBT ongoing maintenance and operational costs. The State 
agency shall not pay for ongoing maintenance, processing fees or 
operational costs for vendor systems and equipment used to support WIC 
EBT after the State agency has implemented WIC EBT statewide, unless the 
equipment is used

[[Page 422]]

solely for the WIC Program or the State agency determines the vendor 
using multi-function equipment is necessary for participant access. This 
provision also applies to authorized farmers and farmers' markets. Costs 
shared by a WIC State agency will be proportional to the usage for the 
WIC Program.
    (xxxi) Compliance with EBT operating rules, standards and technical 
requirements. The vendor must comply with the Operating rules, standards 
and technical requirements established by the State agency.
    (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 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.
    (8) Allowable and prohibited incentive items for above-50-percent 
vendors. The vendor agreement for an above-50-percent vendor, or another 
document provided to the vendor and cross-referenced in the agreement, 
must include the State agency's policies and procedures for allowing and 
prohibiting incentive items to be provided by an above-50-percent vendor 
to customers, consistent with paragraph (g)(3)(iv) of this section.
    (i) The State agency must provide written approval or disapproval 
(including by electronic means such as electronic mail or facsimile) of 
requests from above-50-percent vendors for permission to provide 
allowable incentive items to customers;
    (ii) The State agency must maintain documentation for the approval 
process, including invoices or similar documents showing that the cost 
of each item is either less than the $2 nominal value limit, or obtained 
at no cost, unless the State agency provides the vendor with a list of 
pre-approved incentive items at the time of authorization; and
    (iii) The State agency must define prohibited incentive items.
    (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-

[[Page 423]]

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 requirement that vendors 
obtain infant formula only from sources included on a list provided by 
the State agency, the procedures for transacting and redeeming food 
instruments and cash-value vouchers, the vendor sanction system, the 
vendor complaint process, the claims procedures, the State agency's 
policies and procedures regarding the use of incentive items, 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 
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

[[Page 424]]

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 and cash-value vouchers for vendor claims. The 
State agency must design and implement a system to review food 
instruments and cash-value vouchers submitted by vendors for redemption 
to ensure compliance with the applicable price limitations and to detect 
questionable food instruments or cash-value vouchers, suspected vendor 
overcharges, and other errors. This review must examine either all or a 
representative sample of the food instruments and cash-value vouchers 
and may be done either before or after the State agency makes payments 
on the food instruments or cash-value vouchers. The review of food 
instruments 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 and cash-
value vouchers the system also must detect the following errors--
purchase price missing; participant, parent/caretaker, or proxy 
signature missing; vendor identification missing; food instruments or 
cash-value vouchers 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 or cash-value vouchers, suspected vendor overcharges, 
and other errors and must implement procedures to reduce the number of 
errors when possible.
    (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 or cash-value voucher 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 or cash-value voucher that

[[Page 425]]

contained the vendor overcharge or other error.
    (3) Opportunity to justify or correct. When payment for a food 
instrument or cash-value voucher 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 and cash-value vouchers redeemed after the 
specified period. With justification and documentation, the State agency 
may pay vendors for food instruments and cash-value vouchers submitted 
for redemption after the specified period for redemption. If the total 
value of such food instruments or cash-value vouchers 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 cash-value vouchers 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 or cash-value vouchers. 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, or cash-
value vouchers, 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 or cash-value vouchers.
    (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 or cash-value 
vouchers;
    (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 or cash-value vouchers 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 or cash-value vouchers.
    (iv) One-year disqualification. The State agency must disqualify a 
vendor for one year for:
    (A) A pattern of providing unauthorized food items in exchange for 
food instruments or cash-value vouchers, including charging for 
supplemental foods provided in excess of those listed on the food 
instrument; or

[[Page 426]]

    (B) A pattern of an above-50-percent vendor providing prohibited 
incentive items to customers as set forth in paragraph (g)(3)(iv) of 
this section, in accordance with the State agency's policies and 
procedures required by paragraph (h)(8) of this section.
    (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 SNAP disqualification. The State 
agency must disqualify a vendor who has been disqualified from SNAP. The 
disqualification must be for the same length of time as SNAP 
disqualification, may begin at a later date than SNAP 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 SNAP 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 the maximum amount 
specified in Sec. 3.91(b)(3)(v) of this title for each violation. For a 
violation that warrants permanent disqualification, the amount of the 
civil money penalty shall be the maximum amount specified in 
Sec. 3.91(b)(3)(v) of this title for each violation. 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

[[Page 427]]

violation. The total amount of civil money penalties imposed for 
violations investigated as part of a single investigation may not exceed 
the amount specified in Sec. 3.91(b)(3)(v) of this title as the maximum 
penalty for violations occurring during a single investigation.
    (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 a maximum amount specified in 
Sec. 3.91(b)(3)(v) of this title 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 an amount 
specified in Sec. 3.91(b)(3)(v) of this title as the maximum penalty for 
violations occurring during a single investigation. A State agency 
vendor sanction must be based on a pattern of violative incidences.
    (ii) SNAP civil money penalty for hardship. The State agency may 
disqualify a vendor that has been assessed a civil money penalty for 
hardship in SNAP, 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 SNAP. 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

[[Page 428]]

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 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) Notification of violations. The State agency must notify a 
vendor in writing when an investigation reveals an initial incidence of 
a violation for which a pattern of incidences must be established in 
order to impose a sanction, before another such incidence is documented, 
unless the State agency determines, in its discretion, on a case-by-case 
basis, that notifying the vendor would compromise an investigation. This 
notification requirement applies to the violations set forth in 
paragraphs (l)(1)(iii)(C) through (l)(1)(iii)(F), (l)(1)(iv), and 
(l)(2)(i) of this section.
    (i) Prior to imposing a sanction for a pattern of violative 
incidences, the State agency must either provide such notice to the 
vendor, or document in the vendor file the reason(s) for determining 
that such notice would compromise an investigation.
    (ii) The State agency may use the same method of notification which 
the State agency uses to provide a vendor with adequate advance notice 
of the time and place of an administrative review in accordance with 
Sec. 246.18(b)(3).
    (iii) If notification is provided, the State agency may continue its 
investigation after the notice of violation is received by the vendor, 
or presumed to be received by the vendor, consistent with the State 
agency's procedures for providing such notice.
    (iv) All of the incidences of a violation occurring during the first 
compliance buy visit must constitute only one incidence of that 
violation for the purpose of establishing a pattern of incidences.
    (v) A single violative incidence may only be used to establish the 
violations set forth in paragraphs (l)(1)(ii)(A), (l)(1)(ii)(B), and 
(l)(1)(iii)(A) 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.

[[Page 429]]

    (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;
    (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, farmer, farmers' 
market, 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, farmers, farmers' markets, 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 and cash-value voucher security. The State 
agency must develop standards for ensuring the security of food 
instruments and cash-value vouchers from the time the food instruments 
and cash-value vouchers are created to the time they are issued to 
participants, parents/caretakers, or proxies. For pre-printed food 
instruments or cash-value vouchers, these standards must include 
maintenance of perpetual inventory records of food instruments or cash-
value vouchers throughout the State agency's jurisdiction; monthly 
physical inventory of food instruments or cash-value vouchers on hand 
throughout the State agency's jurisdiction; reconciliation of perpetual 
and physical inventories of food instruments and cash-value vouchers; 
and maintenance of all food instruments and cash-value vouchers under 
lock and key, except for supplies needed for immediate use. For EBT and 
print-on-demand food instruments and cash-value vouchers, the standards 
must provide for the accountability and security of the means to 
manufacture and issue such food instruments and cash-value vouchers.
    (q) Food instrument and cash-value voucher disposition. The State 
agency must account for the disposition of all food instruments and 
cash-value vouchers as either issued or voided, and as either redeemed 
or unredeemed. Redeemed food instruments and cash-value vouchers must be 
identified as validly issued, lost, stolen, expired, duplicate, or not 
matching valid enrollment and issuance records. In an EBT

[[Page 430]]

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 120 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 or cash-value vouchers that do not meet the conditions 
established in paragraph (q) of this section.
    (r) Issuance of food instruments, cash-value vouchers 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 and cash-value vouchers 
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, cash-value vouchers 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 and cash-value vouchers, or on the 
procedures for obtaining authorized supplemental foods when food 
instruments or cash-value vouchers 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 vendor, farmer, farmers' markets, and home food 
delivery contractor practices with regard to program responsibilities;
    (4) Food instrument and cash-value voucher pick up. Require 
participants, parents and caretakers of infant and child participants, 
and proxies to pick up food instruments and cash-value vouchers 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 and cash-value vouchers, 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 and cash-value voucher to areas where SNAP benefits are not 
mailed. State agencies that opt to mail food instruments and cash-value 
vouchers must establish and implement a system that ensures the return 
of food instruments and cash-value vouchers to the State or local agency 
if a participant no longer resides or receives mail at the address to 
which the food instruments and cash-value vouchers were mailed; and
    (5) Maximum issuance of food instruments and cash-value voucher. 
Ensure that no more than a three-month supply of food instruments and 
cash-value vouchers 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.
    (6) Any authorized vendor. Each State agency shall allow 
participants to receive supplemental foods from any vendor authorized by 
the State agency under retail delivery systems.
    (s) Payment to vendors, farmers and home food delivery contractors. 
The State agency must ensure that vendors, farmers and home food 
delivery contractors are paid promptly. Payment must be made within 60 
days after valid food instruments or cash-

[[Page 431]]

value vouchers are submitted for redemption. Actual payment to vendors, 
farmers 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, 
farmer, farmers' markets, or home food delivery contractor, or between 
any local agency and any vendor, farmer, farmers' markets, 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, 
farmers, farmers' markets and participants who violate program 
requirements to Federal, State, or local authorities for prosecution 
under applicable statutes.
    (v) Farmers and farmers' markets. The State agency may authorize 
farmers, farmers' markets, and/or roadside stands to accept the cash-
value voucher for eligible fruits and vegetables. The State agency must 
enter into written agreements with all authorized farmers and/or 
farmers' markets. The agreement must be signed by a representative who 
has legal authority to obligate the farmer or farmers' market and a 
representative of the State agency. The agreement must be for a period 
not to exceed 3 years. Only farmers or farmers' markets authorized by 
the State agency may redeem the fruit and vegetable cash-value voucher. 
The State agency must require farmers or farmers' markets to reapply at 
the expiration of their agreements and must provide farmers or farmers 
markets with not less than 15 days advance written notice of the 
expiration of the agreement.
    (1) The agreement must include the following provisions, although 
the State agency may determine the exact wording. The farmer or farmers' 
market must:
    (i) Assure that the cash-value voucher is redeemed only for eligible 
fruits and vegetables as defined by the State agency;
    (ii) Provide eligible fruits and vegetables at the current price or 
less than the current price charged to other customers;
    (iii) Accept the cash-value voucher within the dates of their 
validity and submit such vouchers for payment within the allowable time 
period established by the State agency;
    (iv) Redeem the cash-value voucher in accordance with a procedure 
established by the State agency. Such procedure must include a 
requirement for the farmer or farmers' market to allow

[[Page 432]]

the participant, authorized representative or proxy to pay the 
difference when the purchase of fruits and vegetables exceeds the value 
of the cash-value vouchers (also known as a split tender transaction);
    (v) Accept training on cash-value voucher procedures and provide 
training to any employees with cash-value voucher responsibilities on 
such procedures;
    (vi) Agree to be monitored for compliance with program requirements, 
including both overt and covert monitoring;
    (vii) Be accountable for actions of employees in the provision of 
authorized foods and related activities;
    (viii) Pay the State agency for any cash-value vouchers transacted 
in violation of this agreement;
    (ix) Offer WIC participants, parent or caretakers of child 
participants or proxies the same courtesies as other customers;
    (x) Comply with the nondiscrimination provisions of USDA regulations 
as provided in Sec. 248.7; and
    (xi) Notify the State agency if any farmers' market ceases operation 
prior to the end of the authorization period.
    (2) The farmer or farmers' market must not:
    (i) Collect sales tax on cash-value voucher purchases;
    (ii) Seek restitution from WIC participants, parent or caretakers of 
child participants or proxies for cash-value vouchers not paid or 
partially paid by the State agency;
    (iii) Issue cash change for purchases that are in an amount less 
than the value of the cash-value voucher;
    (3) Neither the State agency nor the farmer or farmers' market has 
an obligation to renew the agreement. The State agency, the farmer, or 
farmers' market may terminate the agreement for cause after providing 
advance written notification.
    (4) Farmer agreements for State agencies that 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 
authorized to accept cash-value vouchers. The State agency shall set 
forth the required terms for the written agreement as defined in 
Sec. 246.12(v)(1) and (v)(2), and provide a sample agreement for use by 
the farmers' market.
    (5) The State agency may deny payment to the farmer or farmers' 
market for improperly redeemed cash-value vouchers and may demand 
refunds for payments already made on improperly redeemed vouchers.
    (6) The State agency may disqualify a farmer or farmers' market for 
WIC Program abuse. The farmer or farmers' market has the right to appeal 
a denial of an application to participate, a disqualification, or a 
program sanction by the State agency. Expiration of an agreement with a 
farmer or farmers' market and claims actions under Sec. 246.23, are not 
appealable.
    (7) 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.
    (8) Monitoring farmers and farmers' markets. (i) The State agency 
must design and implement a system for monitoring its authorized farmers 
and farmers' markets for compliance with program requirements. The State 
agency must document, at a minimum, the following information for all 
monitoring visits: name(s) of the farmer, farmers market, or roadside 
stand; name(s) and signature(s) of the reviewer(s); date of review; and 
nature of 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 farmer (and farmers' market, as 
appropriate) involved in each transaction;
    (C) The types and quantities of items purchased, current retail 
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.
    (w) EBT--(1) General. All State agencies shall implement EBT 
statewide in

[[Page 433]]

accordance with paragraph (a) of this section.
    (2) EBT exemptions. The Secretary may grant an exemption to the 
October 1, 2020 statewide implementation requirement. To be eligible for 
an exemption, a State agency shall demonstrate to the satisfaction of 
the Secretary one or more of the following:
    (i) There are unusual technological barriers to implementation;
    (ii) Operational costs are not affordable within the nutrition 
services and administration grant of the State agency; or
    (iii) It is in the best interest of the program to grant the 
exemption.
    (3) Implementation date. If the Secretary grants a State agency an 
exemption, such exemption will remain in effect until: The State agency 
no longer meets the conditions on which the exemption was based; the 
Secretary revokes the exemption or for three years from the date the 
exemption was granted, whichever occurs first.
    (x) Electronic benefit requirements--(1) General. State agencies 
using EBT shall issue an electronic benefit that complies with the 
requirements of paragraph (x)(2) of this section.
    (2) Electronic benefits. Each electronic benefit must contain the 
following information:
    (i) Authorized supplemental foods. The supplemental foods authorized 
by food category, subcategory and benefit quantity, to include the cash-
value benefit;
    (ii) First date of use. The first date of use on which the 
electronic benefit may be used to obtain authorized supplemental foods;
    (iii) Last date of use. The last date on which the electronic 
benefit may be used to obtain authorized supplemental foods. This date 
must be a minimum of 30 days, or in the month of February 28 or 29 days, 
from the first date on which it may be used to obtain authorized 
supplemental foods except for the participant's first month of issuance 
when it may be the end of the month or cycle for which the electronic 
benefit is valid; and
    (iv) Benefit issuance identifier. A unique and sequential number. 
This number enables the identification of each benefit change (addition, 
subtraction or update) made to the participant account.
    (3) Vendor identification. The State agency shall ensure each EBT 
purchase submitted for electronic payment is matched to an authorized 
vendor, farmer, or farmers' market prior to authorizing payment. Each 
vendor operated by a single business entity must be identified 
separately.
    (y) EBT management and reporting. (1) The State agency shall follow 
the Department Advance Planning Document (APD) requirements and submit 
Planning and Implementation APD's and appropriate updates, for 
Department approval for planning, development and implementation of 
initial and subsequent EBT systems.
    (2) If a State agency plans to incorporate additional programs in 
the EBT system of the State, the State agency shall consult with State 
agency officials responsible for administering the programs prior to 
submitting the Planning APD (PAPD) document and include the outcome of 
those discussions in the PAPD submission to the Department for approval.
    (3) Each State agency shall have an active EBT project by August 1, 
2016. Active EBT project is defined as a formal process of planning, 
implementation, or statewide implementation of WIC EBT.
    (4) Annually as part of the State plan, the State agency shall 
submit EBT project status reports. At a minimum, the annual status 
report shall contain:
    (i) Until operating EBT statewide, an outline of the EBT 
implementation goals and objectives as part of the goals and objectives 
in Sec. 246.4(a)(1), to demonstrate the State agency's progress toward 
statewide EBT implementation;
    (ii) If operating EBT statewide, any information on future EBT 
changes and procurement updates affecting present operations; and
    (iii) Such other information the Secretary may require.
    (5) The State agency shall be responsible for EBT coordination and 
management.
    (z) EBT food delivery methods: Vendor requirements--(1) General. 
State agencies using EBT for delivering benefits

[[Page 434]]

shall comply with the vendor requirements in paragraphs (g) through (l) 
of this section. In addition, State agencies shall comply with 
requirements that are detailed throughout this paragraph (z).
    (2) Minimum lane coverage. The Point-of-Sale (POS) terminals, 
whether single-function equipment or multi-function equipment, shall be 
deployed as follows:
    (i) Superstores and supermarkets. There will be one POS terminal for 
every $11,000 in monthly WIC redemption up to a total of four POS 
terminals, or the number of lanes in the location, whichever is less. At 
a minimum, terminals shall be installed for monthly WIC redemption 
threshold increments as follows: one terminal for $0 to $11,000; two 
terminals for $11,001 to $22,000; three terminals for $22,001 to 
$33,000; and four terminals for $33,001 and above. A State agency may 
utilize an alternative installation formula with Department approval. 
The monthly redemption levels used for the installation formula shall be 
the average redemptions based on a period of up to 12 months of prior 
redemption;
    (ii) All other vendors. One POS terminal for every $8,000 in monthly 
redemption up to a total of four POS terminals, or the number of lanes 
in the location; whichever is less. At a minimum, terminals shall be 
installed for monthly WIC redemption thresholds as follows: one terminal 
for $0 to $8,000; two terminals for $8,001 to $16,000; three terminals 
for $16,001 to $24,000; and four terminals for $24,001 and above. A 
State agency may utilize an alternative installation formula with 
Department approval. The monthly redemption levels used for the 
installation formula shall be the average redemptions based on a period 
of up to 12 months of prior redemption;
    (iii) The State agency shall determine the number of appropriate POS 
terminals for authorized farmers and farmers' markets;
    (iv) For newly authorized WIC vendors deemed necessary for 
participant access by the State agency, the vendor shall be provided one 
POS terminal unless the State agency determines other factors in this 
location warrant additional terminals;
    (v) Any authorized vendor who has been equipped with a POS terminal 
by the State agency may submit evidence additional terminals are 
necessary after the initial POS terminals are installed;
    (vi) The State agency may provide authorized vendors with additional 
POS terminals above the minimum number required by this paragraph in 
order to permit WIC participants to obtain a shopping list or benefit 
balance, as long as the number of terminals provided does not exceed the 
number of lanes in the vendor location;
    (vii) The State agency may remove excess POS terminals if actual 
redemption activity warrants a reduction consistent with the redemption 
levels outlined in paragraphs (z)(2)(i) through (ii) of this section.
    (3) Payment to vendors, farmers and farmers' markets. The State 
agency shall ensure that vendors, farmers and farmers' markets are paid 
promptly. Payment must be made in accordance with the established 
Operating Rules and technical requirements after the vendor, farmer or 
farmers' market has submitted a valid electronic claim for payment.
    (aa) Imposition of costs on vendors, farmers and farmers' markets--
(1) Cost prohibition. Except as otherwise provided in this section, a 
State agency shall not impose the costs of any single-function equipment 
or system required for EBT on any authorized vendor, farmers or farmers' 
markets in order to transact EBT.
    (2) Cost sharing. If WIC Program equipment is multi-function 
equipment, the State agency shall develop cost sharing criteria with 
authorized WIC vendors, farmers and farmers' markets for costs 
associated with such equipment in accordance with Federal cost 
principles. Any cost sharing agreements shall be developed between a 
State agency and its vendors, farmers, or farmers' markets depending on 
the type, scope and capabilities of shared equipment. The State agency 
must furnish its allocation and/or cost sharing methodology to the 
Department as part of the Advanced Planning Document for review and 
approval before incurring costs.

[[Page 435]]

    (3) Fees--(i) Third-party processor costs and fees. The State agency 
shall not pay or reimburse vendors, farmers or farmers' markets for 
third-party processing costs and fees for vendors, farmers, or farmers' 
markets that elect to accept EBT using multi-function equipment. The 
State agency or its agent shall not charge any fees to authorized 
vendors for use of single-function equipment.
    (ii) Interchange fees. The State agency shall not pay or reimburse 
the vendor, farmer or farmers' markets for interchange fees on WIC EBT 
transactions.
    (4) Statewide operations. After completion of statewide EBT 
implementation, the State agency shall not:
    (i) Pay ongoing maintenance, processing fees or operational costs 
for any vendor, farmer or farmers' market utilizing multi-function 
systems and equipment, unless the State agency determines that the 
vendor is necessary for participant access. The State agency shall 
continue to pay ongoing maintenance, processing fees and operational 
costs of single-function equipment;
    (ii) Authorize a vendor, farmer, or farmers' market that cannot 
successfully demonstrate EBT capability in accordance with State agency 
requirements, unless the State agency determines the vendor is necessary 
for participant access.
    (bb) EBT Technical standards and requirements. (1) Each State 
agency, contractor and authorized vendor participating in the program 
shall follow and demonstrate compliance with:
    (i) Operating rules, standards and technical requirements as 
established by the Secretary; and
    (ii) Other industry standards identified by the Secretary.
    (2) The State agency shall establish policy permitting the 
replacement of EBT cards and the transfer of participant benefit 
balances within no more than seven business days following notice by the 
participant or proxy to the State agency.
    (3) The State agency shall establish procedures to provide customer 
service during non-business hours that enable participants or proxies to 
report a lost, stolen, or damaged card, report other card or benefit 
issues, receive information on the EBT food balance and receive the 
current benefit end date. The State agency shall respond to any report 
of a lost, stolen, or damaged card within one business day of the date 
of report. If a State agency seeks to implement alternatives to the 
minimum service requirements, the agency must submit the plan to FNS for 
approval.
    (cc) National universal product codes (UPC) database. The national 
UPC database is to be used by all State agencies using EBT to deliver 
WIC food benefits.

[65 FR 83278, Dec. 29, 2000, as amended at 70 FR 29579, May 24, 2005; 70 
FR 71722, Nov. 29, 2005; 71 FR 56731, Sept. 27, 2006; 73 FR 68995, Dec. 
6, 2007; 73 FR 11312, Mar. 3, 2008; 74 FR 555, Jan. 6, 2009; 74 FR 
51758, Oct. 8, 2009; 75 FR 15603, Mar. 30, 2010; 76 FR 59889, Sept. 28, 
2011; 79 FR 12299, Mar. 4, 2014; 81 FR 10449, Mar. 1, 2016; 81 FR 18447, 
Mar. 31, 2016; 81 FR 66494, Sept. 28, 2016]



Sec. 246.13  Financial ma-nagement 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, 2 CFR part 200,

[[Page 436]]

subpart D, USDA implementing regulations 2 CFR part 400 and part 415, 
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; 81 FR 66494, Sept. 28, 2016]



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 2 CFR 
part 200, subpart E and USDA implementing regulations 2 CFR part 400 and 
part 415.
    (ii) Indirect costs. Those indirect costs that are allowable under 2 
CFR part 200, subpart E and USDA implementing regulations 2 CFR part 400 
and part 415. 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 2 CFR part 200, subpart E and USDA implementing 
regulations 2 CFR part 400 and part 415, a claim for indirect costs 
shall be supported by an approved allocation plan for the determination 
of allowable indirect costs.
    (2) Program funds may not be used to pay for retroactive benefits. 
Except as provided in paragraph (e) of this section and Secs. 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? (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

[[Page 437]]

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, including breastfeeding promotion and 
support, 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 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.

[[Page 438]]

    (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 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 costs of capital expenditures 
exceeding the dollar threshold established in Agency policy and guidance 
are allowable only with the approval of FNS prior to the capital 
investment. These expenditures include the costs of facilities, 
equipment (including medical equipment), automated data processing (ADP) 
projects, other capital assets, and any repairs that materially increase 
the value or useful life of such assets.
    (e) Use of funds recovered from vendors, participants, or local 
agencies. (1) The State agency may keep funds collected through the 
recovery of claims assessed against vendors, participants, or local 
agencies. Recovered funds include 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);
    (ii) In the case of a participant, any administrative hearing 
requested in accordance with Sec. 246.9 has been completed; or
    (iii) In the case of a local agency claim, any administrative review 
requested in accordance with the local agency agreement has been 
completed.
    (4) The State agency must report vendor, participant, and local 
agency recoveries to FNS through the normal reporting process;
    (5) The State agency must keep documentation supporting the amount 
and use of these vendor, participant, and local agency recoveries.
    (f) Use of funds received as rebates from manufacturers. The State 
agency must credit and report rebate payments received from 
manufacturers in the

[[Page 439]]

month in which the payments are received.

[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; 71 FR 56731, Sept. 27, 2006; 73 FR 11312, Mar. 3, 2008; 76 FR 
59889, Sept. 28, 2011; 81 FR 66494, Sept. 28, 2016]



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 (applied in accordance with the addition method described in 2 
CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 
and part 415) for costs incurred in the current fiscal year and, with 
the approval of FNS, for costs incurred in previous years or subsequent 
fiscal years. 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; 71 FR 56731, Sept. 27, 2006; 81 FR 66494, Sept. 
28, 2016]



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 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.

[[Page 440]]

    (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 three (3) percent of its 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 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

[[Page 441]]

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, 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,

[[Page 442]]

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 SNAP, 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 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

[[Page 443]]

(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 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

[[Page 444]]

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 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

[[Page 445]]

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.
    (j) Inflation adjustment of the fruit and vegetable voucher. The 
monthly cash value of the fruit and vegetable voucher shall be adjusted 
annually for inflation. Adjustments are effective the first day of each 
fiscal year beginning on or after October 1, 2008. The inflation-
adjusted value of the voucher shall be equal to a base value increased 
by a factor based on the Consumer Price Index for fresh fruits and 
vegetables, as provided in this section.
    (1) Adjustment year. The adjustment year is the fiscal year that 
begins October 1 of the current calendar year.
    (2) Base value of the fruit and vegetable voucher. The base year for 
calculation of the value of the fruit and vegetable voucher is fiscal 
year 2008. The base value to be used equals:
    (i) $8 for children; and
    (ii) $10 for women.
    (3) Adjusted value of the fruit and vegetable voucher. The adjusted 
value of the fruit and vegetable voucher is the cash value of the 
voucher for adjustment years beginning on or after October 1, 2008. The 
adjusted value is the base value increased by an amount equal to the 
base value of the fruit and vegetable voucher:
    (i) Multiplied by the inflation adjustment described in paragraph 
(j)(4) of this section; and
    (ii) Subject to rounding as described in paragraph (j)(5) of this 
section.
    (4) Inflation adjustment. The inflation adjustment of the fruit and 
vegetable voucher shall equal the percentage (if any) by which the 
annual average value of the Consumer Price Index for fresh fruits and 
vegetables, computed from monthly values published by the Bureau of 
Labor Statistics, for the twelve months ending on March 31 of the fiscal 
year immediately prior to the adjustment year, exceeds the average of 
the monthly values of that index for the twelve months ending on March 
31, 2007.

[[Page 446]]

    (5) Rounding. If any increase in the cash value of the voucher 
determined under paragraph (j)(3) of this section is not a multiple of 
$1, such increase shall be rounded to the next lowest multiple of $1. 
However, if the adjusted value of the voucher for the adjustment year, 
as determined under paragraph (j)(3) of this section, is lower than the 
adjusted value for the fiscal year immediately prior to the adjustment 
year, then the adjusted value of the voucher will remain unchanged from 
that immediate prior fiscal year.

[50 FR 6121, Feb. 13, 1985]

    Editorial Note: For Federal Register citations affecting 
Sec. 246.16, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 246.16a  Infant formula and authorized foods 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 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? (1) 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. A State agency must:
    (i) Provide a minimum of 30 days between the publication of the 
solicitation and the date on which the bids are due, unless exempted by 
the Secretary; and
    (ii) Publicly open and read all bids aloud on the day the bids are 
due.
    (2) 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)(6) 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. Any State agency or 
alliance that served a monthly average of more than 100,000 infants 
during the preceding 12-month period shall issue separate bid 
solicitations for milk-based and soy-based infant formula. 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

[[Page 447]]

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.
    (3) What is the size limitation for a State alliance? A State 
alliance may exist among State agencies if the total number of infants 
served by States participating in the alliance as of October 1, 2003, or 
such subsequent date determined by the Secretary for which data is 
available, does not exceed 100,000. However, a State alliance that 
existed as of July 1, 2004, and serves over 100,000 infants may exceed 
this limit to include any State agency that served less than 5,000 
infants as of October 1, 2003, or such subsequent date determined by the 
Secretary for which data is available, and/or any Indian State agency. 
The bid solicitation must identify the composition of the State 
alliances for the purpose of a cost containment measure, and verify that 
no additional State shall be added to the State alliance between the 
date of the bid solicitation and the end of the contract. The Secretary 
may waive these requirements not earlier than 30 days after submitting 
to the Committee on Education and the Workforce of the House of 
Representatives and the Committee on Agriculture, Nutrition, and 
Forestry of the Senate a written report that describes the cost-
containment and competitive benefits of the proposed waiver.
    (4) 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)(6) of this 
section).

------------------------------------------------------------------------
                                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.
 infant formula); bidders must   powdered, and      246.10(e)(1)(iii)
 specify the brand name of the   ready-to-feed.     and Sec.
 milk-based infant formula for                      246.10(e)(2)(iii)
 which the rebate is being                          and suitable for
 specified.                                         routine issuance to
                                                    the majority of
                                                    generally healthy,
                                                    full-term infants.
------------------------------------------------------------------------
 (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(e)(1)(iii)
 formula); bidders must          ready-to-feed.     and Sec.
 specify the brand name of the                      246.10(e)(2)(iii)
 milk-based infant formula for                      and suitable for
 which the rebate is being                          routine issuance to
 specified.                                         the majority of
                                                    generally healthy,
                                                    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(e)(1)(iii)
 formula); bidders must          ready-to-feed.     and Sec.
 specify the brand name of the                      246.10(e)(2)(iii).
 soy-based infant formula for
 which the rebate is being
 specified.
------------------------------------------------------------------------

    (5) 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)(4)(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

[[Page 448]]

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(e)(9)(Table1)), 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)(4)(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)(4)(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)(5) of this 
section.
    (6) 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 by physical 
form of infant formula to be used in evaluating bids as described in 
paragraph (c)(4) 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.
    (7) 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 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 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 infant formula(s). 
The percentage discount must be calculated by dividing the rebate for 
the primary contract 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

[[Page 449]]

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 cent-for-cent 
rebate adjustments required in paragraph (c)(6)(iv) of this section.
    (iv) Cent-for-cent rebate adjustments. Bid solicitations must 
require the manufacturer to adjust rebates for price changes subsequent 
to the bid opening. Price adjustments must reflect any increase and 
decrease, on a cent-for-cent basis, in the manufacturer's lowest 
national wholesale prices for a full truckload of infant formula.
    (8) What is the first choice of issuance for infant formula? The 
State agency must use the primary contract infant formula(s) as the 
first choice of issuance (by physical form), with all other infant 
formulas issued as an alternative (see Sec. 246.10(e)(1)(iii)).
    (9) Under what circumstances may the State agency issue other 
contract brand formulas? Except as required in paragraph (c)(7) of this 
section, the State agency may choose to approve for issuance some, none, 
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, except as provided in paragraph (c)(7) of 
this section (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.
    (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)(4) 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)(4) 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,

[[Page 450]]

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 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)(x) 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

[[Page 451]]

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:
    (1) Provide notification to FNS by means of the State agency's State 
Plan.
    (2) Comply with paragraphs (c)(2) and (k) of this section.
    (3) Provide a minimum of 30 days between the publication of the 
solicitation and the date on which the bids are due, unless exempted by 
the Secretary. The State must publicly open and read all bids aloud on 
the day the bids are due.
    (4) Issue separate solicitations for authorized foods if any 
alliance served a monthly average of more than 100,000 infants during 
the preceding 12-month period.
    (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 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(g);
    (3) Require infant formula manufacturers to submit bids on more than 
one of the systems specified in the invitation for bids; or
    (4) Require infant formula manufacturers to provide gratis infant 
formula or other items.
    (k) What are the requirements for infant formula and authorized food 
rebate invoices? A State agency must have a system in place that ensures 
infant formula and authorized food rebate invoices, under competitive 
bidding, provide a reasonable estimate or an actual count of the number 
of units purchased by participants in the program.
    (l) 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:

[[Page 452]]

    (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 (l) 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 (l)(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 (l)(2) of this section does not comply 
with the requirements of paragraph (c)(2) of this section, FNS shall, 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 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 (l)(2)(ii), (l)(2)(iii), and (l)(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 (l)(2) and 
(l)(3) of this section, FNS will use for soliciting bids the competitive 
bidding procurement

[[Page 453]]

procedures of the State agency in the group with the highest infant 
participation. To the extent not inconsistent with the requirements of 
this paragraph (l), 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 (l)(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.
    (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

[[Page 454]]

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 (l)(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 (l)(7) and (l)(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 (l)(7) and (l)(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 (l).
    (m) What are the penalties for disclosing the amount of the bid or 
discount practices prior to the time bids are opened? Any person, 
company, corporation, or other legal entity that submits a bid in 
response to a bid solicitation and discloses the amount of the bid, or 
the rebate or discount practices of such entities, in advance of the 
time the bids are opened by the Secretary or the State agency, shall be 
ineligible to submit bids to supply infant formula to the program for 
the bidding in progress for up to 2 years from the date the bids are 
opened. In addition, any person, company, corporation, or other legal 
entity shall be subject to a civil money penalty as specified in 
Sec. 3.91(b)(3)(iv) of this title, as determined by the Secretary to 
provide restitution to the program for harm done to the program.

[65 FR 51224, Aug. 23, 2000, as amended at 73 FR 11313, Mar. 3, 2008; 73 
FR 21811, Apr. 23, 2008; 76 FR 59889, Sept. 28, 2011]



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 120 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 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR 
part 400 and part 415.

[[Page 455]]

    (1) FNS may disqualify a State agency's participation under the 
Program, 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.

[50 FR 6121, Feb. 13, 1985, as amended at 71 FR 56731, Sept. 27, 2006; 
81 FR 66494, Sept. 28, 2016]



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 application of the vendor 
selection criteria for minimum variety and quantity of authorized 
supplemental foods (Sec. 246.12(g)(3)(i)), or on a determination that 
the vendor is attempting to circumvent a sanction (Sec. 246.12(g)(6));
    (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 SNAP disqualification or civil 
money penalty for hardship (Sec. 246.12(g)(3)(ii) and (g)(3)(iii));

[[Page 456]]

    (B) Denial of authorization based on the application of the vendor 
selection criteria for competitive price (Sec. 246.12(g)(4));
    (C) The application of the State agency's vendor peer group criteria 
and the criteria used to identify vendors that are above-50-percent 
vendors or comparable to above-50-percent vendors;
    (D) 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 SNAP withdrawal of authorization or disqualification;
    (E) Denial of authorization based on the State agency's vendor 
limiting criteria (Sec. 246.12(g)(2));
    (F) 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)(8);
    (G) Termination of an agreement because of a change in ownership or 
location or cessation of operations (Sec. 246.12(h)(3)(xvii));
    (H) Disqualification based on a trafficking conviction 
(Sec. 246.12(l)(1)(i));
    (I) Disqualification based on the imposition of a SNAP civil money 
penalty for hardship (Sec. 246.12(l)(2)(ii)); and
    (J) 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)).
    (K) A civil money penalty imposed in lieu of disqualification based 
on a SNAP disqualification under Sec. 246.12(l)(1)(vii) and,
    (L) Denial of an application based on a determination of whether an 
applicant vendor is currently authorized by SNAP.
    (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 criteria (Sec. 246.12(g)(2)) or vendor selection criteria for 
minimum variety and quantity of supplemental foods, business integrity, 
and current Supplemental Nutrition Assistance Program disqualification 
or civil money penalty for hardship (Sec. 246.12(g)(3));
    (B) The validity or appropriateness of the State agency's selection 
criteria for competitive price (Sec. 246.12(g)(4)), including, but not 
limited to, vendor peer group criteria and the criteria used to identify 
vendors that are above-50-percent vendors or comparable to above-50-
percent vendors;
    (C) The validity or appropriateness of the State agency's 
participant access criteria and the State agency's participant access 
determinations;
    (D) The State agency's determination to include or exclude an infant 
formula manufacturer, wholesaler, distributor, or retailer from the list 
required pursuant to Sec. 246.12(g)(11);
    (E) The validity or appropriateness of the State agency's 
prohibition of incentive items and the State agency's denial of an 
above-50-percent vendor's request to provide an incentive item to 
customers pursuant to Sec. 246.12(h)(8);
    (F) The State agency's determination whether to notify a vendor in 
writing when an investigation reveals an initial violation for which a 
pattern of violations must be established in order to impose a sanction, 
pursuant to Sec. 246.12(l)(3);
    (G) 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));
    (H) Denial of authorization if the State agency's vendor 
authorization is subject to the procurement procedures applicable to the 
State agency;
    (I) The expiration of a vendor's agreement;
    (J) Disputes regarding food instrument or cash-value voucher 
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
    (K) Disqualification of a vendor as a result of disqualification 
from SNAP (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

[[Page 457]]

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.
    (4) Farmer or farmers' market appeals--(i) Adverse actions. The 
State agency shall provide a hearing procedure whereby farmers or 
farmers' markets adversely affected by certain actions of the State 
agency may appeal those actions. A farmer or farmers' market may appeal 
an action of the State agency denying its application to participate, 
imposing a sanction, or disqualifying it from participation in the 
program. Expiration of an agreement is not subject to appeal.
    (ii) Effective date of adverse actions against farmers or farmers' 
markets. The State agency must make denials of authorization and 
disqualifications 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 farmer receives the 
review decision. The State agency must make all other adverse actions 
effective no earlier than 15 days after the date of the notice of 
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 
an administrative review, no later than the date the farmer or farmers' 
market receives the review decision.
    (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), (a)(3) and (a)(4) of this 
section. At a minimum, these procedures must provide the vendor, farmer 
or farmers' market 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 SNAP. Such 
disqualification is not subject to administrative or judicial review 
under SNAP.''
    (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

[[Page 458]]

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 the request 
for an administrative review from a vendor, farmer, or farmer's market, 
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, farmer, 
or farmers' market 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, farmer, or 
farmers' market concerning the cause(s) for the adverse action and the 
response from the vendor, farmer, or farmers' market.
    (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.
    (d) Continuing responsibilities. Appealing an action does not 
relieve a local agency, farmer or farmers' market or 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, farmer or farmers' market or local 
agency.
    (f) Judicial review. If the review decision upholds the adverse 
action against the vendor, farmer or farmers' market or local agency, 
the State agency must inform the vendor, farmer or farmers' market or 
local agency that it may be

[[Page 459]]

able to pursue judicial review of the decision.

[65 FR 83266, Dec. 29, 2000, as amended at 70 FR 71724, Nov. 29, 2005; 
73 FR 68998, Dec. 6, 2007; 73 FR 21811, Apr. 23, 2008; 74 FR 557, Jan. 
6, 2009; 74 FR 51759, Oct. 8, 2009; 79 FR 12300, Mar. 4, 2014]



                     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 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

[[Page 460]]

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, breastfeeding promotion 
and support, 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; 76 
FR 59890, Sept. 28, 2011]



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 follow-up review, allowing a reasonable time for such 
corrective action to be taken.
    (b) State audit responsibilities. (1) State agencies must obtain 
annual audits in accordance with part 3052 of this title. In addition, 
States must require local agencies under their jurisdiction to obtain 
audits in accordance with 2 CFR part 200, subpart F and Appendix XI, 
Compliance Supplement and USDA implementing regulations 2 CFR part 400 
and part 415.
    (2) Each State agency shall make all State or local agency sponsored 
audit reports of Program operations under

[[Page 461]]

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.

[50 FR 6121, Feb. 13, 1985, as amended at 71 FR 56731, Sept. 27, 2006; 
81 FR 66494, Sept. 28, 2016]



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 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--

[[Page 462]]

    (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 of supplemental foods 
food instruments, or cash-value vouchers 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 or cash-value vouchers, 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, food instruments, or cash-
value vouchers 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 cash-
value vouchers and taken appropriate follow-up action on all redeemed 
food instruments and cash-value vouchers 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 or cash-value voucher; 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

[[Page 463]]

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 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 
$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.

[50 FR 6121, Feb. 13, 1985, as amended at 52 FR 21238, June 4, 1987; 65 
FR 83288, Dec. 29, 2000; 71 FR 56731, Sept. 27, 2006; 72 FR 68998, Dec. 
6, 2007; 79 FR 12300, Mar. 4, 2014]



Sec. 246.24  Procurement and property management.

    (a) Requirements. State and local agencies shall ensure that 
subgrantees comply with the requirements for the nonprocurement 
debarment/suspension requirements and, if applicable, the lobbying 
restrictions as required in 2 CFR part 180, OMB Guidelines to Agencies 
on Government-wide Debarment and Suspension, 2 CFR part 200, subpart E 
and USDA implementing regulations 2 CFR part 400, part 415, and part 417 
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

[[Page 464]]

and in compliance with the provisions of applicable law and executive 
orders.
    (b) Contractual responsibilities. The standards contained in A-130 
and 2 CFR part 200, subpart D and Appendix II, Contract Provisions for 
Non-Federal Entity Contracts Under Federal Awards and USDA implementing 
regulations 2 CFR part 400 and part 415 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 2 CFR part 200, subpart D and 
Appendix II, Contract Provisions for Non-Federal Entity Contracts Under 
Federal Awards and USDA implementing regulations 2 CFR part 400 and part 
415.
    (d) Property acquired with Program funds. State and local agencies 
shall observe the standards prescribed in 2 CFR part 200, subpart D and 
USDA implementing regulations 2 CFR part 400 and part 415 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; 81 
FR 66494, 66495, Sept. 28, 2016]



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 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415 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, including breastfeeding promotion 
and support, 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.
    (4) All records shall be available during normal business hours for 
representatives of the Department and the Comptroller General of the 
United States to inspect, audit, and copy. Any reports or other 
documents resulting from the examination of such records that are 
publicly released may not include confidential applicant or participant 
information.
    (b) Financial and participation reports--(1) Monthly reports. (i) 
State agencies must submit financial and program performance data on a 
monthly basis, as specified by FNS, to support program management and 
funding decisions. Such information must include, but may not be limited 
to:
    (A) Actual and projected participation;
    (B) Actual and projected food funds expenditures;
    (C) Actual and projected rebate payments received from 
manufacturers.
    (D) A listing by source year of food and NSA funds available for 
expenditure; and,

[[Page 465]]

    (E) NSA expenditures and unliquidated obligations.
    (ii) State agencies must require local agencies to report such 
financial and participation information as is necessary for the 
efficient management of food and NSA funds expenditures.
    (2) Annual reports. (i) Every year, State agencies must report to 
FNS the average number of migrant farmworker household members 
participating in the Program during a 12-month period of time specified 
by FNS.
    (ii) State agencies must submit itemized NSA expenditure reports 
annually as an addendum to their WIC Program closeout reports, as 
required by Sec. 246.17(b)(2).
    (iii) The State agency must submit local agency breastfeeding 
participation data on an annual basis to FNS.
    (3) Biennial reports. (i) Participant characteristics report. State 
and local agencies must provide such information as may be required by 
FNS to provide a biennial participant characteristics report. This 
includes, at a minimum, information on income and nutritional risk 
characteristics of participants, information on breastfeeding incidence 
and duration, and participation 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)) and by 
migrant farmworker households.
    (ii) Civil rights report. Racial and ethnic participation data 
contained in the biennial participant characteristics report will also 
be used to fulfill civil rights reporting requirements.
    (c) Other reports. State agencies must submit reports to reflect 
additions and deletions of local agencies administering the WIC Program 
and local agency address changes as these events occur.
    (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; 71 FR 56731, Sept. 27, 2006; 72 FR 24183, May 2, 2007; 76 FR 
59890, Sept. 27, 2011; 81 FR 66494, Sept. 28, 2016]



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 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

[[Page 466]]

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--(1) 
WIC purposes. (i) Confidential applicant and participant information is 
any information about an applicant or participant, whether it is 
obtained from the applicant or participant, another source, or generated 
as a result of WIC application, certification, or participation, that 
individually identifies an applicant or participant and/or family 
member(s). Applicant or participant information is confidential, 
regardless of the original source and exclusive of previously applicable 
confidentiality provided in accordance with other Federal, State or 
local law.
    (ii) Except as otherwise permitted by this section, the State agency 
must restrict the use and disclosure of confidential applicant and 
participant information to persons directly connected with the 
administration or enforcement of the WIC Program whom the State agency 
determine have a need to know the information for WIC Program purposes. 
These persons may include, but are not limited to: personnel from its 
local agencies and other WIC State or local agencies; persons under 
contract with the State agency to perform research regarding the WIC 
Program, and persons investigating or prosecuting WIC Program violations 
under Federal, State or local law.
    (2) Non-WIC purposes. (i) Use by WIC State and local agencies. Any 
WIC State or local agency may use confidential applicant and participant 
information in the administration of its other programs that serve 
persons eligible for the WIC Program in accordance with paragraph (h) of 
this section.
    (ii) Disclosure to public organizations. The State agency and its 
local agencies may disclose confidential applicant and participant 
information to public organizations for use in the administration of 
their programs that serve persons eligible for the WIC Program in 
accordance with paragraph (h) of this section.
    (3) Child abuse and neglect reporting. Staff of the State agency and 
its local agencies who are required by State law to report known or 
suspected child abuse or neglect may disclose confidential applicant and 
participant information without the consent of the participant or 
applicant to the extent necessary to comply with such law.
    (4) Release forms. Except in the case of subpoenas or search 
warrants (see paragraph (i) of this section), the State agency and its 
local agencies may disclose confidential applicant and participant 
information to individuals or entities not listed in this section only 
if the affected applicant or participant signs a release form 
authorizing the disclosure and specifying the parties to which the 
information may be disclosed. The State or local agency must permit 
applicants and participants to refuse to sign the release form and must 
notify the applicants and participants that signing the form is not a 
condition of eligibility and refusing to sign the form will not affect 
the applicant's or participant's application or participation in the WIC 
Program. Release forms authorizing disclosure to private physicians or 
other health care providers may be included as part of the WIC 
application or certification process. All other requests for applicants 
or participants to sign voluntary release forms must occur after the 
application and certification process is completed.
    (5) Access to information by applicants and participants. The State 
or local agency must provide applicants and participants access to all 
information they have provided to the WIC Program. In the case of an 
applicant or participant who is an infant or child, the access may be 
provided to the parent or guardian of the infant or child, assuming that 
any issues regarding custody or guardianship have been settled. However, 
the State or local agency need not provide the applicant or participant 
(or the parent or guardian of an infant or child) access to any other 
information in the file or record such as documentation of income 
provided by third parties and staff assessments of the participant's 
condition or behavior, unless required by Federal, State, or local law 
or policy or unless the information supports a State or

[[Page 467]]

local agency decision being appealed pursuant to Sec. 246.9.
    (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, telephone number, Web site/e-
mail address, store type, 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 SNAP 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 SNAP violations under Federal, State, or local law;
    (2) Persons directly connected with the administration or 
enforcement of any Federal or State law or local law or ordinance. 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.
    (4) At the discretion of the State agency, all authorized vendors 
and vendor applicants regarding vendor sanctions which have been 
imposed, identifying only the vendor's name, address, length of the 
disqualification or amount of the civil money penalty, and a summary of 
the reason(s) for such sanction provided in the notice of adverse 
action. Such information may be disclosed only following the exhaustion 
of all administrative and judicial review, in which the State agency has 
prevailed, regarding the sanction imposed on the subject vendor, or the 
time period for requesting such review has expired.
    (f) Confidentiality of SNAP retailer information. Except as 
otherwise provided in this section, the State agency must restrict the 
use or disclosure of information about SNAP retailers obtained from 
SNAP, including information provided pursuant to Section 9(c) of the 
Food and Nutrition Act of 2008 (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, applicant and 
participant information, pursuant to Sec. 246.25(a)(4).
    (h) Requirements for use and disclosure of confidential applicant 
and participant information for non-WIC purposes. The State or local 
agency must take the following steps before using or disclosing 
confidential applicant or participant information for non-WIC purposes 
pursuant to paragraph (d)(2) of this section.
    (1) Designation by chief State health officer. The chief State 
health officer (or, in the case of an Indian State agency, the governing 
authority) must designate in writing the permitted non-WIC uses of the 
information and the names of the organizations to which such information 
may be disclosed.
    (2) Notice to applicants and participants. The applicant or 
participant must be notified either at the time of application (in 
accordance with Sec. 246.7(i)(11)) or through a subsequent notice that 
the chief State health officer (or, in the case of an Indian State 
agency, the governing authority) may authorize the use and disclosure of 
information about their participation in the WIC Program for non-WIC 
purposes. This statement must also indicate that such information will 
be used by State and local WIC agencies and public organizations only in 
the administration of their programs that serve persons eligible for the 
WIC Program.
    (3) Written agreement and State plan. The State or local agency 
disclosing

[[Page 468]]

the information must enter into a written agreement with the other 
public organization or, in the case of a non-WIC use by a State or local 
WIC agency, the unit of the State or local agency that will be using the 
information. The State agency must also include in its State plan, as 
specified in Sec. 246.4(a)(24), a list of all organizations (including 
units of the State agency or local agencies) with which the State agency 
or its local agencies has executed or intends to execute a written 
agreement. The written agreement must:
    (i) Specify that the receiving organization may use the confidential 
applicant and participant information only for:
    (A) Establishing the eligibility of WIC applicants or participants 
for the programs that the organization administers;
    (B) Conducting outreach to WIC applicants and participants for such 
programs;
    (C) Enhancing the health, education, or well-being of WIC applicants 
or participants who are currently enrolled in such programs, including 
the reporting of known or suspected child abuse or neglect that is not 
otherwise required by State law;
    (D) Streamlining administrative procedures in order to minimize 
burdens on staff, applicants, or participants in either the receiving 
program or the WIC Program; and/or
    (E) Assessing and evaluating the responsiveness of a State's health 
system to participants' health care needs and health care outcomes; and
    (ii) Contain the receiving organization's assurance that it will not 
use the information for any other purpose or disclose the information to 
a third party.
    (i) Subpoenas and search warrants. The State agency may disclose 
confidential applicant, participant, or vendor information pursuant to a 
valid subpoena or search warrant in accordance with the following 
procedures:
    (1) Subpoena procedures. In determining how to respond to a subpoena 
duces tecum (i.e., a subpoena for documents) or other subpoena for 
confidential information, the State or local agency must use the 
following procedures:
    (i) Upon receiving the subpoena, immediately notify its State 
agency;
    (ii) Consult with legal counsel for the State or local agency and 
determine whether the information requested is in fact confidential and 
prohibited by this section from being used or disclosed as stated in the 
subpoena;
    (iii) If the State or local agency determines that the information 
is confidential and prohibited from being used or disclosed as stated in 
the subpoena, attempt to quash the subpoena unless the State or local 
agency determines that disclosing the confidential information is in the 
best interest of the Program. The determination to disclose confidential 
information without attempting to quash the subpoena should be made only 
infrequently; and,
    (iv) If the State or local agency seeks to quash the subpoena or 
decides that disclosing the confidential information is in the best 
interest of the Program, inform the court or the receiving party that 
this information is confidential and seek to limit the disclosure by:
    (A) Providing only the specific information requested in the 
subpoena and no other information; and,
    (B) Limiting to the greatest extent possible the public access to 
the confidential information disclosed.
    (2) Search warrant procedures. In responding to a search warrant for 
confidential information, the State or local agency must use the 
following procedures:
    (i) Upon receiving the search warrant, immediately notify its State 
agency;
    (ii) Immediately notify legal counsel for the State or local agency;
    (iii) Comply with the search warrant; and,
    (iv) Inform the individual(s) serving the search warrant that the 
information being sought is confidential and seek to limit the 
disclosure by:
    (A) Providing only the specific information requested in the search 
warrant and no other information; and
    (B) Limiting to the greatest extent possible the public access to 
the confidential information disclosed.
    (j) Data collection related to local agencies. (1) Each State agency 
must collect

[[Page 469]]

data related to local agencies that have an agreement with the State 
agency to participate in the program for each of Federal fiscal years 
2006 through 2009, including those local agencies that participated only 
for part of the fiscal year. Such data shall include:
    (i) The name of each local agency;
    (ii) The city in which each local agency was headquartered and the 
name of the state;
    (iii) The amount of funds provided to the participating 
organization, i.e., the amount of federal funds provided for nutrition 
services and administration to each participating local agency; and
    (iv) The type of participating organization, e.g., government 
agency, educational institution, non-profit organization/secular, non-
profit organization/faith-based, and ``other.''
    (2) On or before August 31, 2007, and each subsequent year through 
2010, State agencies must report to FNS data as specified in paragraph 
(j)(1) of this section for the prior Federal fiscal year. State agencies 
must submit this data in a format designated by FNS.
    (k) Program evaluations. State and local WIC agencies and 
contractors must cooperate in studies and evaluations conducted by or on 
behalf of the Department, related to programs authorized under the 
Richard B. Russell National School Lunch Act and the Child Nutrition Act 
of 1966 (42 U.S.C. 1786).

[50 FR 6121, Feb. 13, 1985, as amended at 53 FR 35301, Sept. 13, 1988; 
65 FR 83288, Dec. 29, 2000; 71 FR 56731, Sept. 27, 2006; 72 FR 24184, 
May 2, 2007; 73 FR 21811, Apr. 23, 2008; 76 FR 37983, June 29, 2011]



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, 61 Forsyth Street, SW., room 8T36, 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, the Commonwealth of 
the Northern Mariana Islands, Guam, Hawaii, Idaho, Nevada, Oregon, 
Washington: U.S. Department of Agriculture, FNS, Western Region,90 
Seventh Street, Suite 10-100, San Francisco, California 94103.

[50 FR 6121, Feb. 13, 1985; 50 FR 8098, Feb. 28, 1985, as amended at 59 
FR 11508, Mar. 11, 1994; 71 FR 56733, Sept. 27, 2006; 73 FR 11314, Mar. 
3, 2008]



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.

------------------------------------------------------------------------
                                                             Current OMB
  7 CFR part 246 section where requirements are described    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

[[Page 470]]

 
.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  Definitions.
247.2  The purpose and scope of CSFP.
247.3  Administering agencies.
247.4  Agreements.
247.5  State and local agency responsibilities.
247.6  State Plan.
247.7  Selection of local agencies.
247.8  Individuals applying to participate in CSFP.
247.9  Eligibility requirements.
247.10  Distribution and use of CSFP commodities.
247.11  Applicants exceed caseload levels.
247.12  Rights and responsibilities.
247.13  Provisions for non-English or limited-English speakers.
247.14  Other public assistance programs.
247.15  Notification of eligibility or ineligibility of applicant.
247.16  Certification period.
247.17  Notification of discontinuance of participant.
247.18  Nutrition education.
247.19  Dual participation.
247.20  Program violations.
247.21  Caseload assignment.
247.22  Allocation and disbursement of administrative funds to State 
          agencies.
247.23  State provision of administrative funds to local agencies.
247.24  Recovery and redistribution of caseload and administrative 
          funds.
247.25  Allowable uses of administrative funds and other funds.
247.26  Return of administrative funds.
247.27  Financial management.
247.28  Storage and inventory of commodities.
247.29  Reports and recordkeeping.
247.30  Claims.
247.31  Audits and investigations.
247.32  Termination of agency participation.
247.33  Fair hearings.
247.34  Management reviews.
247.35  Local agency appeals of State agency actions.
247.36  Confidentiality of applicants or participants.
247.37  Civil rights requirements.

    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. 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, Pub. L. 107-
171, 116 Stat. 134 (7 U.S.C. 7901 note); sec. 4221, Pub. L. 110-246, 122 
Stat. 1886 (7 U.S.C. 612c note); sec. 4221, Pub. L. 113-79, 7 U.S.C. 
612c note).

    Source: 70 FR 47063, Aug. 11, 2005, unless otherwise noted.



Sec. 247.1  Definitions.

    Following is a list of definitions that apply to the Commodity 
Supplemental Food Program (CSFP).
    2 CFR part 200, means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C) does not apply to the National School Lunch 
Program).
    Applicant means any person who applies to receive program benefits. 
Applicants include program participants applying for recertification.
    Breastfeeding women means women up to one year postpartum who are 
breastfeeding their infants.
    Caseload means the number of persons the State agency may serve on 
an average monthly basis over the course of the caseload cycle.
    Caseload cycle means the period from January 1 through the following 
December 31.
    Certification means the use of procedures to determine an 
applicant's eligibility for the program.

[[Page 471]]

    Certification period means the period of time that a participant may 
continue to receive program benefits without a review of his or her 
eligibility.
    Children means persons who are at least one year of age but have not 
reached their sixth birthday.
    Commodities means nutritious foods purchased by USDA to supplement 
the diets of CSFP participants.
    CSFP means the Commodity Supplemental Food Program.
    Department means the U.S. Department of Agriculture.
    Disqualification means the act of ending Program participation of a 
participant as a punitive sanction.
    Dual participation means simultaneous participation by an individual 
in CSFP and the WIC Program, or in CSFP at more than one distribution 
site.
    Elderly persons means persons at least 60 years of age.
    Fiscal year means the period from October 1 through the following 
September 30.
    FNS means the Food and Nutrition Service.
    Infants means persons under one year of age.
    Local agency means a public or private nonprofit agency, including 
an Indian tribal organization, which enters into an agreement with the 
State agency to administer CSFP at the local level.
    Nonprofit agency means a private agency or organization with tax-
exempt status under the Internal Revenue Code, or that has applied for 
tax-exempt status with the Internal Revenue Service.
    Postpartum women means women up to one year after termination of 
pregnancy.
    Proxy means any person designated by a participant, or by the 
participant's adult parent or caretaker, to obtain supplemental foods on 
behalf of the participant.
    7 CFR part 250 means the Department's regulations pertaining to the 
donation of foods for use in USDA food distribution programs.
    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 designated by the State to administer 
CSFP at the State level; an Indian tribe or tribal organization 
recognized by the Department of the Interior that administers the 
program for a specified tribe or tribes; or, the appropriate area office 
of the Indian Health Service of the Department of Health and Human 
Services.
    State Plan means the document that describes the manner in which the 
State agency intends to administer the program in the State.
    Subdistributing agency means an agency or organization that has 
entered into an agreement with the State agency to perform functions 
normally performed by the State, such as entering into agreements with 
eligible recipient agencies under which commodities are made available, 
ordering commodities and/or making arrangements for the storage and 
delivery of such commodities on behalf of eligible recipient agencies.
    USDA implementing regulations include the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations for Grants and Cooperative Agreements to 
State and Local Governments; and 2 CFR part 418, New Restrictions on 
Lobbying.
    WIC Program means the Special Supplemental Nutrition Program for 
Women, Infants, and Children.

[70 FR 47063, Aug. 11, 2005, as amended at 81 FR 66495, Sept. 28, 2016]



Sec. 247.2  The purpose and scope of CSFP.

    (a) How does CSFP help participants? Through CSFP, the Department 
provides nutritious commodities to help State and local agencies meet 
the nutritional needs of low-income elderly persons. CSFP also helps 
State and local agencies meet the nutritional needs of women, infants, 
and children who were certified and receiving CSFP benefits as of 
February 6, 2014. Through

[[Page 472]]

local agencies, each participant receives a monthly package of 
commodities, based on food package guide rates developed by FNS, with 
input from State and local agencies. Food packages include such 
nutritious foods as canned fruits and vegetables, canned meat, poultry 
and other protein items, and grain products such as pasta, as well as 
other foods. Participants are offered the opportunity to receive 
nutrition education.
    (b) How many persons may be served in CSFP? State agencies may serve 
eligible persons up to the caseload limit assigned to them by FNS. 
Caseload is the number of persons that may be served on an average 
monthly basis over the course of the caseload cycle, which extends from 
January 1 through the following December 31.

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38750, July 9, 2014]



Sec. 247.3  Administering agencies.

    (a) What agencies are responsible for administering CSFP? CSFP is 
administered at the Federal level by the Department's Food and Nutrition 
Service (FNS), which provides commodities, assigns caseload, and 
allocates administrative funds to State agencies. State agencies are 
responsible for administering the program at the State level. The State 
agency may select local agencies to administer the program in local 
areas of the State. The State agency must provide guidance to local 
agencies on all aspects of program operations. The State agency may also 
select subdistributing agencies (e.g., another State agency, a local 
governmental agency, or a nonprofit organization) to distribute or store 
commodities, or to perform other program functions on behalf of the 
State agency. Local or subdistributing agencies may also select other 
agencies to perform specific program functions (e.g., food distribution 
or storage), with the State agency's approval. Although the State agency 
may select other organizations to perform specific activities, the State 
agency is ultimately responsible for all aspects of program 
administration.
    (b) Are there specific functions that the State agency cannot 
delegate to another agency? Yes. The State agency may not delegate the 
performance of the following functions to another agency:
    (1) Establishing eligibility requirements, in accordance with the 
options provided to the State agency under Sec. 247.9; or
    (2) Establishing a management review system and conducting reviews 
of local agencies, in accordance with Sec. 247.34.
    (c) What Federal requirements must State, subdistributing, and local 
agencies follow in administering CSFP? State, subdistributing, and local 
agencies must administer the program in accordance with the provisions 
of this part, and with the provisions contained in part 250 of this 
chapter, unless they are inconsistent with the provisions of this part.



Sec. 247.4  Agreements.

    (a) What agreements are necessary for agencies to administer CSFP? 
The following agreements are necessary for agencies to administer CSFP:
    (1) Agreements between FNS and State agencies. Each State agency 
must enter into an agreement with FNS (Form FNS-74, the Federal-State 
Agreement) prior to receiving commodities or administrative funds;
    (2) Agreements between State agencies and local or subdistributing 
agencies. The State agency must enter into written agreements with local 
or subdistributing agencies prior to making commodities or 
administrative funds available to them. The agreements must contain the 
information specified in paragraph (b) of this section. Agreements 
between State and local agencies must also contain the information 
specified in paragraph (c) of this section. Copies of all agreements 
must be kept on file by the parties to the agreements; and
    (3) Agreements between local and subdistributing agencies and other 
agencies. The State agency must ensure that local and subdistributing 
agencies enter into written agreements with other agencies prior to 
making commodities or administrative funds available to these other 
agencies. The agreements must contain the information specified in 
paragraph (b) of this section. Copies of all agreements must be

[[Page 473]]

kept on file by the parties to the agreements.
    (b) What are the required contents of agreements? All agreements 
described under paragraphs (a)(2) and (a)(3) of this section must 
contain the following:
    (1) An assurance that each agency will administer the program in 
accordance with the provisions of this part and with the provisions of 
part 250 of this chapter, unless they are inconsistent with the 
provisions of this part;
    (2) An assurance that each agency will maintain accurate and 
complete records for a period of three years from the close of the 
fiscal year to which they pertain, or longer if the records are related 
to unresolved claims actions, audits, or investigations;
    (3) A statement that each agency receiving commodities for 
distribution is responsible for any loss resulting from improper 
distribution, or improper storage, care, or handling of commodities;
    (4) A statement that each agency receiving program funds is 
responsible for any misuse of program funds;
    (5) A description of the specific functions that the State, 
subdistributing, or local agency is delegating to another agency; and
    (6) A statement specifying:
    (i) That either party may terminate the agreement by written notice 
to the other; and
    (ii) The minimum number of days of advance notice that must be 
given. (The advance notification period must be at least 30 days.)
    (c) What other assurances or information must be included in 
agreements between State and local agencies? In addition to the 
requirements under paragraph (b) of this section, agreements between 
State and local agencies must contain the following:
    (1) An assurance that the local agency will provide, or cause to be 
provided, nutrition education to participants, as required in 
Sec. 247.18;
    (2) An assurance that the local agency will provide information to 
participants on other health, nutrition, and public assistance programs, 
and make referrals as appropriate, as required in Sec. 247.14;
    (3) An assurance that the local agency will distribute commodities 
in accordance with the approved food package guide rate;
    (4) An assurance that the local agency will take steps to prevent 
and detect dual participation, as required in Sec. 247.19;
    (5) The names and addresses of all certification, distribution, and 
storage sites under the jurisdiction of the local agency; and
    (6) An assurance that the local agency will not subject any person 
to discrimination under the program on the grounds of race, color, 
national origin, age, sex, or disability.
    (d) What is the duration of required agreements? Agreements between 
FNS and State agencies are considered permanent, but may be amended at 
the initiation of State agencies or at the request of FNS. All 
amendments must be approved by FNS. The State agency establishes the 
duration of agreements it signs with local agencies or subdistributing 
agencies. The State agency may establish, or permit the local or 
subdistributing agency to establish, the duration of agreements between 
local or subdistributing agencies and other agencies. However, State and 
local agencies must comply with the requirements in Sec. 250.12(c) of 
this chapter when entering agreements with other entities.

(Approved by the Office of Management and Budget under control numbers 
0584-0067, 0584-0293)



Sec. 247.5  State and local agency responsibilities.

    State and local agencies are responsible for administering the 
program in accordance with the provisions of this part, and with the 
provisions of part 250 of this chapter, as applicable. Although the 
State agency may delegate some responsibilities to another agency, the 
State agency is ultimately responsible for all aspects of program 
administration. The following is an outline of the major 
responsibilities of State and local agencies; it is not intended to be 
all-inclusive.
    (a) What are the major responsibilities shared by State and local 
agencies? The major responsibilities shared by State and local agencies 
include:

[[Page 474]]

    (1) Entering into required agreements;
    (2) Ordering commodities for distribution;
    (3) Storing and distributing commodities;
    (4) Establishing procedures for resolving complaints about 
commodities;
    (5) Complying with civil rights requirements;
    (6) Maintaining accurate and complete records; and
    (7) Conducting program outreach.
    (b) What are the major State agency responsibilities? The major 
responsibilities of State agencies include:
    (1) Completing and submitting the State Plan;
    (2) Selecting local agencies to administer the program in local 
areas of the State;
    (3) Determining caseload needs, and submitting caseload requests to 
FNS;
    (4) Assigning caseload, and allocating administrative funds, to 
local agencies;
    (5) Establishing eligibility requirements, in accordance with the 
options provided to the State agency under Sec. 247.9. (This function 
may not be delegated to another agency.);
    (6) Establishing nutritional risk criteria and a residency 
requirement for participants, if such criteria are to be used;
    (7) Establishing a financial management system that effectively 
accounts for funds received for program administration;
    (8) Developing a plan for the detection and prevention of dual 
participation, in coordination with CSFP local agencies and with the WIC 
State agency, unless no women, infants, and children remain enrolled in 
CSFP in the State;
    (9) Developing a plan for providing nutrition education to 
participants;
    (10) Establishing appeals and fair hearing procedures for local 
agencies and program participants;
    (11) Developing a management review system and conducting reviews of 
local agencies. (This function may not be delegated to another agency.);
    (12) Determining and pursuing claims, and establishing standards for 
pursuit of claims against participants;
    (13) Ensuring compliance with Federal audit requirements;
    (14) Providing guidance to local agencies, as needed; and
    (15) Ensuring that program participation does not exceed the State 
agency's caseload allocation on an average monthly basis.
    (c) What are the major local agency responsibilities? The major 
local agency responsibilities include:
    (1) Determining eligibility of applicants in accordance with 
eligibility criteria established by the State agency;
    (2) Complying with fiscal and operational requirements established 
by the State agency;
    (3) Ensuring that participation does not exceed the caseload 
assigned by the State agency;
    (4) Issuing foods to participants in accordance with the established 
food package guide rates;
    (5) Providing nutrition education and information on the 
availability of other nutrition and health assistance programs to 
participants;
    (6) Informing applicants of their rights and responsibilities in the 
program;
    (7) Meeting the special needs of the homebound elderly, to the 
extent possible; and
    (8) Pursuing claims against participants.

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38750, July 9, 2014]



Sec. 247.6  State Plan.

    (a) What is the State Plan? The State Plan is a document that 
describes how the State agency will operate CSFP and the caseload needed 
to serve eligible applicants. The State agency must submit the State 
Plan to FNS for approval. Once submitted and approved, the State Plan is 
considered permanent, with amendments submitted at the State agency's 
initiative, or at FNS request. All amendments are subject to FNS 
approval. The State Plan may be submitted in the format provided in FNS 
guidance, in an alternate format, or in combination with other documents 
required by Federal regulations. The State Plan must be signed by the 
State agency official responsible for program administration. A copy of 
the State Plan must be kept on file at the State agency for public 
inspection.

[[Page 475]]

    (b) When must the State Plan be submitted? The State Plan must be 
submitted by August 15 to take effect for the fiscal year beginning in 
the following October. FNS will provide notification of the approval or 
disapproval of the State Plan within 30 days of receipt, and will notify 
the State agency within 15 days of receipt if additional information is 
needed. Disapproval of the Plan will include a reason for the 
disapproval. Approval of the Plan is a prerequisite to the assignment of 
caseload and allocation of administrative funds, but does not ensure 
that caseload and funds will be provided.
    (c) What must be included in the State Plan? The State Plan must 
include:
    (1) The names and addresses of all local agencies and 
subdistributing agencies with which the State agency has entered into 
agreement;
    (2) The income eligibility standards to be used for women, infants, 
and children, if applicable, and the options to be used relating to 
income or other eligibility requirements, as provided under Sec. 247.9;
    (3) The nutritional risk criteria to be used, if the State chooses 
to establish such criteria;
    (4) A description of plans for serving participants and the caseload 
needed to serve them;
    (5) A description of plans for conducting outreach to the elderly;
    (6) A description of the system for storing and distributing 
commodities;
    (7) A description of plans for providing nutrition education to 
participants;
    (8) A description of the means by which the State agency will detect 
and prevent dual participation, including, if applicable, collaboration 
with the State WIC agency and a copy of the agreement signed with the 
State WIC agency to accomplish this;
    (9) A description of the standards the State agency will use in 
determining if the pursuit of a claim against a participant is cost-
effective;
    (10) A description of the means by which the State will meet the 
needs of the homebound elderly; and
    (11) Copies of all agreements entered into by the State agency.
    (d) When must the State agency submit amendments to the State Plan? 
The State agency must submit amendments to FNS to reflect any changes in 
program operations or administration described in the State Plan, and to 
request additional caseload for the following caseload cycle. FNS may 
also require that the State Plan be amended to reflect changes in 
Federal law or policy. The State agency may submit amendments to the 
State Plan at any time during the fiscal year, for FNS approval. The 
amendments will take effect immediately upon approval, unless otherwise 
specified by FNS. If a State agency would like to receive additional 
caseload for the caseload cycle beginning the following January 1, it 
must submit an amendment to the Plan which conveys the request for 
additional caseload by November 5. The State agency must also describe 
in this submission any plans for serving participants at new sites. FNS 
action on the State agency's request for additional caseload is part of 
the caseload assignment process, as described under Sec. 247.21.

(Approved by the Office of Management and Budget under control number 
0584-0293)

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38750, July 9, 2014]



Sec. 247.7  Selection of local agencies.

    (a) How does a local agency apply to participate in CSFP? Local 
agencies wishing to participate in CSFP must submit a written 
application to the State agency. The application must describe how the 
local agency will operate the program and, for nonprofit agencies, must 
include the agency's tax-exempt status. To be eligible to participate in 
CSFP, a nonprofit agency must have tax-exempt status under the Internal 
Revenue Code (IRC), or have applied for tax-exempt status with the 
Internal Revenue Service (IRS), and be moving towards such status. 
Nonprofit agencies organized or operated exclusively for religious 
purposes are automatically tax-exempt under the IRC. Nonprofit agencies 
required to obtain tax-exempt status must provide documentation from the 
IRS that they have obtained such status, or have applied for it.

[[Page 476]]

    (b) On what basis does the State agency make a decision on the local 
agency's application? The State agency must approve or disapprove the 
local agency's application based on, at minimum, the following criteria:
    (1) The ability of the local agency to operate the program in 
accordance with Federal and State requirements;
    (2) The need for the program in the projected service area of the 
local agency;
    (3) The resources available (caseload and funds) for initiating a 
program in the local area; and
    (4) For nonprofit agencies, the tax-exempt status, with appropriate 
documentation.
    (c) What must the State agency do if a nonprofit agency approved for 
CSFP is subsequently denied tax-exempt status by the IRS, or does not 
obtain this status within a certain period of time? In accordance with 
paragraph (a) of this section, the State agency may approve a nonprofit 
agency that has applied to the IRS for tax-exempt status, and is moving 
toward compliance with the requirements for recognition of tax-exempt 
status. However, if the IRS subsequently denies a participating agency's 
application for recognition of tax-exempt status, the agency must 
immediately notify the State agency of the denial. The State agency must 
terminate the agency's agreement and participation immediately upon 
notification. If documentation of recognition of tax-exempt status is 
not received within 180 days of the effective date of the agency's 
approval to participate in CSFP, the State agency must terminate the 
agency's participation until such time as recognition of tax-exempt 
status is obtained. However, the State agency may grant an extension of 
90 days if the agency demonstrates that its inability to obtain tax-
exempt status in the 180-day period is due to circumstances beyond its 
control.
    (d) How much time does the State agency have to make a decision on 
the local agency's application? The State agency must inform the local 
agency of approval or denial of the application within 60 days of its 
receipt. If the application is denied, the State agency must provide a 
written explanation for the denial, along with notification of the local 
agency's right to appeal the decision, in accordance with Sec. 247.35. 
If the application is approved, the State and local agency must enter 
into an agreement in accordance with the requirements of Sec. 247.4.

(Approved by the Office of Management and Budget under control number 
0584-0293)



Sec. 247.8  Individuals applying to participate in CSFP.

    (a) What information must individuals applying to participate in 
CSFP provide? To apply for CSFP benefits, the applicant or caretaker of 
the applicant must provide the following information on the application:
    (1) Name and address, including some form of identification for each 
applicant;
    (2) Household income, except where the applicant is determined to be 
automatically eligible under Sec. 247.9(b)(1)(i) and (b)(1)(ii);
    (3) Household size, except where the applicant is determined to be 
automatically eligible under Sec. 247.9(b)(1)(i) and (b)(1)(ii); and
    (4) Other information related to eligibility, such as age.
    (b) What else is required on the application form? The application 
form must include a nondiscrimination statement that informs the 
applicant that program standards are applied without discrimination by 
race, color, national origin, age, sex, or disability. After informing 
the applicant or caretaker of the applicant of his or her rights and 
responsibilities, in accordance with Sec. 247.12, the local agency must 
ensure that the applicant or caretaker signs the application form 
beneath the following pre-printed statement. The statement must be read 
by, or to, the applicant or caretaker before signing.
    ``This application 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 am also aware 
that I may not receive both CSFP and WIC benefits simultaneously, and I 
may not receive CSFP benefits at more than one CSFP site at the same 
time. Furthermore, I am aware that the information

[[Page 477]]

provided may be shared with other organizations to detect and prevent 
dual participation. 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.
    I authorize the release of information provided on this application 
form to other organizations administering assistance programs for use in 
determining my eligibility for participation in other public assistance 
programs and for program outreach purposes. (Please indicate decision by 
placing a checkmark in the appropriate box.)

YES [  ]
NO [  ]''


(Approved by the Office of Management and Budget under control number 
0584-0293)

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38750, July 9, 2014]



Sec. 247.9  Eligibility requirements.

    (a) Who is eligible for CSFP? To be eligible for CSFP, individuals 
must be at least 60 years of age and meet the income eligibility 
requirements outlined in paragraph (c) of this section; or the 
individual must be a woman, infant, or child who was certified and 
receiving CSFP benefits as of February 6, 2014, and whose enrollment in 
CSFP has continued without interruption.
    (b) What are the income eligibility requirements for women, infants, 
and children? (1) The State agency must establish household income 
limits that are at or below 185 percent of the Federal Poverty Income 
Guidelines published annually by the Department of Health and Human 
Services, but not below 100 percent of these guidelines. However, the 
State agency must accept as income-eligible, regardless of actual 
income, any applicant who is:
    (i) Certified as eligible to receive food stamps under the Food 
Stamp Act of 1977 (7 U.S.C. 2011 et seq.), Temporary Assistance for 
Needy Families (TANF) under Part A of Title IV of the Social Security 
Act (42 U.S.C. 601 et seq.), or Medical Assistance (i.e., Medicaid) 
under Title XIX of the Social Security Act (42 U.S.C. 1396 et seq.); or
    (ii) 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.
    (2) The State agency may consider women, infants, and children 
participating in another Federal, State, or local food, health, or 
welfare program as automatically eligible for CSFP if the income 
eligibility limits for the program are equal to or lower than the 
established CSFP limits.
    (3) For a pregnant woman, the State agency must count each embryo or 
fetus in utero as a household member in determining if the household 
meets the income eligibility standards.
    (4) The eligibility requirements in this section apply only to 
women, infants, and children who were certified and receiving CSFP 
benefits as of February 6, 2014, and whose enrollment has continued 
without interruption. Effective February 7, 2014, no new applications 
from women, infants, or children may be approved.
    (c) What are the income eligibility requirements for elderly 
persons? The State agency must use a household income limit at or below 
130 percent of the Federal Poverty Income Guidelines. Elderly persons in 
households with income at or below this level must be considered 
eligible for CSFP benefits (assuming they meet other requirements 
contained in this part). However, elderly persons certified before 
September 17, 1986 (i.e., under the three elderly pilot projects) must 
remain subject to the eligibility criteria in effect at the time of 
their certification.
    (d) When must the State agency revise the CSFP income guidelines to 
reflect the annual adjustments of the Federal Poverty Income Guidelines? 
Each year, FNS will notify State agencies, by memorandum, of adjusted 
income guidelines by household size at 185 percent, 130 percent, and 100 
percent of the Federal Poverty Income Guidelines. The memorandum will 
reflect the annual adjustments to the Federal Poverty Income Guidelines 
issued by the Department of Health and Human Services. The State agency 
must implement the adjusted guidelines for elderly applicants 
immediately upon receipt of the memorandum. However, for the 
recertification of women, infants, and children, the State agency must 
implement the adjusted guidelines at the same time

[[Page 478]]

that the WIC agency implements the adjusted guidelines in WIC.
    (e) How is income defined and considered as it relates to CSFP 
eligibility? (1) Income means gross income before deductions for such 
items as income taxes, employees' social security taxes, insurance 
premiums, and bonds.
    (2) The State agency may exclude from consideration the following 
sources of income listed under the WIC regulations at 
Sec. 246.7(d)(2)(iv) of this chapter:
    (i) Any basic allowance for housing received by military services 
personnel residing off military installations; and
    (ii) The value of inkind housing and other inkind benefits.
    (3) The State agency must exclude from consideration all income 
sources excluded by legislation, which are listed in 
Sec. 246.7(d)(2)(iv)(D) of this chapter. FNS will notify State agencies 
of any new forms of income excluded by statute through program policy 
memoranda.
    (4) The State agency may authorize local agencies to consider the 
household's average income during the previous 12 months and current 
household income to determine which more accurately reflects the 
household's status. In instances in which the State makes the decision 
to authorize local agencies to determine a household's income in this 
manner, all local agencies must comply with the State's decision and 
apply this method of income determination in situations in which it is 
warranted.
    (f) What other options does the State agency have in establishing 
eligibility requirements for CSFP? (1) The State agency may require that 
an individual be at nutritional risk, as determined by a physician or by 
local agency staff.
    (2) The State agency may require that an individual reside within 
the service area of the local agency at the time of application for CSFP 
benefits. However, the State agency may not require that an individual 
reside within the area for any fixed period of time.

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38750, July 9, 2014]



Sec. 247.10  Distribution and use of CSFP commodities.

    (a) What are the requirements for distributing CSFP commodities to 
participants? The local agency must distribute a package of commodities 
to participants each month, or a two-month supply of commodities to 
participants every other month, in accordance with the food package 
guide rates established by FNS.
    (b) What must the local agency do to ensure that commodities are 
distributed only to CSFP participants? The local agency must require 
each participant, or participant's proxy, to present some form of 
identification before distributing commodities to that person.
    (c) What restrictions apply to State and local agencies in the 
distribution of CSFP commodities? State and local agencies must not 
require, or request, that participants make any payments, or provide any 
materials or services, in connection with the receipt of CSFP 
commodities. State and local agencies must not use the distribution of 
CSFP commodities as a means of furthering the political interests of any 
person or party.
    (d) What are the restrictions for the use of CSFP commodities? CSFP 
commodities may not be used for outreach, refreshments, or for any 
purposes other than distribution to, and nutrition education for, CSFP 
participants.



Sec. 247.11  Applicants exceed caseload levels.

    (a) What must the local agency do if the number of applicants 
exceeds the local agency's caseload level? If all caseload has been 
filled, the local agency must maintain a waiting list of individuals who 
apply for the program. In establishing the waiting list, the local 
agency must include the date of application and information necessary to 
allow the local agency to contact the applicant when caseload space 
becomes available. Unless they have been determined ineligible, 
applicants must be notified of their placement on a waiting list within 
10 days of their request for benefits in accordance with Sec. 247.15.
    (b) What are the requirements for serving individuals on the waiting 
list once caseload slots become available? The local

[[Page 479]]

agency must certify eligible individuals from the waiting list 
consistent with civil rights requirements at Sec. 247.37. For example, a 
local agency may certify eligible individuals from the waiting list 
based on the date the application was received on a first-come, first-
served basis.

[70 FR 47063, Aug. 11, 2005, as amended at 75 FR 5879, Feb. 5, 2010]



Sec. 247.12  Rights and responsibilities.

    (a) What information regarding an individual's rights in CSFP must 
the local agency provide to the applicant? The local agency is 
responsible for informing the applicant, orally or in writing, of the 
following:
    (1) The local agency will provide notification of a decision to deny 
or terminate CSFP benefits, and of an individual's right to appeal this 
decision by requesting a fair hearing, in accordance with 
Sec. 247.33(a);
    (2) The local agency will make nutrition education available to all 
adult participants, and, if applicable, to parents or caretakers of 
infant and child participants, and will encourage them to participate; 
and
    (3) The local agency will provide information on other nutrition, 
health, or assistance programs, and make referrals as appropriate.
    (b) What information regarding an individual's responsibilities in 
CSFP must the local agency provide to the applicant? In addition to the 
written statement required by Sec. 247.8(b), the local agency is 
responsible for informing the applicant, orally or in writing, of the 
following:
    (1) Improper use or receipt of CSFP benefits as a result of dual 
participation or other program violations may lead to a claim against 
the individual to recover the value of the benefits, and may lead to 
disqualification from CSFP; and
    (2) Participants must report changes in household income or 
composition within 10 days after the change becomes known to the 
household.

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38751, July 9, 2014]



Sec. 247.13  Provisions for non-English or limited-English speakers.

    (a) What must State and local agencies do to ensure that non-English 
or limited-English speaking persons are aware of their rights and 
responsibilities in the program? If a significant proportion of the 
population in an area is comprised of non-English or limited-English 
speaking persons with a common language, the State agency must ensure 
that local agencies inform such persons of their rights and 
responsibilities in the program, as listed under Sec. 247.12, in an 
appropriate language. State and local agencies must ensure that 
bilingual staff members or interpreters are available to serve these 
persons.
    (b) What must State and local agencies do to ensure that non-English 
or limited-English speaking persons are aware of other program 
information? If a significant proportion of the population in an area is 
comprised of non-English or limited-English speaking persons with a 
common language, the State agency must ensure that local agencies 
provide other program information, except application forms, to such 
persons in their appropriate language.



Sec. 247.14  Other public assistance programs.

    (a) What information on other public assistance programs must the 
local agency provide to women, infants, and children applying for 
recertification? The local agency must provide CSFP applicants eligible 
for both CSFP and WIC with written information on the WIC Program, to 
assist them in choosing the program in which they wish to participate. 
Additionally, the local agency must provide women, infants, and children 
applicants with written information on the following nutrition, health, 
or public assistance programs, and make referrals to these programs as 
appropriate:
    (1) The Medicaid Program, which is the medical assistance program 
established under Title XIX of the Social Security Act (42 U.S.C. 1396 
et seq.), and other health insurance programs for low-income households 
in the State. The State agency must provide local agencies with 
materials showing the income standards utilized in the Medicaid Program;

[[Page 480]]

    (2) The Temporary Assistance for Needy Families (TANF) program under 
part A of Title IV of the Social Security Act (42 U.S.C. 601 et seq.);
    (3) The Child Support Enforcement Program under part D of Title IV 
of the Social Security Act (42 U.S.C. 651 et seq.); and
    (4) The Food Stamp Program (7 U.S.C. 2011 et seq.).
    (b) What information on other public assistance programs must the 
local agency provide to elderly applicants? The local agency must 
provide elderly applicants with written information on the following 
programs, and make referrals, as appropriate:
    (1) Supplemental security income benefits provided under Title XVI 
of the Social Security Act (42 U.S.C. 1381 et seq.);
    (2) Medical assistance provided under Title XIX of the Social 
Security Act (42 U.S.C. 1396 et seq.), including medical assistance 
provided to a qualified Medicare beneficiary (42 U.S.C. 1395(p) and 
1396d(5)); and
    (3) The Food Stamp Program (7 U.S.C. 2011 et seq.).
    (c) Is the value of CSFP benefits counted as income or resources for 
any other public assistance programs? No. The value of benefits received 
in CSFP may not be considered as income or resources of participants or 
their families for any purpose under Federal, State, or local laws, 
including laws relating to taxation and public assistance programs.

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38751, July 9, 2014]



Sec. 247.15  Notification of eligibility or ineligibility of applicant.

    (a) What is the timeframe for notifying an applicant of eligibility 
or ineligibility for CSFP benefits? Local agencies must notify 
applicants of their eligibility or ineligibility for CSFP benefits, or 
their placement on a waiting list, within 10 days from the date of 
application.
    (b) What must be included in the notification of eligibility or 
ineligibility? The notification of eligibility must include information 
on the time, location, and means of food distribution, and the length of 
the certification period. Notification of ineligibility must be in 
writing, and must include the reason the applicant is not eligible, a 
statement of the individual's right to a fair hearing to appeal the 
decision, and a statement that informs the applicant that program 
standards are applied without discrimination by race, color, national 
origin, age, sex, or disability.



Sec. 247.16  Certification period.

    (a) How long is the certification period? (1) Women, infants, and 
children. For women, infants, and children, the State agency must 
establish certification periods that may not exceed 6 months in length. 
However, pregnant women may be certified to participate for the duration 
of their pregnancy and for up to six weeks post-partum. This paragraph 
only applies to the recertification of women, infants, and children who 
were certified and receiving CSFP benefits as of February 6, 2014, and 
whose enrollment in CSFP has continued without interruption.
    (2) Elderly persons. For elderly persons, the State agency must 
establish certification periods that may not exceed 6 months in length. 
However, the State agency may authorize local agencies to extend the 
certification period without a formal review of eligibility for 
additional 6-month periods, as long as the following conditions are met:
    (i) The person's address and continued interest in receiving program 
benefits are verified; and
    (ii) The local agency has sufficient reason to believe that the 
person still meets the income eligibility standards (e.g., the elderly 
person has a fixed income).
    (b) On what day of the final month does the certification period 
end? The certification period extends to the final day of the month in 
which eligibility expires.
    (c) Does the certification period end when a participant moves from 
the local area in which he or she was receiving benefits? No. The State 
agency must ensure that local agencies serve a CSFP participant who 
moves from another area to an area served by CSFP and whose 
certification period has not expired. The participant must be given the 
opportunity to continue to receive CSFP benefits for the duration of the 
certification period. If the local agency has a waiting list, the 
participant must

[[Page 481]]

be placed on its waiting list ahead of all other waiting applicants. The 
local agency that determined the participant's eligibility must provide 
verification of the expiration date of the certification period to the 
participant upon request.
    (d) What must the local agency do to ensure that participants are 
aware of the expiration of the certification period? The local agency 
must notify program participants in writing at least 15 days before the 
expiration date that eligibility for the program is about to expire. The 
local agency must include a statement in the written notification that 
informs the applicant that program standards are applied without 
discrimination by race, color, national origin, age, sex, or disability.

(Approved by the Office of Management and Budget under control number 
0584-0293)

[70 FR 47063, Aug. 11, 2005, as amended at 75 FR 5879, Feb. 5, 2010; 79 
FR 38751, July 9, 2014]



Sec. 247.17  Notification of discontinuance of participant.

    (a) What must a local agency do if it has evidence that a 
participant is no longer eligible for CSFP benefits during the 
certification period? If a local agency has evidence that a participant 
is no longer eligible for CSFP benefits during the certification period, 
it must provide the participant with a written notification of 
discontinuance at least 15 days before the effective date of 
discontinuance.
    (b) What must a local agency do if it has to discontinue a 
participant from participation in the program prior to the end of the 
certification period due to the lack of resources necessary to continue 
providing benefits to the participant? If a local agency does not have 
sufficient resources, such as a sufficient number of caseload slots, to 
continue providing benefits to the participant(s) for the entire 
certification period, it must provide the participant(s) with a written 
notification of discontinuance at least 15 days before the effective 
date of discontinuance.
    (c) What must be included in the notification of discontinuance? The 
notification of discontinuance must include the effective date of 
discontinuance, the reason for the participant's discontinuance, a 
statement of the individual's right to appeal the discontinuance through 
the fair hearing process, in accordance with Sec. 247.33(a), and a 
statement that informs the applicant that program standards are applied 
without discrimination by race, color, national origin, age, sex, or 
disability.



Sec. 247.18  Nutrition education.

    (a) What are the State agency's responsibilities in ensuring that 
nutrition education is provided? The State agency must establish an 
overall nutrition education plan and must ensure that local agencies 
provide nutrition education to participants in accordance with the plan. 
The State agency may allow local agencies to share personnel and 
educational resources with other programs in order to provide the best 
nutrition education possible to participants. The State agency must 
establish an evaluation procedure to ensure that the nutrition education 
provided is effective. The evaluation procedure must include participant 
input and must be directed by a nutritionist or other qualified 
professional. The evaluation may be conducted by the State or local 
agency, or by another agency under agreement with the State or local 
agency.
    (b) What type of nutrition education must the local agency provide? 
The local agency must provide nutrition education that can be easily 
understood by participants and is related to their nutritional needs and 
household situations. The local agency must provide nutrition education 
that includes the following information, which should account for 
specific ethnic and cultural characteristics whenever possible:
    (1) The nutritional value of CSFP foods, and their relationship to 
the overall dietary needs of the population groups served;
    (2) Nutritious ways to use CSFP foods;
    (3) Special nutritional needs of participants and how these needs 
may be met;
    (4) For pregnant and postpartum women, the benefits of 
breastfeeding;
    (5) The importance of health care, and the role nutrition plays in 
maintaining good health; and
    (6) The importance of the use of the foods by the participant to 
whom they

[[Page 482]]

are distributed, and not by another person.
    (c) To whom must local agencies provide nutrition education? The 
local agency must make nutrition education available to all adult 
participants and, if applicable, to parents or caretakers of infant and 
child participants. Local agencies are encouraged to make nutrition 
education available to children, where appropriate.
    (d) May CSFP foods be used in cooking demonstrations? Yes. The State 
or local agency, or another agency with which it has signed an 
agreement, may use CSFP foods to conduct cooking demonstrations as part 
of the nutrition education provided to program participants, but not for 
other purposes.

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38751, July 9, 2014]



Sec. 247.19  Dual participation.

    (a) What must State and local agencies do to prevent and detect dual 
participation? Unless no women, infants, or children remain enrolled in 
the program, the State agency must work with the State WIC agency to 
develop a plan to prevent and detect dual participation, in accordance 
with an agreement signed by both agencies. The State agency must work 
with local agencies to prevent and detect dual participation. In 
accordance with Sec. 247.8(a)(1), the local agency must check the 
identification of all applicants when they are certified or recertified. 
In accordance with Sec. 247.8(b), the local agency must ensure that the 
applicant or caretaker of the applicant signs an application form which 
includes a statement advising the applicant that he or she may not 
receive CSFP benefits at more than one CSFP site at the same time.
    (b) What must the local agency do if a CSFP participant is found to 
be committing dual participation? A participant found to be committing 
dual participation must be discontinued from one of the programs (WIC or 
CSFP), or from participation at more than one CSFP site. Whenever an 
individual's participation in CSFP is discontinued, the local agency 
must notify the individual of the discontinuance, in accordance with 
Sec. 247.17. The individual may appeal the discontinuance through the 
fair hearing process, in accordance with Sec. 247.33(a). In accordance 
with Sec. 247.20(b), if the dual participation resulted from the 
participant or caretaker of the participant making false or misleading 
statements, or intentionally withholding information, the local agency 
must disqualify the participant from CSFP, unless the local agency 
determines that disqualification would result in a serious health risk. 
The local agency must also initiate a claim against the participant to 
recover the value of CSFP benefits improperly received, in accordance 
with Sec. 247.30(c).

(Approved by the Office of Management and Budget under control number 
0584-0293)

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38751, July 9, 2014]



Sec. 247.20  Program violations.

    (a) What are program violations in CSFP? Program violations are 
actions taken by CSFP applicants or participants, or caretakers of 
applicants or participants, to obtain or use CSFP benefits improperly. 
Program violations include the following actions:
    (1) Intentionally making false or misleading statements, orally or 
in writing;
    (2) Intentionally withholding information pertaining to eligibility 
in CSFP;
    (3) Selling commodities obtained in the program, or exchanging them 
for non-food items;
    (4) Physical abuse, or threat of physical abuse, of program staff; 
or
    (5) Committing dual participation.
    (b) What are the penalties for committing program violations? If 
applicants or participants, or caretakers of applicants or participants, 
commit program violations, the State agency may require local agencies 
to disqualify the applicants or participants for a period of up to one 
year. However, if the local agency determines that disqualification 
would result in a serious health risk, the disqualification may be 
waived. For program violations that involve fraud, the State agency must 
require local agencies to disqualify the participant from CSFP for a 
period of up to one year, unless the local agency determines that 
disqualification would result in a serious health risk. The

[[Page 483]]

State agency must require local agencies to permanently disqualify a 
participant who commits three program violations that involve fraud. For 
purposes of this program, fraud includes:
    (1) Intentionally making false or misleading statements to obtain 
CSFP commodities;
    (2) Intentionally withholding information to obtain CSFP 
commodities; or
    (3) Selling CSFP commodities, or exchanging them for non-food items.
    (c) What must the local agency do to notify the individual of 
disqualification from CSFP? The local agency must provide the individual 
with written notification of disqualification from CSFP at least 15 days 
before the effective date of disqualification. The notification must 
include the effective date and period of disqualification, the reason 
for the disqualification, and a statement that the individual may appeal 
the disqualification through the fair hearing process, in accordance 
with Sec. 247.33(a).

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38751, July 9, 2014]



Sec. 247.21  Caseload assignment.

    (a) How does FNS assign caseload to State agencies? Each year, FNS 
assigns a caseload to each State agency to allow persons meeting the 
eligibility criteria listed under Sec. 247.9 to participate in the 
program, up to the caseload limit. To the extent that resources are 
available, FNS assigns caseload to State agencies in the following 
order:
    (1) Base caseload. The State agency may not receive base caseload in 
excess of its total caseload assigned for the previous caseload cycle. 
Base caseload is determined in the following manner:
    (i) Each State agency entering its second year of program 
participation receives base caseload equal to the amount assigned to it 
in its first year of participation; and
    (ii) A State agency that has participated in two or more caseload 
cycles receives base caseload equal to the highest of:
    (A) Average monthly participation for the previous fiscal year; or
    (B) Average monthly participation for the last quarter of the 
previous fiscal year; or
    (C) Participation during September of the previous fiscal year, but 
only if:
    (1) The full-year appropriation for the preceding fiscal year was 
enacted on or after February 15; and
    (2) The State agency received additional caseload equal to or 
greater than 10 percent of its base caseload in the previous caseload 
cycle; and
    (3) October participation in the current fiscal year was equal to or 
greater than 95 percent of September participation in the previous 
fiscal year.
    (2) Additional caseload. Each participating State agency may request 
additional caseload to increase program participation. Eligibility for 
and assignment of additional caseload are determined in the following 
manner:
    (i) A State agency entering its second year of program participation 
qualifies to receive additional caseload if the State achieved a 
participation level which was equal to or greater than 95 percent of 
assigned caseload for the previous caseload cycle, based on the highest 
of:
    (A) Average monthly participation for the previous fiscal year; or
    (B) Average monthly participation for the last quarter of the 
previous fiscal year; or
    (C) Participation during September of the previous fiscal year, but 
only if:
    (1) The full-year appropriation for the preceding fiscal year was 
enacted on or after February 15; and
    (2) October participation in the current fiscal year was equal to or 
greater than 95 percent of September participation in the previous 
fiscal year.
    (ii) A State agency that has participated in two or more caseload 
cycles qualifies to receive additional caseload if the State achieved a 
participation level which was equal to or greater than 95 percent of 
assigned caseload for the previous caseload cycle, based on the highest 
of:
    (A) Average monthly participation for the previous fiscal year; or
    (B) Average monthly participation for the last quarter of the 
previous fiscal year; or
    (C) Participation during September of the previous fiscal year, but 
only if:
    (1) The full-year appropriation for the preceding fiscal year was 
enacted on or after February 15; and

[[Page 484]]

    (2) The State agency received additional caseload equal to or 
greater than 10 percent of its base caseload in the previous caseload 
cycle; and
    (3) October participation in the current fiscal year was equal to or 
greater than 95 percent of September participation in the previous 
fiscal year.
    (iii) Of each eligible State agency's request for additional 
caseload, FNS assigns an amount that it determines the State needs and 
can efficiently utilize. In making this determination, FNS considers the 
factors listed below, in descending order of importance. If all 
reasonable requests for additional caseload cannot be met, FNS assigns 
it to those States that are most likely to utilize it. The factors are:
    (A) The percentage of caseload utilized by the State in the previous 
fiscal year;
    (B) Program participation trends in the State in previous fiscal 
years; and
    (C) Other information provided by the State agency in support of the 
request.
    (3) New caseload. Each State agency requesting to begin 
participation in the program, and with an approved State Plan, may 
receive caseload to serve the elderly, as requested in the State Plan. 
Of the State agency's caseload request, FNS assigns caseload in an 
amount that it determines the State needs and can efficiently utilize. 
This determination is made based on information contained in the State 
Plan and on other relevant information. However, if all caseload 
requests cannot be met, FNS will assign caseload to those States that 
are most likely to utilize it.
    (b) When does FNS assign caseload to State agencies? FNS must assign 
caseload to State agencies by December 31 of each year, or within 30 
days after enactment of appropriations legislation covering the full 
fiscal year, whichever comes later. Caseload assignments for the 
previous caseload cycle will remain in effect, subject to the 
availability of sufficient funding, until caseload assignments are made 
for the current caseload cycle.
    (c) How do State agencies request additional caseload for the next 
caseload cycle? In accordance with Sec. 247.6(d), a State agency that 
would like additional caseload for the next caseload cycle (beginning 
the following January 1) must submit a request for additional caseload 
by November 5, as an amendment to the State Plan. The State agency must 
also describe plans for serving participants at new sites in this 
submission.

[70 FR 47063, Aug. 11, 2005, as amended at 75 FR 5879, Feb. 5, 2010; 79 
FR 38751, July 9, 2014]



Sec. 247.22  Allocation and disbursement of administrative funds
to State agencies.

    (a) What must State agencies do to be eligible to receive 
administrative funds? In order to receive administrative funds, the 
State agency must have signed an agreement with FNS to operate the 
program, in accordance with Sec. 247.4(a)(1), and must have an approved 
State Plan.
    (b) How does FNS allocate administrative funds to State agencies? 
(1) As required by law, each fiscal year 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 was 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.
    (c) How do State agencies access administrative funds? FNS provides 
administrative funds to State agencies on a

[[Page 485]]

quarterly basis. Such funds are provided by means of a Letter of Credit, 
unless other funding arrangements have been made with FNS. The State 
agency obtains the funds by electronically accessing its Letter of 
Credit account.

(Approved by the Office of Management and Budget under control number 
0584-0293)



Sec. 247.23  State provision of administrative funds to local
agencies.

    (a) How much of the administrative funds must State agencies provide 
to local agencies for their use? The State agency must provide to local 
agencies for their use all administrative funds it receives, except that 
the State agency may retain for its own use the amount determined by the 
following formula:
    (1) 15 percent of the first $50,000 received;
    (2) 10 percent of the next $100,000 received;
    (3) 5 percent of the next $250,000 received; and
    (4) A maximum of $30,000, if the administrative grant exceeds 
$400,000.
    (b) May a State agency request to retain more than the amount 
determined by the above formula in the event of special needs? Yes, the 
State agency may request approval from FNS to retain a larger amount 
than is allowed under the formula prescribed in paragraph (a) of this 
section. However, in making its request, the State agency must provide 
justification of the need for the larger amount at the State level, and 
must ensure that local agencies will not suffer undue hardship as a 
result of a reduction in administrative funds.
    (c) How must the State agency distribute funds among local agencies? 
The State agency must distribute funds among local agencies on the basis 
of their respective needs, and in a manner that ensures the funds will 
be used to achieve program objectives.

(Approved by the Office of Management and Budget under control number 
0584-0293)



Sec. 247.24  Recovery and redistribution of caseload and 
administrative funds.

    (a) May FNS recover and redistribute caseload and administrative 
funds assigned to a State agency? Yes. FNS may recover and redistribute 
caseload and administrative funds assigned to a State agency during the 
fiscal year. FNS will redistribute these resources to other State 
agencies in accordance with the provisions of Secs. 247.21(a) and 
247.22(b). In reassigning caseload, FNS will use the most up-to-date 
data on participation and the extent to which caseload is being 
utilized, as well as other information provided by State agencies. In 
accordance with Sec. 247.21(a)(2), in instances in which FNS recovers 
caseload slots, the State agency must use 95 percent of its original 
caseload allocation to be eligible for additional caseload. However, the 
State agency must not exceed its reduced caseload allocation on an 
average monthly basis.
    (b) Is there a limit on the amount of caseload slots or 
administrative funds that FNS may recover? Yes. FNS will not 
unilaterally recover caseload that would result in the recovery of more 
than 50 percent of the State's administrative funds. However, in 
instances in which the State agency requests that FNS recover any 
portion of its assigned caseload, the 50-percent limitation will not 
apply.



Sec. 247.25  Allowable uses of administrative funds and other funds.

    (a) What are allowable uses of administrative funds provided to 
State and local agencies? Administrative funds may be used for costs 
that are necessary to ensure the efficient and effective administration 
of the program, in accordance with 2 CFR part 200, subpart E and USDA 
implementing regulations 2 CFR part 400 and part 415, which set out the 
principles for determining whether specific costs are allowable. Some 
examples of allowable costs in CSFP include:
    (1) Storing, transporting, and distributing foods;
    (2) Determining the eligibility of program applicants;
    (3) Program outreach;
    (4) Nutrition education;
    (5) Audits and fair hearings;
    (6) Monitoring and review of program operations; and
    (7) Transportation of participants to and from the local agency, if 
necessary.
    (b) What are unallowable uses of administrative funds? In addition 
to those

[[Page 486]]

costs determined to be unallowable by the principles contained in the 
OMB circulars referenced in paragraph (a) of this section, specific 
examples of unallowable uses of administrative funds in CSFP include:
    (1) The cost of alteration of facilities not required specifically 
for the program; and
    (2) Actual losses which could have been covered by permissible 
insurance (through an approved self-insurance program or by other 
means).
    (c) What costs are allowable only with prior approval of FNS? 
Capital expenditures, which include the acquisition of facilities or 
equipment, or enhancements to such capital assets, with a cost per unit 
of at least $5,000, are allowable only with prior approval of FNS. 
Examples of equipment include automated information systems, automated 
data processing equipment, and other computer hardware and software.
    (d) What procedures must State and local agencies use in procuring 
property, equipment, or services with program funds, and disposing of 
such property or equipment? The procedures that State and local agencies 
must follow in procuring property, equipment, or services with program 
funds, or disposing of such property or equipment, are contained in 
parts 3016 and 3019 of this title. State, local, and Indian tribal 
governments must comply with part 3016 of this title, while nonprofit 
subgrantees must comply with part 3019 of this title. State and local 
agencies may use procurement procedures established by State and local 
regulations as long as these procedures do not conflict with Federal 
regulations. Federal regulations do not relieve State or local agencies 
from responsibilities established in contracts relating to procurement 
of property, equipment, or services. The State agency is the responsible 
authority regarding the settlement of all contractual and administrative 
issues arising out of procurements for the program.
    (e) What is program income and how must State and local agencies use 
it? Program income is income directly generated from program activities. 
It includes, for example, income from the sale of packing containers or 
pallets, and the salvage of commodities. Program income does not include 
interest earned from administrative funds. State and local agencies must 
use program income for allowable program costs, in accordance with part 
3016 of this title.
    (f) How must State and local agencies use funds recovered as a 
result of claims actions? The State agency must use funds recovered as a 
result of claims actions against subdistributing or local agencies in 
accordance with the provisions of Sec. 250.15(c) of this chapter. The 
State agency must use funds recovered as a result of claims actions 
against participants for allowable program costs. The State agency may 
authorize local agencies to use such funds for allowable program costs 
incurred at the local level.

[70 FR 47063, Aug. 11, 2005, as amended at 81 FR 66496, Sept. 28, 2016]



Sec. 247.26  Return of administrative funds.

    (a) Must State agencies return administrative funds that they do not 
use at the end of the fiscal year? Yes. If, by the end of the fiscal 
year, a State agency has not obligated all of its allocated 
administrative funds, the unobligated funds must be returned to FNS.
    (b) What happens to administrative funds that are returned by State 
agencies at the end of the fiscal year? If, in the following fiscal 
year, OMB reapportions the returned administrative funds, the funds are 
used to support the program. Such funds are not returned to State 
agencies in the form of administrative funds in addition to the 
legislatively mandated grant per assigned caseload slot.

(Approved by the Office of Management and Budget under control number 
0584-0293)



Sec. 247.27  Financial management.

    (a) What are the Federal requirements for State and local agencies 
with regard to financial management? State and local public agencies 
must maintain a financial management system that complies with the 
Federal regulations contained in part 3016 of this title, while 
nonprofit organizations must comply with the Federal regulations 
contained in part 3019 of this title. The State agency's financial 
management system

[[Page 487]]

must provide accurate, current, and complete disclosure of the financial 
status of the program, including an accounting of all program funds 
received and expended each fiscal year. The State agency must ensure 
that local agencies develop and implement a financial management system 
that allows them to meet Federal requirements.
    (b) What are some of the major components of the State agency's 
financial management system? In addition to other requirements, the 
State agency's financial management system must provide for:
    (1) Prompt and accurate payment of allowable costs;
    (2) Timely disbursement of funds to local agencies;
    (3) Timely and appropriate resolution of claims and audit findings; 
and
    (4) Maintenance of records identifying the receipt and use of 
administrative funds, funds recovered as a result of claims actions, 
program income (as defined under Sec. 247.25(e)), and property and other 
assets procured with program funds.



Sec. 247.28  Storage and inventory of commodities.

    (a) What are the requirements for storage of commodities? State and 
local agencies must provide for storage of commodities that protects 
them from theft, spoilage, damage or destruction, or other loss. State 
and local agencies may contract with commercial facilities to store and 
distribute commodities. The required standards for warehousing and 
distribution systems, and for contracts with storage facilities, are 
included under Sec. 250.14 of this chapter.
    (b) What are the requirements for the inventory of commodities? A 
physical inventory of all USDA commodities must be conducted annually at 
each storage and distribution site where these commodities are stored. 
Results of the physical inventory must be reconciled with inventory 
records and maintained on file by the State or local agency.

(Approved by the Office of Management and Budget under control number 
0584-0293)



Sec. 247.29  Reports and recordkeeping.

    (a) What recordkeeping requirements must State and local agencies 
meet? State and local agencies must maintain accurate and complete 
records relating to the receipt, disposal, and inventory of commodities, 
the receipt and disbursement of administrative funds and other funds, 
eligibility determinations, fair hearings, and other program activities. 
State and local agencies must also maintain records pertaining to 
liability for any improper distribution of, use of, loss of, or damage 
to commodities, and the results obtained from the pursuit of claims 
arising in favor of the State or local agency. All records must be 
retained for a period of three years from the end of the fiscal year to 
which they pertain, or, if they are related to unresolved claims 
actions, audits, or investigations, until those activities have been 
resolved. All records must be available during normal business hours for 
use in management reviews, audits, investigations, or reports of the 
General Accounting Office.
    (b) What reports must State and local agencies submit to FNS? State 
agencies must submit the following reports to FNS:
    (1) SF-425, Federal Financial Report. The State agency must submit 
the SF-425, Federal Financial Report, to report the financial status of 
the program at the close of the fiscal year. This report must be 
submitted within 90 days after the end of the fiscal year. Obligations 
must be reported for the fiscal year in which they occur. Revised 
reports may be submitted at a later date, but FNS will not be 
responsible for reimbursing unpaid obligations later than one year after 
the end of the fiscal year in which they were incurred.
    (2) FNS-153, Monthly Report of the Commodity Supplemental Food 
Program and Quarterly Administrative Financial Status Report. The State 
agency must submit the FNS-153 on a monthly basis. FNS may permit the 
data contained in the report to be submitted less frequently, or in 
another format. The report must be submitted within 30 days after the 
end of the reporting period. On the FNS-153, the State agency reports:

[[Page 488]]

    (i) The number of program participants in each population category 
(e.g., infants, children, and elderly);
    (ii) The receipt and distribution of commodities, and beginning and 
ending inventories, as well as other commodity data; and
    (iii) On a quarterly basis, the cumulative amount of administrative 
funds expended and obligated, and the amount remaining unobligated.
    (3) FNS-191, Racial/Ethnic Group Participation. Local agencies must 
submit a report of racial/ethnic participation each year, using the FNS-
191.
    (c) Is there any other information that State and local agencies 
must provide to FNS? FNS may require State and local agencies to provide 
data collected in the program to aid in the evaluation of the effect of 
program benefits on the low-income populations served. Any such requests 
for data will not include identification of particular individuals.

(Approved by the Office of Management and Budget under control numbers 
0584-0025, 0584-0293)

[70 FR 47063, Aug. 11, 2005, as amended at 72 FR 24184, May 2, 2007; 79 
FR 38751, July 9, 2014]



Sec. 247.30  Claims.

    (a) What happens if a State or local agency misuses program funds? 
If FNS determines that a State or local agency has misused program funds 
through negligence, fraud, theft, embezzlement, or other causes, FNS 
must initiate and pursue a claim against the State agency to repay the 
amount of the misused funds. The State agency will be given the 
opportunity to contest the claim. The State agency is responsible for 
initiating and pursuing claims against subdistributing and local 
agencies if they misuse program funds.
    (b) What happens if a State or local agency misuses program 
commodities? If a State or local agency misuses program commodities, FNS 
must initiate a claim against the State agency to recover the value of 
the misused commodities. The procedures for pursuing claims resulting 
from misuse of commodities are detailed in Sec. 250.15(c) of this 
chapter. Misused commodities include commodities improperly distributed 
or lost, spoiled, stolen, or damaged as a result of improper storage, 
care, or handling. The State agency is responsible for initiating and 
pursuing claims against subdistributing agencies, local agencies, or 
other agencies or organizations if they misuse program commodities. The 
State agency must use funds recovered as a result of claims for 
commodity losses in accordance with Sec. 250.15(c) of this chapter.
    (c) What happens if a participant improperly receives or uses CSFP 
benefits through fraud? The State agency must ensure that a local agency 
initiates a claim against a participant to recover the value of CSFP 
commodities improperly received or used if the local agency determines 
that the participant or caretaker of the participant fraudulently 
received or used the commodities. For purposes of this program, fraud 
includes intentionally making false or misleading statements, or 
intentionally withholding information, to obtain CSFP commodities, or 
the selling or exchange of CSFP commodities for non-food items. The 
local agency must advise the participant of the opportunity to appeal 
the claim through the fair hearing process, in accordance with 
Sec. 247.33(a). The local agency must also disqualify the participant 
from CSFP for a period of up to one year, unless the local agency 
determines that disqualification would result in a serious health risk, 
in accordance with the requirements of Sec. 247.20(b).
    (d) What procedures must be used in pursuing claims against 
participants? The State agency must establish standards, based on a 
cost-benefit review, for determining when the pursuit of a claim is 
cost-effective, and must ensure that local agencies use these standards 
in determining if a claim is to be pursued. In pursuing a claim against 
a participant, the local agency must:
    (1) Issue a letter demanding repayment for the value of the 
commodities improperly received or used;
    (2) If repayment is not made in a timely manner, take additional 
collection actions that are cost-effective, in accordance with the 
standards established by the State agency; and

[[Page 489]]

    (3) Maintain all records regarding claims actions taken against 
participants, in accordance with Sec. 247.29.

(Approved by the Office of Management and Budget under control number 
0584-0293)

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38751, July 9, 2014]



Sec. 247.31  Audits and investigations.

    (a) What is the purpose of an audit? The purpose of an audit is to 
ensure that:
    (1) Financial operations are properly conducted;
    (2) Financial reports are fairly presented;
    (3) Proper inventory controls are maintained; and
    (4) Applicable laws, regulations, and administrative requirements 
are followed.
    (b) When may the Department conduct an audit or investigation of the 
program? The Department may conduct an audit of the program at the State 
or local agency level at its discretion, or may investigate an 
allegation that the State or local agency has not complied with Federal 
requirements. An investigation may include a review of any State or 
local agency policies or practices related to the specific area of 
concern.
    (c) What are the responsibilities of the State agency in responding 
to an audit by the Department? In responding to an audit by the 
Department, the State agency must:
    (1) Provide access to any records or documents compiled by the State 
or local agencies, or contractors; and
    (2) Submit a response or statement to FNS describing the actions 
planned or taken in response to audit findings or recommendations. The 
corrective action plan must include time frames for implementation and 
completion of actions. FNS will determine if actions or planned actions 
adequately respond to the program deficiencies identified in the audit. 
If additional actions are needed, FNS will schedule a follow-up review 
and allow sufficient time for further corrective actions. The State 
agency may also take exception to particular audit findings or 
recommendations.
    (d) When is a State or local agency audit required? State and local 
agency audits must be conducted in accordance with part 3052 of this 
title, which contains the Department's regulations pertaining to audits 
of States, local governments, and nonprofit organizations. The value of 
CSFP commodities distributed by the agency or organization must be 
considered part of the Federal award.
    (e) What are the requirements for State or local agency audits? 
State and local agency audits must be conducted in accordance with the 
requirements of part 3052 of this title, which contains the Department's 
regulations pertaining to audits of States, local governments, and 
nonprofit organizations. The State agency must ensure that local 
agencies meet the audit requirements. The State agency must ensure that 
all State or local agency audit reports are available for FNS review.

(Approved by the Office of Management and Budget under control number 
0584-0293)



Sec. 247.32  Termination of agency participation.

    (a) When may a State agency's participation in CSFP be terminated? 
While paragraphs (a)(1), (a)(2), and (a)(3) of this section, as 
applicable, describe the circumstances and basic procedures for 
terminating State agency programs, specific actions and procedures 
relating to program termination are more fully described in part 3016 of 
this title.
    (1) Termination by FNS. FNS may terminate a State agency's 
participation in CSFP, in whole or in part, if the State agency does not 
comply with the requirements of this part. FNS must provide written 
notification to the State agency of termination, including the reasons 
for the action, and the effective date.
    (2) Termination by State agency. The State agency may terminate the 
program, in whole or in part, upon written notification to FNS, stating 
the reasons and effective date of the action. In accordance with 
Sec. 247.4(b)(6), which relates to the termination of agreements, either 
party must provide, at minimum, 30 days' written notice.
    (3) Termination by mutual agreement. The State agency's program may 
also be terminated, in whole or in part, if both parties agree the 
action would be in the best interest of the program.

[[Page 490]]

The two parties must agree upon the conditions of the termination, 
including the effective date.
    (b) When may a local agency's participation in CSFP be terminated? 
While paragraphs (b)(1), (b)(2), and (b)(3) of this section, as 
applicable, describe the circumstances and basic procedures in 
termination of local agency programs, specific actions and procedures 
relating to program termination are more fully described in part 3016 of 
this title.
    (1) Termination by State agency. The State agency may terminate a 
local agency's participation in CSFP, or may be required to terminate a 
local agency's participation, in whole or in part, if the local agency 
does not comply with the requirements of this part. The State agency 
must notify the local agency in writing of the termination, the reasons 
for the action, and the effective date, and must provide the local 
agency with an opportunity to appeal, in accordance with Sec. 247.35. 
(The local agency may appeal the termination in accordance with 
Sec. 247.35.)
    (2) Termination by local agency. The local agency may terminate the 
program, in whole or in part, upon written notification to the State 
agency, stating the reasons and effective date of the action. In 
accordance with Sec. 247.4(b)(6), which relates to the termination of 
agreements, either party must provide, at minimum, 30 days' written 
notice.
    (3) Termination by mutual agreement. The local agency's program may 
also be terminated, in whole or in part, if both the State and local 
agency agree that the action would be in the best interest of the 
program. The two parties must agree upon the conditions of the 
termination, including the effective date.



Sec. 247.33  Fair hearings.

    (a) What is a fair hearing? A fair hearing is a process that allows 
a CSFP applicant or participant to appeal an adverse action, which may 
include the denial or discontinuance of program benefits, 
disqualification from the program, or a claim to repay the value of 
commodities received as a result of fraud. State and local agencies must 
ensure that CSFP applicants and participants understand their right to 
appeal an adverse action through the fair hearing process, which 
includes providing written notification of the individual's right to a 
fair hearing along with notification of the adverse action. Such 
notification is not required at the expiration of a certification 
period.
    (b) What are the basic requirements the State agency must follow in 
establishing procedures to be used in fair hearings? The State agency 
must establish simple, clear, uniform rules of procedure to be used in 
fair hearings, including, at a minimum, the procedures outlined in this 
section. The State agency may use alternate procedures if approved by 
FNS. The rules of procedure must be available for public inspection and 
copying.
    (c) How may an individual request a fair hearing? An individual or 
an individual's caretaker may request a fair hearing by making a clear 
expression, verbal or written, to a State or local agency official that 
an appeal of the adverse action is desired.
    (d) How much time does an individual have to request a fair hearing? 
The State or local agency must allow an individual at least 60 days from 
the date the agency mails or gives the individual the notification of 
adverse action to request a fair hearing.
    (e) When may a State or local agency deny a request for a fair 
hearing? The State or local agency may deny a request for a fair hearing 
when:
    (1) The request is not received within the time limit established in 
paragraph (d) of this section;
    (2) The request is withdrawn in writing by the individual requesting 
the hearing or by an authorized representative of the individual; or
    (3) The individual fails to appear, without good cause, for the 
scheduled hearing.
    (f) Does the request for a fair hearing have any effect on the 
receipt of CSFP benefits? Participants who appeal the discontinuance of 
program benefits within the 15-day advance notification period required 
under Secs. 247.17 and 247.20 must be permitted to continue to receive 
benefits until a decision on the appeal is made by the hearing official, 
or until the end of the participant's certification period, whichever 
occurs first. However, if the hearing decision

[[Page 491]]

finds that a participant received program benefits fraudulently, the 
local agency must include the value of benefits received during the time 
that the hearing was pending, as well as for any previous period, in its 
initiation and pursuit of a claim against the participant.
    (g) What notification must the State or local agency provide an 
individual in scheduling the hearing? The State or local agency must 
provide an individual with at least 10 days' advance written notice of 
the time and place of the hearing, and must include the rules of 
procedure for the hearing.
    (h) What are the individual's rights in the actual conduct of the 
hearing? The individual must have the opportunity to:
    (1) Examine documents supporting the State or local agency's 
decision before and during the hearing;
    (2) Be assisted or represented by an attorney or other persons;
    (3) Bring witnesses;
    (4) Present arguments;
    (5) Question or refute testimony or evidence, including an 
opportunity to confront and cross-examine others at the hearing; and,
    (6) Submit evidence to help establish facts and circumstances.
    (i) Who is responsible for conducting the fair hearing, and what are 
the specific responsibilities of that person? The fair hearing must 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 adverse action that resulted in the hearing. The hearing 
official is responsible for:
    (1) Administering oaths or affirmations, as required by the State;
    (2) Ensuring that all relevant issues are considered;
    (3) Ensuring that all evidence necessary for a decision to be made 
is presented at the hearing, and included in the record of the hearing;
    (4) Ensuring that the hearing is conducted in an orderly manner, in 
accordance with due process; and
    (5) Making a hearing decision.
    (j) How is a hearing decision made? The hearing official must make a 
decision that complies with Federal laws and regulations, and is based 
on the facts in the hearing record. In making the decision, the hearing 
official must summarize the facts of the case, specify the reasons for 
the decision, and identify the evidence supporting the decision and the 
laws or regulations that the decision upholds. The decision made by the 
hearing official is binding on the State or local agency.
    (k) What is the time limit for making a hearing decision and 
notifying the individual of the decision? A hearing decision must be 
made, and the individual notified of the decision, in writing, within 45 
days of the request for the hearing. The notification must include the 
reasons for the decision.
    (l) How does the hearing decision affect the individual's receipt of 
CSFP benefits? If a hearing decision is in favor of an applicant who was 
denied CSFP benefits, the receipt of benefits must begin within 45 days 
from the date that the hearing was requested, if the applicant is still 
eligible for the program. If the hearing decision is against a 
participant, the State or local agency must discontinue benefits as soon 
as possible, or at a date determined by the hearing official.
    (m) What must be included in the hearing record? In addition to the 
hearing decision, the hearing record must include a transcript or 
recording of testimony, or an official report of all that transpired at 
the hearing, along with all exhibits, papers, and requests made. The 
record must be maintained in accordance with Sec. 247.29(a). The record 
of the hearing must be available for public inspection and copying, in 
accordance with the confidentiality requirements under Sec. 247.36(b).
    (n) What further steps may an individual take if a hearing decision 
is not in his or her favor? If a hearing decision upholds the State or 
local agency's action, and a State-level review or rehearing process is 
available, the State or local agency must describe to the individual any 
State-level review or rehearing process. The State or local agency must 
also inform the individual of the right of the individual to pursue 
judicial review of the decision.

[70 FR 47063, Aug. 11, 2005, as amended at 79 FR 38751, July 9, 2014]

[[Page 492]]



Sec. 247.34  Management reviews.

    (a) What must the State agency do to ensure that local agencies meet 
program requirements and objectives? The State agency must establish a 
management review system to ensure that local agencies, subdistributing 
agencies, and other agencies conducting program activities meet program 
requirements and objectives. As part of the system, the State agency 
must perform an on-site review of all local agencies, and of all storage 
facilities utilized by local agencies, at least once every two years. As 
part of the on-site review, the State agency must evaluate all aspects 
of program administration, including certification procedures, nutrition 
education, civil rights compliance, food storage practices, inventory 
controls, and financial management systems. In addition to conducting 
on-site reviews, the State agency must evaluate program administration 
on an ongoing basis by reviewing financial reports, audit reports, food 
orders, inventory reports, and other relevant information.
    (b) What must the State agency do if it finds that a local agency is 
deficient in a particular area of program administration? The State 
agency must record all deficiencies identified during the review and 
institute follow-up procedures to ensure that local agencies and 
subdistributing agencies correct all deficiencies within a reasonable 
period of time. To ensure improved program performance in the future, 
the State agency may require that local agencies adopt specific review 
procedures for use in reviewing their own operations and those of 
subsidiaries or contractors. The State agency must provide copies of 
review reports to FNS upon request.

(Approved by the Office of Management and Budget under control number 
0584-0293)



Sec. 247.35  Local agency appeals of State agency actions.

    (a) What recourse must the State agency provide local agencies to 
appeal a decision that adversely affects their participation in CSFP? 
The State agency must establish a hearing procedure to allow local 
agencies to appeal a decision that adversely affects their participation 
in CSFP--e.g., the termination of a local agency's participation in the 
program. The adverse action must be postponed until a decision on the 
appeal is made.
    (b) What must the State agency include in the hearing procedure to 
ensure that the local agency has a fair chance to present its case? The 
hearing procedure must provide the local agency:
    (1) Adequate advance notice of the time and place of the hearing;
    (2) An opportunity to review the record before the hearing, and to 
present evidence at the hearing;
    (3) An opportunity to confront and cross-examine witnesses; and
    (4) An opportunity to be represented by counsel, if desired.
    (c) Who conducts the hearing and how is a decision on the appeal 
made? The hearing must be conducted by an impartial person who must make 
a decision on the appeal that is based solely on the evidence presented 
at the hearing, and on program legislation and regulations. A decision 
must be made within 60 days from the date of the request for a hearing, 
and must be provided in writing to the local agency.



Sec. 247.36  Confidentiality of applicants or participants.

    (a) Can the State or local agency disclose information obtained from 
applicants or participants to other agencies or individuals? State and 
local agencies must restrict the use or disclosure of information 
obtained from CSFP applicants or participants to persons directly 
connected with the administration or enforcement of the program, 
including persons investigating or prosecuting program violations. The 
State or local agency may exchange participant information with other 
health or welfare programs for the purpose of preventing dual 
participation. In addition, with the consent of the participant, as 
indicated on the application form, the State or local agency may share 
information obtained with other health or welfare programs for use in 
determining eligibility for those programs, or for program outreach. 
However, the State agency must sign an agreement with the administering 
agencies for these programs to ensure that the information will be used 
only for the specified purposes, and that

[[Page 493]]

agencies receiving such information will not further share it.
    (b) Can the State or local agency disclose the identity of persons 
making a complaint or allegation against another individual 
participating in or administering the program? The State or local agency 
must protect the confidentiality, and other rights, of any person making 
allegations or complaints against another individual participating in, 
or administering CSFP, except as necessary to conduct an investigation, 
hearing, or judicial proceeding.



Sec. 247.37  Civil rights requirements.

    (a) What are the civil rights requirements that apply to CSFP? State 
and local agencies must comply with the requirements of Title VI of the 
Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.), Title IX of the 
Education Amendments of 1972 (20 U.S.C. 1681 et seq.), section 504 of 
the Rehabilitation Act of 1973 (29 U.S.C. 794 et seq.), the Age 
Discrimination Act of 1975 (42 U.S.C. 6101 et seq.), and titles II and 
III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et 
seq.). State and local agencies must also comply with the Department's 
regulations on nondiscrimination (parts 15, 15a, and 15b of this title), 
and with the provisions of FNS Instruction 113-2, including the 
collection of racial/ethnic participation data and public notification 
of nondiscrimination policy. State and local agencies must ensure that 
no person shall, on the grounds of race, color, national origin, age, 
sex, or disability, be subjected to discrimination under the program.
    (b) How does an applicant or participant file a complaint of 
discrimination? CSFP applicants or participants who believe they have 
been discriminated against should file a discrimination complaint with 
the USDA Director, Office of Civil Rights, Room 326W, Whitten Building, 
1400 Independence Avenue, SW., Washington, DC 20250-9410, or telephone 
(202) 720-5964.



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.

[[Page 494]]



                            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 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 and/or roadside stands. 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

[[Page 495]]

participating State agency has the option to authorize individual 
farmers, farmers' markets and/or roadside stands.
    Farmers' market means an association of local farmers who assemble 
at a defined location for the purpose of selling their produce directly 
to consumers.
    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 administrative FMNP 
cost 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 administrative 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 Nutrition Program 
authorized by section 17(m) of the Child Nutrition Act of 1966 (CNA) (42 
U.S.C. 1786(m)), as amended. The Special Supplemental Nutrition Program 
for Women, Infants and Children (WIC) is authorized by section 17 of the 
CNA, 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.
    Roadside stand means a location at which an individual farmer sells 
his/her produce directly to consumers. This is in contrast to a group or 
association of farmers selling their produce at a farmers' market.
    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

[[Page 496]]

executive officer of the 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 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 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; 73 FR 65249, Nov. 3, 2008]



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 (2 CFR part 200, subparts A, B, D, E and F and 
USDA implementing regulations 2 CFR part 400 and part 415), 
nonprocurement debarment/suspension (2 CFR part 180, OMB Guidelines to 
Agencies on Government-wide Debarment and Suspension and USDA 
implementing regulations 2 CFR part 417), drug-free workplace (2 CFR 
part 182, Government-wide Requirements for Drug-Free Workplace), and 
lobbying (2 CFR part 200, subpart E and USDA implementing regulations 2 
CFR part 400, part 415 and part 418); 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. (1) 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.
    (2) The written agreement must include a statement that supports 
full use of Federal funds provided to State agencies for the 
administration of the FMNP, and excludes such funds from State budget 
restrictions or limitations, including hiring freezes, work furloughs, 
and travel restrictions.
    (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,

[[Page 497]]

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.
    (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.

[59 FR 11517, Mar. 11, 1994, as amended at 76 FR 37983, June 29, 2011; 
81 FR 66496, Sept. 28, 2016]



                   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, roadside 
stands and area WIC clinics including a map outlining the service area 
and proximity of markets/roadside stands 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

[[Page 498]]

    (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 and/or roadside 
stands;
    (ii) Procedures for training farmers and market managers, at 
authorization, and annually thereafter;
    (iii) Procedures for monitoring farmers, farmers' markets and/or 
roadside stands;
    (iv) Description of system for identifying high risk farmers, 
farmers' markets and/or roadside stands and procedures for sanctioning 
farmers, farmers' markets and/or roadside stands;
    (v) Facsimile of the FMNP coupon;
    (vi) Identification of the fresh, nutritious, unprepared fruits, 
vegetables, and herbs which are eligible for purchase under the Program;
    (vii) Description of FMNP coupon replacement policy;
    (viii) 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/or roadside stands 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 and/or roadside stands.
    (14) A copy of the written agreement to be used between the State 
agency and authorized farmers, farmers' markets and/or roadside stands. 
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

[[Page 499]]

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.
    (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; 73 FR 65249, Nov. 3, 2008]



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

[[Page 500]]

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 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, 
USDA, Office of Adjudication and Compliance, Room 326-W, Whitten 
Building, 14th and Independence Avenue, SW., Washington, DC 20250-9410 
(or call (800) 795-3272 (voice) or (202) 720-6382 (TTY)), 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.

[59 FR 11517, Mar. 11, 1994, as amended at 73 FR 65249, Nov. 3, 2008]



                      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 FMNP benefit 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 
nor more than $30 per year.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49746, Sept. 27, 1995; 
73 FR 65250, Nov. 3, 2008]



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

[[Page 501]]

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, and roadside 
stands. The State agency is responsible for the fiscal management of, 
and accountability for, FMNP-related activities for farmers, farmers' 
markets and roadside stands. Each State agency may decide whether to 
authorize farmers individually, farmers' markets, roadside stands, or 
all of the above. All contracts or agreements entered into by the State 
agency for the management or operation of farmers, farmers' markets and 
roadside stands shall conform with the requirements of 2 CFR part 200, 
subpart D and Appendix II, Contract Provisions for Non-Federal Entity 
Contracts Under Federal Awards and USDA implementing regulations 2 CFR 
part 400 and 415.
    (1) Only farmers, farmers' markets and roadside stands 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, farmers' markets and roadside stands. Any 
authorized farmer, farmers' market and roadside stand 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 farmers' markets or 
roadside stands on behalf of local farmers.
    (3) The State agency shall ensure that an appropriate number of 
farmers, farmers' markets and/or roadside stands are authorized for 
adequate recipient access in the area(s) proposed to be served and for 
effective management of the farmers, farmers' markets and/or roadside 
stands by the State agency. The State agency may establish criteria to 
limit the number of authorized farmers, farmers' markets and/or roadside 
stands.
    (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 and roadside stands 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 non-discrimination (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 and roadside stand.
    (b) Farmers' market agreements. The State agency shall ensure that 
all participating farmers' markets enter into written agreements with 
the State agency. The agreement shall be signed by a representative who 
has legal authority to obligate the farmer, farmers' market and/or 
roadside stand. The agreement shall be signed by a representative who 
has legal authority to

[[Page 502]]

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 and roadside stand 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 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, farmers' market and/or 
roadside stand ceases operation prior to the end of the authorization 
period.
    (2) The farmer, farmers' market and roadside stand 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 nor a 
roadside stand has an obligation to renew the agreement. Either the 
State agency or the farmer, farmers' market or a roadside stand may 
terminate the agreement for cause after providing advance written 
notification.
    (4) The State agency may deny payment to the farmer, farmers' market 
or roadside stand 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 or 
roadside stand for FMNP abuse. The farmer, farmers' market and/or 
roadside stand 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 or 
roadside stand, and claims actions under Sec. 248.20, are not 
appealable.
    (6) A farmer, farmers' market or a roadside stand 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

[[Page 503]]

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, roadside 
stands and local agencies. The State agency shall be responsible for the 
monitoring of farmers, farmers' markets, roadside stands and local 
agencies within its jurisdiction. This shall include developing a system 
for identifying high risk farmers, farmers' markets, and roadside stands 
and ensuring on-site monitoring, conducting further investigation, and 
sanctioning of such farmers, farmers' markets, or roadside stands as 
appropriate.
    (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, farmers' 
markets and roadside stands by risk factors, and shall conduct annual, 
on-site monitoring of at least 10 percent of farmers, 10 percent of 
farmers' markets and 10 percent of roadside stands which shall include 
those farmers, farmers' markets and roadside stands 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, 10 percent of its participating farmers' markets, 
and 10 percent of its participating roadside stands for monitoring 
visits.
    (3) The following shall be documented for all on-site farmers, 
farmers' markets, and roadside stands monitoring visits. At a minimum, 
documentation must include the names of the farmer, farmers' market or 
roadside stand and the reviewer; date of review; nature of problem(s) 
detected or the observation that the farmer, farmers' market or roadside 
stand appears to be in compliance with FMNP requirements; a record of 
interviews with recipients, market managers and/or farmers; and the 
signature of the reviewer. 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/

[[Page 504]]

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 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 and roadside stands 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/

[[Page 505]]

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 or roadside stand shall not participate in the FMNP 
at any other farmers' market or roadside stand in the State's 
jurisdiction during the disqualification period.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49746, Sept. 27, 1995; 
73 FR 65250, Nov. 3, 2008; 81 FR 66496, Sept. 28, 2016]



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 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, 2 CFR part 200, 
subparts D and E and USDA implementing regulations 2 CFR part 400 and 
part 415, 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; 
81 FR 66496, Sept. 28, 2016]



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 2 
CFR part 200, subpart E and USDA implementing regulations 2 CFR part 400 
and part 415 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

[[Page 506]]

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 2 CFR part 
200, subpart E and USDA implementing regulations 2 CFR part 400 and part 
415, 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 2 CFR part 200, subpart E 
and USDA implementing regulations 2 CFR part 400 and part 415 before 
charging to the FMNP any capital expenditures and other cost items 
designated by 2 CFR part 200, subpart E and USDA implementing 
regulations 2 CFR part 400 and part 415 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 2 CFR part 200, subpart E and USDA implementing regulations 2 CFR 
part 400 and part 415, 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 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; 
81 FR 66496, Sept. 28, 2016]



Sec. 248.13  FMNP income.

    Program income means gross income the State agency earns from grant 
supported activities. It includes fees for

[[Page 507]]

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 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR 
part 400 and part 415. 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.

[59 FR 11517, Mar. 11, 1994, as amended at 81 FR 66496, Sept. 28, 2016]



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 the total 
administrative FMNP cost. The Secretary may negotiate a lower percentage 
of matching funds, but not lower than 10 percent of the administrative 
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 the minimum amount. State, local or private funds for similar 
programs as defined in Sec. 248.2 may satisfy the State matching 
requirement.
    (ii) Sources of matching contributions. A State agency may count any 
form of contribution authorized by 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415 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)) amount to at least 30 percent of the administrative 
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 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

[[Page 508]]

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 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; 73 FR 65251, 
Nov. 3, 2008; 81 FR 66496, Sept. 28, 2016]



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 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR 
part 400 and part 415.
    (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

[[Page 509]]

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.

[59 FR 11517, Mar. 11, 1994, as amended at 81 FR 66496, Sept. 28, 2016]



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 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.

[[Page 510]]

    (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]



            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 and roadside stands. 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.

[[Page 511]]

    (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 and 
roadside stands.
    (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.
    (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 and roadside stands, including on-site reviews of a minimum of 
10 percent of farmers, 10 percent of farmers' markets, and 10 percent of 
roadside stands, which includes those farmers, farmers' markets, and 
roadside stands 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.

[[Page 512]]

    (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; 
73 FR 65251, Nov. 3, 2008]



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 2 CFR part 200, subpart F and 
Appendix XI Compliance Supplement and USDA implementing regulations 2 
CFR part 400 and part 415, 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.

[59 FR 11517, Mar. 11, 1994, as amended at 81 FR 66496, Sept. 28, 2016]



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 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,

[[Page 513]]

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 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR 
part 400 and part 415 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 2 CFR 
part 200, subpart D and Appendix II, Contract Provisions for Non-Federal 
Entity Contracts Under Federal Awards and USDA implementing regulations 
2 CFR part 400 and part 415 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 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 2 CFR part 200, subpart D and Appendix II, Contract 
Provisions for Non-Federal Entity Contracts Under Federal Awards and 
USDA implementing regulations 2 CFR part 400 and part 415.
    (d) Property acquired with program funds. State and local agencies 
shall observe the standards prescribed in 2 CFR part 200, subpart D and 
USDA implementing regulations 2 CFR part 400 and part 415 in their 
utilization and

[[Page 514]]

disposition of real property and equipment acquired in whole or in part 
with FMNP funds.

[59 FR 11517, Mar. 11, 1994, as amended at 81 FR 66496, Sept. 28, 2016]



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 (2 CFR part 180, OMB Guidelines to Agencies on Government-
wide Debarment and Suspension and USDA implementing regulations 2 CFR 
part 417), drug-free workplace (2 CFR part 182, Government-wide 
Requirements for Drug-Free Workplace), and the Department's regulations 
governing restrictions on lobbying (2 CFR part 200, subpart E and USDA 
implementing regulations 2 CFR part 400, part 415 and part 418), where 
applicable.

[81 FR 66497, Sept. 28, 2016]



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 2 CFR part 200, subpart D and USDA implementing regulations 
2 CFR part 400 and part 415 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.

[59 FR 11517, Mar. 11, 1994, as amended at 81 FR 66496, Sept. 28, 2016]



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 limited to, laws relating to taxation, 
welfare and public assistance programs. Section 17(m)(7)(B) of the CNA

[[Page 515]]

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.
    (d) Program evaluations. State and local FMNP agencies and 
contractors must cooperate in studies and evaluations conducted by or on 
behalf of the Department, related to programs authorized under the 
Richard B. Russell National School Lunch Act and the Child Nutrition Act 
of 1966 (42 U.S.C. 1786).

[59 FR 11517, Mar. 11, 1994, as amended at 76 FR 37983, June 29, 2011]



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, 61 Forsyth Street, SW., Room 8T36, 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, 90 Seventh Street, Suite 10-100, San Francisco, 
California 94103.

[59 FR 11517, Mar. 11, 1994, as amended at 60 FR 49748, Sept. 27, 1995; 
60 FR 57148, Nov. 14, 1995; 73 FR 65251, Nov. 3, 2008]



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]



PART 249_SENIOR FARMERS' MARKET NUTRITION PROGRAM (SFMNP)--
Table of Contents



                            Subpart A_General

Sec.
249.1  General purpose and scope.
249.2  Definitions.
249.3  Administration.

                   Subpart B_State Agency Eligibility

249.4  State plan.
249.5  Selection of new State agencies.

                    Subpart C_Participant Eligibility

249.6  Participant eligibility.

[[Page 516]]

249.7  Nondiscrimination.

                     Subpart D_Participant Benefits

249.8  Level of benefits and eligible foods.
249.9  Nutrition education.

                    Subpart E_State Agency Provisions

249.10  Coupon, market, and CSA program management.
249.11  Financial management system.
249.12  SFMNP costs.
249.13  Program income.
249.14  Distribution of funds to State agencies.
249.15  Closeout procedures.
249.16  Administrative appeal of State agency decisions.

            Subpart F_Monitoring and Review of State Agencies

249.17  Management evaluations and reviews.
249.18  Audits.
249.19  Investigations.

                   Subpart G_Miscellaneous Provisions

249.20  Claims and penalties.
249.21  Procurement and property management.
249.22  Nonprocurement debarment/suspension, drug-free workplace, and 
          lobbying restrictions.
249.23  Records and reports.
249.24  Data safeguarding requirements.
249.25  Other provisions.
249.26  SFMNP information.
249.27  OMB control number.

    Authority: 7 U.S.C. 3007.

    Source: 71 FR 74630, Dec. 12, 2006, unless otherwise noted.



                            Subpart A_General



Sec. 249.1  General purpose and scope.

    (a) This part announces regulations under which the Secretary of 
Agriculture shall carry out the Senior Farmers' Market Nutrition Program 
(SFMNP). The purposes of the SFMNP are to:
    (1) Provide resources in the form of fresh, nutritious, unprepared, 
locally grown fruits, vegetables, honey, and herbs from farmers' 
markets, roadside stands, and community supported agriculture (CSA) 
programs to low-income seniors;
    (2) Increase the domestic consumption of agricultural commodities by 
expanding or aiding in the expansion of domestic farmers' markets, 
roadside stands, and CSAs; and
    (3) Develop or aid in the development of new and additional farmers' 
markets, roadside stands, and CSAs.
    (b) These goals will be accomplished through payment of cash grants 
to approved State agencies. The SFMNP 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 food or nutrition 
assistance program under which foods are distributed to needy families 
in lieu of food stamps.

[71 FR 74630, Dec. 12, 2006, as amended at 74 FR 48374, Sept. 23, 2009]



Sec. 249.2  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 (as 
defined in--249.12(a)(1)(ii)), exclusive of food costs, which State 
agencies determine to be necessary to support SFMNP operations. 
Administrative costs include, but are not limited to, the costs 
associated with administration and start-up; the provision of nutrition 
education; SFMNP coupon issuance; participant education covering coupon 
redemption procedures; eligibility determinations; outreach services; 
printing SFMNP coupons, processing redeemed coupons, and training 
farmers, market managers, and/or farmers who operate CSA programs on the 
food delivery system; monitoring and reviewing program operations; 
required reporting and recordkeeping; determining which local sites will 
be utilized; recruiting and authorizing farmers, farmers' markets, 
roadside stands, and/or CSA programs to participate in the SFMNP; 
preparing contracts for farmers, farmers' markets, roadside stands, and/
or CSA programs; developing a data processing system for redemption and 
reconciliation of coupons; designing program training and informational 
materials; and coordinating SFMNP implementation responsibilities 
between designated administering agencies.

[[Page 517]]

    Bulk purchase means a program model in which bulk quantities of 
certain produce items, such as apples or sweet potatoes, are purchased 
directly from authorized farmers by the State agency, and are then 
equitably divided among and distributed directly to eligible SFMNP 
participants, either at a central distribution point (such as a local 
senior center) or through some type of home delivery network.
    Community supported agriculture (CSA) program means a program under 
which a farmer or group of farmers grows food for a group of 
shareholders (or subscribers) who pledge to buy a portion of the 
farmer's crop(s) for that season. State agencies may purchase shares or 
subscribe to a community supported agriculture program on behalf of 
individual SFMNP participants.
    Compliance buy means a covert, on-site investigation in which a 
SFMNP representative poses as a SFMNP participant or authorized 
representative and attempts to transact one or more SFMNP coupons, or, 
in the case of CSA programs, attempts to obtain eligible foods purchased 
with SFMNP funds at a distribution site.
    Coupon means a check or other negotiable financial instrument by 
which benefits under the program are transferred to program 
participants.
    Days means calendar days.
    Department means the U.S. Department of Agriculture.
    Distribution site means the location where packages of eligible 
foods are assembled for and/or distributed to SFMNP participants who are 
shareholders in CSA programs.
    Eligible foods means fresh, nutritious, unprepared, locally grown 
fruits, vegetables, honey, and herbs for human consumption. Eligible 
foods may not be processed or prepared beyond their natural state except 
for usual harvesting and cleaning processes. Dried fruits or vegetables, 
such as prunes (dried plums), raisins (dried grapes), sun-dried 
tomatoes, or dried chili peppers are not considered eligible foods. 
Potted fruit or vegetable plants, potted or dried herbs, wild rice, nuts 
of any kind (even raw), maple syrup, cider, seeds, eggs, meat, cheese 
and seafood are also not eligible foods for purposes of the SFMNP.
    Farmer means an individual authorized to sell eligible foods at 
participating farmers' markets and/or roadside stands, and through CSAs. 
Individuals who exclusively sell produce grown by someone else, such as 
wholesale distributors, cannot be authorized to participate in the 
SFMNP. A participating State agency has the option to authorize 
individual farmers or farmers' markets, roadside stands, and/or CSA 
programs.
    Farmers' market means an association of local farmers who assemble 
at a defined location for the purpose of selling their produce directly 
to consumers.
    Federally recognized Indian tribal government means the same as the 
definition of that term found at 2 CFR part 200, Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements for Federal 
Awards, subpart A, Acronyms and Definitions and USDA implementing 
regulations 2 CFR part 400 and part 415, i.e., the governing body or a 
governmental agency of any Indian tribe, band, organization, or other 
organized group or community (including any Native village as defined in 
section 3 of the Alaska Native Claims Settlement Act, 85 Stat. 688) 
certified by the Secretary of the Interior as eligible for the special 
programs and services provided by the Secretary through the Bureau of 
Indian Affairs.
    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 cost of eligible foods purchased at authorized 
farmers' markets, roadside stands, and/or through bulk purchases or CSA 
programs.
    Household means a group of related or nonrelated individuals who are 
living together as one economic unit.
    Local agency means any nonprofit entity or local government agency 
that certifies eligible participants, issues SFMNP coupons, arranges for 
distribution of eligible foods through CSA programs, and/or provides 
nutrition education or information on operational

[[Page 518]]

aspects of the Program to SFMNP participants.
    Locally grown means grown within State borders. If the State agency 
chooses, locally grown may also mean grown in areas of States adjacent 
to that State, as long as such areas are part of the United States.
    Nonprofit agency means a private agency that is exempt from the 
payment of Federal income tax under the Internal Revenue Code of 1986, 
as amended (26 U.S.C. 1, et seq.).
    Nutrition education means:
    (1) Individual or group sessions; and
    (2) The provision of relevant materials, in keeping with the 
individual's personal, cultural, and socioeconomic preferences and the 
Dietary Guidelines for Americans, that:
    (i) Emphasize relationships between nutrition and health; and
    (ii) Encourage participants to build healthful eating patterns, and 
to take action for good health.
    OIG means FNS' Office of Inspector General.
    Participant means a person or household who meets the eligibility 
requirements of the SFMNP and to whom coupons or equivalent benefits 
have been issued.
    Program or SFMNP means the Senior Farmers' Market Nutrition Program 
authorized by Section 4402 of the Farm Security and Rural Investment Act 
of 2002, 7 U.S.C. 3007.
    Proxy means an individual authorized by an eligible senior to act on 
the senior's behalf, including application for certification, receipt of 
SFMNP coupons or other benefits, use of SFMNP coupons at authorized 
outlets, and/or acceptance of SFMNP foods provided through a CSA 
program, as long as the SFMNP benefits are ultimately received by the 
eligible senior. The terms proxy and authorized representative may be 
used interchangeably for purposes of this program.
    Roadside stand means a location at which an individual farmer sells 
his/her produce directly to consumers. This is in contrast to a group or 
association of farmers selling their produce at a farmers' market or 
through a CSA program. The term roadside stand may be used 
interchangeably with the term farmstand as defined in Sec. 248.2 of this 
chapter.
    Senior means an individual 60 years of age or older, or as defined 
in Sec. 249.6(a)(1).
    SFPD means the Supplemental Food Programs Division of the Food and 
Nutrition Service of the U.S. Department of Agriculture.
    Shareholder means a SFMNP participant for whom a full or partial 
share in a community supported agriculture program has been purchased by 
the State agency, and who receives SFMNP benefits in the form of actual 
eligible foods rather than coupons that must be exchanged for eligible 
foods at farmers' markets and/or roadside stands.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, and as 
applicable, American Samoa or the Commonwealth of the Northern Marianas.
    State agency means the agriculture, aging, or health department, or 
any other agency approved by the Chief Executive Officer of the State 
that has administrative responsibility for the SFMNP; an intertribal 
council or group that is an authorized representative of Indian tribes, 
bands, or groups recognized by FNS of the Interior and that 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, a division of FNS 
of Health and Human Services.
    State Plan means a plan of SFMNP operation and administration that 
describes the manner in which the State agency intends to implement, 
operate and administer all aspects of the SFMNP within its jurisdiction 
in accordance with Sec. 249.4.
    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 Farmers' Market Nutrition Program (FMNP) means the nutrition 
assistance program authorized by Section 17(m) of the Child Nutrition 
Act of 1966 (42 U.S.C. 1786(m)), to provide resources to women, infants, 
and children who are nutritionally at risk, in

[[Page 519]]

the form of fresh, nutritious, unprepared foods (such as fruits and 
vegetables) from farmers' markets; to expand the awareness and use of 
farmers' markets; and to increase sales at such markets.

[71 FR 74630, Dec. 12, 2006, as amended at 74 FR 48374, Sept. 23, 2009; 
81 FR 66497, Sept. 28, 2016]



Sec. 249.3  Administration.

    (a) Delegation to FNS. Within FNS, FNS shall act on behalf of the 
Department in the administration of the SFMNP. Within FNS, SFPD and the 
FNS Regional Offices are responsible for SFMNP administration. FNS shall 
provide assistance to State agencies and evaluate all levels of SFMNP 
operations to ensure that the goals of the SFMNP 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 SFMNP in accordance 
with the requirements of this part; the requirements of FNS' regulations 
governing nondiscrimination (parts 15, 15a and 15b of this title), 
administration of grants (2 CFR part 200, Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements for Federal Awards 
and USDA implementing regulations 2 CFR part 400 and part 415), 
nonprocurement debarment/suspension (2 CFR part 180, OMB Guidelines to 
Agencies on Government-wide Debarment and Suspension and USDA 
implementing regulations 2 CFR part 417), drug-free workplace (2 CFR 
part 182, Government-wide Requirements for Drug-Free Workplace), and 
lobbying (2 CFR part 200, subpart E, Cost Principles; and USDA 
implementing regulations 2 CFR part 400, part 415, and part 418); FNS 
guidelines; FNS Instructions issued under the FNS Directives Management 
System; and Office of Management and Budget Circular A-130 (For 
availability of OMB Circulars referenced in this section, see 5 CFR 
1310.3). The State agency shall provide guidance to cooperating State 
and local agencies on all aspects of SFMNP operations. State agencies 
may operate the SFMNP locally through nonprofit organizations or local 
government entities and must en- 

sure coordination among the appropriate agencies and organizations.
    (c) Agreement and State Plan. Each State agency desiring to 
administer the SFMNP shall annually submit a State Plan of Operations 
and enter into a written agreement with FNS for administration of the 
Program in the jurisdiction of the State agency in accordance with the 
provisions of this Part. If the State agency administers both the SFMNP 
and the WIC Farmers' Market Nutrition Program (FMNP), one consolidated 
State Plan may be submitted for both programs, in accordance with 
guidance provided by FNS.
    (d) Coordination with other agencies. The Chief Executive Officer of 
the State shall ensure coordination between the designated administering 
State agency and any other State, local, or nonprofit agencies or 
entities involved in administering any aspect of the SFMNP by ensuring 
that the agencies enter into a written agreement or letter/memorandum of 
understanding. The written agreement or letter/memorandum of 
understanding must delineate the responsibilities of each agency, 
describe any compensation for services, and must be signed by the 
designated representative of each agency. This agreement must be 
submitted each year along with the State Plan.
    (e) State staffing standards. Each State agency shall ensure that 
sufficient staff is available to administer the SFMNP efficiently and 
effectively. This shall include, but not be limited to, sufficient staff 
to identify and certify eligible SFMNP participants, provide program 
information and nutrition education to participants, and oversee coupon, 
market, and/or CSA program management, fiscal reporting, monitoring, and 
training. The State agency shall provide in its State Plan an outline of 
administrative staff and job descriptions for staff whose salaries will 
be paid from program funds.

[71 FR 74630, Dec. 12, 2006, as amended at 81 FR 66497, Sept. 28, 2016]
     
     

[[Page 520]]



                   Subpart B_State Agency Eligibility



Sec. 249.4  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. If the State agency administers both the SFMNP and the FMNP, 
one consolidated State Plan may be submitted for both programs, in 
accordance with guidance provided by FNS. The State Plan must 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. Portions of the State Plan that 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 include the following items, which must include 
sufficient detail to demonstrate the State agency's ability to meet the 
requirements of the SFMNP:
    (1) A copy of the agreement between the designated administering 
State agency and any other cooperating State, local, or nonprofit 
agencies or organizations for services such as certification of eligible 
participants, issuance of SFMNP coupons or benefits, and/or nutrition 
education, as required in Sec. 249.3(d).
    (2) A description of the State agency's procedures for identifying 
and certifying eligible SFMNP participants, including the specific age 
and income criteria that will be used to determine SFMNP eligibility.
    (3) An estimated number of participants for the fiscal year, and 
proposed months of operation.
    (4) A detailed budget for the SFMNP, including:
    (i) The minimum amount necessary to operate the SFMNP;
    (ii) A description of the Federal and non-Federal funds that will be 
used to operate the Program; and
    (iii) An assurance that no more than 50 percent of the Federal SFMNP 
grant will be used to support a CSA program model for the delivery of 
SFMNP benefits.
    (5) An outline of administrative staff and job descriptions.
    (6) A detailed description of the SFMNP recordkeeping system 
including, but not limited to, the system for maintaining separate 
records for SFMNP funds pertaining to financial operations, coupon 
issuance and redemption, authorization of farmers, markets, and/or CSA 
programs, distribution of eligible foods through CSA programs, and SFMNP 
participation.
    (7) A detailed description of the State agency's financial 
management system, including how the system will provide accurate, 
current and complete disclosure of the program's financial status and 
required reports.
    (8) A detailed description of the service area, including:
    (i) The number and addresses of authorized farmers, farmers' 
markets, roadside stands, and community supported agriculture programs 
that participated in the SFMNP during the prior year; and
    (ii) SFMNP certification/issuance sites (such as senior centers or 
senior housing facilities), including a map outlining the service area 
and proximity of markets, roadside stands, and/or community supported 
agriculture programs to certification/issuance or distribution sites 
that participated in the SFMNP during the prior year.
    (9) A description of the coupon issuance system including:
    (i) A description of how the State agency will target areas with the 
highest concentrations of eligible persons and greatest access to 
farmers' markets and/or roadside stands;
    (ii) The benefit level per participant, or household if benefits are 
issued on a household basis, including:
    (A) How coupons will be issued;
    (B) The value of benefits provided to each participant or household 
at each issuance during the year;
    (C) The frequency of coupon issuance; and
    (D) The total amount of SFMNP benefits issued to each participant or 
household during the year.

[[Page 521]]

    (iii) A method for instructing participants on the proper use of 
SFMNP coupons and the purpose of the SFMNP;
    (iv) A method for ensuring that SFMNP coupons are issued only to 
eligible participants; and
    (v) A method for preventing and identifying dual participation, in 
accordance with Sec. 249.6(d)(1).
    (10) If the agency is using a ``paperless'' system, i.e., a system 
that does not issue actual coupons, a complete description of how such a 
system will be operated in a manner that ensures the integrity of SFMNP 
funds and benefits.
    (11) A detailed description of the SFMNP coupon redemption process 
including:
    (i) The procedures for ensuring the secure transportation and 
storage of SFMNP coupons;
    (ii) A system for identifying and reconciling SFMNP coupons; and
    (iii) The timeframes for SFMNP coupon redemption by participants, 
submission for payment by farmers or authorized outlets (farmers' 
markets and/or roadside stands), and payment by the State agency.
    (12) A description of the State agency's CSA program, if applicable, 
including:
    (i) How the State agency will target and select community supported 
agriculture programs designed to provide SFMNP benefits to eligible 
participants;
    (ii) The annual benefit amount per participant or household, if 
benefits are issued on a household basis;
    (iii) How CSA program contracts are developed, negotiated, and 
executed by the State agency;
    (iv) How CSA program shares are allocated to eligible SFMNP 
participants;
    (v) A method for instructing participants and farmers participating 
in the CSA program on the purpose of the SFMNP, and the procedures for 
delivery and distribution of eligible foods provided for the SFMNP 
through the CSA;
    (vi) A system to ensure receipt by eligible participants of eligible 
foods provided through a CSA program. Such a system should include a 
written receipt or distribution log, with the participant's signature 
(or that of the eligible participant's proxy, if proxies are allowed) 
and the date of each distribution;
    (vii) The payment procedures for the CSA program(s) used by the 
State agency;
    (viii) How the State agency ensures that the full value of eligible 
foods for which it has contracted is provided regularly throughout the 
SFMNP season;
    (ix) A listing of delivery dates and distribution sites for CSA 
program-provided eligible foods; and
    (x) A system for ensuring that each SFMNP shareholder receives an 
equitable amount of eligible foods at each delivery, and that the total 
value of the eligible foods provided under the SFMNP falls within the 
minimum and maximum Federal SFMNP benefit levels, as specified in 
Sec. 249.8(b).
    (13) A complete description of age- and circumstance-appropriate 
nutrition education to be provided to SFMNP participants, including:
    (i) The agencies that will provide the nutrition education;
    (ii) The format(s) in which the nutrition education will be 
provided; and
    (iii) The locations where nutrition education is likely to be 
provided.
    (14) A detailed description of the State agency's system for 
managing its coupon, market, and CSA program management systems, 
including:
    (i) The criteria for authorizing farmers' markets, roadside stands, 
and/or community supported agriculture programs, including the agency 
responsible for authorization;
    (ii) The procedures for training farmers, market managers, and/or 
CSA program farmers at authorization, and annually thereafter;
    (iii) The procedures for monitoring farmers' markets, roadside 
stands, and/or community supported agriculture programs;
    (iv) A description of the State agency's system for identifying 
high-risk farmers and farmers' markets, roadside stands, and/or 
community supported agriculture programs, as set forth at 
Sec. 249.10(e)(2)(ii);
    (v) The procedures for sanctioning farmers, farmers' markets, 
roadside stands, and/or community supported agriculture programs;

[[Page 522]]

    (vi) A facsimile of the SFMNP coupon, including the denominations of 
coupons that will be issued, and a clear indication of where the 
participant/proxy and (if applicable) farmer are required to sign, 
stamp, or otherwise endorse the coupon before it can be redeemed;
    (vii) A complete listing of the fresh, nutritious, unprepared 
fruits, vegetables, honey, and herbs eligible for purchase under the 
SFMNP;
    (viii) A description of SFMNP coupon replacement policy or statement 
that coupons will not be replaced; and
    (ix) The State agency's procedures for handling participant and 
farmer/farmers' market, roadside stands, and CSA program complaints.
    (15) A system for ensuring that SFMNP coupons are redeemed only by 
authorized farmers/farmers' markets/roadside stands, and only for 
eligible foods.
    (16) A system for identifying SFMNP coupons that are redeemed or 
submitted for payment outside valid dates or by unauthorized farmers/
farmers' markets/roadside stands.
    (17) A copy of the written agreement to be used between the State 
agency and authorized farmers/farmers' markets, roadside stands, and/or 
CSA programs. In those States that 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.
    (18) If available, information on the change in consumption of fresh 
fruits, vegetables, honey, and herbs by SFMNP participants. This 
information shall be submitted as an addendum to the State Plan and 
shall be submitted at a date specified by the Secretary.
    (19) If available, information on the effects of the program on 
farmers' markets, roadside stands, and/or CSA programs. This information 
shall be submitted as an addendum to the State Plan and shall be 
submitted at a date specified by the Secretary.
    (20) A description of the procedures the State agency will use to 
comply with the civil rights requirements described in Sec. 249.7(a), 
including the processing of discrimination complaints.
    (21) A copy of the State agency's fair hearing procedures for SFMNP 
participants and the administrative appeal procedures for local 
agencies, farmers, farmers' markets, roadside stands, and/or CSA 
programs.
    (22) State agencies that have not previously participated in the 
SFMNP must provide:
    (i) A description of the need for the SFMNP in that State agency;
    (ii) The specific goals and objectives of the SFMNP, designed to 
fulfill the purpose of the Program as set forth in Sec. 249.1; and
    (iii) A capability statement that 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.
    (23) For State agencies making expansion requests, documentation 
that demonstrates:
    (i) The need for an increase in funding;
    (ii) That the use of the increased funding will be consistent with 
serving eligible SFMNP participants by expanding benefits to more 
persons, by enhancing current benefits, or a combination of both, and 
expanding the awareness and use of farmers' markets, roadside stands, 
and CSA programs;
    (iii) The ability of the State agency to operate the existing SFMNP 
satisfactorily;
    (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 benefits received by a 
participant, the funding provided will increase the rate of coupon 
redemption.
    (b) Amendments. At any time after approval, the State agency may 
amend the State Plan to reflect changes. The State agency shall submit 
such amendments to FNS for approval. The proposed amendments shall be 
signed by the State-designated official responsible for ensuring that 
the SFMNP is operated in accordance with the State

[[Page 523]]

Plan. The amendments must be approved by FNS prior to implementation.
    (c) Retention of copy. A copy of the approved State Plan shall be 
kept on file at the State agency for public inspection.

[71 FR 74630, Dec. 12, 2006, as amended at 74 FR 48374, 48375, Sept. 23, 
2009]



Sec. 249.5  Selection of new State agencies.

    In selecting new State agencies, FNS will use objective criteria to 
rank and approve State plans submitted in accordance with Sec. 249.4. In 
making this ranking, FNS will consider the amount of funds necessary to 
operate the SFMNP successfully in the State compared with other States 
and with the total amount of funds available to the SFMNP, the number of 
participants estimated to be served, and the projected benefit level. 
Approval of a State Plan does not equate to an obligation on the part of 
FNS to fund the SFMNP within that State.



                    Subpart C_Participant Eligibility



Sec. 249.6  Participant eligibility.

    (a) Eligibility for certification. Individuals who are eligible to 
receive Federal benefits under the SFMNP are those who meet the 
following criteria:
    (1) Categorical eligibility. Participants must be not less than 60 
years of age, except that State agencies may exercise the option to deem 
Native Americans who are 55 years of age or older as categorically 
eligible for SFMNP benefits. State agencies may, at their discretion, 
also deem disabled individuals less than 60 years of age who are 
currently living in housing facilities occupied primarily by older 
individuals where congregate nutrition services are provided, as 
categorically eligible to receive SFMNP benefits.
    (2) Residency requirement. The State agency may establish a 
residency requirement for SFMNP applicants. 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.
    (3) Income eligibility. The State agency must ensure that local 
agencies determine income eligibility through the use of a clear and 
simple application process approved by the State agency. Participants 
must have a maximum household income of not more than 185 percent of the 
annual poverty income guidelines, or be determined automatically income 
eligible based on current participation/eligibility to receive benefits 
in another means-tested program, as designated by the State agency, for 
which income eligibility is set at or below 185 percent of the poverty 
income guidelines and for which documentation of family income is 
required. FNS will announce the income poverty guidelines annually.
    (b) Documentation of income eligibility--(1) Automatically income 
eligible applicants. The State or local agency must require applicants 
determined to be automatically income eligible to provide documentation 
of their eligibility to participate in another means-tested assistance 
program, as designated by the State agency.
    (2) Other applicants. (i) The State or local agency must require all 
other applicants to provide, at a minimum, a signed statement affirming 
that their household size and income does not exceed the maximum income 
eligibility standard in use by the State agency.
    (ii) If the State agency offers a benefit of more than $50 per 
participant through a CSA program, it must require documentation of 
household size and income from all participants receiving the higher 
benefit level.
    (iii) The State agency has the option to require all applicants to 
provide documentation of family income at certification, and/or to 
require verification of the information provided by the applicant.
    (c) Certification periods. Participants may be certified only for 
the current fiscal year's SFMNP period of operation. Eligibility must be 
determined at the beginning of each period of operation. Prior fiscal 
year certifications may not be carried over into subsequent fiscal 
years, but the State agency may make use of its participant enrollment 
listings from the prior fiscal

[[Page 524]]

year in its outreach efforts for the current fiscal year.
    (d) Participant rights and responsibilities. Where a significant 
number or proportion of the population eligible to be served needs 
information regarding participation in the SFMNP in a language other 
than English, reasonable steps must be taken to provide this information 
in the appropriate language(s) to such persons, considering the scope of 
the Program and the size and concentration of such population(s). In 
order to inform applicants and participants or their authorized 
representatives/proxies of SFMNP rights and responsibilities, State/
local agencies must provide the following information:
    (1) During the certification process, every program applicant or 
authorized representative must be informed of the illegality of dual 
participation, i.e., obtaining SFMNP benefits from more than one service 
delivery area or from more than one SFMNP program model (coupon system 
and CSA program) within the same service delivery area.
    (2) At the time of certification, each SFMNP applicant or authorized 
representative must read or have read to him or her the following 
statements or similar statements:

    I have been advised of my rights and obligations under the SFMNP. 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.
    Standards for eligibility and participation in the SFMNP are the 
same for everyone, regardless of race, color, national origin, age, 
disability, or sex.
    I understand that I may appeal any decision made by the local agency 
regarding my eligibility for the SFMNP.

    (3) During the certification visit, each participant or authorized 
representative must:
    (i) Receive an explanation of how to use his/her SFMNP coupons at 
farmers' markets and roadside stands, and/or how SFMNP foods will be 
provided under the CSA program in that service delivery area; and
    (ii) Be advised of the other types of services that are available to 
SFMNP participants, where such services are located, how they may be 
obtained, and why they may be useful.
    (4) Persons found ineligible for the SFMNP during a certification 
visit must be advised in writing of their ineligibility, of the reasons 
for their ineligibility, and of their right to a fair hearing. The 
reasons for ineligibility must be properly documented and must be 
retained on file at the local agency. Such notice is not required when 
participation is denied solely because of lack of sufficient funding to 
provide SFMNP benefits to all eligible applicants.
    (5) When a State or local agency pursues collection of a claim 
pursuant to Sec. 249.20(c) against an individual who has been issued 
SFMNP benefits for which she/he is not eligible, the person must be 
advised in writing of the reason(s) for the claim, the value of the 
improperly issued benefits that must be repaid, and of his/her right to 
a fair hearing.
    (e) Certification without charge. Certification for the SFMNP must 
be performed at no cost to the applicant or the authorized 
representative.
    (f) Use of proxies or authorized representatives. At the State 
agency's discretion, a senior may designate an authorized representative 
(proxy) to apply for certification, shop at the farmers' market or 
roadside stands, and/or pick up their eligible foods from CSA program 
distribution sites on his/her behalf if the senior is unable to perform 
these actions. The State agency must obtain a signed statement from the 
eligible senior designating another individual as his/her authorized 
representative. A senior who has been certified to receive SFMNP 
benefits may designate an authorized representative at any point during 
the program's period of operation.
    (g) Processing standards. (1) Applicants for the SFMNP must be 
notified of their eligibility or ineligibility for benefits, or of their 
placement on a waiting list, as described in paragraph

[[Page 525]]

(g)(2) of this section, within 15 days from the date of application.
    (2) When all available program benefits have been allocated to 
eligible participants, and there is a reasonable expectation that 
additional funds may become available to provide further SFMNP benefits 
to eligible seniors, the local agency must maintain a waiting list of 
individuals who contact the local agency to apply for the Program. 
Individuals must be notified of their placement on a waiting list within 
15 days after they contact the local agency to request Program benefits. 
To enable the local agency to contact these individuals when caseload 
space becomes available, the waiting list must include the name of the 
applicant, the date placed on the waiting list, and an address or phone 
number of the applicant.
    (h) Limitations on certification. If necessary to limit the number 
of participants, State agencies may impose additional eligibility 
requirements, such as limiting participant certification to certain 
geographic areas. Each State agency must specifically identify these 
limitations on certification in its State Plan.



Sec. 249.7  Nondiscrimination.

    (a) Civil rights requirements. (1) The State agency must comply with 
the following requirements to ensure that no person shall, on the 
grounds of race, color, national origin, age, sex or disability, be 
excluded from participation, be denied benefits, or be otherwise 
subjected to discrimination, under the SFMNP:
    (i) Title VI of the Civil Rights Act of 1964;
    (ii) Title IX of the Education Amendments of 1972;
    (iii) Section 504 of the Rehabilitation Act of 1973;
    (iv) The Age Discrimination Act of 1975;
    (v) Department of Agriculture regulations on nondiscrimination 
(parts 15, 15a and 15b of this title); and
    (vi) Applicable FNS Instructions, including requirements for racial 
and ethnic participation data collection, public notification of the 
nondiscrimination policy, and annual reviews of each local agency's 
racial and ethnic participation data (as required by title VI of the 
Civil Rights Act of 1964).
    (2) 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:
    (i) Notification to the public of the nondiscrimination policy and 
complaint rights of participants and potentially eligible persons, which 
may be satisfied through FNS' required nondiscrimination statement on 
brochures and publications;
    (ii) Review and monitoring activity to ensure SFMNP compliance with 
the nondiscrimination laws and regulations; and
    (iii) Establishment of grievance procedures for handling participant 
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 Civil Rights, 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 that 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 Civil Rights, USDA. A State agency may process complaints that allege 
discrimination based on sex or disability if grievance procedures are in 
place.



                     Subpart D_Participant Benefits



Sec. 249.8  Level of benefits and eligible foods.

    (a) General. State agencies must identify in the State Plan the 
fresh, nutritious, unprepared, locally grown fruits, vegetables, honey, 
and herbs that are eligible for purchase under the SFMNP. Eligible foods 
may not be processed or prepared beyond their natural state except for 
usual harvesting and cleaning processes. Dried fruits or vegetables, 
such as prunes (dried plums), raisins (dried grapes), sun-dried 
tomatoes, or dried chili peppers are not considered

[[Page 526]]

eligible foods in the SFMNP. Potted fruit or vegetable plants, potted or 
dried herbs, wild rice, nuts of any kind (even raw), maple syrup, cider, 
seeds, eggs, meat, cheese, and seafood are also not eligible for 
purposes of the SFMNP. ``Locally grown'' means produce grown only within 
a State's borders but may be defined by State agencies to include border 
areas in adjacent States. Under no circumstances may produce grown 
outside of the United States and its territories be considered eligible 
food.
    (b) The value of the Federal benefits received. (1) The Federal 
SFMNP benefit level received by each participant, whether individual or 
household, may not be less than $20 per year or more than $50 per year, 
except that:
    (i) A State agency that operated the SFMNP in FY 2006 may continue 
to issue the same level of benefits that was provided to participants in 
FY 2006, even if the benefit level was less than $20;
    (ii) Participants served by a State agency that operated the SFMNP 
through a CSA program model in FY 2006 may, at the State agency's 
discretion, continue to receive the same CSA benefit levels that were 
provided to such participants in FY 2006, subject to the conditions set 
forth at Sec. 249.14(e)(3), Distribution of Funds; and
    (iii) Participants who are participating in the SFMNP through a CSA 
program may receive a higher total benefit level than participants 
participating in a check or coupon program model, as long as that level 
is consistent for all Senior CSA program participants and does not 
exceed the $50 annual maximum per individual or household, except as 
provided in paragraph (b)(1) of this section.
    (2) The total value of SFMNP benefits provided in a combination of 
program models, such as coupons/checks and bulk purchase, may not exceed 
the $50 maximum benefit level set forth in paragraph 249.8(b)(1).
    (c) Participant or household benefit allocation. (1) All SFMNP 
participants living in the areas served by the State agency must be 
offered the same amount of SFMNP benefits, regardless of the program 
model(s) used by that State agency.
    (2) Benefits may be allocated on an individual or on a household 
basis.
    (3) Foods provided are intended for the sole benefit of SFMNP 
participants and are not meant to be shared with other non-participating 
household members.
    (4) Participants must receive SFMNP benefits free of charge.

[71 FR 74630, Dec. 12, 2006, as amended at 74 FR 48374, Sept. 23, 2009]



Sec. 249.9  Nutrition education.

    (a) Goal. Nutrition education shall emphasize the relationship of 
proper nutrition to good health, including the importance of consuming 
fruits and vegetables.
    (b) Requirement. The State agency shall integrate nutrition 
education into SFMNP operations and may satisfy nutrition education 
requirements through coordination with other agencies within the State. 
State agencies wishing to coordinate nutrition education with another 
State agency or organization must enter into a written cooperative 
agreement with such agencies to offer nutrition education relevant to 
the use and nutritional value of foods available to SFMNP participants. 
In cases where SFMNP participants are receiving relevant nutrition 
education from an agency other than the administering State agency, the 
provision of nutrition education is an allowable administrative cost 
under the SFMNP.



                    Subpart E_State Agency Provisions



Sec. 249.10  Coupon, market, and CSA program management.

    (a) General. This section sets forth State agency responsibilities 
regarding the authorization of farmers, farmers' markets, roadside 
stands, and/or CSA programs. The State agency is responsible for the 
fiscal management of and accountability for SFMNP-related activities for 
farmers, farmers' markets, roadside stands, and CSA programs. Each State 
agency may decide whether to authorize individual farmers and farmers' 
markets separately, or to authorize only farmers' markets. In addition, 
each State agency may decide

[[Page 527]]

whether to authorize roadside stands and/or CSA programs. The State 
agency may authorize a farmer for participation in a farmers' market, a 
roadside stand, and/or CSA program simultaneously. All contracts or 
agreements entered into by the State agency for the management or 
operation of farmers, farmers' markets, roadside stands, and/or CSA 
programs shall conform to the requirements of 2 CFR part 200 and USDA 
implementing regulations 2 CFR part 400 and part 415.
    (1) Only farmers, farmers' markets, and/or roadside stands 
authorized by the State agency may redeem SFMNP coupons. Only farmers 
authorized by the State agency, or having a valid agreement with an 
authorized farmers' market, may redeem coupons. Only CSA programs 
authorized by the State agency may receive payment from the State agency 
at the beginning of the planting season, in order to provide eligible 
foods to senior participants who are shareholders.
    (2) The State agency must establish criteria for the authorization 
of individual farmers and/or farmers' markets, roadside stands, and/or 
CSA programs. Any authorized farmer, farmers' market, roadside stand 
and/or CSA program must agree to sell participants only those foods 
identified as eligible by the State agency. State agencies may determine 
farmers, farmers' markets and/or roadside stands as automatically 
authorized to participate in the SFMNP based on current authorization to 
operate in the FMNP under part 248 of this chapter. Individuals who 
exclusively sell produce grown by someone else, such as wholesale 
distributors, cannot be authorized to participate in the SFMNP, except 
individuals employed by a farmer otherwise qualified under these 
regulations, or individuals hired by a nonprofit organization to sell 
produce at roadside stands on behalf of local farmers.
    (3) The State agency must ensure that an appropriate number of 
farmers, farmers' markets, roadside stands, and/or CSA programs are 
authorized for adequate participant access in the area(s) proposed to be 
served and for effective management of the farmers, farmers' markets, 
roadside stands, and/or CSA programs by the State agency.
    (4) The State agency may establish criteria to limit the number of 
authorized farmers, farmers' markets, and/or roadside stands.
    (5) The State agency must limit the value of shares awarded to CSA 
programs to no more than 50 percent of their total Federal SFMNP food 
grant, except in the case of a State agency that has grandfathered a CSA 
program model into the permanent SFMNP that uses more than 50 percent of 
the total Federal SFMNP food grant for the CSA program. The State agency 
shall make efforts to select the CSA program(s) that provides the 
greatest variety of eligible foods.
    (6) The State agency may purchase bulk quantities of eligible foods 
directly from authorized farmers. Such foods must then be equitably 
divided among and distributed directly to eligible SFMNP participants. 
SFMNP participants who have received checks or coupons to purchase 
eligible foods earlier in the season may also receive foods through the 
bulk purchase option as long as the total combined value of the benefits 
provided to each SFMNP participant does not exceed $50, as stipulated in 
Sec. 249.8(b).
    (7) The State agency shall ensure that training is conducted prior 
to start up of the first year of SFMNP participation of an individual 
farmer, farmers' market, roadside stand, and/or CSA program. The 
training shall include at a minimum those items listed in paragraph (d) 
of this section, and may be delivered in a variety of methods, including 
but not limited to classroom settings, telephone conferences, 
videoconferences, and web-based training modules.
    (8) Authorized farmers shall display a sign stating that they are 
authorized to redeem SFMNP coupons.
    (9) Authorized farmers, farmers' markets, roadside stands, and/or 
CSA programs 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 
(parts 15, 15a and 15b of

[[Page 528]]

this title), and FNS Instructions as outlined in Sec. 249.7.
    (10) The State agency shall ensure that there is no conflict of 
interest between the State or local agency and any participating farmer, 
farmers' market, roadside stand and/or CSA program.
    (b) Farmer, farmers' market, roadside stand, and/or CSA program 
agreements. The State agency shall ensure that all participating 
farmers' markets, roadside stands, and/or CSA programs enter into 
written agreements with the State agency. State agencies that authorize 
individual farmers shall also enter into written agreements with the 
individual farmers. The agreement must be signed by a representative who 
has legal authority to obligate the farmer, farmers' market, roadside 
stand, and/or CSA program. Agreements must include a description of 
sanctions for noncompliance with SFMNP 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 and/or roadside stand shall:
    (i) Provide such information as the State agency may require for its 
periodic reports to FNS;
    (ii) Assure that SFMNP coupons are redeemed only for eligible foods;
    (iii) Provide eligible foods at or less than the price charged to 
other customers;
    (iv) Accept SFMNP 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 and/or 
roadside stand, each transacted SFMNP 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 SFMNP coupon shall contain a farmer 
identifier and be batched for reimbursement under a farmers' market 
identifier.
    (vi) Accept training on SFMNP procedures and provide training to 
farmers and any employees with SFMNP responsibilities on such 
procedures;
    (vii) Agree to be monitored for compliance with SFMNP requirements, 
including both overt and covert monitoring;
    (viii) Be accountable for actions of farmers or employees in the 
provision of eligible foods and related activities;
    (ix) Pay the State agency for any coupons transacted in violation of 
this agreement;
    (x) Offer SFMNP participants the same courtesies as other customers;
    (xi) Comply with the nondiscrimination provisions of USDA 
regulations as provided in Sec. 249.7; and
    (xii) Notify the State agency if any farmer, farmers' market or 
roadside stand ceases operation prior to the end of the authorization 
period.
    (2) The farmer, farmers' market and/or roadside stand shall neither:
    (i) Seek restitution from SFMNP participants for coupons not paid by 
the State agency; nor
    (ii) Issue cash change for purchases that are in an amount less than 
the value of the SFMNP coupon(s); nor
    (iii) Collect tax on SFMNP coupon purchases.
    (3) The CSA program shall:
    (i) Provide such information as the State agency may require for its 
periodic reports to FNS;
    (ii) Assure that SFMNP participants receive only eligible foods;
    (iii) Provide eligible foods to their SFMNP shareholders at or less 
than the price charged to other customers;
    (iv) Assure that the shareholder receives eligible foods that are of 
equitable value and quantity to their share;
    (v) Assure that all funds from the State agency are used for 
planting of crops for SFMNP shareholders;
    (vi) Provide to the State agency access to a tracking system that 
determines the value of the eligible foods provided and the remaining 
value owed to each SFMNP shareholder;
    (vii) Assure that SFMNP shareholders/authorized representatives 
provide written acknowledgement of receipt of eligible foods;
    (viii) Accept training on SFMNP procedures and provide training to 
farmers

[[Page 529]]

and any employees with SFMNP responsibilities for such procedures;
    (ix) Agree to be monitored for compliance with SFMNP requirements, 
including both overt and covert monitoring;
    (x) Be accountable for actions of farmers or employees in the 
provision of eligible foods and related activities;
    (xi) Offer SFMNP shareholders the same courtesies as other 
customers;
    (xii) Notify the State agency immediately when the CSA program is 
experiencing a problem with its crops, and may be unable to provide 
SFMNP shareholders with the complete amount of eligible foods agreed 
upon between the CSA program and the State agency;
    (xiii) Comply with the nondiscrimination provisions of USDA 
regulations as provided in Sec. 249.7; and
    (xiv) Notify the State agency if any CSA program ceases operation 
prior to the end of the authorization period.
    (4) The CSA program shall not substitute ineligible produce when 
eligible foods are not available.
    (5) Neither the State agency nor the farmer, farmers' market, 
roadside stand, and/or CSA program has an obligation to renew the 
agreement. The State agency or the farmer, farmers' market, roadside 
stand and/or CSA program may terminate the agreement for cause after 
providing advance written notification.
    (6) The State agency may deny payment to the farmer, farmers' market 
and/or roadside stand for improperly redeemed SFMNP coupons and may 
demand refunds for payments already made on improperly redeemed coupons.
    (7) The State agency may demand a refund from any CSA program that 
fails to provide the full benefit to all SFMNP shareholders as specified 
in its contract, or that provides ineligible foods as substitutes for 
eligible foods.
    (8) The State agency may disqualify a farmer, farmers' market, 
roadside stand, and/or CSA program for SFMNP violations. The farmer, 
farmers' market, roadside stand, and/or CSA program has the right to 
appeal a denial of an application to participate, a disqualification, or 
a SFMNP sanction by the State agency. Expiration of a contract or 
agreement with a farmer, farmers' market, roadside stand, and/or CSA 
program, and claims actions under Sec. 249.20, are not appealable.
    (9) A farmer, farmers' market, roadside stand, and/or CSA program, 
which commits fraud or engages in other illegal activity is liable to 
prosecution under applicable Federal, State or local laws.
    (10) Agreements may not exceed 3 years.
    (c) Agreements with farmers' markets that do not authorize 
individual farmers. Those State agencies that 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 SFMNP. The State agency must set forth the required 
terms for the agreement and provide a sample agreement that may be used.
    (d) Annual training for farmers, farmers' market managers and/or 
farmers that operate a roadside stand or CSA program. State agencies 
shall conduct annual training for farmers, farmers' market managers, 
and/or farmers who operate a CSA program in the SFMNP. The State agency 
must conduct interactive training for all farmers and farmers' market 
managers who have never previously participated in the SFMNP. After a 
farmer/farmers' market manager's first year of SFMNP 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 SFMNP coupon redemption procedures, including deadlines 
for submission of coupons for payment, and/or receipt of payment for CSA 
programs' distribution of eligible foods;
    (3) Equitable treatment of SFMNP participants, including the 
availability of eligible foods to SFMNP participants that are of the 
same quality and cost as that sold to other customers;
    (4) Civil rights compliance and guidelines;
    (5) Guidelines for storing SFMNP coupons safely; and
    (6) Guidelines for cancelling SFMNP coupons, such as punching holes 
or rubber-stamping.

[[Page 530]]

    (e) Monitoring and review of farmers, farmers' markets, roadside 
stands, CSA programs and local agencies. The State agency shall be 
responsible for the monitoring of farmers, farmers' markets, roadside 
stands, CSA programs and local agencies within its jurisdiction. This 
shall include developing a system for identifying high risk farmers, 
farmers' markets, roadside stands, and/or CSA programs, and ensuring on-
site monitoring, conducting further investigation, and sanctioning of 
such farmers, farmers' markets, roadside stands, and/or CSA programs as 
appropriate. In States where both the SFMNP and the FMNP are in 
operation, these monitoring/review requirements may be coordinated to 
avoid duplication. If the same farmers, farmers' markets, and/or 
roadside stands are authorized for both programs, a review conducted by 
one program may be counted toward the requirement for the other program.
    (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)(i) Each State agency shall rank participating farmers, farmers' 
markets, roadside stands, and/or CSA programs by risk factors, and shall 
conduct annual, on-site monitoring of at least 10 percent of farmers, 10 
percent of farmers' markets, 10 percent of roadside stands, and 10 
percent of the CSA programs or one of each program model, whichever is 
greater, which shall include those farmers, farmers' markets, roadside 
stands, and/or CSA programs identified as being the highest-risk.
    (ii) Mandatory high-risk indicators include:
    (A) A proportionately high volume of SFMNP coupons redeemed by a 
farmer within a farmers' market or at a single roadside stand (as 
compared to other farmers within the farmers' market or within the 
State);
    (B) Participant complaints;
    (C) In the case of CSA programs, an extended or ongoing inability to 
provide the full SFMNP benefit to each shareholder as contracted; and
    (D) Farmers, farmers' markets, roadside stands, and/or CSA programs 
in their first year of SFMNP operation. States are encouraged to 
formally establish other high-risk indicators for identifying potential 
problems.
    (iii) If additional high-risk indicators are established, they must 
be set forth in the farmers, farmers' market, roadside stand, and/or CSA 
program agreement and in the State Plan. If application of the high-risk 
indicators results in fewer than 10 percent of farmers, farmers' 
markets, roadside stands, and/or CSA programs being designated as high-
risk, the State agency shall randomly select additional farmers, 
farmers' markets, roadside stands, and/or CSA programs 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 
SFMNP. A State agency participating in the SFMNP for the first time 
shall, in lieu of applying the high-risk indicators, randomly select 10 
percent of its participating farmers, 10 percent of its participating 
farmers' markets, 10 percent of its participating roadside stands, and 
10 percent of its participating CSA programs or at least one farmers' 
market, roadside stand, and/or CSA program, whichever is greater, for 
monitoring visits.
    (3)(i) The following shall be documented for all on-site monitoring 
visits to farmers, farmers' markets, roadside stands, and/or CSA 
programs, at a minimum:
    (A) Names of both the farmer, farmers' market, roadside stand, and/
or CSA program and the reviewer;
    (B) Date of review;
    (C) Nature of problem(s) detected or the observation that the 
farmer, farmers' market, roadside stand, and/or CSA program appears to 
be in compliance with SFMNP requirements;
    (D) Record of interviews with participants, market managers, 
farmers, and/or farmers who operate a CSA program; and
    (E) Signature of the reviewer.
    (ii) Reviewers are not required to notify the farmer, farmers' 
market, roadside stand, and/or CSA program of the

[[Page 531]]

monitoring visit before, 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.
    (iii) In instances where the farmer, farmers' market, roadside 
stand, and/or CSA program will be permitted to continue participating in 
the SFMNP after being informed of any deficiencies detected by the 
monitoring visit, the farmer, farmers' market, roadside stand, and/or 
CSA program shall provide plans as to how the deficiencies will be 
corrected.
    (4) At least every 2 years, the State agency must review all local 
agencies within its jurisdiction.
    (f) Control of SFMNP coupons. The State agency must:
    (1) Control and provide accountability for the receipt and issuance 
of SFMNP coupons;
    (2) Ensure that there is secure transportation and storage of 
unissued SFMNP coupons; and
    (3) Design and implement a system of review of SFMNP coupons to 
detect errors. At a minimum, the errors the system must detect are a 
missing participant signature (if such signature is required by the 
State agency), a missing farmer and/or market identification, and 
redemption by a farmer outside of the valid date. The State agency must 
have procedures in place to reduce the number of errors in transactions.
    (g) Payment to farmers, farmers' markets, roadside stands, and/or 
CSA programs. The State agency must ensure that farmers, farmers' 
markets, roadside stands, and/or CSA programs are promptly paid for food 
costs.
    (h) Reconciliation of SFMNP coupons. The State agency shall identify 
the disposition of all SFMNP coupons as validly redeemed, lost or 
stolen, expired, or not matching issuance records. Validly redeemed 
SFMNP coupons are those that are issued to a valid participant and 
redeemed by an authorized farmer, farmers' market, and/or roadside stand 
within valid dates. SFMNP coupons that were redeemed but cannot be 
traced to a valid participant or authorized farmer, farmers' market, 
and/or roadside stand shall be subject to claims action in accordance 
with Sec. 249.20.
    (1) If the State agency elects to replace lost, stolen or damaged 
SFMNP coupons, it must describe its system for doing so in the State 
Plan.
    (2) The State agency must use uniform SFMNP coupons within its 
jurisdiction.
    (3) SFMNP coupons must include, at a minimum, the following 
information:
    (i) The last date by which the participant 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. 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 that are batched by the market 
manager for reimbursement.
    (i) Instructions to participants. Each participant must receive 
instruction on the redemption of the SFMNP coupons, or participation in 
a CSA program (where applicable), including, but not limited to:
    (1) A list of names and addresses of authorized farmers, farmers' 
markets, and/or roadside stands at which SFMNP coupons may be redeemed, 
or procedures on the home-delivery process;
    (2) Procedures to designate a proxy;
    (3) The name and address of the authorized farmer of the CSA 
program, and locations of distribution sites;

[[Page 532]]

    (4) A description of eligible foods and the prohibition against cash 
change for SFMNP purchases of eligible foods;
    (5) A description of eligible foods that will be provided through 
the CSA program;
    (6) A schedule outlining a timeframe for distribution of the 
eligible foods from the CSA program; and
    (7) An explanation of his/her right to complain about improper 
farmer, farmers' market, roadside stand, and/or CSA program practices 
with regard to SFMNP responsibilities and the process for doing so.
    (j) Participant and farmer, farmers' market, roadside stand, and/or 
CSA program complaints. The State agency must have procedures that 
document the handling of complaints from participants and farmers/
farmers' markets, roadside stands, and/or CSA programs. Complaints of 
civil rights discrimination shall be handled in accordance with 
Sec. 249.7(b).
    (k) Participant and farmer, farmers' market, roadside stand, and/or 
CSA program sanctions. (1) The State agency must establish policies 
which determine the type and level of sanctions to be applied against 
participants and farmers, farmers' markets, roadside stands, and/or CSA 
programs based upon the severity and nature of the SFMNP 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, roadside stands, and/or CSA 
programs may be sanctioned, disqualified, or both, when appropriate. 
Sanctions may include fines for improper SFMNP coupon redemption and the 
penalties outlined in Sec. 249.20, in the case of deliberate fraud.
    (2) In those instances where compliance purchases are conducted, the 
results of covert compliance purchases can be a basis for farmer, 
farmers' market, and/or roadside stand sanctions.
    (3) A farmer, farmers' market, roadside stand, and/or CSA program 
committing fraud or other unlawful activities are liable to prosecution 
under applicable Federal, State or local laws.
    (4) State agency policies must ensure that a farmer that is 
disqualified from the SFMNP at one market, roadside stand, or CSA 
program shall not participate in the SFMNP at any other farmers' market, 
roadside stand or CSA program in the State's jurisdiction during the 
disqualification period.
    (5) State agency policies must ensure that a farmer, farmers' 
market, roadside stand, and/or CSA program that is disqualified from 
participating in the WIC Farmers' Market Nutrition Program is also 
disqualified from participating in the SFMNP in the State's jurisdiction 
during the disqualification period.

[71 FR 74630, Dec. 12, 2006, as amended at 74 FR 48375, Sept. 23, 2009; 
81 FR 66497, Sept. 28, 2016]



Sec. 249.11  Financial management system.

    (a) Disclosure of expenditures. The State agency must maintain a 
financial management system that provides accurate, current and complete 
disclosure of the financial status of the SFMNP. This must include an 
accounting for all property and other assets and all SFMNP funds 
received and expended each fiscal year.
    (b) Internal controls. The State agency shall maintain effective 
controls over and accountability for all SFMNP funds. The State agency 
must have effective internal controls to ensure that expenditures 
financed with SFMNP funds are authorized and properly chargeable to the 
SFMNP.
    (c) Record of expenditures. The State agency must maintain records 
that adequately identify the source and use of funds expended for SFMNP 
activities. These records must 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 must implement procedures 
that 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, part 3016 of this 
title, and FNS guidelines and Instructions.

[[Page 533]]

    (e) Identification of obligated funds. The State agency must 
implement procedures that accurately identify obligated SFMNP funds at 
the time the obligations are made.
    (f) Resolution of audit findings. The State agency shall implement 
procedures that ensure timely and appropriate resolution of claims and 
other matters resulting from audit findings and recommendations.
    (g) Reconciliation of food instruments. The State agency must 
reconcile SFMNP coupons in accordance with Sec. 249.10(h).
    (h) Transfer of cash. The State agency must establish the timing and 
amounts of its cash draws against its Letter of Credit in accordance 
with 31 CFR part 205.



Sec. 249.12  SFMNP costs.

    (a) General--(1) Composition of allowable costs. In general, a cost 
item will be deemed allowable if it is reasonable and necessary for 
SFMNP purposes and otherwise satisfies allowability criteria set forth 
in 2 CFR part 200, subpart E and USDA implementing regulations 2 CFR 
part 400 and part 415 and this part. SFMNP purposes include the 
administration and operation of the SFMNP. Allowable SFMNP costs may be 
classified as follows:
    (i) Food costs and administrative costs. Food costs are the costs of 
eligible foods provided to SFMNP participants. Administrative costs are 
the costs associated with providing SFMNP benefits and services to 
participants and generally administering the SFMNP. Specific examples of 
allowable administrative costs are listed in paragraph (b) of this 
section. A State agency may use up to 10 percent of its total Federal 
SFMNP grant to cover administrative costs. Any costs incurred for food 
and/or administration above the Federal grant level will be the State 
agency's responsibility.
    (ii) Direct and indirect costs. Direct costs are food and 
administrative costs incurred specifically for the SFMNP. Indirect costs 
are administrative costs that benefit multiple programs or activities, 
and cannot be identified to any one program or activity without effort 
disproportionate to the results achieved. In accordance with the 
provisions of 2 CFR part 200, subpart E and USDA implementing 
regulations 2 CFR part 400 and part 415, 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 part 3016.22 of this title 
before charging to the SFMNP any capital expenditures and other cost 
items designated by 2 CFR part 200, subpart E and USDA implementing 
regulations 2 CFR part 400 and part 415 as requiring such approval.
    (3) Unallowable costs. Costs that are not reasonable and necessary 
for SFMNP purposes, or that do not otherwise satisfy the cost principles 
of 2 CFR part 200, subpart E and USDA implementing regulations 2 CFR 
part 400 and part 415, are unallowable. Notwithstanding any other 
provision of 2 CFR part 200, subpart E and USDA implementing regulations 
2 CFR part 400 and part 415, the cost of constructing or operating a 
farmers' market is unallowable. The use of SFMNP funds to supplement 
congregate meal programs is prohibited. Unallowable costs may never be 
claimed for Federal reimbursement.
    (b) Specified allowable administrative costs. Allowable 
administrative costs include the following:
    (1) The costs associated with administration and start-up;
    (2) The costs associated with the provision of nutrition education 
that meets the requirements of Sec. 249.9;
    (3) The costs of SFMNP coupon issuance, or participant education 
covering proper coupon redemption procedures;
    (4) The cost of eligibility determinations and outreach services;
    (5) The costs associated with the coupon and market management 
process, such as printing SFMNP coupons, processing redeemed coupons, 
purchasing bags or other containers to be used in home-delivery and bulk 
purchase operations, and training farmers, market managers, and/or 
farmers who operate CSA programs on SFMNP operations;

[[Page 534]]

    (6) The cost of monitoring and reviewing Program operations;
    (7) The cost of SFMNP training;
    (8) The cost of required reporting and recordkeeping;
    (9) The cost of determining which local sites will be utilized;
    (10) The cost of recruiting and authorizing farmers, farmers' 
markets, roadside stands, and/or CSA programs to participate in the 
SFMNP;
    (11) The cost of preparing contracts for farmers, farmers' markets, 
roadside stands, and/or CSA programs;
    (12) The cost of developing a data processing system for redemption 
and reconciliation of SFMNP coupons;
    (13) The cost of designing program training and informational 
materials; and
    (14) The cost of coordinating SFMNP responsibilities between 
designated administering agencies.

[71 FR 74630, Dec. 12, 2006, as amended at 81 FR 66497, Sept. 28, 2016]



Sec. 249.13  Program 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 must retain Program 
income earned during the agreement period and use it for Program 
purposes in accordance with the addition method described in 2 CFR part 
200, subpart D, Post Federal Award Requirements and USDA implementing 
regulations 2 CFR part 400 and part 415. Fines, penalties or assessments 
paid by local agencies or farmers, farmers' markets, roadside stands, 
and/or CSA program are also deemed to be Program income. The State 
agency must ensure that the sources and applications of Program income 
are fully documented.

[71 FR 74630, Dec. 12, 2006, as amended at 81 FR 66497, Sept. 28, 2016]



Sec. 249.14  Distribution of funds to State agencies.

    (a) State Plan and agreement. As a prerequisite to the receipt of 
Federal funds, a State agency must have its State Plan approved and must 
execute an agreement with FNS in accordance with Sec. 249.3(c).
    (b) Distribution of SFMNP funds to previously participating State 
agencies. Provided that sufficient SFMNP funds are available, each State 
agency that participated in the SFMNP 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 SFMNP 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 must be ratably reduced. 
However, 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 SFMNP 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 SFMNP that wish to serve 
additional participants or increase the current benefit level. If this 
amount is greater than that necessary to satisfy all State Plans 
approved for expansion, 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 SFMNP 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. FNS reserves the right not to fund every State agency with an 
approved State Plan.

[[Page 535]]

    (e) Expansion for current State agencies. In providing funds to 
State agencies that participated in the SFMNP in the previous fiscal 
year, FNS must consider on a case-by-case basis the following factors:
    (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 FNS, good cause existed which was beyond the 
management control of the State, such as severe weather conditions or 
unanticipated decreases in participant caseload;
    (2) Documentation supporting the funds expansion request as outlined 
in Sec. 249.4(a)(23); and
    (3) Whether the State agency currently issues a participant benefit 
greater than $50. Such State agencies will not be eligible to receive 
additional SFMNP funds for expansion until the maximum participant 
benefit no longer exceeds $50.
    (f) Funding of new State agencies. Funds will be awarded to new 
SFMNP State agencies in accordance with Sec. 249.5.
    (g) Administrative funding. A State agency will have available for 
administrative costs an amount not greater than 10 percent of the total 
SFMNP funds it receives.
    (h) Recovery of unused funds. State agencies must return to FNS any 
unexpended funds made available for a given fiscal year by February 1 of 
the following fiscal year.



Sec. 249.15  Closeout procedures.

    (a) General. State agencies must submit to FNS a final closeout 
report for the fiscal year on a form prescribed by FNS and on a date 
specified by FNS.
    (b) Grant closeout procedures. When grants to State agencies are 
terminated, the following procedures shall be followed in accordance 
with 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR 
part 400 and part 415.
    (1) FNS may disqualify a State agency's participation under the 
SFMNP, 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 terminate a grant when both parties agree that 
continuation under the SFMNP would not produce beneficial results 
commensurate with the further expenditure of funds.
    (3) Upon termination of a grant, the affected agency may not incur 
new obligations after the effective date of the disqualification, and 
must 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, roadside stands, and/or CSA programs.
    (4) A grant closeout shall not affect the retention period for, or 
Federal rights of access to, SFMNP records as specified in 
Sec. 249.23(a). The closeout of a grant does not affect the 
responsibilities of the State agency regarding property or with respect 
to any SFMNP 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. 249.18 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.

[71 FR 74630, Dec. 12, 2006, as amended at 81 FR 66497, Sept. 28, 2016]

[[Page 536]]



Sec. 249.16  Administrative appeal of State agency decisions.

    (a) Requirements. The State agency shall provide a hearing procedure 
whereby applicants, participants, local agencies and farmers, farmers' 
markets, roadside stands, and/or CSA programs adversely affected by 
certain actions of the State agency may appeal those actions.
    (1) What may be appealed. (i) An applicant may appeal denial of 
certification of SFMNP benefits, except that no appeal is available if 
certification is denied solely because of the lack of sufficient funding 
to provide SFMNP benefits to all eligible applicants.
    (ii) A participant may appeal disqualification/suspension of SFMNP 
benefits.
    (iii) A local agency may appeal an action of the State agency 
disqualifying it from participating in the SFMNP.
    (iv) A farmer, farmers' market, roadside stand, and/or CSA program 
may appeal an action of the State agency denying its application to 
participate, imposing a sanction, or disqualifying it from participating 
in the SFMNP.
    (2) What may not be appealed. Expiration of a contract or agreement 
shall not be subject to appeal.
    (b) Time limit for request. The State or local agency must provide 
individuals, local agencies, farmers, farmers' markets, roadside stands, 
and/or CSA programs a reasonable period of time to request a fair 
hearing. Such time limit must not be less than 30 days from the date the 
agency mails or otherwise issues the notice of adverse action.
    (c) 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, roadside stand, and/or CSA program, a 
postponement is appropriate where the State agency finds that 
participants 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) Applicants who are denied benefits at initial certification may 
appeal the denial, but must not receive SFMNP benefits while awaiting 
the hearing. Participants who appeal the termination of benefits within 
the period of time provided under paragraph (b) of this section must 
continue to receive Program benefits until the hearing official reaches 
a decision or the certification period expires, whichever occurs first. 
This does not apply to participants whose certification period has 
already expired or who become otherwise ineligible for SFMNP benefits. 
Participants who become ineligible during a certification, or whose 
certification period expires, may appeal the termination, but must not 
receive benefits while awaiting the hearing.
    (d) Procedure. The State agency hearing procedure shall at a minimum 
provide the participant, local agency or farmer, farmers' market, 
roadside stand, and/or CSA program 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 (c) 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 participant appeal, by a representative designated by the participant, 
if desired.
    (7) The opportunity to review the case record prior to the hearing.

[[Page 537]]

    (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 
SFMNP. 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.
    (e) Continuing responsibilities. When a farmer, farmers' market, 
roadside stand, CSA program, and/or local agency appeals an adverse 
action (and is permitted to continue in the SFMNP while its appeal is 
pending), it continues to be responsible for compliance with the terms 
of the written agreement or contract with the State agency.
    (f) Judicial review. If a State level decision is rendered against 
the participant, local agency, farmer, farmers' market, roadside stand, 
and/or CSA program 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.
    (g) Additional appeals procedures for State agencies that authorize 
farmers' markets and not individual farmers. A State agency that 
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 into by the State agency and the farmers' market and 
the farmers' market and the farmer.



            Subpart F_Monitoring and Review of State Agencies



Sec. 249.17  Management evaluations and reviews.

    (a) General. FNS and each State agency shall establish a management 
evaluation system in order to assess the accomplishment of SFMNP 
objectives as provided under these regulations, the State Plan, and the 
written agreement with FNS. FNS will:
    (1) Provide assistance to State agencies in discharging this 
responsibility;
    (2) Establish standards and procedures to determine how well the 
objectives of this part are being accomplished; and
    (3) Implement sanction procedures as warranted by State SFMNP 
performance.
    (b) Responsibilities of FNS. FNS will 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 FNS. As a part of the evaluation procedure, FNS will review audits 
to ensure that the SFMNP 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, roadside stands, and community supported agriculture 
programs. 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) FNS may withhold up to 10 percent of the State agency's total 
SFMNP grant if FNS determines that the State agency has:
    (i) Failed, without good cause, to demonstrate efficient and 
effective administration of its SFMNP; or
    (ii) Failed to comply with the requirements contained in this 
section or the State Plan.
    (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. 249.20(a). Before carrying out any sanction against a

[[Page 538]]

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, 
roadside stands, and community supported agriculture programs.
    (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 SFMNP 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. In such an event, 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 SFMNP 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.
    (c) Responsibilities of State agencies. The State agency is 
responsible for meeting the following requirements:
    (1) The State agency must establish evaluation and review procedures 
and document the results of such procedures. The procedures must 
include, but are not limited to:
    (i) Conducting annual monitoring reviews of participating farmers' 
markets, roadside stands, and community supported agriculture programs. 
This includes on-site reviews of a minimum of 10 percent of farmers and 
10 percent of each type of authorized outlet (farmers' markets, roadside 
stands, and community supported agriculture programs), and includes 
those farmers and authorized outlets identified as being at the highest 
risk. The first year of operation in the SFMNP shall be considered a 
high-risk indicator. More frequent reviews may be performed, as the 
State agency deems necessary. In States where both the SFMNP and the WIC 
Farmers' Market Nutrition Program are in operation, these reviews may be 
coordinated to avoid duplication. A review by one program may be counted 
by the other program toward the monitoring requirement, provided that 
appropriate sanction action is taken for all violations found.
    (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 and/or CSA program management 
systems. When the State agency conducts a local agency review outside of 
the SFMNP season, a review of documents and procedural plans of the 
SFMNP, rather than actual SFMNP activities, is acceptable.
    (iii) Instituting the necessary follow-up procedures to correct 
identified problem areas.

[[Page 539]]

    (2) On its own initiative or when required by FNS, the State agency 
must provide special reports on SFMNP activities, and take positive 
action to correct deficiencies in SFMNP operations.



Sec. 249.18  Audits.

    (a) Federal access to information. The Secretary of the U.S. 
Department of Agriculture, 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 must 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 will determine whether SFMNP 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 must conduct 
independent audits in accordance with 2 CFR part 200, subpart F, Audit 
Requirements and USDA implementing regulations 2 CFR part 400 and part 
415, 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.

[71 FR 74630, Dec. 12, 2006, as amended at 81 FR 66497, Sept. 28, 2016]



Sec. 249.19  Investigations.

    (a) Authority. FNS 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, 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. 249.20  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 SFMNP funds provided to a 
State agency for food or administrative purposes were, through State 
agency negligence or fraud, misused or otherwise diverted from SFMNP 
purposes, a formal claim will be assessed by FNS against the State 
agency. The State agency must pay promptly to FNS a sum equal to the 
amount of the administrative funds or the value of coupons and/or 
eligible foods so misused or diverted.
    (2) If FNS determines that any part of the SFMNP funds received, 
coupons printed, and/or eligible foods otherwise lost by a State agency 
were lost as a result of theft, embezzlement, or unexplained causes, the 
State agency must, on demand by FNS, pay to FNS a sum equal to the 
amount of the money or the value of the SFMNP funds or coupons/eligible 
foods so lost.

[[Page 540]]

    (3) The State agency will 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 SFMNP coupons, and/or for failure to comply with the terms 
of duly executed CSA program contracts or agreements. When a State 
agency can demonstrate that all reasonable management efforts have been 
devoted to reconciliation and 99 percent or more of the SFMNP coupons 
issued, or of the eligible foods contracted for delivery by the CSA 
program, 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 SFMNP, the State 
agency shall provide the funds necessary to maintain SFMNP operations at 
the grant level authorized by FNS.



Sec. 249.21  Procurement and property management.

    (a) Requirements. State agencies must comply with the requirements 
of 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR 
part 400 and part 415for procurement of supplies, equipment and other 
services with SFMNP funds. These requirements are adopted for use by FNS 
to ensure that such materials and services are obtained for the SFMNP in 
an effective manner and in compliance with the provisions of applicable 
laws and executive orders.
    (b) Contractual responsibilities. The standards contained in 2 CFR 
part 200, subpart D; Appendix II Contract Provisions for Non-Federal 
Entity Contracts Under Federal Awards; and USDA implementing regulations 
2 CFR part 400 and part 415 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 SFMNP. 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 agency may use its own procurement 
regulations provided that:
    (1) Such regulations reflect applicable State and local regulations; 
and
    (2) Any procurements made with SFMNP funds adhere to the standards 
set forth in part 3016 of this title.
    (d) Property acquired with program funds. State and local agencies 
shall observe the standards prescribed in 2 CFR part 200, subpart D and 
USDA implementing regulations 2 CFR part 400 and part 415 in their 
utilization and disposition of real property and equipment acquired in 
whole or in part with SFMNP funds.

[71 FR 74630, Dec. 12, 2006, as amended at 81 FR 66497, Sept. 28, 2016]



Sec. 249.22  Nonprocurement debarment/suspension, drug-free workplace,
and lobbying restrictions.

    The State agency must ensure compliance with the requirements of 
FNS' regulations governing nonprocurement debarment/suspension (2 CFR 
part 180, OMB Guidelines to Agencies on Government-wide Debarment and 
Suspension and USDA implementing regulations 2 CFR part 417) and drug-
free workplace (2 CFR part 182, Government-wide Requirements for Drug-
Free Workplace), as well as FNS' regulations governing restrictions on 
lobbying (2 CFR part 200, subpart E and USDA implementing regulations 2 
CFR part 400, part 415, and part 418), where applicable.

[; 81 FR 66498, Sept. 28, 2016

[[Page 541]]



Sec. 249.23  Records and reports.

    (a) Recordkeeping requirements. Each State agency must maintain full 
and complete records concerning SFMNP operations. Such records must 
comply with 2 CFR part 200, subpart D and USDA implementing regulations 
2 CFR part 400 and part 415 and the following requirements:
    (1) Records must include, but not be limited to, information 
pertaining to certification, financial operations, SFMNP coupon issuance 
and redemption, authorized outlet (farmers, farmers' markets, and CSA 
program) agreements, authorized outlet monitoring, CSA program 
agreements, invoices, delivery receipts, equipment purchases and 
inventory, nutrition education, fair hearings, and civil rights 
procedures.
    (2) All records must 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 must 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 SFMNP 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 SFMNP funds must be retained for three years after its final 
disposition.
    (4) All records must be available during normal business hours for 
representatives of FNS 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 participant reports. State agencies must submit 
financial and SFMNP performance data on a yearly basis as specified by 
FNS. Such information must include, but shall not be limited to:
    (1) Number of participants served with Federal SFMNP funds;
    (2) Value of coupons issued and/or eligible foods ordered under CSA 
programs;
    (3) Value of coupons redeemed and/or eligible foods provided to 
participants under CSA programs; and
    (4) Number of authorized outlets by type; i.e., farmers, farmers' 
markets, roadside stands, and CSA programs.
    (c) Source documentation. To be acceptable for audit purposes, all 
financial and SFMNP performance reports must be traceable to source 
documentation.
    (d) Certification of reports. Financial and SFMNP reports must 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, SFMNP 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.

[71 FR 74630, Dec. 12, 2006, as amended at 81 FR 66497, Sept. 28, 2016]



Sec. 249.24  Data safeguarding procedures.

    FNS and SFMNP State agencies will take reasonable steps to keep 
applicant and participant information/records private to the extent 
provided by law. Such steps include a requirement for each State agency 
to restrict the use or disclosure of information obtained from SFMNP 
applicants and participants to:
    (a) Persons directly connected with the administration or 
enforcement of the SFMNP, including persons investigating or prosecuting 
violations in the SFMNP under Federal, State or local authority;
    (b) Representatives of public organizations designated by the chief 
State agency officer (or, in the case of Indian Tribal governments 
acting as SFMNP State agencies, the governing authority) that administer 
food, nutrition, or other assistance programs that serve persons 
categorically eligible for the SFMNP. The State agency must execute a 
written agreement with each such designated organization:

[[Page 542]]

    (1) Specifying that the receiving organization may employ SFMNP 
information only for the purpose of establishing the eligibility of 
SFMNP applicants and participants for food, nutrition, or other 
assistance programs that it administers and conducts outreach to SFMNP 
applicants and participants for such programs; and
    (2) Containing the receiving organization's assurance that it will 
not, in turn, disclose the information to a third party.
    (c) The Comptroller General of the United States for audit and 
examination authorized by law.



Sec. 249.25  Other provisions.

    (a) No aid reduction. Any programs for which a grant is received 
under this part 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 food or nutrition assistance program.
    (b) Statistical information. FNS reserves the right to use 
information obtained under the SFMNP in a summary, statistical or other 
form that does not identify particular individuals.
    (c) Exclusion of benefits in determining eligibility for other 
programs. The value of any benefit provided to any eligible SFMNP 
recipient shall not be considered to be income or resources for any 
purposes under any Federal, State or local law.

[71 FR 74630, Dec. 12, 2006, as amended at 74 FR 48375, Sept. 23, 2009]



Sec. 249.26  SFMNP information.

    (a) Any person who wishes information, assistance, records or other 
public material must request such information from the State agency, or 
from the FNS Regional Office serving the appropriate State as listed 
below:
    (1) 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.
    (2) 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.
    (3) Alabama, Florida, Georgia, Kentucky, Mississippi, North 
Carolina, South Carolina, Tennessee: U.S. Department of Agriculture, 
FNS, Southeast Region, 61 Forsyth Street, SW., Room 8T36, Atlanta, 
Georgia 30303.
    (4) Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin: U.S. 
Department of Agriculture, FNS, Midwest Region, 77 West Jackson 
Boulevard--20th floor, Chicago, Illinois 60604-3507.
    (5) Arkansas, Louisiana, New Mexico, Oklahoma, Texas: U.S. 
Department of Agriculture, FNS, Southwest Region, 1100 Commerce Street, 
Room 555, 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, 1244 Speer Boulevard, Suite 903, Denver, 
Colorado 80204.
    (7) 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.
    (b) Inquiries pertaining to the SFMNP administered by a federally 
recognized Indian tribal organization (ITO) should be addressed to the 
FNS Regional Office responsible for the geographic State in which that 
ITO is located.



Sec. 249.27  OMB Control Number.

    The information collection requirements for part 249 have been 
reviewed and approved by the Office of Management and Budget (OMB). The 
OMB approval number is 0584-0541.

[72 FR 13671, Mar. 23, 2007]

[[Page 543]]



     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 Purpose and Administration

Sec.
250.1  Purpose and use of donated foods.
250.2  Definitions.
250.3  Administration at the Federal level.
250.4  Administration at the State level.
250.5  Civil rights.

     Subpart B_Delivery, Distribution, and Control of Donated Foods

250.10  Availability and ordering of donated foods.
250.11  Delivery and receipt of donated food shipments.
250.12  Storage and inventory management at the distributing agency 
          level.
250.13  Efficient and cost-effective distribution of donated foods.
250.14  Storage and inventory management at the recipient agency level.
250.15  Out-of-condition donated foods, food recalls, and complaints.
250.16  Claims and restitution for donated food losses.
250.17  Use of funds obtained incidental to donated food distribution.
250.18  Reporting requirements.
250.19  Recordkeeping requirements.
250.20  Audit requirements.
250.21  Distributing agency reviews.
250.22  Distributing agency performance standards.

           Subpart C_Processing and Labeling of Donated Foods

250.30  State processing of donated foods.

   Subpart D_Donated Foods in Contracts with Food Service Management 
                                Companies

250.50  Contract requirements and procurement.
250.51  Crediting for, and use of, donated foods.
250.52  Storage and inventory management of donated foods.
250.53  Contract provisions.
250.54  Recordkeeping and reviews.

Subpart E_National School Lunch Program (NSLP) and Other Child Nutrition 
                                Programs

250.56  Provision of donated foods in NSLP.
250.57  Commodity schools.
250.58  Ordering donated foods and their provision to school food 
          authorities.
250.59  Storage, control, and use of donated foods.
250.60  Child and Adult Care Food Program (CACFP).
250.61  Summer Food Service Program (SFSP).

                      Subpart F_Household Programs

250.63  Commodity Supplemental Food Program (CSFP).
250.64  The Emergency Food Assistance Program (TEFAP).
250.65  Food Distribution Program on Indian Reservations (FDPIR).
250.66  [Reserved]

                     Subpart G_Additional Provisions

250.67  Charitable institutions.
250.68  Nutrition Services Incentive Program (NSIP).
250.69  Disasters.
250.70  Situations of distress.
250.71  OMB control numbers.

    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 Purpose and Administration

    Source: 81 FR 23100, Apr. 19, 2016, unless otherwise noted.



Sec. 250.1  Purpose and use of donated foods.

    (a) Purpose. The Department purchases foods and donates them to 
State distributing agencies for further distribution and use in food 
assistance programs, or to provide assistance to eligible persons, in 
accordance with legislation:
    (1) Authorizing donated food assistance in specific programs (e.g., 
the Richard B. Russell National School

[[Page 544]]

Lunch Act for the National School Lunch Program (NSLP)); or
    (2) Authorizing the removal of surplus foods from the market or the 
support of food prices (i.e., in accordance with Section 32, Section 
416, and Section 709, as defined in Sec. 250.2).
    (b) Use of donated foods. Donated foods must be used in accordance 
with the requirements of this part and with other Federal regulations 
applicable to specific food assistance programs (e.g., 7 CFR part 251 
includes requirements for the use of donated foods in The Emergency Food 
Assistance Program (TEFAP)). Such use may include activities designed to 
demonstrate or test the effective use of donated foods (e.g., in 
nutrition classes or cooking demonstrations) in any programs. However, 
donated foods may not be:
    (1) Sold or exchanged, or otherwise disposed of, unless approved by 
FNS, or specifically permitted elsewhere in this part or in other 
Federal regulations (e.g., donated foods may be used in meals sold in 
NSLP);
    (2) Used to require recipients to make any payments or perform any 
services in exchange for their receipt, unless approved by FNS, or 
specifically permitted elsewhere in this part or in other Federal 
regulations; or
    (3) Used to solicit voluntary contributions in connection with their 
receipt, except for donated foods provided in the Nutrition Services 
Incentive Program (NSIP).
    (c) Legislative sanctions. In accordance with the Richard B. Russell 
National School Lunch Act (42 U.S.C. 1760) and the Agriculture and 
Consumer Protection Act of 1973 (7 U.S.C. 612c note), any person who 
embezzles, willfully misapplies, steals, or obtains by fraud any donated 
foods (or funds, assets, or property deriving from such donated foods) 
will be subject to Federal criminal prosecution and other penalties. Any 
person who receives, conceals, or retains such donated foods or funds, 
assets, or property deriving from such foods, with the knowledge that 
they were embezzled, willfully misapplied, stolen, or obtained by fraud, 
will also be subject to Federal criminal prosecution and other 
penalties. The distributing agency, or other parties, as applicable, 
must immediately notify FNS of any such violations.



Sec. 250.2  Definitions.

    2 CFR part 200 means the Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards published by OMB. 
The Part reference covers applicable: Acronyms and Definitions (subpart 
A), General Provisions (subpart B), Post Federal Award Requirements 
(subpart D), Cost Principles (subpart E), and Audit Requirements 
(subpart F). (NOTE: Pre-Federal Award Requirements and Contents of 
Federal Awards (subpart C) do not apply to the National School Lunch 
Program).
    ACL means the Administration for Community Living, which is the DHHS 
agency that administers NSIP.
    Administering agency means a State agency that has been approved by 
the Department to administer a food assistance program. If such agency 
is also responsible for the distribution of donated foods, it is 
referred to as the distributing agency in this part.
    Adult care institution means a nonresidential adult day care center 
that participates independently in CACFP, or that participates as a 
sponsoring organization, and that may receive donated foods or cash-in-
lieu of donated foods, in accordance with an agreement with the 
distributing agency.
    Bonus foods means Section 32, Section 416, and Section 709 donated 
foods, as defined in this section, which are purchased under surplus 
removal or price support authority, and provided to distributing 
agencies in addition to legislatively authorized levels of assistance.
    CACFP means the Child and Adult Care Food Program.
    Carrier means a commercial enterprise that transports donated foods 
from one location to another, but does not store such foods.
    Charitable institutions means public institutions or private 
nonprofit organizations that provide a meal service on a regular basis 
to predominantly eligible persons in the same place without marked 
changes. Some types of charitable institutions are included 
inSec. 250.67.

[[Page 545]]

    Child care institution means a nonresidential child care center that 
participates independently in CACFP, or that participates as a 
sponsoring organization, in accordance with an agreement with the 
distributing agency.
    Child nutrition program means NSLP, CACFP, SFSP, or SBP.
    Commodity offer value means the minimum value of donated foods that 
the distributing agency must offer to a school food authority 
participating in NSLP each school year. The commodity offer value is 
equal to the national per-meal value of donated food assistance 
multiplied by the number of reimbursable lunches served by the school 
food authority in the previous school year.
    Commodity school means a school that operates a nonprofit food 
service, in accordance with 7 CFR part 210, but that receives additional 
donated food assistance rather than the cash assistance available to it 
under Section 4 of the Richard B. Russell National School Lunch Act (42 
U.S.C. 1753).
    Consignee means an entity (e.g., the distributing or recipient 
agency, a commercial storage facility, or a processor) that receives a 
shipment of donated foods from a vendor or Federal storage facility.
    Contract value of the donated foods means the price assigned by the 
Department to a donated food which must reflect the Department's current 
acquisition price. This may alternatively be referred to as the USDA 
purchase price.
    Contracting agency means the distributing agency, subdistributing 
agency, or recipient agency which enters into a processing contract.
    CSFP means the Commodity Supplemental Food Program.
    Department means the United States Department of Agriculture (USDA).
    DHHS means the United States Department of Health and Human 
Services.
    Disaster means a Presidentially declared disaster or emergency, in 
accordance with Section 412 or 413 of the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (42 U.S.C. 5179-5180), in which 
Federal assistance, including donated food assistance, may be provided 
to persons in need of such assistance as a result of the disaster or 
emergency.
    Disaster organization means an organization authorized by FNS or a 
distributing agency, when appropriate, to provide assistance to 
survivors of a disaster or a situation of distress.
    Distributing agency means a State agency selected by the Governor of 
the State or the State legislature to distribute donated foods in the 
State, in accordance with an agreement with FNS, and with the 
requirements in this part and other Federal regulations, as applicable 
(e.g., a State agency distributing donated foods in CSFP must comply 
with requirements in 7 CFR part 247). Indian Tribal Organizations may 
act as a distributing agency in the distribution of donated foods on, or 
near, Indian reservations, as provided for in applicable Federal 
regulations (e.g., 7 CFR part 253 or 254 for FDPIR). A distributing 
agency may also be referred to as a State distributing agency.
    Distribution charge means the cumulative charge imposed by 
distributing agencies on school food authorities to help meet the costs 
of storing and distributing donated foods, and administrative costs 
related to such activities.
    Distributor means a commercial food purveyor or handler who is 
independent of a processor and charges and bills for the handling of 
donated foods, and/or sells and bills for the end products delivered to 
recipient agencies.
    Donated foods means foods purchased by USDA for donation in food 
assistance programs, or for donation to entities assisting eligible 
persons, in accordance with legislation authorizing such purchase and 
donation. Donated foods are also referred to as USDA Foods.
    Elderly nutrition project means a recipient agency selected by the 
State Unit on Aging to receive assistance in NSIP, which may include 
donated food assistance.
    Eligible persons means persons in need of food assistance as a 
result of their:
    (1) Economic status;
    (2) Eligibility for a specific food assistance program; or
    (3) Eligibility as survivors of a disaster or a situation of 
distress.

[[Page 546]]

    End product means a food product that contains processed donated 
foods.
    Entitlement means the value of donated foods a distributing agency 
is authorized to receive in a specific program, in accordance with 
program legislation.
    Entitlement foods means donated foods that USDA purchases and 
provides in accordance with levels of assistance mandated by program 
legislation.
    FDPIR means the Food Distribution Program on Indian Reservations and 
the Food Distribution Program for Indian Households in Oklahoma.
    Federal acceptance service means the acceptance service provided by:
    (1) The applicable grading branches of the Department's Agricultural 
Marketing Service (AMS);
    (2) The Department's Federal Grain Inspection Service; and
    (3) The National Marine Fisheries Service of the U.S. Department of 
Commerce.
    Fee-for-service means the price by pound or 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 calendar year.
    FNS means the Food and Nutrition Service of the Department of 
Agriculture.
    Food recall means an action to remove food products from commerce 
when there is reason to believe the products may be unsafe, adulterated, 
or mislabeled. The action is taken to protect the public from products 
that may cause health problems or possible death.
    Food service management company means a commercial enterprise, 
nonprofit organization, or public institution that is, or may be, 
contracted with by a recipient agency to manage any aspect of a 
recipient agency's food service, in accordance with 7 CFR part 210, 225, 
or 226, or, with respect to charitable institutions, in accordance with 
this part. To the extent that such management includes the use of 
donated foods, the food service management company is subject to the 
applicable requirements in this part. However, a school food authority 
participating in NSLP that performs such functions is not considered a 
food service management company. Also, a commercial enterprise that uses 
donated foods to prepare meals at a commercial facility, or to perform 
other activities that meet the definition of processing in this section, 
is considered a processor in this part, and is subject to the 
requirements in subpart C, and not subpart D, of this part.
    Household means any of the following individuals or groups of 
individuals, exclusive of boarders or residents of an institution:
    (1) An individual living alone;
    (2) An individual living with others, but customarily purchasing 
food and preparing meals for home consumption separate and apart from 
the others;
    (3) A group of individuals living together who customarily purchase 
and prepare meals in common for home consumption; and
    (4) Other individuals or groups of individuals, as provided in FNS 
regulations specific to particular food assistance programs.
    Household programs means CSFP, FDPIR, and TEFAP.
    In-kind replacement means the replacement of a loss of donated food 
with the same type of food of U.S. origin, of equal or better quality as 
the donated food, and at least equal in value to the lost donated food.
    In-State processor means a processor that has entered into 
agreements with distributing or recipient agencies that are located only 
in the State in which all of the processor's processing facilities are 
located.
    Multi-food shipment means a shipment from a Federal storage facility 
that usually includes more than one type of donated food.
    Multi-State processor means a processor that has entered into 
agreements with distributing or recipient agencies in more than one 
State, or that has entered into one or more agreements with distributing 
or recipient agencies that are located in a State other than the State 
in which the processor's processing facilities or business office is 
located.

[[Page 547]]

    National per-meal value means the value of donated foods provided 
for each reimbursable lunch served in NSLP in the previous school year, 
and for each reimbursable lunch and supper served in CACFP in the 
previous school year, as established in sections 6(c) and 17(h)(1)(B) of 
the Richard B. Russell National School Lunch Act ((42 U.S.C. 1755(c) and 
1766(h)(1)(B)).
    Nonprofit organization means a private organization with tax-exempt 
status under the Internal Revenue Code. Nonprofit organizations operated 
exclusively for religious purposes are automatically tax-exempt under 
the Internal Revenue Code.
    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.
    NSIP means the Nutrition Services Incentive Program administered by 
the DHHS ACL.
    NSLP means the National School Lunch Program.
    Out-of-condition donated foods means donated foods that are no 
longer fit for human consumption as a result of spoilage, contamination, 
infestation, adulteration, or damage.
    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 commercial enterprise's use of a commercial 
facility to:
    (1) Convert donated foods into an end product;
    (2) Repackage donated foods; or
    (3) Use donated foods in the preparation of meals.
    Processor means a commercial enterprise that processes donated foods 
at a commercial facility.
    Recipient agencies means agencies or organizations that receive 
donated foods for distribution to eligible persons or for use in meals 
provided to eligible persons, in accordance with agreements with a 
distributing or subdistributing agency, or with another recipient 
agency. Local agencies in CSFP, and Indian Tribal Organizations 
distributing donated foods to eligible persons through FDPIR in a State 
in which the State government administers FDPIR, are considered 
recipient agencies in this part.
    Recipients means persons receiving donated foods, or a meal 
containing donated foods, provided by recipient agencies.
    Reimbursable meals means meals that meet the nutritional standards 
established in Federal regulations pertaining to NSLP, SFSP, or CACFP, 
and that are served to eligible recipients.
    SAE funds means Federal funds provided to State agencies for State 
administrative expenses, in accordance with 7 CFR part 235.
    SBP means the School Breakfast Program.
    School food authority means the governing body responsible for the 
administration of one or more schools, and that has the legal authority 
to operate NSLP or be otherwise approved by FNS to operate 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.
    Section 4(a) means section 4(a) of the Agriculture and Consumer 
Protection Act of 1973 (7 U.S.C. 612c note), which authorizes the 
Department to purchase donated foods to maintain the traditional level 
of assistance for food assistance programs authorized by law, including, 
but not limited to, CSFP, FDPIR, and disaster assistance.
    Section 6 means section 6 of the Richard B. Russell National School 
Lunch Act (42 U.S.C. 1755), which authorizes the Department to provide a 
specified value of donated food assistance in NSLP.
    Section 14 means section 14 of the Richard B. Russell National 
School Lunch Act (42 U.S.C. 1762a), which authorizes the Department to 
use Section 32 or Section 416 funds to maintain the annually programmed 
levels of donated food assistance in child nutrition programs.
    Section 27 means section 27 of the Food and Nutrition Act of 2008 (7 
U.S.C. 2036), which authorizes the purchase of donated foods for 
distribution in TEFAP.

[[Page 548]]

    Section 32 means section 32 of Public Law 74-320 (7 U.S.C. 612c), 
which authorizes the Department to purchase primarily perishable foods 
to remove market surpluses, and to donate them for use in domestic food 
assistance programs or by charitable institutions.
    Section 311 means section 311 of the Older Americans Act of 1965 (42 
U.S.C. 3030a), which permits State Units on Aging to receive all or part 
of their NSIP grant as USDA donated foods.
    Section 416 means section 416 of the Agricultural Act of 1949 (7 
U.S.C. 1431), which authorizes the Department to purchase nonperishable 
foods to support market prices, and to donate them for use in domestic 
food assistance programs or by charitable institutions.
    Section 709 means section 709 of the Food and Agricultural Act of 
1965 (7 U.S.C. 1446a-1), which authorizes the Department to purchase 
dairy products to meet authorized levels of assistance in domestic food 
assistance programs when such assistance cannot be met by Section 416 
food purchases.
    Service institution means recipient agencies that participate in 
SFSP.
    SFSP means the Summer Food Service Program.
    Similar replacement means the replacement of a loss of donated food 
with another type of food from the same food category (e.g., dairy, 
grain, meat/meat alternate, vegetable, fruit, etc.) that is of U.S. 
origin, of equal or better quality than that type of donated food, and 
at least equal in value to the lost donated food.
    Single inventory management means the commingling in storage of 
donated foods and foods from other sources, and the maintenance of a 
single inventory record of such commingled foods.
    Situation of distress means a natural catastrophe or other event 
that does not meet the definition of disaster in this section, but that, 
in the determination of the distributing agency, or of FNS, as 
applicable, warrants the use of donated foods to assist survivors of 
such catastrophe or other event. A situation of distress may include, 
for example, a hurricane, flood, snowstorm, or explosion.
    SNAP means the Supplemental Nutrition Assistance Program.
    Split shipment means a shipment of donated foods from a vendor that 
is split between two or more distributing or recipient agencies, and 
that usually includes more than one stop-off or delivery location.
    State means any State of the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, Guam, and American Samoa.
    State Unit on Aging means:
    (1) The State agency that has been approved by DHHS to administer 
NSIP; or
    (2) The Indian Tribal Organization that has been approved by DHHS to 
administer NSIP.
    Storage facility means a publicly-owned or nonprofit facility or a 
commercial enterprise that stores donated foods or end products, and 
that may also transport such foods to another location.
    Subdistributing agency means a State agency, a public agency, or a 
nonprofit organization selected by the distributing agency to perform 
one or more activities required of the distributing agency in this part, 
in accordance with a written agreement between the parties. A 
subdistributing agency may also be a recipient agency.
    Substitution means:
    (1) The replacement of donated foods with like quantities of 
domestically produced commercial foods of the same generic identity and 
of equal or better quality.
    (2) A processor can substitute commercial product for donated food, 
as described in paragraph (1) of this definition, without restrictions 
under full substitution. The processor must return to the contracting 
agency, in finished end products, the same number of pounds of donated 
food that the processor originally received for processing under full 
substitution. This is the 100-percent yield requirement.
    (3) A processor can substitute commercial product for donated foods, 
as described in paragraph (1) of this definition, with some restrictions 
under limited substitution. Restrictions include, but are not limited 
to, the prohibition against substituting for backhauled poultry product. 
FNS may also prohibit substitution of certain

[[Page 549]]

types of the same generic food. (For example, FNS may decide to permit 
substitution for bulk chicken but not for canned chicken.)
    Summer camp means a nonprofit or public camp for children aged 18 
and under.
    TEFAP means The Emergency Food Assistance Program.
    USDA Foods means donated foods.
    USDA implementing regulations mean the following: 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; 2 CFR part 415, General Program 
Administrative Regulations; 2 CFR part 416, General Program 
Administrative Regulations for Grants and Cooperative Agreements to 
State and Local Governments; and 2 CFR part 418, New Restrictions on 
Lobbying.
    Vendor means a commercial food company from which the Department 
purchases foods for donation.



Sec. 250.3  Administration at the Federal level.

    (a) Food and Nutrition Service. Within the Department, Food and 
Nutrition Service (FNS) must act on behalf of the Department to 
administer the distribution of donated foods to distributing agencies 
for further distribution and use at the State level, in accordance with 
the requirements of this part.
    (b) Audits or inspections. The Department, the Comptroller General 
of the United States, or any of their authorized representatives, may 
conduct audits or inspections of distributing, subdistributing, or 
recipient agencies, or the commercial enterprises with which they have 
contracts or agreements, in order to determine compliance with the 
requirements of this part, or with other applicable Federal regulations.
    (c) Suspension or termination. Whenever it is determined that a 
distributing agency has materially failed to comply with the provisions 
of this part, or with other applicable Federal regulations, FNS may 
suspend or terminate the distribution of donated foods, or the provision 
of administrative funds, to the distributing agency. FNS must provide 
written notification of such suspension or termination of assistance, 
including the reasons for the action and the effective date. The 
distributing agency may appeal a suspension or termination of assistance 
if such appeal is provided for in Federal regulations applicable to a 
specific food assistance program (e.g., as provided for in Sec. 253.5(l) 
of this chapter for FDPIR). FNS may also take other actions, as 
appropriate, including prosecution under applicable Federal statutes.



Sec. 250.4  Administration at the State level.

    (a) Distributing agency. The distributing agency, as defined in 
Sec. 250.2, is responsible for ensuring compliance with the requirements 
in this part, and in other Federal regulations referenced in this part, 
in the distribution and control of donated foods. In order to receive, 
store, and distribute donated foods, the distributing agency must enter 
into a written agreement with FNS (the Federal-State Agreement, form 
FNS-74) for the distribution of donated foods in accordance with the 
provisions of this part and other applicable Federal regulations. The 
Federal-State agreement is permanent, but may be amended with the 
concurrence of both parties. FNS may terminate the Federal-State 
agreement if the distributing agency fails to meet its obligations, in 
accordance with Sec. 250.3(c). Each distributing agency must also 
provide adequate personnel to administer the program in accordance with 
this part. The distributing agency may impose additional requirements 
related to the distribution and control of donated foods in the State, 
as long as such requirements are not inconsistent with the requirements 
in this part or other Federal regulations referenced in this part.
    (b) Subdistributing agency. The distributing agency may enter into a 
written agreement with a subdistributing agency, as defined in 
Sec. 250.2, to perform specific activities required of the distributing 
agency in this part. However, the distributing agency may not assign its 
overall responsibility for donated food distribution and control to a 
subdistributing agency or to any other organization, and may not 
delegate its responsibility to ensure compliance with the performance 
standards

[[Page 550]]

in Sec. 250.22. The agreement entered into with the subdistributing 
agency must include the provisions in paragraph (c) of this section, and 
must indicate the specific activities for which the subdistributing 
agency is responsible.
    (c) Recipient agencies. The distributing agency must select 
recipient agencies, as defined in Sec. 250.2, to receive donated foods 
for distribution to eligible persons, or for use in meals provided to 
eligible persons, in accordance with eligibility criteria for specific 
programs or outlets, and must enter into a written agreement with a 
recipient agency prior to distribution of donated foods to it. However, 
for child nutrition programs, the distributing agency must enter into 
agreements with those recipient agencies selected by the State 
administering agency to participate in such programs, prior to 
distribution of donated foods to such recipient agencies. The 
distributing agency must confirm such recipient agencies' approval for 
participation in the appropriate child nutrition program with the State 
administering agency. For household programs, distributing agencies must 
consider the past performance of recipient agencies when approving 
applications for participation. Agreements with recipient agencies must 
include the provisions in this paragraph (c), as well as provisions 
required in Federal regulations applicable to specific programs (e.g., 
agreements with local agencies in CSFP must include the provisions in 
Sec. 247.4(b) of this chapter). The agreements with recipient agencies 
and subdistributing agencies must:
    (1) Ensure compliance with the applicable requirements in this part, 
with other Federal regulations referenced in this part, and with the 
distributing agency's written agreement with FNS;
    (2) Ensure compliance with all requirements relating to food safety 
and food recalls;
    (3) Establish the duration of the agreement. The duration of the 
agreement may be established as permanent, but may be amended at the 
initiation of distributing agencies;
    (4) Permit termination of the agreement by the distributing agency 
for failure of the recipient agency (or subdistributing agency, as 
applicable) to comply with its provisions or applicable requirements, 
upon written notification to the applicable party; and
    (5) Permit termination of the agreement by either party, upon 
written notification to the other party, at least 60 days prior to the 
effective date of termination.
    (d) Procurement of services of commercial enterprises. The 
distributing agency, or a recipient agency, must ensure compliance with 
procurement requirements in 2 CFR part 200, subpart D, and USDA 
implementing regulations at 2 CFR parts 400 and 416, as applicable, to 
obtain the services of a commercial enterprise to conduct activities 
relating to donated foods. The distributing agency, or a recipient 
agency, must also ensure compliance with other applicable Departmental 
regulations in such procurements--for example, a school food authority 
must ensure compliance with requirements in Secs. 210.16 and 210.21 of 
this chapter, and in subpart D of this part, in procuring the services 
of a food service management company.



Sec. 250.5  Civil rights.

    Distributing agencies, subdistributing agencies and recipient 
agencies must 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 on protected bases as such bases apply to each program.



     Subpart B_Delivery, Distribution, and Control of Donated Foods

    Source: 81 FR 23104, Apr. 19, 2016, unless otherwise noted.



Sec. 250.10  Availability and ordering of donated foods.

    (a) Ordering donated foods. The distributing agency must utilize a 
request-driven ordering system in submitting orders for donated foods to 
FNS. As part of such system, the distributing agency must provide 
recipient agencies with the opportunity to submit input, on at least an 
annual basis, in determining the donated foods

[[Page 551]]

from the full list that are made available to them for ordering. Based 
on the input received, the distributing agency must ensure that the 
types and forms of donated foods that recipient agencies may best 
utilize are made available to them for ordering. The distributing agency 
must also ensure that donated foods are ordered and distributed only in 
amounts that may be utilized efficiently and without waste.
    (b) Provision of information on donated foods. The distributing 
agency must provide recipient agencies, at their request, information 
that will assist them in ordering or utilization of donated foods, 
including information provided by USDA. Information provided to 
recipient agencies must include:
    (1) The types and quantities of donated foods that they may order;
    (2) Donated food specifications and nutritional value; and
    (3) Procedures for the disposition of donated foods that are out-of-
condition or that are subject to a food recall.
    (c) Normal food expenditures. Section 416 donated foods must not be 
distributed to any recipient agencies or recipients whose normal food 
expenditures are reduced because of the receipt of donated foods.



Sec. 250.11  Delivery and receipt of donated food shipments.

    (a) Delivery. The Department arranges for delivery of donated foods 
from the vendor or Federal storage facility to the distributing agency's 
storage facility, or to a processor with which the distributing agency 
has entered into a contract or agreement. The Department may also 
deliver donated foods directly to a recipient agency, or to a storage 
facility or processor with which the recipient agency has entered into a 
contract or agreement, with the approval of the distributing agency. The 
Department will make every reasonable effort to arrange deliveries of 
donated foods based on information obtained from distributing agencies, 
to the extent feasible. In accordance with Sec. 250.2, an entity that 
receives a shipment of donated foods directly from a USDA vendor or a 
Federal storage facility is referred to as the consignee. Consignees 
must provide a delivery address, and other information as required by 
FNS, as well as update this information as necessary, to ensure foods 
are delivered to the correct location.
    (b) Receipt of shipments. The distributing or recipient agency, or 
other consignee, must comply with all applicable Federal requirements in 
receiving shipments of donated foods, including procedures for the 
disposition of any donated foods in a shipment that are out-of-condition 
(as this term is defined in Sec. 250.2), or are not in accordance with 
ordered amounts. The distributing or recipient agency, or other 
consignee, must provide notification of the receipt of donated food 
shipments to FNS, through electronic means, and must maintain an 
electronic record of receipt of all donated food shipments.
    (c) Replacement of donated foods. The vendor is responsible for the 
replacement of donated foods that are delivered out-of-condition. Such 
responsibility extends until expiration of the vendor warranty period 
included in the vendor contract with USDA. In all cases, responsibility 
for replacement is contingent on the determination that the foods were 
out-of-condition at the time of delivery. Replacement must be in-kind, 
unless FNS approves similar replacement (the terms in-kind and similar 
replacement are defined in Sec. 250.2). If FNS determines that physical 
replacement of donated foods is not cost-effective or efficient, FNS 
may:
    (1) Approve payment by the vendor to the distributing or recipient 
agency, as appropriate, for the value of the donated foods at time of 
delivery (or at another value determined by FNS); or
    (2) Credit the distributing agency's entitlement, as feasible.
    (d) Payment of costs relating to shipments. The Department is 
responsible for payment of processing, transportation, handling, or 
other costs incurred up to the time of delivery of donated foods to a 
distributing or recipient agency, or other consignee, as the Department 
deems in its best interest. However, the distributing or recipient 
agency, or other consignee, is responsible for payment of any delivery 
charges that accrue as a result of such

[[Page 552]]

consignee's failure to comply with procedures in FNS instructions--e.g., 
failure to provide for the unloading of a shipment of donated foods 
within a designated time period.
    (e) Transfer of title. Title to donated foods transfers to the 
distributing or recipient agency, as appropriate, upon acceptance of the 
donated foods at the time and place of delivery. Notwithstanding 
transfer of title, distributing and recipient agencies must ensure 
compliance with the requirements of this part in the distribution, 
control, and use of donated foods.



Sec. 250.12  Storage and inventory management at the distributing
agency level.

    (a) Safe storage and control. The distributing agency or 
subdistributing agency (which may include commercial storage facilities 
under contract with either the distributing agency or subdistributing 
agency, as applicable), must provide facilities for the storage and 
control of donated foods that protect against theft, spoilage, damage, 
or other loss. Accordingly, such storage facilities must maintain 
donated foods in sanitary conditions, at the proper temperature and 
humidity, and with adequate air circulation. The distributing agency 
must ensure that storage facilities comply with all Federal, State, or 
local requirements relative to food safety and health and procedures for 
responding to a food recall, as applicable, and obtain all required 
health inspections.
    (b) Inventory management. The distributing agency must ensure that 
donated foods at all storage facilities used by the distributing agency 
(or by a subdistributing agency) are stored in a manner that permits 
them to be distinguished from other foods, and must ensure that a 
separate inventory record of donated foods is maintained. The 
distributing agency's system of inventory management must ensure that 
donated foods are distributed in a timely manner and in optimal 
condition. On an annual basis, the distributing agency must conduct a 
physical review of donated food inventories at all storage facilities 
used by the distributing agency (or by a subdistributing agency), and 
must reconcile physical and book inventories of donated foods. The 
distributing agency must report donated food losses to FNS, and ensure 
that restitution is made for such losses.
    (c) Inventory limitations. The distributing agency is subject to the 
following limitations in the amount of donated food inventories on-hand, 
unless FNS approval is obtained to maintain larger inventories:
    (1) For TEFAP, NSLP and other child nutrition programs, inventories 
of each category of donated food may not exceed an amount needed for a 
six-month period, based on an average amount of donated foods utilized 
in that period; and
    (2) For CSFP and FDPIR, inventories of each category of donated food 
in the food package may not exceed an amount needed for a three-month 
period, based on an average amount of donated food that the distributing 
agency can reasonably utilize in that period to meet CSFP caseload or 
FDPIR average participation.
    (d) Inventory protection. The distributing agency must obtain 
insurance to protect the value of donated foods at its storage 
facilities. The amount of such insurance must be at least equal to the 
average monthly value of donated food inventories at such facilities in 
the previous fiscal year. The distributing agency must also ensure that 
the following entities obtain insurance to protect the value of their 
donated food inventories, in the same amount required of the 
distributing agency in this paragraph (d):
    (1) Subdistributing agencies;
    (2) Recipient agencies in household programs that have an agreement 
with the distributing agency or subdistributing agency to store and 
distribute foods (except those recipient agencies which maintain 
inventories with a value of donated foods that do not exceed a defined 
threshold, as determined in FNS policy); and
    (3) Commercial storage facilities under contract with the 
distributing agency or with an agency identified in paragraph (d)(1) or 
(2) of this section.
    (e) Transfer of donated foods. The distributing agency may transfer 
donated foods from its inventories to another distributing agency, or to 
another program, in order to ensure that such

[[Page 553]]

foods may be utilized in a timely manner and in optimal condition, in 
accordance with this part. However, the distributing agency must request 
FNS approval. FNS may also require a distributing agency to transfer 
donated foods at the distributing agency's storage facilities or at a 
processor's facility, if inventories of donated foods are excessive or 
may not be efficiently utilized. If there is a question of food safety, 
or if directed by FNS, the distributing agency must obtain an inspection 
of donated foods by State or local health authorities, as necessary, to 
ensure that the donated foods are still safe and not out-of-condition 
before transferring them. The distributing agency is responsible for 
meeting any transportation or inspection costs incurred, unless it is 
determined by FNS that the transfer is not the result of negligence or 
improper action on the part of the distributing agency. The distributing 
agency must maintain a record of all transfers from its inventories, and 
of any inspections related to such transfers.
    (f) Commercial storage facilities or carriers. The distributing 
agency may obtain the services of a commercial storage facility to store 
and distribute donated foods, or a carrier to transport donated foods, 
but must do so in compliance with procurement requirements in 2 CFR part 
200, subpart D, and USDA implementing regulations at 2 CFR parts 400 and 
416. The distributing agency must enter into a written contract with a 
commercial storage facility or carrier, which may not exceed five years 
in duration, including any extensions or renewals. The contract must 
include applicable provisions required by Federal statutes and executive 
orders listed in 2 CFR part 200, appendix II, Contract Provisions for 
Non-Federal Entity Contracts Under Federal Awards, and USDA implementing 
regulations at 2 CFR parts 400 and 416. The contract must also include, 
as applicable to a storage facility or carrier, provisions that:
    (1) Assure storage, management, and transportation of donated foods 
in a manner that properly safeguards them against theft, spoilage, 
damage, or other loss, in accordance with the requirements in this part;
    (2) Assure compliance with all Federal, State, or local requirements 
relative to food safety and health, including required health 
inspections, and procedures for responding to a food recall;
    (3) Assure storage of donated foods in a manner that distinguishes 
them from other foods, and assure separate inventory recordkeeping of 
donated foods;
    (4) Assure distribution of donated foods to eligible recipient 
agencies in a timely manner, in optimal condition, and in amounts for 
which such recipient agencies are eligible;
    (5) Include the amount of insurance coverage obtained to protect the 
value of donated foods;
    (6) Permit the performance of on-site reviews of the storage 
facility by the distributing agency, the Comptroller General, the 
Department of Agriculture, or any of its duly authorized 
representatives, in order to determine compliance with requirements in 
this part;
    (7) Establish the duration of the contract, and provide for 
extension or renewal of the contract only upon fulfillment of all 
contract provisions;
    (8) Provide for expeditious termination of the contract by the 
distributing agency for noncompliance with its provisions; and
    (9) Provide for termination of the contract by either party for 
other cause, after written notification of such intent at least 60 days 
prior to the effective date of such action.



Sec. 250.13  Efficient and cost-effective distribution of donated foods.

    (a) Direct shipments. The distributing agency must ensure that the 
distribution of donated foods is conducted in the most efficient and 
cost-effective manner, and, to the extent practical, in accordance with 
the specific needs and preferences of recipient agencies. In meeting 
this requirement, the distributing agency must, to the extent practical, 
provide for:
    (1) Shipments of donated foods directly from USDA vendors to 
recipient agencies, including two or more recipient agencies acting as a 
collective unit (such as a school co-op), or to the commercial storage 
facilities of such agencies;

[[Page 554]]

    (2) Shipments of donated foods directly from USDA vendors to 
processors for processing of donated foods and sale of end products to 
recipient agencies, in accordance with subpart C of this part; and
    (3) The use of split shipments, as defined in Sec. 250.2, in 
arranging for delivery of donated foods to recipient agencies that 
cannot accept a full truckload.
    (b) Distributing agency storage and distribution charge. (1) If a 
distributing agency determines that direct shipments of donated foods, 
as described in paragraph (a) of this section, are impractical, it must 
provide for the storage of donated foods at the distributing agency 
level, and subsequent distribution to recipient agencies, in the most 
efficient and cost-effective manner possible. The distributing agency 
must use a commercial storage facility, in accordance with 
Sec. 250.12(f), if the use of such system is determined to be more 
efficient and cost-effective than other available methods.
    (2) The distributing agency must utilize State Administrative 
Expense (SAE) funds in child nutrition programs, as available, to meet 
the costs of storing and distributing donated foods for school food 
authorities or other recipient agencies in child nutrition programs, and 
administrative costs related to such activities, in accordance with 7 
CFR part 235. If SAE funds, or any other Federal or State funds received 
for such purpose, are insufficient to fully meet the distributing 
agency's costs of storing and distributing donated foods, and related 
administrative costs (e.g., salaries of employees engaged in such 
activities), the distributing agency may require school food authorities 
or other recipient agencies in child nutrition programs to pay a 
distribution charge, as defined in Sec. 250.2, to help meet such costs. 
The distribution charge may cover only allowable costs, in accordance 
with 2 CFR part 200, subpart E, and USDA implementing regulations at 2 
CFR part 400. The distributing agency must maintain a record of costs 
incurred in storing and distributing donated foods and related 
administrative costs, and the source of funds used to pay such costs.
    (c) FNS approval of amount of State distributing agency distribution 
charge to school food authorities and other recipient agencies in child 
nutrition programs. In determining the amount of a new distribution 
charge, or in increasing the amount (except for normal inflationary 
adjustments) or reducing the level of service provided once a 
distribution charge is established, the distributing agency must request 
FNS approval prior to implementation. Such requirement also applies to 
the distribution charge imposed by a commercial storage facility under 
contract with the distributing agency. The request for approval must be 
submitted to FNS at least 90 days in advance of its projected 
implementation, and must include justification of the newly established 
amount, or any increased charge or reduction in the level of service 
provided under an established distribution charge, and the specific 
costs covered under the distribution charge (e.g., storage, delivery, or 
administrative costs).
    (d) FNS review authority. FNS may reject the distributing agency's 
proposed new, or changes to an existing, distribution charge for school 
food authorities and other recipient agencies in child nutrition 
programs if FNS determines that the charge would not provide for 
distribution of donated foods in the most efficient and cost-effective 
manner, or may otherwise impact recipient agencies negatively. In such 
case, the distributing agency would be required to adjust the proposed 
amount or the level of service provided in its distribution charge, or 
consider other distribution options. FNS may also require the 
distributing agency to submit documentation to justify the efficiency 
and cost-effectiveness of its storage and distribution system at other 
times, and may require the distributing agency to re-evaluate such 
system in order to ensure compliance with the requirements in this part.



Sec. 250.14  Storage and inventory management at the recipient agency
level.

    (a) Safe storage and control. Recipient agencies must provide 
facilities for the storage and control of donated foods

[[Page 555]]

that protect against theft, spoilage, damage, or other loss. 
Accordingly, such storage facilities must maintain donated foods in 
sanitary conditions, at the proper temperature and humidity, and with 
adequate air circulation. Recipient agencies must ensure that storage 
facilities comply with all Federal, State, or local requirements 
relative to food safety and health and procedures for responding to a 
food recall, as applicable, and obtain all required health inspections.
    (b) Inventory management--household programs. Recipient agencies in 
household programs must store donated foods in a manner that permits 
them to be distinguished from other foods in storage, and must maintain 
a separate inventory record of donated foods. Such recipient agencies' 
system of inventory management must ensure that donated foods are 
distributed to recipients in a timely manner that permits use of such 
foods while still in optimal condition. Such recipient agencies must 
notify the distributing agency of donated food losses and take further 
actions with respect to such food losses, as directed by the 
distributing agency.
    (c) Inventory management--child nutrition programs and charitable 
institutions. Recipient agencies in child nutrition programs, and those 
receiving donated foods as charitable institutions, in accordance with 
Sec. 250.67, are not required to store donated foods in a manner that 
distinguishes them from purchased foods or other foods, or to maintain a 
separate inventory record of donated foods--i.e., they may utilize 
single inventory management, as defined in Sec. 250.2. For such 
recipient agencies, donated foods are subject to the same safeguards and 
effective management practices as other foods. Accordingly, recipient 
agencies in child nutrition programs and those receiving donated foods 
as charitable institutions (regardless of the inventory management 
system utilized), are not required to separately monitor and report 
donated food use, distribution, or loss to the distributing agency, 
unless there is evidence indicating that donated food loss has occurred 
as a result of theft or fraud.
    (d) Transfer of donated foods to another recipient agency. A 
recipient agency operating a household program must request approval 
from the distributing agency to transfer donated foods at its storage 
facilities to another recipient agency. The distributing agency may 
approve such transfer to another recipient agency in the same household 
program (e.g., the transfer of TEFAP foods from one food pantry to 
another) without FNS approval. However, the distributing agency must 
receive FNS approval to permit a recipient agency in a household program 
to transfer donated foods to a recipient agency in a different program 
(e.g., the transfer of TEFAP foods from a food pantry to a CSFP local 
agency), even if the same recipient agency administers both programs. A 
recipient agency operating a child nutrition program, or receiving 
donated foods as a charitable institution, in accordance with 
Sec. 250.67, may transfer donated foods to another recipient agency or 
charitable organization without approval from the distributing agency or 
FNS. However, the recipient agency must still maintain records of 
donated food inventories.
    (e) Commercial storage facilities. Recipient agencies may obtain the 
services of commercial storage facilities to store and distribute 
donated foods, but must do so in compliance with procurement 
requirements in 2 CFR part 200, subpart D, and USDA implementing 
regulations at 2 CFR parts 400 and 416, as applicable. Recipient 
agencies must ensure that commercial storage facilities comply with all 
of the applicable requirements in this section regarding the storage and 
inventory management of donated foods.



Sec. 250.15  Out-of-condition donated foods, food recalls,
and complaints.

    (a) Out-of-condition donated foods at the distributing agency level. 
The distributing agency must ensure that donated foods that are out-of-
condition, as defined in Sec. 250.2, at any of its storage facilities 
are removed, destroyed, or otherwise disposed of, in accordance with FNS 
instruction and State or local requirements pertaining to food safety 
and health. The distributing agency must obtain an inspection of donated

[[Page 556]]

foods by State or local health authorities to determine their safety and 
condition, as necessary, or as directed by FNS. Out-of-condition donated 
foods may be sold (e.g., to a salvage company), if permitted by FNS and 
State or local laws or regulations.
    (b) Out-of-condition donated foods at the recipient agency level. 
Recipient agencies in household programs must report out-of-condition 
donated foods at their storage facilities to the distributing agency, in 
accordance with Sec. 250.14(b), and must ensure that such donated foods 
are removed, destroyed, or otherwise disposed of, in accordance with FNS 
instruction and State or local requirements pertaining to food safety 
and health. The distributing agency must ensure that such recipient 
agencies obtain an inspection of donated foods by State or local health 
authorities to determine their safety and condition, as necessary, or as 
directed by FNS. For charitable institutions, in accordance with 
Sec. 250.67, and recipient agencies in child nutrition programs, donated 
foods must be treated as other foods when safety is in question. 
Consequently, such recipient agencies must comply with State or local 
requirements in determining the safety of foods (including donated 
foods), and in their destruction or other disposition. However, they are 
not required to report such actions to the distributing agency.
    (c) Food recalls. The distributing or recipient agency, as 
appropriate, must follow all applicable Federal, State or local 
requirements for donated foods subject to a food recall, as this term is 
defined in Sec. 250.2. Further, in the event of a recall, Departmental 
guidance is provided, including procedures or instructions for all 
parties in responding to a food recall, replacement of recalled donated 
foods, and reimbursement of specific costs incurred as a result of such 
actions.
    (d) Complaints relating to donated foods. The distributing agency 
must inform recipient agencies of the preferred method of receiving 
complaints regarding donated foods. Complaints received from recipients, 
recipient agencies, or other entities relating to donated foods must be 
resolved in an expeditious manner, and in accordance with applicable 
requirements in this part. However, the distributing agency may not 
dispose of any donated food that is the subject of a complaint prior to 
guidance and authorization from FNS. Any complaints regarding product 
quality or specifications, or suggested product improvements, must be 
submitted to FNS through the established FNS donated foods complaint 
system for tracking purposes. If complaints may not be resolved at the 
State level, the distributing agency must provide information regarding 
the complaint to FNS. The distributing agency must maintain a record of 
its investigations and other actions with respect to complaints relating 
to donated foods.



Sec. 250.16  Claims and restitution for donated food losses.

    (a) Distributing agency responsibilities. The distributing agency 
must ensure that restitution is made for the loss of donated foods, or 
for the loss or improper use of funds provided for, or obtained as an 
incident of, the distribution of donated foods. The distributing agency 
must identify, and seek restitution from, parties responsible for the 
loss, and implement corrective actions to prevent future losses.
    (b) FNS claim actions. FNS may initiate and pursue claims against 
the distributing agency or other entities for the loss of donated foods, 
or for the loss or improper use of funds provided for, or obtained as an 
incident of, the distribution of donated foods. FNS may also initiate 
and pursue claims against the distributing agency for failure to take 
required claim actions against other parties. FNS may, on behalf of the 
Department, compromise, forgive, suspend, or waive a claim. FNS may, at 
its option, require assignment to it of any claim arising from the 
distribution of donated foods.



Sec. 250.17  Use of funds obtained incidental to donated food distribution.

    (a) Distribution charge. The distributing agency must use funds 
obtained from the distribution charge imposed on recipient agencies in 
child nutrition programs, in accordance with Sec. 250.13(b), to meet the 
costs of storing and distributing donated foods or related 
administrative costs, consistent

[[Page 557]]

with the limitations on the use of funds provided under a Federal grant 
in 2 CFR part 200, subparts D and E, and USDA implementing regulations 
at 2 CFR parts 400 and 416. The distributing agency must maintain such 
funds in an operating account, separate from other funds obtained 
incidental to donated food distribution. The amount of funds maintained 
at any time in the operating account may not exceed the distributing 
agency's highest expenditure from that account over any three-month 
period in the previous school or fiscal year, unless the distributing 
agency receives FNS approval to maintain a larger amount of funds in 
such account. Unless such approval is granted, funds in excess of the 
established limit must be used to reduce the distribution charge imposed 
on recipient agencies, or to provide appropriate reimbursement to such 
agencies. The distributing agency may not use funds obtained from the 
distribution charge to purchase foods to replace donated food losses or 
to pay claims to make restitution for donated food losses.
    (b) Processing and food service management company contracts. School 
food authorities must use funds obtained from processors in processing 
of donated foods into end products (e.g., through rebates for the value 
of such donated foods), or from food service management companies in 
crediting for the value of donated foods received, in support of the 
nonprofit school food service, in accordance with Sec. 210.14 of this 
chapter. Other recipient agencies must use such funds in accordance with 
the requirements in paragraph (c) of this section.
    (c) Claims and other sources. The distributing agency must ensure 
that funds collected in payment of claims for donated food losses are 
used only for the payment of expenses of the food distribution program. 
The first priority for the use of funds collected in a claim for the 
loss of donated foods is the purchase of replacement foods for use in 
the program in which the loss occurred. If the purchase of replacement 
foods is not feasible, funds collected in a claim for the loss of 
donated foods must be used to pay allowable administrative costs 
incurred in the storage and distribution of donated foods. The 
distributing agency, or recipient agency, must use funds obtained from 
sources incidental to donated food distribution (except as otherwise 
indicated in this section) to pay administrative costs incurred in the 
storage and distribution of donated foods, consistent with the 
limitations on the use of funds provided under a Federal grant in 2 CFR 
part 200, subparts D and E, and USDA implementing regulations at 2 CFR 
parts 400 and 416. The distributing agency must maintain funds obtained 
from claims and other sources included in this paragraph (c) in a 
donated food account (separate from the operating account maintained in 
accordance with paragraph (a) of this section), and must obtain FNS 
prior approval for any single deposit into, or expenditure from, such 
account in excess of $25,000. Distributing and recipient agencies must 
maintain records of funds obtained and expended in accordance with this 
paragraph (c). Examples of funds applicable to the provisions in this 
paragraph (c) include funds accrued from:
    (1) The salvage of out-of-condition donated foods.
    (2) The sale of donated food containers, pallets, or packing 
materials.
    (3) Payments by processors for failure to meet processing yields or 
other cause.
    (d) Prohibitions. The distributing agency may not use funds obtained 
incidental to donated food distribution to meet State matching 
requirements for Federal administrative funds provided in household 
programs, or in place of State Administrative Expense (SAE) funds 
provided in accordance with 7 CFR part 235.
    (e) Buy American. When funds obtained in accordance with this 
section are used to purchase foods in the commercial market, a 
distributing or recipient agency in the continental United States, and 
in Hawaii, must, to the maximum extent practical, purchase only domestic 
foods or food products. Such requirement is also applicable to food 
purchases made with the cash-in-lieu-of-donated foods provided in NSLP 
and CACFP, in accordance with Secs. 250.56(e) and 250.61(c). For the 
purposes of this section, domestic foods or food products are:

[[Page 558]]

    (1) Agricultural commodities that are produced in the United States; 
or
    (2) Food products that are processed in the United States 
substantially using agricultural commodities that are produced in the 
United States.



Sec. 250.18  Reporting requirements.

    (a) Inventory and distribution of donated foods. The distributing 
agency must submit to FNS reports relating to the inventory and 
distribution of donated foods in this paragraph (a) or in other 
regulations applicable to specific programs. Such reports must be 
submitted in accordance with the timeframes established for each 
respective form. For donated foods received in FDPIR, the distributing 
agency must submit form FNS-152, Monthly Distribution of Donated Foods 
to Family Units. For donated foods received in TEFAP, NSLP, or other 
child nutrition programs, the distributing agency must submit form FNS-
155, the Inventory Management Register.
    (b) Processor performance reports. Processors must submit monthly 
performance reports to the distributing agency, in accordance with 
Sec. 250.30(m). Such reports must include the information listed in 
Sec. 250.30(m).
    (c) Disasters and situations of distress. The distributing agency 
must submit to FNS a report of the types and amounts of donated foods 
used from distributing or recipient agency storage facilities in 
disasters and situations of distress, and a request for replacement of 
such foods, using electronic form FNS-292A, Report of Commodity 
Distribution for Disaster Relief, in accordance with Secs. 250.69 and 
250.70. The report must be submitted within 45 days of the termination 
of such assistance.
    (d) Other information. The distributing agency must submit other 
information, as requested by FNS, in order to ensure compliance with 
requirements in this part. For example, FNS may require the distributing 
agency to submit information with respect to its assessment of the 
distribution charge, or to justify the efficiency and cost-effectiveness 
of its distribution system, in accordance with Sec. 250.13(c) and (d).



Sec. 250.19  Recordkeeping requirements.

    (a) Required records. Distributing agencies, recipient agencies, and 
other entities must maintain records of agreements and contracts, 
reports, audits, and claim actions, funds obtained as an incident of 
donated food distribution, and other records specifically required in 
this part or in other Departmental regulations, as applicable. In 
addition, distributing agencies must keep a record of the value of 
donated foods each of its school food authorities receives, in 
accordance with Sec. 250.58(e), and records to demonstrate compliance 
with the professional standards for distributing agency directors 
established in Sec. 235.11(g). Processors must also maintain records 
documenting the sale of end products to recipient agencies, including 
the sale of such end products by distributors, and must submit monthly 
performance reports, in accordance with Sec. 250.30(m). Specific 
recordkeeping requirements relating to the use of donated foods in 
contracts with food service management companies are included in 
Sec. 250.54. Failure of the distributing agency, recipient agency, 
processor, or other entity to comply with recordkeeping requirements 
must be considered prima facie evidence of improper distribution or loss 
of donated foods and may result in a claim against such party for the 
loss or misuse of donated foods, in accordance with Sec. 250.16, or in 
other sanctions or corrective actions.
    (b) Retention of records. Records relating to requirements for 
donated foods must be retained for a period of three years from the 
close of the fiscal or school year to which they pertain. However, 
records pertaining to claims or audits that remain unresolved in this 
period of time must be retained until such actions have been resolved.



Sec. 250.20  Audit requirements.

    (a) Requirements for distributing and recipient agencies. Audit 
requirements for State or local government agencies and nonprofit 
organizations that receive Federal awards or grants (including 
distributing and recipient agencies under this part) are included in 2 
CFR part 200, subpart F and appendix XI, Compliance Supplement, and USDA 
implementing regulations at 2 CFR

[[Page 559]]

part 400. In accordance with such regulations, the value of Federal 
grants or awards expended in a fiscal year determine if the distributing 
or recipient agency is required to obtain an audit in that year. The 
value of donated foods must be considered as part of the Federal grants 
or awards in determining if an audit is required. FNS provides guidance 
for distributing and recipient agencies in valuing donated foods for 
audit purposes, and in determining whether an audit must be obtained.
    (b) Requirements for processors. In-State processors must obtain an 
independent certified public accountant (CPA) audit in the first year 
that they receive donated foods for processing, while multi-State 
processors must obtain such an audit in each of the first two years that 
they receive donated foods for processing. After this initial 
requirement period, in-State and multi-State processors must obtain an 
independent CPA audit at a frequency determined by the average value of 
donated foods received for processing per year, as indicated in this 
paragraph (b). The value of donated foods used in determining if an 
audit is required must be the contract value of the donated foods, as 
defined in Sec. 250.2. The audit must determine that the processor's 
performance is in compliance with the requirements in this part, and 
must be conducted in accordance with procedures in the FNS Audit Guide 
for Processors. All processors must pay for audits required in this 
paragraph (b). An in-State or multi-State processor must obtain an 
audit:
    (1) Annually, if it receives, on average, more than $5,000,000 in 
donated foods for processing per year;
    (2) Every two years, if it receives, on average, between $1,000,000 
and $5,000,000 in donated foods for processing per year; or
    (3) Every three years, if it receives, on average, less than 
$1,000,000 in donated foods for processing per year.
    (c) Post-audit actions required of processors. In-State processors 
must submit a copy of the audit to the distributing agency for review by 
December 31st of each year in which an audit is required. The 
distributing agency must ensure that in-State processors provide a 
corrective action plan with timelines for correcting deficiencies 
identified in the audit, and must ensure that such deficiencies are 
corrected. Multi-State processors must submit a copy of the audit, and a 
corrective action plan with timelines for correcting deficiencies 
identified in the audit, as appropriate, to FNS for review by December 
31st of each year in which an audit is required. FNS may conduct an 
audit or investigation of a processor to ensure correction of 
deficiencies, in accordance with Sec. 250.3(b).
    (d) Failure to meet audit requirements. If a distributing agency or 
recipient agency fails to obtain the required audit, or fails to correct 
deficiencies identified in the audit, FNS may withhold, suspend, or 
terminate the Federal award. If an in-State processor fails to obtain 
the required audit, or fails to correct deficiencies identified in the 
audit, a distributing or recipient agency may terminate the processing 
agreement, and may not extend or renew such an agreement. Additionally, 
FNS may prohibit the further distribution of donated foods to such 
processor. If a multi-State processor fails to obtain a required audit, 
or fails to correct deficiencies identified in the audit, FNS may 
terminate the processing agreement. Additionally, FNS may prohibit the 
further distribution of donated foods to such processor.



Sec. 250.21  Distributing agency reviews.

    (a) Scope of review requirements. The distributing agency must 
ensure that subdistributing agencies, recipient agencies, and other 
entities comply with applicable requirements in this part, and in other 
Federal regulations, through the on-site reviews required in paragraph 
(b) of this section, and the review of required reports or audits. 
However, the distributing agency is not responsible for the review of 
school food authorities and other recipient agencies in child nutrition 
programs. The State administering agency is responsible for the review 
of such recipient agencies, in accordance with review requirements of 
part 210 of this chapter.
    (b) On-site reviews. The distributing agency must conduct an on-site 
review of:

[[Page 560]]

    (1) Charitable institutions, whenever the distributing agency 
identifies actual or probable deficiencies in the use of donated foods 
by such institutions, through audits, investigations, complaints, or any 
other information;
    (2) Storage facilities at the distributing agency level (including 
commercial storage facilities under contract with the distributing or 
subdistributing agency), on an annual basis; and
    (3) Subdistributing and recipient agencies in CSFP, TEFAP, and 
FDPIR, in accordance with 7 CFR parts 247, 251, and 253, respectively.
    (c) Identification and correction of deficiencies. The distributing 
agency must inform each subdistributing agency, recipient agency, or 
other entity of any deficiencies identified in its reviews, and 
recommend specific actions to correct such deficiencies. The 
distributing agency must ensure that such agencies or entities implement 
corrective actions to correct deficiencies in a timely manner.



Sec. 250.22  Distributing agency performance standards.

    (a) Performance standards. The distributing agency must meet the 
basic performance standards included in this paragraph (a) in the 
ordering, distribution, processing, if applicable, and control of 
donated foods. Some of the performance standards apply only to 
distributing agencies that distribute donated foods in NSLP or other 
child nutrition programs, as indicated. However, the identification of 
specific performance standards does not diminish the responsibility of 
the distributing agency to meet other requirements in this part. In 
meeting basic performance standards, the distributing agency must:
    (1) Provide recipient agencies with information on donated food 
availability, assistance levels, values, product specifications, and 
processing options, as requested;
    (2) Implement a request-driven ordering system, in accordance with 
Sec. 250.10(a), and, for child nutrition programs, Sec. 250.58(a);
    (3) Offer school food authorities in NSLP, at a minimum, the 
commodity offer value of donated foods, in accordance with Sec. 250.58;
    (4) Provide for the storage, distribution, and control of donated 
foods in accordance with all Federal, State, or local requirements 
relating to food safety and health;
    (5) Provide for the distribution of donated foods in the most 
efficient and cost-effective manner, including, to the extent practical, 
direct shipments from vendors to recipient agencies or processors, and 
the use of split shipments;
    (6) Use SAE funds, or other Federal or State funds, as available, in 
paying State storage and distribution costs for child nutrition 
programs, and impose a distribution charge on recipient agencies in 
child nutrition programs only to the extent that such funds are 
insufficient to meet applicable costs;
    (7) Provide for the processing of donated foods, at the request of 
school food authorities, in accordance with subpart C of this part, 
including the testing of end products with school food authorities, and 
the solicitation of acceptability input, when procuring end products on 
behalf of school food authorities or otherwise limiting the procurement 
of end products; and
    (8) Provide recipient agencies information regarding the preferred 
method for submission of donated foods complaints to the distributing 
agency and act expeditiously to resolve submitted complaints.
    (b) Corrective action plan. The distributing agency must submit a 
corrective action plan to FNS whenever it is found to be substantially 
out of compliance with the performance standards in paragraph (a) of 
this section, or with other requirements in this part. The plan must 
identify the corrective actions to be taken, and the timeframe for 
completion of such actions. The plan must be submitted to FNS within 60 
days after the distributing agency receives notification from FNS of a 
deficiency.
    (c) Termination or suspension. FNS may terminate or suspend all, or 
part, of the distributing agency's participation in the distribution of 
donated foods, or in a food distribution program, for failure to comply 
with requirements in this part, with other applicable Federal 
regulations, or with its written agreement with FNS. FNS

[[Page 561]]

may also take other actions, as appropriate, including prosecution under 
applicable Federal statutes.



           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. 250.4(c). Under this arrangement and 
subject to the approval of the distributing agency:
    (i) Processors shall utilize either a discount or a refund system in 
accordance with paragraph (d) of this section 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 FNS Regional Office. 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)(4), (c)(5)(ii), and (c)(5)(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)(5)(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.
    (2) These criteria will be reviewed by the appropriate FNS Regional 
Office 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

[[Page 562]]

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 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 2 CFR part 200, 
subpart D and Appendix II, Contract Provisions for Non-Federal Entity 
Contracts Under Federal Awards and USDA implementing regulations at 2 
CFR part 400 and part 416 must be followed. Recipient agencies which 
purchase end products produced under Statewide agreements are also 
required to comply with 2 CFR part 200, subpart D and USDA implementing 
regulations at 2 CFR part 400 and part 416. Contracting agencies shall 
not enter into 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.
    (3) 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.
    (4) 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.
    (5) 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)(5)(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. 250.2, 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;

[[Page 563]]

    (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 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) Meet the requirements of Sec. 250.19 in maintaining records 
pertaining to the receipt, distribution, and control of donated foods, 
and the sale of end products;
    (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) Meet the requirements in Sec. 250.20(b) and (c) in obtaining an 
independent certified public accountant audit, and in performing post-
audit actions;
    (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.

[[Page 564]]

    (xiv) 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 which 
occur during the contract period.
    (xv) 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.
    (xvi) 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.
    (xvii) 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 in which the processor provides a payment to the 
recipient agency in the amount of the contract value of the donated food 
contained in the end product;
    (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. 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 in which the processor provides a payment to the 
recipient agency in the amount of the contract value of the donated food 
contained in the end product;
    (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 agency. In this system, the 
processor's

[[Page 565]]

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. 250.2 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. 250.19. Where commercial food is authorized to be substituted 
for any donated food, the processor shall maintain records to 
substantiate that it

[[Page 566]]

continues to acquire on the commercial 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. 250.19(a).
    (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

[[Page 567]]

by the distributing agency prior to processing each order. Exemptions in 
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 FNS Regional Office, 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

[[Page 568]]

(f)(2) of this section and deliver such foods to the contracting agency;
    (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 Sec. 250.17(c).
    (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.
    (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 FNS Regional Office, 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) A certification statement that sufficient donated foods are in 
inventory or on order to account for the

[[Page 569]]

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, the 
distributing agency must ensure that a processor with excessive 
inventories of donated foods reduces such inventories. However, if this 
action is not practical, the distributing agency must require the 
processor to pay for the donated foods held in excess of allowed levels, 
at the replacement value of the donated foods. A processor whose 
contract has been completed or terminated shall return or pay for 
commodities as required by subsection (j).
    (4) 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) 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.
    (p) Processing activity guidance. Distributing agencies shall 
develop and

[[Page 570]]

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.
    (q) 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 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; 81 FR 23110, Apr. 19, 2016; 81 FR 39869, June 20, 2016; 81 FR 
75683, Nov. 1, 2016]

    Editorial Note: At 81 FR 23110, Apr. 19, 2016, Sec. 250.30 was 
amended by revising paragraph (c)(1)(vi). At 81 FR 39869, June 20, 2016, 
the regulatory text set out at 81 FR 23110 for (c)(1)(vi) was removed 
though the regulatory instruction remained; therefore, the revision of 
(c)(1)(vi) could not be incorporated.



   Subpart D_Donated Foods in Contracts With Food Service Management 
                                Companies

    Source: 73 FR 46185, Aug. 8, 2008, unless otherwise noted.



Sec. 250.50  Contract requirements and procurement.

    (a) Contract requirements. Prior to donated foods being made 
available to a food service management company, the recipient agency 
must enter into a contract with the food service management company. The 
contract must ensure that all donated foods received for use by the 
recipient agency in the school or fiscal year, as applicable, are used 
in the recipient agency's food service, or that commercially purchased 
foods are used in place of such donated foods only in accordance with 
the requirements in Sec. 250.51(d). Contracts between recipient agencies 
in child nutrition programs and food service management companies must 
also ensure compliance with other requirements in this subpart relating 
to donated foods, as well as other Federal requirements in 7 CFR parts 
210, 220, 225, or 226, as applicable. Contracts between other recipient 
agencies--i.e., charitable institutions and recipient agencies utilizing 
TEFAP foods--and food service management companies are not subject to 
the other requirements in this subpart.
    (b) Types of contracts. Recipient agencies may enter into a fixed-
price or a cost-reimbursable contract with a food service management 
company, except that recipient agencies in CACFP are prohibited from 
entering into cost-reimbursable contracts, in accordance with 7 CFR part 
226. Under a fixed-price contract, the recipient agency pays a fixed 
cost per meal provided or a fixed cost for a certain time period. Under 
a cost-reimbursable contract, the food service management company 
charges the recipient agency for food service operating costs, and also 
charges fixed fees for management or services.
    (c) Procurement requirements. The recipient agency must meet 
Departmental procurement requirements in 7 2 CFR part 200, subpart D, 
and USDA implementing regulations at 2 CFR parts 400 and 416, as 
applicable, in obtaining the services of a food service management 
company, as well as applicable requirements in 7 CFR parts 210, 220, 
225, or 226. The recipient agency must ensure that procurement 
documents, as well as contract provisions,

[[Page 571]]

include any donated food activities that a food service management 
company is to perform, such as those activities listed in paragraph (d) 
of this section. The procurement and contract must also specify the 
method used to determine the donated food values to be used in 
crediting, or the actual values assigned, in accordance with 
Sec. 250.51. The method used to determine the donated food values may 
not be established through a post-award negotiation, or by any other 
method that may directly or indirectly alter the terms and conditions of 
the procurement or contract.
    (d) Activities relating to donated foods. A food service management 
company may perform specific activities relating to donated foods, such 
as those listed in this paragraph (d), in accordance with procurement 
documents and its contract with the recipient agency. Such activities 
may also include the procurement of processed end products on behalf of 
the recipient agency. Such procurement must ensure compliance with the 
requirements in subpart C of this part and with the provisions of the 
distributing or recipient agency's processing agreements, and must 
ensure crediting of the recipient agency for the value of donated foods 
contained in such end products at the processing agreement value. 
Although the food service management company may procure processed end 
products on behalf of the recipient agency, it may not itself enter into 
the processing agreement with the processor required in subpart C of 
this part. Other donated food activities that the food service 
management company may perform include:
    (1) Preparing and serving meals;
    (2) Ordering or selection of donated foods, in coordination with the 
recipient agency, and in accordance with Sec. 250.58(a);
    (3) Storage and inventory management of donated foods, in accordance 
with Sec. 250.52; and
    (4) Payment of processing fees or submittal of refund requests to a 
processor on behalf of the recipient agency, or remittance of refunds 
for the value of donated foods in processed end products to the 
recipient agency, in accordance with the requirements in subpart C of 
this part.

[73 FR 46185, Aug. 8, 2008, as amended at 81 FR 23111, Apr. 19, 2016]



Sec. 250.51  Crediting for, and use of, donated foods.

    (a) Crediting for donated foods. In both fixed-price and cost-
reimbursable contracts, the food service management company must credit 
the recipient agency for the value of all donated foods received for use 
in the recipient agency's meal service in a school year or fiscal year 
(including both entitlement and bonus foods). Such requirement includes 
crediting for the value of donated foods contained in processed end 
products if the food service management company's contract requires it 
to:
    (1) Procure processed end products on behalf of the recipient 
agency; or
    (2) Act as an intermediary in passing the donated food value in 
processed end products on to the recipient agency.
    (b) Method and frequency of crediting. The recipient agency may 
permit crediting for the value of donated foods through invoice 
reductions, refunds, discounts, or other means. However, all forms of 
crediting must provide clear documentation of the value received from 
the donated foods--e.g., by separate line item entries on invoices. If 
provided for in a fixed-price contract, the recipient agency may permit 
a food service management company to pre-credit for donated foods. In 
pre-crediting, a deduction for the value of donated foods is included in 
the established fixed price per meal. However, the recipient agency must 
ensure that the food service management company provides an additional 
credit for any donated foods not accounted for in the fixed price per 
meal--e.g., for donated foods that are not made available until later in 
the year. In cost-reimbursable contracts, crediting may be performed by 
disclosure; i.e., the food service management company credits the 
recipient agency for the value of donated foods by disclosing, in its 
billing for food costs submitted to the recipient agency, the savings 
resulting from the receipt of donated foods for the billing

[[Page 572]]

period. In all cases, the recipient agency must require crediting to be 
performed not less frequently than annually, and must ensure that the 
specified method of valuation of donated foods permits crediting to be 
achieved in the required time period. A school food authority must also 
ensure that the method, and timing, of crediting does not cause its cash 
resources to exceed the limits established in 7 CFR 210.9(b)(2).
    (c) Donated food values required in crediting. The recipient agency 
must ensure that, in crediting it for the value of donated foods, the 
food service management company uses the donated food values determined 
by the distributing agency, in accordance with Sec. 250.58(e), or, if 
approved by the distributing agency, donated food values determined by 
an alternate means of the recipient agency's choosing. For example, the 
recipient agency may, with the approval of the distributing agency, 
specify that the value will be the average price per pound for a food, 
or for a group or category of foods (e.g., all frozen foods or cereal 
products), as listed in market journals over a specified period of time. 
However, the method of determining the donated food values to be used in 
crediting must be included in procurement documents and in the contract, 
and must result in the determination of actual values; e.g., the average 
USDA purchase price for the period of the contract with the food vendor, 
or the average price per pound listed in market journals over a 
specified period of time. Negotiation of such values is not permitted. 
Additionally, the method of valuation must ensure that crediting may be 
achieved in accordance with paragraph (b) of this section, and at the 
specific frequency established in procurement documents and in the 
contract.
    (d) Use of donated foods. The food service management company must 
use all donated beef, pork, and all processed end products, in the 
recipient agency's food service, and must use all other donated foods, 
or commercially purchased foods of the same generic identity, of U.S. 
origin, and of equal or better quality than the donated foods, in the 
recipient agency's food service (unless the contract specifically 
stipulates that the donated foods, and not such commercial substitutes, 
be used).

[73 FR 46185, Aug. 8, 2008, as amended at 81 FR 23111, Apr. 19, 2016]



Sec. 250.52  Storage and inventory management of donated foods.

    (a) General requirements. The food service management company must 
meet the requirements for the safe storage and control of donated foods 
in Sec. 250.14(a).
    (b) Storage and inventory with commercially purchased foods. The 
food service management company may store and inventory donated foods 
together with foods it has purchased commercially for the school food 
authority's use (unless specifically prohibited in the contract). It may 
store and inventory such foods together with other commercially 
purchased foods only to the extent that such a system ensures compliance 
with the requirements for the use of donated foods in Sec. 250.51(d)--
i.e., use all donated beef and pork, and all end products in the food 
service, and use all other donated foods or commercially purchased foods 
of the same generic identity, of U.S. origin, and of equal or better 
quality than the donated foods, in the food service. Additionally, under 
cost-reimbursable contracts, the food service management company must 
ensure that its system of inventory management does not result in the 
recipient agency being charged for donated foods.
    (c) Disposition of donated foods and credit reconciliation upon 
termination of the contract. When a contract terminates, and is not 
extended or renewed, the food service management company must return all 
unused donated beef, pork, and processed end products, and must, at the 
recipient agency's discretion, return other unused donated foods. The 
recipient agency must ensure that the food service management company 
has credited it for the value of all donated foods received for use in 
the recipient agency's meal service in a school year or fiscal year, as 
applicable.

[81 FR 23111, Apr. 19, 2016]

[[Page 573]]



Sec. 250.53  Contract provisions.

    (a) Required contract provisions in fixed-price contracts. The 
following provisions relating to the use of donated foods must be 
included, as applicable, in a recipient agency's fixed-price contract 
with a food service management company. Such provisions must also be 
included in procurement documents. The required provisions are:
    (1) A statement that the food service management company must credit 
the recipient agency for the value of all donated foods received for use 
in the recipient agency's meal service in the school year or fiscal year 
(including both entitlement and bonus foods), and including the value of 
donated foods contained in processed end products, in accordance with 
the contingencies in Sec. 250.51(a);
    (2) The method and frequency by which crediting will occur, and the 
means of documentation to be utilized to verify that the value of all 
donated foods has been credited;
    (3) The method of determining the donated food values to be used in 
crediting, in accordance with Sec. 250.51(c), or the actual donated food 
values;
    (4) Any activities relating to donated foods that the food service 
management company will be responsible for, in accordance with 
Sec. 250.50(d), and assurance that such activities will be performed in 
accordance with the applicable requirements in 7 CFR part 250;
    (5) A statement that the food service management company will use 
all donated beef and pork products, and all processed end products, in 
the recipient agency's food service;
    (6) A statement that the food service management company will use 
all other donated foods, or will use commercially purchased foods of the 
same generic identity, of U.S. origin, and of equal of better quality 
than the donated foods, in the recipient agency's food service;
    (7) Assurance that the procurement of processed end products on 
behalf of the recipient agency, as applicable, will ensure compliance 
with the requirements in subpart C of 7 CFR part 250 and with the 
provisions of distributing or recipient agency processing agreements, 
and will ensure crediting of the recipient agency for the value of 
donated foods contained in such end products at the processing agreement 
value;
    (8) Assurance that the food service management company will not 
itself enter into the processing agreement with the processor required 
in subpart C of 7 CFR part 250;
    (9) Assurance that the food service management company will comply 
with the storage and inventory requirements for donated foods;
    (10) A statement that the distributing agency, subdistributing 
agency, or recipient agency, the Comptroller General, the Department of 
Agriculture, or their duly authorized representatives, may perform 
onsite reviews of the food service management company's food service 
operation, including the review of records, to ensure compliance with 
requirements for the management and use of donated foods;
    (11) A statement that the food service management company will 
maintain records to document its compliance with requirements relating 
to donated foods, in accordance with Sec. 250.54(b); and
    (12) A statement that extensions or renewals of the contract, if 
applicable, are contingent upon the fulfillment of all contract 
provisions relating to donated foods.
    (b) Required contract provisions in cost-reimbursable contracts. A 
cost-reimbursable contract must include the same provisions as those 
required for a fixed-price contract in paragraph (a) of this section. 
Such provisions must also be included in procurement documents. However, 
a cost-reimbursable contract must also contain a statement that the food 
service management company will ensure that its system of inventory 
management will not result in the recipient agency being charged for 
donated foods.

[73 FR 46185, Aug. 8, 2008, as amended at 81 FR 23111, Apr. 19, 2016]



Sec. 250.54  Recordkeeping and reviews.

    (a) Recordkeeping requirements for the recipient agency. The 
recipient agency must maintain the following records relating to the use 
of donated foods in its contract with the food service management 
company:

[[Page 574]]

    (1) The donated foods and processed end products received and 
provided to the food service management company for use in the recipient 
agency's food service;
    (2) Documentation that the food service management company has 
credited it for the value of all donated foods received for use in the 
recipient agency's food service in the school or fiscal year, including, 
in accordance with the requirements in Sec. 250.51(a), the value of 
donated foods contained in processed end products; and
    (3) The actual donated food values used in crediting.
    (b) Recordkeeping requirements for the food service management 
company. The food service management company must maintain the following 
records relating to the use of donated foods in its contract with the 
recipient agency:
    (1) The donated foods and processed end products received from, or 
on behalf of, the recipient agency, for use in the recipient agency's 
food service;
    (2) Documentation that it has credited the recipient agency for the 
value of all donated foods received for use in the recipient agency's 
food service in the school or fiscal year, including, in accordance with 
the requirements in Sec. 250.51(a), the value of donated foods contained 
in processed end products; and
    (3) Documentation of its procurement of processed end products on 
behalf of the recipient agency, as applicable.
    (c) Review requirements for the recipient agency. The recipient 
agency must ensure that the food service management company is in 
compliance with the requirements of this part through its monitoring of 
the food service operation, as required in 7 CFR parts 210, 225, or 226, 
as applicable. The recipient agency must also conduct a reconciliation 
at least annually (and upon termination of the contract) to ensure that 
the food service management company has credited it for the value of all 
donated foods received for use in the recipient agency's food service in 
the school or fiscal year, including, in accordance with the 
requirements in Sec. 250.51(a), the value of donated foods contained in 
processed end products.
    (d) Departmental reviews of food service management companies. The 
Department may conduct reviews of food service management company 
operations, as necessary, to ensure compliance with the requirements of 
this part with respect to the use and management of donated foods.



Subpart E_National School Lunch Program (NSLP) and Other Child Nutrition 
                                Programs

    Source: 73 FR 46185, Aug. 8, 2008, unless otherwise noted.



Sec. 250.56  Provision of donated foods in NSLP.

    (a) Distribution of donated foods in NSLP. The Department provides 
donated foods in NSLP to distributing agencies. Distributing agencies 
provide donated foods to school food authorities that participate in 
NSLP for use in serving nutritious lunches or other meals to 
schoolchildren in their nonprofit school food service. The distributing 
agency must confirm the participation of school food authorities in NSLP 
with the State administering agency (if different from the distributing 
agency). In addition to requirements in this part relating to donated 
foods, distributing agencies and school food authorities in NSLP must 
adhere to Federal regulations in 7 CFR part 210, as applicable.
    (b) Types of donated foods distributed. The Department purchases a 
wide variety of foods for distribution in NSLP each school year. A list 
of available foods is posted on the FNS Web site, for access by 
distributing agencies and school food authorities. In addition to 
Section 6 foods (42 U.S.C. 1755) as described in paragraph (c) of this 
section, the distributing agency may also receive Section 14 donated 
foods (42 U.S.C. 1762(a)), and donated foods under Section 32 (7 U.S.C. 
612c), Section 416 (7 U.S.C. 1431), or Section 709 (7 U.S.C. 1446a-1), 
as available.
    (c) National per-meal value of donated foods. For each school year, 
the distributing agency receives, at a minimum, the national per-meal 
value of donated foods, as established by Section 6(c) of the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1755(c)), multiplied by the 
number of reimbursable

[[Page 575]]

lunches served in the State in the previous school year. The donated 
foods provided in this manner are referred to as Section 6 foods, or 
entitlement foods. The national per-meal value is adjusted each year to 
reflect changes in the Bureau of Labor Statistic's Producer Price Index 
for Foods Used in Schools and Institutions, in accordance with the 
Richard B. Russell National School Lunch Act. The adjusted value is 
published in a notice in the Federal Register in July of each year. 
Reimbursable lunches are those that meet the nutritional standards 
established in 7 CFR part 210, and that are reported to FNS, in 
accordance with the requirements in that part.
    (d) Donated food values used to credit distributing agency 
entitlement levels. FNS uses the average price (cost per pound) for USDA 
purchases of donated food made in a contract period to credit 
distributing agency entitlement levels.
    (e) Cash in lieu of donated foods. States that phased out their food 
distribution facilities prior to July 1, 1974, are permitted to choose 
to receive cash in lieu of the donated foods to which they would be 
entitled in NSLP, in accordance with the Richard B. Russell National 
School Lunch Act (42 U.S.C. 1765) and with 7 CFR part 240.



Sec. 250.57  Commodity schools.

    (a) Categorization of commodity schools. Commodity schools are 
schools that operate a nonprofit school food service in accordance with 
7 CFR part 210, but receive additional donated food assistance rather 
than the general cash payment available to them under Section 4 of the 
Richard B. Russell National School Lunch Act (42 U.S.C. 1753). In 
addition to requirements in this part relating to donated foods, 
commodity schools must adhere to Federal regulations in 7 CFR part 210, 
as applicable.
    (b) Value of donated foods for commodity schools. For participating 
commodity schools, the distributing agency receives donated foods valued 
at the sum of the national per-meal value and the value of the general 
cash payment available to it under Section 4 of the Richard B. Russell 
National School Lunch Act (42 U.S.C. 1753), multiplied by the number of 
reimbursable lunches served by commodity schools in the previous school 
year. From the total value of donated food assistance for which it is 
eligible, a commodity school may elect to receive up to 5 cents per meal 
in cash to cover processing and handling expenses related to the use of 
donated foods. In addition to Section 6 and Section 14 foods under the 
Richard B. Russell National School Lunch Act (42 U.S.C. 1755 and 
1762(a)), the distributing agency may also receive donated foods under 
Section 32 (7 U.S.C. 612c), Section 416 (7 U.S.C. 1431), or Section 709 
(7 U.S.C. 1446a-1), as available, for commodity schools.



Sec. 250.58  Ordering donated foods and their provision to school
food authorities.

    (a) Ordering and distribution of donated foods. The distributing 
agency must ensure that school food authorities are able to submit 
donated food orders through the FNS electronic donated foods ordering 
system, or through a comparable electronic food ordering system. The 
distributing agency must ensure that all school food authorities have 
the opportunity to provide input at least annually in determining the 
donated foods from the full list that are made available to them for 
ordering in the FNS electronic donated foods ordering system or other 
comparable electronic ordering system. The distributing agency must 
ensure distribution to school food authorities of all such ordered 
donated foods that may be distributed to them in a cost-effective manner 
(including the use of split shipments, as necessary), and that they may 
utilize efficiently and without waste.
    (b) Value of donated foods offered to school food authorities. In 
accordance with Section 6(c) of the Richard B. Russell National School 
Lunch Act (42 U.S.C. 1755(c)), the distributing agency must offer the 
school food authority, at a minimum, the national per-meal value of 
donated food assistance multiplied by the number of reimbursable lunches 
served by the school food authority in the previous school year. This is 
referred to as the commodity offer value. For a commodity school, the 
distributing agency must offer the

[[Page 576]]

sum of the national per-meal value of donated foods and the value of the 
general cash payment available to it under Section 4 of the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1753), multiplied by the 
number of reimbursable lunches served by the school in the previous 
school year. The school food authority may also receive bonus foods, as 
available, in addition to the Section 6 foods.
    (c) Receipt of less donated foods than the commodity offer value. In 
certain cases, the school food authority may receive less donated foods 
than the commodity offer value in a school year. This ``adjusted'' value 
of donated foods is referred to as the adjusted assistance level. For 
example, the school food authority may receive an adjusted assistance 
level if:
    (1) The distributing agency, in consultation with the school food 
authority, determines that the school food authority cannot efficiently 
utilize the commodity offer value of donated foods; or
    (2) The school food authority does not order, or select, donated 
foods equal to the commodity offer value that can be cost-effectively 
distributed to it.
    (d) Receipt of more donated foods than the commodity offer value. 
The school food authority may receive more donated foods than the 
commodity offer value if the distributing agency, in consultation with 
the school food authority, determines that the school food authority may 
efficiently utilize more donated foods than the commodity offer value, 
and more donated foods are available for distribution. This may occur, 
for example, if other school food authorities receive less than the 
commodity offer value of donated foods for one of the reasons described 
in paragraph (c) of this section.
    (e) Donated food value in crediting. In meeting the commodity offer 
value of donated foods for the school food authority, the distributing 
agency must use the cost-per-pound donated food prices posted annually 
by USDA, the most recently published cost-per-pound price in the USDA 
donated foods catalog, and/or a rolling average of the USDA prices 
(average cost per pound). The distributing agency must credit the school 
food authority using the USDA purchase price (cost-per-pound), and 
update the price at least semi-annually to reflect the most recent USDA 
purchase price.

[73 FR 46185, Aug. 8, 2008, as amended at 81 FR 23111, Apr. 19, 2016]



Sec. 250.59  Storage, control, and use of donated foods.

    (a) Storage and inventory management. The distributing agency must 
ensure compliance with requirements in Secs. 250.12 and 250.13 in order 
to ensure the safe and effective storage and inventory management of 
donated foods, and their efficient and cost-effective distribution to 
school food authorities. The school food authority must ensure 
compliance with requirements in Sec. 210.13 of this chapter and 
Secs. 250.13 and 250.14 to ensure the safe and sanitary storage, 
inventory management, and use of donated foods and purchased foods. In 
accordance with Sec. 250.14(c), the school food authority may commingle 
donated foods and purchased foods in storage and maintain a single 
inventory record of such commingled foods, in a single inventory 
management system.
    (b) Use of donated foods in the nonprofit school food service. The 
school food authority must use donated foods, as much as is practical, 
in the lunches served to schoolchildren, for which they receive an 
established per-meal value of donated food assistance each school year. 
However, the school food authority may also use donated foods in other 
activities of the nonprofit school food service. Revenues received from 
such activities must accrue to the school food authority's nonprofit 
school food service account, in accordance with Sec. 210.14 of this 
chapter. Some examples of such activities in which donated foods may be 
used include:
    (1) School breakfasts or other meals served in child nutrition 
programs;
    (2) A la carte foods sold to schoolchildren;
    (3) Meals served to adults directly involved in the operation and 
administration of the nonprofit school food service, and to other school 
staff; and
    (4) Training in nutrition, health, food service, or general home 
economics instruction for students.

[[Page 577]]

    (c) Use of donated foods outside of the nonprofit school food 
service. The school food authority should not use donated foods in meals 
or other activities that do not benefit primarily schoolchildren, such 
as banquets or catered events. However, as their use in such activities 
may not always be avoided (e.g., if donated foods are commingled with 
purchased foods in a single inventory management system), the school 
food authority must ensure reimbursement to the nonprofit school food 
service for the value of donated foods used in such activities. When 
such reimbursement may not be based on actual usage of donated foods 
(e.g., in a single inventory management system), the school food 
authority must establish an alternate method of reimbursement--e.g., by 
including the current per-meal value of donated food assistance in the 
price charged for the meal or other activity.
    (d) Use of donated foods in a contract with a food service 
management company. When the school food authority contracts with a food 
service management company to conduct the food service, in accordance 
with Sec. 210.16 of this chapter, it must ensure compliance with 
requirements in subpart D of this part, which address the treatment of 
donated foods under such contract. The school food authority must also 
ensure compliance with the use of donated foods in paragraphs (b) and 
(c) of this section under its contract with a food service management 
company.
    (e) School food authorities acting as a collective unit. Two or more 
school food authorities may conduct activities of the nonprofit school 
food service as a collective unit (e.g., in a school co-op or 
consortium), including activities relating to donated foods. Such 
activities must be conducted in accordance with a written agreement or 
contract between the parties. The school food authority collective unit 
is subject to the same requirements as a single school food authority in 
conducting such activities. For example, the school food authority 
collective unit may use a single inventory management system in its 
storage and control of purchased and donated foods.

[81 FR 23111, Apr. 19, 2016]



Sec. 250.60  Child and Adult Care Food Program (CACFP).

    (a) Distribution of donated foods in CACFP. The Department provides 
donated foods in CACFP to distributing agencies, which provide them to 
child care and adult care institutions participating in CACFP for use in 
serving nutritious lunches and suppers to eligible recipients. 
Distributing agencies and child care and adult care institutions must 
also adhere to Federal regulations in 7 CFR part 226, as applicable.
    (b) Types and quantities of donated foods distributed. For each 
school year, the distributing agency receives, at a minimum, the 
national per-meal value of donated food assistance (or cash in lieu of 
donated foods) multiplied by the number of reimbursable lunches and 
suppers served in the State in the previous school year, as established 
in Section 6(c) of the Richard B. Russell National School Lunch Act (42 
U.S.C. 1755(c)). The national per-meal value is adjusted each year to 
reflect changes in the Bureau of Labor Statistic's Producer Price Index 
for Foods Used in Schools and Institutions. The adjusted per-meal value 
is published in a notice in the Federal Register in July of each year. 
Reimbursable lunches and suppers are those meeting the nutritional 
standards established in 7 CFR part 226. The number of reimbursable 
lunches and suppers may be adjusted during, or at the end of the school 
year, in accordance with 7 CFR part 226. In addition to Section 6 
entitlement foods (42 U.S.C. 1755(c)), the distributing agency may also 
receive Section 14 donated foods (42 U.S.C. 1762(a)), and donated foods 
under Section 32 (7 U.S.C. 612c), Section 416 (7 U.S.C. 1431), or 
Section 709 (7 U.S.C. 1446a-1), as available, for distribution to child 
care and adult care institutions participating in CACFP.
    (c) Cash in lieu of donated foods. In accordance with the Richard B. 
Russell National School Lunch Act, and with 7 CFR part 226, the State 
administering agency must determine whether child care and adult care 
institutions participating in CACFP wish to receive donated foods or 
cash in lieu of donated foods, and ensure that they receive the 
preferred form of assistance. The State administering agency must inform 
the

[[Page 578]]

distributing agency (if a different agency) which institutions wish to 
receive donated foods and must ensure that such foods are provided to 
them. However, if the State administering agency, in consultation with 
the distributing agency, determines that distribution of such foods 
would not be cost-effective, it may, with the concurrence of FNS, 
provide cash payments to the applicable institutions instead.
    (d) Use of donated foods in a contract with a food service 
management company. A child care or adult care institution may use 
donated foods in a contract with a food service management company to 
conduct its food service. The contract must meet the requirements in 
subpart D of this part with respect to donated foods, and must also meet 
requirements in 7 CFR part 226, 2 CFR part 200, subpart D and appendix 
II, Contract Provisions for Non-Federal Entity Contracts Under Federal 
Awards, and USDA implementing regulations at 2 CFR parts 400 and 416, as 
applicable, with respect to the formation of such contracts.
    (e) Applicability of other requirements in this subpart to CACFP. 
The requirements in this subpart relating to the ordering, storage and 
inventory management, and use of donated foods in NSLP, also apply to 
CACFP. However, in accordance with 7 CFR part 226, a child care or adult 
care institution that uses donated foods to prepare and provide meals to 
other such institutions is considered a food service management company.

[73 FR 46185, Aug. 8, 2008. Redesignated and amended at 81 FR 23112, 
Apr. 19, 2016]



Sec. 250.61  Summer Food Service Program (SFSP).

    (a) Distribution of donated foods in SFSP. The Department provides 
donated foods in SFSP to distributing agencies, which provide them to 
eligible service institutions participating in SFSP for use in serving 
nutritious meals to needy children primarily in the summer months, in 
their nonprofit food service programs. Distributing agencies and service 
institutions in SFSP must also adhere to Federal regulations in 7 CFR 
part 225, as applicable.
    (b) Types and quantities of donated foods distributed. The 
distributing agency receives donated foods available under Section 6 and 
Section 14 of the Richard B. Russell National School Lunch Act (42 
U.S.C. 1755 and 1762), and may also receive donated foods under Section 
32 (7 U.S.C. 612c), Section 416 (7 U.S.C. 1431), or Section 709 (7 
U.S.C. 1446a-1), as available, for distribution to eligible service 
institutions participating in SFSP. Section 6 donated foods are provided 
to distributing agencies in accordance with the number of meals served 
in the State in the previous school year that are eligible for donated 
food support, in accordance with 7 CFR part 225.
    (c) Distribution of donated foods to service institutions in SFSP. 
The distributing agency provides donated food assistance to eligible 
service institutions participating in SFSP based on the number of meals 
served that are eligible for donated food support, in accordance with 7 
CFR part 225.
    (d) Use of donated foods in a contract with a food service 
management company. A service institution may use donated foods in a 
contract with a food service management company to conduct the food 
service. The contract must meet the requirements in subpart D of this 
part with respect to donated foods, and must also meet requirements in 7 
CFR part 225, 2 CFR part 200, subpart D and appendix II, Contract 
Provisions for Non-Federal Entity Contracts Under Federal Awards, and 
USDA implementing regulations at 2 CFR parts 400 and 416, as applicable, 
with respect to the formation of such contracts.
    (e) Applicability of other requirements in this subpart to SFSP. The 
requirements in this subpart relating to the ordering, storage and 
inventory management, and use of donated foods in NSLP, also apply to 
SFSP.

[73 FR 46185, Aug. 8, 2008. Redesignated and amended at 81 FR 23112, 
Apr. 19, 2016]



                      Subpart F_Household Programs

    Source: 81 FR 23112, Apr. 19, 2016, unless otherwise noted.

[[Page 579]]



Sec. 250.63  Commodity Supplemental Food Program (CSFP).

    (a) Distribution of donated foods in CSFP. The Department provides 
donated foods in CSFP to the distributing agency (i.e., the State 
agency, in accordance with 7 CFR part 247) for further distribution in 
the State, in accordance with 7 CFR part 247. State agencies and 
recipient agencies (i.e., local agencies in 7 CFR part 247) must comply 
with the requirements of this part in the distribution, control, and use 
of donated foods in CSFP, to the extent that such requirements are not 
inconsistent with the requirements in 7 CFR part 247.
    (b) Types of donated foods distributed. Donated foods distributed in 
CSFP include Section 4(a) foods, and donated foods provided under 
Section 32, Section 416, or Section 709, as available.



Sec. 250.64  The Emergency Food Assistance Program (TEFAP).

    (a) Distribution of donated foods in TEFAP. The Department provides 
donated foods in TEFAP to the distributing agency (i.e., the State 
agency, in accordance with 7 CFR part 251) for further distribution in 
the State, in accordance with 7 CFR part 251. State agencies and 
recipient agencies must comply with the requirements of this part in the 
distribution, control, and use of donated foods, to the extent that such 
requirements are not inconsistent with the requirements in 7 CFR part 
251.
    (b) Types of donated foods distributed. Donated foods distributed in 
TEFAP include Section 27 foods, and donated foods provided under Section 
32, Section 416, or Section 709, as available.



Sec. 250.65  Food Distribution Program on Indian Reservations (FDPIR).

    (a) Distribution of donated foods in FDPIR. The Department provides 
donated foods in FDPIR to the distributing agency (i.e., the State 
agency, in accordance with 7 CFR parts 253 and 254, which may be an 
Indian Tribal Organization) for further distribution, in accordance with 
7 CFR parts 253 and 254. The State agency must comply with the 
requirements of this part in the distribution, control, and use of 
donated foods, to the extent that such requirements are not inconsistent 
with the requirements in 7 CFR parts 253 and 254.
    (b) Types of donated foods distributed. Donated foods distributed in 
FDPIR include Section 4(a) foods, and donated foods provided under 
Section 32, Section 416, or Section 709, as available.



Sec. 250.66  [Reserved]



                     Subpart G_Additional Provisions



Sec. 250.67  Charitable institutions.

    (a) Distribution to charitable institutions. The Department provides 
donated foods to distributing agencies for distribution to charitable 
institutions, as defined in this part. A charitable institution must 
have a signed agreement with the distributing agency in order to receive 
donated foods, in accordance with Sec. 250.12(b). However, the following 
organizations may not receive donated foods as charitable institutions:
    (1) Schools, summer camps, service institutions, and child and adult 
care institutions that participate in child nutrition programs or as 
commodity schools; and
    (2) Adult correctional institutions that do not conduct 
rehabilitation programs for a majority of inmates.
    (b) Types of charitable institutions. Some types of charitable 
institutions that may receive donated foods, if they meet the 
requirements of this section, include:
    (1) Hospitals or retirement homes;
    (2) Emergency shelters, soup kitchens, or emergency kitchens;
    (3) Elderly nutrition projects or adult day care centers;
    (4) Schools, summer camps, service institutions, and child care 
institutions that do not participate in child nutrition programs; and
    (5) Adult correctional institutions that conduct rehabilitation 
programs for a majority of inmates.
    (c) Determining service to predominantly needy persons. To determine 
if a charitable institution serves predominantly needy persons, the 
distributing agency must use:
    (1) Socioeconomic data of the area in which the organization is 
located, or of

[[Page 580]]

the clientele served by the organization;
    (2) Data from other public or private social service agencies, or 
from State advisory boards, such as those established in accordance with 
7 CFR 251.4(h)(4); or
    (3) Other similar data.
    (d) Types and quantities of donated foods distributed. A charitable 
institution may receive donated foods under Section 4(a), Section 32, 
Section 416, or Section 709, as available. The distributing agency must 
distribute donated foods to charitable institutions based on the 
quantities that each may effectively utilize without waste, and the 
total quantities available for distribution to such institutions.
    (e) Contracts with food service management companies. A charitable 
institution may use donated foods in a contract with a food service 
management company. The contract must ensure that all donated foods 
received for use by the charitable institution in a fiscal year are used 
in the charitable institution's food service. However, the charitable 
institution is not subject to the other requirements in subpart D of 
this part relating to the use of donated foods under such contracts.

[73 FR 46184, Aug. 8, 2008]



Sec. 250.68  Nutrition Services Incentive Program (NSIP).

    (a) Distribution of donated foods in NSIP. The Department provides 
donated foods in NSIP to State Units on Aging and their selected elderly 
nutrition projects for use in providing meals to elderly persons. NSIP 
is administered at the Federal level by DHHS' Administration for 
Community Living (ACL), which provides an NSIP grant each year to State 
Units on Aging. The State agencies may choose to receive all, or part, 
of the grant as donated foods, on behalf of its elderly nutrition 
projects. The Department is responsible for the purchase of the donated 
foods and their delivery to State Units on Aging. ACL is responsible for 
transferring funds to the Department for the cost of donated food 
purchases and for expenses related to such purchases.
    (b) Types and quantities of donated foods distributed. Each State 
Unit on Aging, and its elderly nutrition projects, may receive any types 
of donated foods available in food distribution or child nutrition 
programs, to the extent that such foods may be distributed cost-
effectively. Each State Unit on Aging may receive donated foods with a 
value equal to its NSIP grant. Each State Unit on Aging and elderly 
nutrition project may also receive donated foods under Section 32, 
Section 416, and Section 709, as available, and under Section 14 (42 
U.S.C. 1762(a)).
    (c) Role of distributing agency. The Department delivers NSIP 
donated foods to distributing agencies, which distribute them to elderly 
nutrition projects selected by each State Unit on Aging. The 
distributing agency may only distribute donated foods to elderly 
nutrition projects with which they have signed agreements. The 
agreements must contain provisions that describe the roles of each party 
in ensuring that the desired donated foods are ordered, stored, and 
distributed in an effective manner.
    (d) Donated food values used in crediting a State Unit on Aging's 
NSIP grant. FNS uses the average price (cost per pound) for USDA 
purchases of a donated food made in a contract period in crediting a 
State Unit on Aging's NSIP grant.
    (e) Coordination between FNS and ACL. FNS and ACL coordinate their 
respective roles in NSIP through the execution of annual agreements. The 
agreement ensures that ACL transfers funds to FNS sufficient to purchase 
the donated foods requested by State Units on Aging, and to meet 
expenses related to such purchases. The agreement also authorizes FNS to 
carry over any such funds that are not used in the current fiscal year 
to make purchases of donated foods for the appropriate State Units on 
Aging in the following fiscal year.

[81 FR 23113, Apr. 19, 2016]



Sec. 250.69  Disasters.

    (a) Use of donated foods to provide congregate meals. The 
distributing agency may provide donated foods from current inventories, 
either at the distributing or recipient agency level, to a disaster 
organization (as defined in Sec. 250.2), for use in providing congregate

[[Page 581]]

meals to persons in need of food assistance as a result of a 
Presidentially declared disaster or emergency (hereinafter referred to 
collectively as a ``disaster''). FNS approval is not required for such 
use. However, the distributing agency must notify FNS that such 
assistance is to be provided, and the period of time that it is expected 
to be needed. The distributing agency may extend such period of 
assistance as needs dictate, but must notify FNS of such extension.
    (b) Use of donated foods for distribution to households. Subject to 
FNS approval, the distributing agency may provide donated foods from 
current inventories, either at the distributing or recipient agency 
level, to a disaster organization, for distribution to households in 
need of food assistance because of a disaster. Such distribution may 
continue for the period that FNS has determined to be necessary to meet 
the needs of such households. However, households receiving disaster 
SNAP (D-SNAP) benefits are not eligible to receive such donated food 
assistance.
    (c) Approval of disaster organization. Before distribution of 
donated foods to a disaster organization, the distributing agency must 
review and approve such organization's application in accordance with 
applicable FNS guidance, which must be submitted to the distributing 
agency either electronically or in written form. The distributing agency 
must also submit such application to FNS for review and approval before 
permitting distribution of donated foods to households.
    (1) The disaster organization's application must, to the extent 
possible, include the following information:
    (i) A description of the disaster situation;
    (ii) The number of people requiring assistance;
    (iii) The period of time for which donated foods are requested;
    (iv) The quantity and types of food needed; and
    (v) The number and location of sites where donated foods are to be 
used, to the extent that such information is known.
    (2) In addition to the information required in paragraph (c)(1) of 
this section, disaster organizations applying to distribute donated 
foods to households must include the following information in their 
application:
    (i) An explanation as to why such distribution is needed;
    (ii) The method(s) of distribution available; and
    (iii) A statement assuring that D-SNAP benefits and donated food 
assistance will not be provided simultaneously to individual households, 
and a description of the system that will be implemented to prevent such 
dual participation.
    (d) Information from households. If the issuance of D-SNAP benefits 
has been approved, the distributing agency must ensure that the disaster 
organization obtains the following information from households receiving 
donated foods, and reports such information to the distributing agency:
    (1) The name and address of the household members applying for 
assistance;
    (2) The number of household members; and
    (3) A statement from the head of the household certifying that the 
household is in need of food assistance, is not receiving D-SNAP 
benefits, and understands that the sale or exchange of donated foods is 
prohibited.
    (e) Eligibility of emergency relief workers for congregate meals. 
The disaster organization may use donated foods to provide meals to any 
emergency relief workers at the congregate feeding site who are directly 
engaged in providing relief assistance.
    (f) Reporting and recordkeeping requirements. The distributing 
agency must report to FNS the number and location of sites where donated 
foods are used in congregate meals or household distribution as these 
sites are established. The distributing agency must also report the 
types and amounts of donated foods from distributing or recipient agency 
storage facilities used in disaster assistance, utilizing form FNS-292A, 
Report of Commodity Distribution for Disaster Relief, which must be 
submitted electronically, within 45 days from the termination of 
disaster assistance. This form must also be used to request replacement 
of donated foods, in accordance with paragraph (g) of this section. The 
distributing agency

[[Page 582]]

must maintain records of reports and other information relating to 
disasters.
    (g) Replacement of donated foods. In order to ensure replacement of 
donated foods used in disasters, the distributing agency must submit to 
FNS a request for such replacement, utilizing form FNS-292A, Report of 
Commodity Distribution for Disaster Relief, within 45 days following the 
termination of disaster assistance. The distributing agency may request 
replacement of foods used from inventories in which donated foods are 
commingled with other foods (i.e., at storage facilities of recipient 
agencies utilizing single inventory management), if the recipient agency 
received donated foods of the same type as the foods used during the 
year preceding the onset of the disaster assistance. FNS will replace 
such foods in the amounts used, or in the amount of like donated foods 
received during the preceding year, whichever is less.
    (h) Reimbursement of transportation costs. In order to receive 
reimbursement for any costs incurred in transporting donated foods 
within the State, or from one State to another, for use in disasters, 
the distributing agency must submit a public voucher to FNS with 
documentation of such costs. FNS will review the request and reimburse 
the distributing agency.

[81 FR 23113, Apr. 19, 2016]



Sec. 250.70  Situations of distress.

    (a) Use of donated foods to provide congregate meals. The 
distributing agency may provide donated foods from current inventories, 
either at the distributing or recipient agency level, to a disaster 
organization, for use in providing congregate meals to persons in need 
of food assistance because of a situation of distress, as this term is 
defined in Sec. 250.2. If the situation of distress results from a 
natural event (e.g., a hurricane, flood, or snowstorm), such donated 
food assistance may be provided for a period not to exceed 30 days, 
without the need for FNS approval. However, the distributing agency must 
notify FNS that such assistance is to be provided. FNS approval must be 
obtained to permit such donated food assistance for a period exceeding 
30 days. If the situation of distress results from other than a natural 
event (e.g., an explosion), FNS approval is required to permit donated 
food assistance for use in providing congregate meals for any period of 
time.
    (b) Use of donated foods for distribution to households. The 
distributing agency must receive FNS approval to provide donated foods 
from current inventories, either at the distributing or recipient agency 
level, to a disaster organization for distribution to households in need 
of food assistance because of a situation of distress. Such distribution 
may continue for the period of time that FNS determines necessary to 
meet the needs of such households. However, households receiving D-SNAP 
benefits are not eligible to receive such donated food assistance.
    (c) Approval of disaster organizations. Before distribution of 
donated foods to a disaster organization, the distributing agency must 
review and approve such organization's application in accordance with 
applicable FNS guidance, which must be submitted to the distributing 
agency either electronically or in written form. The distributing agency 
must also submit such application to FNS for review and approval before 
permitting distribution of donated foods in a situation of distress that 
is not the result of a natural event, or for any distribution of donated 
foods to households. The disaster organization's application must, to 
the extent possible, include the information required in Sec. 250.69(c).
    (d) Information from households. If the issuance of D-SNAP benefits 
has been approved, the distributing agency must ensure that the disaster 
organization obtains the information in Sec. 250.69(d) from households 
receiving donated foods, and reports such information to the 
distributing agency.
    (e) Eligibility of emergency relief workers for congregate meals. 
The disaster organization may use donated foods to provide meals to any 
emergency relief workers at the congregate feeding site that are 
directly engaged in providing relief assistance.
    (f) Reporting and recordkeeping requirements. The distributing 
agency must report to FNS the number and location of sites where donated 
foods are used in congregate meals or household distribution as these 
sites are established.

[[Page 583]]

The distributing agency must also report the types and amounts of 
donated foods from distributing or recipient agency storage facilities 
used in the situation of distress, utilizing form FNS-292A, Report of 
Commodity Distribution for Disaster Relief, which must be submitted 
electronically, within 45 days from the termination of assistance. This 
form must also be used to request replacement of donated foods, in 
accordance with paragraph (g) of this section. The distributing agency 
must maintain records of reports and other information relating to 
situations of distress.
    (g) Replacement of donated foods. FNS will replace donated foods 
used in a situation of distress only to the extent that funds to provide 
for such replacement are available. The distributing agency must submit 
to FNS a request for replacement of such foods, utilizing form FNS-292A, 
Report of Commodity Distribution for Disaster Relief, which must be 
submitted electronically, within 45 days from the termination of 
assistance. The distributing agency may request replacement of foods 
used from inventories in which donated foods are commingled with other 
foods (i.e., at storage facilities of recipient agencies utilizing 
single inventory management), if the recipient agency received donated 
foods of the same type as the foods used during the year preceding the 
onset of the situation of distress. Subject to the availability of 
funds, FNS will replace such foods in the amounts used, or in the amount 
of like donated foods received during the preceding year, whichever is 
less.
    (h) Reimbursement of transportation costs. In order to receive 
reimbursement for any costs incurred in transporting donated foods 
within the State, or from one State to another, for use in a situation 
of distress, the distributing agency must submit a public voucher to FNS 
with documentation of such costs. FNS will review the request and 
reimburse the distributing agency to the extent that funds are 
available.

[81 FR 23113, Apr. 19, 2016]



Sec. 250.71  OMB control numbers.

    Unless as otherwise specified in the table in this section, the 
information collection reporting and recordkeeping requirements in 7 CFR 
part 250 are accounted for in OMB control number 0584-0293.

------------------------------------------------------------------------
                    CFR Cite                         OMB Control No.
------------------------------------------------------------------------
Sec. 250.4(a).................................                0584-0067
Sec. 250.19(a)................................     0584-0067, 0584-0293
Secs.  250.69(f) and (g) and 250.70(f) and (g).     0584-0067, 0584-0293
------------------------------------------------------------------------


[81 FR 23114, Apr. 19, 2016]



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.
251.10  Miscellaneous provisions.

    Authority: 7 U.S.C. 7501-7516; 7 U.S.C. 2011-2036

    Effective Date Note: At 81 FR 92556, Dec. 20, 2016, the authority 
citation to part 251 was revised, effective Jan. 19, 2017. For the 
convenience of the user, the revised text is set forth as follows:
    Authority: 7 U.S.C. 2011-2036.

    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 agencies. Within the States, distribution to eligible 
recipient agencies and receipt of payments for storage and distribution 
shall be the responsibility of the State agency which

[[Page 584]]

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 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 52 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

[[Page 585]]

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 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

[[Page 586]]

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.
    (4) FNS will make allocations of donated commodity or food funding 
available to State agencies for two fiscal years. States will be allowed 
to carry over unexpended balances of donated food funding from one 
fiscal year into the next fiscal year.
    (5) A State's donated food funding allocation remaining at the end 
of the fiscal year after the fiscal year in which it was initially 
appropriated will expire and will be unavailable to the State.
    (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.
    (3) The State shall require the processor to meet State and local 
health standards.
    (4) Processors and State agencies shall also meet the basic minimum 
requirements of Sec. 250.30.
    (g) Distribution and control of donated commodities. The State 
agency must ensure that the distribution, control, and use of donated 
commodities are in accordance with the requirements in this part, and 
with the requirements in 7 CFR part 250, to the extent that requirements 
in 7 CFR part 250 are not inconsistent with the requirements in

[[Page 587]]

this part. Transfers of donated commodities must comply with 
requirements in Secs. 250.12(e) and 250.14(d), as applicable. In 
accordance with Sec. 250.16, the State agency must ensure that 
restitution is made for the loss of donated commodities, or for the loss 
or improper use of funds provided for, or obtained as an incidence of, 
the distribution of donated commodities. The State agency is also 
subject to claims for such losses for which it is responsible, or for 
its failure to initiate or pursue claims against other parties 
responsible for such losses.
    (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 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

[[Page 588]]

distress through the provision of commodities to needy households in 
rural areas of the State.

(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; 81 FR 23115, Apr. 19, 2016]



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 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

[[Page 589]]

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 and amendments. Once approved, State plans are 
permanent. State agencies must submit amendments to the distribution 
plan when 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.
    (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, as amended at 74 FR 62474, Nov. 30, 2009]



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]

[[Page 590]]



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 regulations issued under 2 CFR part 
200, and USDA implementing regulations at 2 CFR parts 400 and 416, 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 (including 
donated wild game); 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
    (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

[[Page 591]]

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; 74 FR 62474, Nov. 30, 2009; 81 FR 23115, 
Apr. 19, 2016]



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 2 CFR part 200, 
subpart D, and USDA implementing regulations at 2 CFR part 400. In 
accordance with the aforementioned regulations, 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 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

[[Page 592]]

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 2 CFR 
part 200, subpart D, and USDA implementing regulations at 2 CFR part 
400, 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; 81 FR 23115, Apr. 19, 2016]



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 2 CFR part 200, subpart D, and USDA 
implementing regulations at 2 CFR part 400, State agencies must maintain 
records to document the amount of funds received 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

[[Page 593]]

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 
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

[[Page 594]]

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.
    (i) Data collection related to eligible recipient agencies. (1) Each 
State agency must collect data related to eligible recipient agencies 
that have an agreement with the State agency to participate in the 
program for each of Federal fiscal years 2006 through 2009, including 
those eligible recipient agencies that participated only for part of the 
fiscal year. Such data shall include:
    (i) The name of each eligible recipient agency;
    (ii) The city in which each participating eligible recipient agency 
was headquartered and the name of the state;
    (iii) The amount of funds provided to the participating 
organization, i.e., the sum of the amount of federal administrative 
funds plus the value of the commodities purchased under Section 214 of 
the Emergency Food Assistance Act of 1983 provided to each participating 
eligible recipient agency; and
    (iv) The type of participating organization, e.g., government 
agency, educational institution, non-profit organization/secular, non-
profit organization/faith-based, and ``other.''
    (2) On or before August 31, 2007, and each subsequent year through 
2010, State agencies must report to FNS data as specified in paragraph 
(i)(1) of this section for the prior Federal fiscal year. State agencies 
must submit this data in a format designated by FNS.

(Approved by the Office of Management and Budget under control number 
0584-0313)

[51 FR 12823, Apr. 16, 1986. Redesignated and amended at 52 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; 72 FR 24184, May 2, 
2007; 81 FR 23115, Apr. 19, 2016]

[[Page 595]]


    Effective Date Note: At 81 FR 92556, Dec. 20, 2016, Sec. 251.10 was 
amended by revising paragraph (i), effective Jan. 19, 2017. For the 
convenience of the user, the revised text is set forth as follows:



Sec. 251.10  Miscellaneous provisions.

                                * * * * *

    (i) Recruitment activities related to the Supplemental Nutrition 
Assistance Program (SNAP). Any entity that receives donated foods 
identified in this section must adhere to regulations set forth under 
Sec. 277.4(b)(6) of this chapter.

                                * * * * *



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).

    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 Secs. 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

[[Page 596]]

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 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]

[[Page 597]]



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 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

[[Page 598]]

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 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

[[Page 599]]

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.
    (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.

[[Page 600]]

    (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 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

[[Page 601]]

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 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.

[[Page 602]]

    (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 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

[[Page 603]]

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 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.

[[Page 604]]

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.

    Authority: 91 Stat. 958 (7 U.S.C. 2011-2036).

    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.



Sec. 253.2  Definitions.

    Disabled member means a member of a household who:
    (1) 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;
    (2) 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;
    (3) Receives federally- or State-administered supplemental benefits 
under section 212(a) of Public Law 93-66;
    (4) Receives disability retirement benefits from a governmental 
agency because of a disability considered permanent under section 221(i) 
of the Social Security Act;
    (5) 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;
    (6) 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;
    (7) 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;
    (8) 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 non-service-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;
    (9) 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; 
or
    (10) 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

[[Page 605]]

Act (as set forth at 20 CFR part 416, subpart I, Determining Disability 
and Blindness as defined in Title XVI).
    Elderly member means a member of a household who is sixty years of 
age or older.
    Exercises governmental jurisdiction means the active exercise of the 
legislative, executive or judicial powers of government by an Indian 
tribal organization.
    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.
    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.
    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.
    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.
    Overissuance means the dollar value of commodities issued to a 
household that exceeds the dollar value of commodities it was eligible 
to receive.
    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.
    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.
    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.
    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; 75 FR 4473, Jan. 28, 2010]



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

[[Page 606]]

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, 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

[[Page 607]]

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 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

[[Page 608]]

training and technical assistance are 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),

[[Page 609]]

or XVI (SSI), or with general assistance programs that are subject to 
the 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 responsible for ordering, storing, 
and distributing commodities.

[[Page 610]]

    (1) State agency training programs shall cover eligibility criteria, 
certification procedures, commodity ordering, storage and distribution 
practices, household rights and responsibilities 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-425; 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 irregularities 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

[[Page 611]]

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 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 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

[[Page 612]]

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 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; 81 FR 
66498, Sept. 28, 2016]



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.

[[Page 613]]

    (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.
    (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 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 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

[[Page 614]]

assistance grant, 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 of 
household members.
    (d) 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 applicable SNAP net monthly 
income eligibility standards for the appropriate area, increased by the 
amount of the applicable SNAP standard deduction for that area.
    (ii) The income eligibility standards for the Food Distribution 
Program shall be adjusted each October 1, as necessary, to reflect 
changes in the 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) Per capita payments that are derived from the profits of Tribal 
enterprises and distributed to Tribal members on a monthly basis.
    (G) 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:

[[Page 615]]

    (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 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.
    (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)).

[[Page 616]]

    (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 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.
    (xi) Combat pay. Combat pay is defined as additional payment that is 
received by or from a member of the United States Armed Forces deployed 
to a combat zone, if the additional pay is the result of deployment to 
or service in a combat zone, and was not received immediately prior to 
serving in a combat zone.
    (xii) Per capita payments that are derived from the profits of 
Tribal enterprises and distributed to Tribal members less frequently 
than monthly (e.g., quarterly, semiannually or annually) are excluded 
from consideration as income.
    (e) 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.
    (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 must receive a medical deduction for 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. 253.2 of this chapter. Spouses or other persons receiving 
benefits as a dependent of a Supplemental Security Income (SSI), or 
disability and blindness recipient are not eligible to receive this 
deduction; however, persons receiving emergency SSI benefits based on 
presumptive eligibility are eligible for this deduction. The allowable 
medical costs are those permitted at 7 CFR 273.9(d)(3) for the 
Supplemental Nutrition Assistance Program (SNAP).
    (5) Households that incur monthly shelter and utility expenses will 
receive a shelter/utility standard deduction, subject to the provisions 
below.
    (i) The household must incur, on a monthly basis, at least one 
allowable shelter/utility expense. The allowable shelter/utility 
expenses are those permitted at 7 CFR 273.9(d)(6)(ii) for SNAP.
    (ii) The shelter/utility standard deduction amounts are set by FNS 
on a regional basis. The standard deductions are adjusted annually to 
reflect changes to SNAP Quality Control data. FNS will advise the State 
agencies of the updates prior to October 1 of each year.

[[Page 617]]

    (iii) If eligible to receive a shelter/utility standard deduction, 
the applicant household may opt to receive the appropriate deduction 
amount for the State in which the household resides or the State in 
which the State agency's central administrative office is located.

[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; 75 FR 4473; Jan. 28, 2010; 76 FR 18865, 
Apr. 6, 2011; 78 FR 52831, Aug. 27, 2013]



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 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)

[[Page 618]]

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) Excess medical expense deduction. The State agency must obtain 
verification for those medical expenses that the household wishes to 
deduct in accordance with 7 CFR 253.6(e)(4). The allowability of 
services provided (e.g., whether the billing health professional is a 
licensed practitioner authorized by State law or other qualified health 
professional) must be verified, if questionable. Only out-of-pocket 
expenses can be deducted. Expenses reimbursed to the household by an 
insurer are not deductible. The eligibility of the household to qualify 
for the deduction (i.e., the household includes a member who is elderly 
or disabled) must be verified, if questionable.
    (D) Standard shelter/utility deduction. A household must incur, on a 
monthly basis, at least one allowable shelter/utility expense in 
accordance with 7 CFR 253.6(e)(5)(i) to qualify for the standard 
shelter/utility deduction. The State agency must verify that the 
household incurs the expense.
    (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.

[[Page 619]]

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 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

[[Page 620]]

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 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.

[[Page 621]]

    (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, 
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.
    (iv) In no event may a certification period exceed 12 months, except 
that households in which all adult members are elderly and/or disabled 
may be certified for up to 24 months. Households assigned certification 
periods that are longer than 12 months must be contacted by the State 
agency at least once every 12 months to determine if the household 
wishes to continue to participate in the program and whether

[[Page 622]]

there are any changes in household circumstances that would warrant a 
redetermination of eligibility or a change in benefit level. The State 
agency may use any method it chooses for this contact, including a face-
to-face interview, telephone call or a home visit. Contact with the 
household's authorized representative would not satisfy this 
requirement; the State agency must contact a household member. The case 
file must document the contact with the household and include the date 
of contact, method of contact, name of person contacted, whether the 
household wishes to continue to participate, and whether changes in 
household circumstances would warrant a redetermination of eligibility 
or a change in benefit level.
    (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.
    (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

[[Page 623]]

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) The State agency must develop procedures 
for how changes in household circumstances are reported. Changes 
reported over the telephone or in person must be acted on in the same 
manner as those reported in writing. Participating households are 
required to report the following changes within 10 calendar days after 
the change becomes known to the household:
    (i) A change in household composition;
    (ii) An increase in gross monthly income of more than $100;
    (iii) A change in residence;
    (iv) When the household no longer incurs a shelter and utility 
expense; or
    (v) A change in the legal obligation to pay child support.
    (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 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

[[Page 624]]

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) 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.
    (ii) 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 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

[[Page 625]]

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
    (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

[[Page 626]]

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.
    (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

[[Page 627]]

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; 75 FR 4473, Jan. 28, 
2010; 78 FR 52831, Aug. 27, 2013]



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 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

[[Page 628]]

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? 
(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

[[Page 629]]

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.
    (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

[[Page 630]]

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 Secs. 250.13 and 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 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.

[[Page 631]]

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.

    (a) Allocation of administrative funds to FNS Regional Offices. Each 
fiscal year, after enactment of a program appropriation for the full 
fiscal year and apportionment of funds by the Office of Management and 
Budget, administrative funds will be allocated to each FNS Regional 
Office for further allocation to State agencies. To the extent 
practicable, administrative funds will be allocated to FNS Regional 
Offices in the following manner:
    (1) 65 percent of all administrative funds available nationally will 
be allocated to each FNS Regional Office in proportion to its share of 
the total number of participants nationally, averaged over the three 
previous fiscal years; and
    (2) 35 percent of all administrative funds available nationally will 
be allocated to each FNS Regional Office in proportion to its share of 
the total current number of State agencies administering the program 
nationally.
    (b) Allocation of administrative funds to State agencies. Prior to 
receiving administrative funds, State agencies must submit a proposed 
budget reflecting planned administrative costs to the appropriate FNS 
Regional Office for approval. Planned administrative costs must be 
allowable under part 277 of this chapter. To the extent that funding 
levels permit, the FNS Regional Office allocates to each State agency 
administrative funds necessary to cover 75 percent of approved 
administrative costs.
    (c) State agency matching requirement. State agencies must match 
administrative funds allocated to them as follows:
    (1) Unless Federal administrative funding is approved at a rate 
higher than 75 percent of approved administrative costs, in accordance 
with paragraph (c)(2) of this section, each State agency must contribute 
25 percent of its total approved administrative costs. Cash or non-cash 
contributions, including third party in-kind contributions, and the 
value of services rendered by volunteers, may be used to meet the State 
agency matching requirement. In accordance with part 277 of this 
chapter, such contributions must:
    (i) Be verifiable;
    (ii) Not be contributed for another federally-assisted program, 
unless authorized by Federal legislation;
    (iii) Be necessary and reasonable to accomplish program objectives;
    (iv) Be allowable under part 277 of this chapter;
    (v) Not be paid by the Federal Government under another assistance 
agreement unless authorized under the other agreement and its subject 
laws and regulations; and
    (vi) Be included in the approved budget.
    (2) The State agency may request a waiver to reduce its matching 
requirement below 25 percent of approved administrative costs. In its 
proposed budget, the State agency must submit compelling justification 
to the appropriate FNS Regional Office that it is unable to meet the 25 
percent matching requirement and that additional administrative funds 
are necessary for the effective operation of the program. The FNS 
Regional Office may, at its discretion, approve a reduction of the 
matching requirement and provide additional administrative funds to 
cover more than 75 percent of approved administrative costs to a State 
agency that provides compelling justification.

[[Page 632]]

In its compelling justification submission, the State agency must 
include a summary statement and recent financial documents, in 
accordance with FNS instructions. Compelling justification may include 
but is not limited to:
    (i) The need for additional administrative funding for startup costs 
during the first year of program operation; or
    (ii) The need to prevent a reduction in the level of necessary and 
reasonable program services provided.
    (d) Use of funds by State agencies. Any funds received under this 
section shall be used only for costs that are allowable under part 277 
of this chapter, and that are incurred in operating the food 
distribution program. Such funds may not be used to pay costs that are, 
or may be, paid with funds provided from other Federal sources.
    (e) 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 State agency to 
support or explain the total estimated amounts shown for each budget 
cost category. As required by 2 CFR part 200, subpart D, and USDA 
implementing regulations 2 CFR part 400 and part 415, 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.
    (f) 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.
    (g) 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.

[[Page 633]]

    (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.
    (h) 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 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 2 CFR part 200, subpart D and USDA implementing 
regulations 2 CFR part 400 and part 415, and shall be approved by FNS 
prior to any transfer of funds.
    (i) 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.
    (j) 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-425, ``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, as amended at 77 FR 50907, Aug. 23, 2012; 81 FR 66498, Sept. 
28, 2016]



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.

[[Page 634]]

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 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

[[Page 635]]

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
    (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 Secs. 253.6 and 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 636]]



          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.
271.9  Promotional activities.

    Authority: 7 U.S.C. 2011-2036.

    Editorial Note: Nomenclature changes to part 271 appear at 78 FR 
11972, Feb. 21, 2013.



Sec. 271.1  General purpose and scope.

    (a) Purpose of SNAP. SNAP 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 and Nutrition Act of 2008 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 
supplemental nutrition assistance 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 SNAP, 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

[[Page 637]]

conjunction with another access device, to obtain payments, allotments, 
benefits, money, goods, or other things of value, or that can be used to 
initiate a transfer of funds under the Food and Nutrition Act of 2008, 
as amended.
    Active case means a household which was certified prior to, or 
during, the sample month and issued SNAP 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 project 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.
    Beginning month(s) in a Monthly Reporting and Retrospective 
Budgeting system means either the first month for which the household is 
certified for SNAP benefits (where the State agency has adopted a one 
month accounting system) or the first month for which the household is 
certified for SNAP benefits 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 638]]

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 SNAP 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.
    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 and Nutrition Act 
of 2008, 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 and Nutrition Act of 
2008, 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;
    (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

[[Page 639]]

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 and any deposit fee in excess of the 
amount of the State fee reimbursement (if any) required to purchase any 
food or food product contained in a returnable bottle, can, or other 
container, regardless of whether the fee is included in the shelf price 
posted for the food or food product;
    (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 SNAP 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 640]]

    (9) In the case of homeless SNAP 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 and Nutrition Act of 2008 (7 U.S.C. 2014(2)(4)(B)) designed 
to help SNAP recipients move promptly into unsubsidized employment.
    Employment and training (E&T) mandatory participant a supplemental 
nutrition assistance 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 SNAP 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 SNAP 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 641]]

    (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 SNAP 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 SNAP 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 25,000 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 SNAP 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 5,000 to 25,000 households based on the most 
current information available at the time the medium project area review 
schedule is developed.
    Minimum benefit means the minimum monthly amount of SNAP benefits 
that

[[Page 642]]

one- and two-person households receive. The amount of the minimum 
benefit shall be $10.
    National performance measure means the sum of the products of each 
State agency's payment error rate times that State agency's proportion 
of the total value of the national allotments issued for the fiscal year 
using the most recent issuance data available at the time the State 
agency is notified of its performance error rate.
    Negative case means any action taken to deny, suspend, or terminate 
a case.
    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 SNAP 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 SNAP conducted under the Food and Nutrition Act of 
2008 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 SNAP 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 SNAP 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 refer to provisions of this subchapter unless otherwise 
specified.

[[Page 643]]

    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.
    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 SNAP 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 SNAP 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.
    Secretary means the Secretary of the U.S. Department of Agriculture.
    Shelter for battered women and children means a public or private 
nonprofit

[[Page 644]]

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 4,999 households or fewer based on the most 
current information available at the time the small project area review 
schedule is developed.
    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 SNAP benefits 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 SNAP 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 and Nutrition 
Act of 2008 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 
Indian tribal organization of any Indian tribe determined by the 
Department to be capable of effectively administering a supplemental 
nutrition assistance program or a Food Distribution Program in 
accordance with provisions of the Food and Nutrition Act of 2008.
    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 SNAP, 
excluding Post Offices.
    Supplemental Security Income (SSI) means monthly cash payments made 
under the authority of: (1) Title XVI of 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

[[Page 645]]

aliens applying for SNAP 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 SNAP 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:
    (1) The buying, selling, stealing, or otherwise effecting an 
exchange of SNAP benefits issued and accessed via Electronic Benefit 
Transfer (EBT) cards, card numbers and personal identification numbers 
(PINs), or by manual voucher and signature, for cash or consideration 
other than eligible food, either directly, indirectly, in complicity or 
collusion with others, or acting alone;
    (2) The exchange of firearms, ammunition, explosives, or controlled 
substances, as defined in section 802 of title 21, United States Code, 
for SNAP benefits;
    (3) Purchasing a product with SNAP benefits that has a container 
requiring a return deposit with the intent of obtaining cash by 
discarding the product and returning the container for the deposit 
amount, intentionally discarding the product, and intentionally 
returning the container for the deposit amount;
    (4) Purchasing a product with SNAP benefits with the intent of 
obtaining cash or consideration other than eligible food by reselling 
the product, and subsequently intentionally reselling the product 
purchased with SNAP benefits in exchange for cash or consideration other 
than eligible food; or
    (5) Intentionally purchasing products originally purchased with SNAP 
benefits in exchange for cash or consideration other than eligible food.
    (6) Attempting to buy, sell, steal, or otherwise affect an exchange 
of SNAP benefits issued and accessed via Electronic Benefit Transfer 
(EBT) cards, card numbers and personal identification numbers (PINs), or 
by manual voucher and signatures, for cash or consideration other than 
eligible food, either directly, indirectly, in complicity or collusion 
with others, or acting alone.
    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 at www.fdsys.gov.

    Effective Date Notes: 1. At 81 FR 89839, Dec. 13, 2016, Sec. 271.2 
was amended by revising the definition of ``Identification (ID) card,'' 
effective Jan. 12, 2017. For the convenience of the user, the revised 
text is set forth as follows:



Sec. 271.2  Definitions.

                                * * * * *

    Identification (ID) card means a card for the purposes of 7 CFR 
278.2(j).

                                * * * * *

    2. At 81 FR 90698, Dec. 15, 2016, Sec. 271.2 was amended by adding a 
definition for Firm, and by revising paragraph (1) of the definition of 
retail food store, and the definition of staple

[[Page 646]]

food, effective Jan. 17, 2017. For the convenience of the user, the 
added and revised text is set forth as follows:



Sec. [thinsp]271.2  Definitions.

                                * * * * *

    Firm. (1) Firm means:
    (i) A retail food store that is authorized to accept or redeem SNAP 
benefits;
    (ii) A retail food store that is not authorized to accept or redeem 
SNAP benefits; or
    (iii) An entity that does not meet the definition of a retail food 
store.
    (2) For purposes of the regulations in this subchapter and SNAP 
policies, the terms firm, entity, retailer, and store are used 
interchangeably.

                                * * * * *

    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 qualifying staple food items on a 
continuous basis, evidenced by having no fewer than seven different 
varieties of food items in each of the four staple food categories with 
a minimum depth of stock of three stocking units for each qualifying 
staple variety, including at least one variety of perishable foods in at 
least three 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 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: Food cooked or heated on-site by the retailer 
before or after purchase; and hot and/or cold prepared foods not 
intended for home preparation and consumption, including prepared foods 
that are consumed on the premises or sold for carry-out are not eligible 
for SNAP participation as retail food stores under Sec. 278.1(b)(1) of 
this chapter. Establishments that include separate businesses that 
operate under one roof and share the following commonalities: Ownership, 
sale of similar foods, and shared inventory, are considered to be a 
single firm when determining eligibility to participate in SNAP as 
retail food stores.

                                * * * * *

    Staple food means those food items intended for home preparation and 
consumption in each of the following four categories: Meat, poultry, or 
fish; bread or cereals; vegetables or fruits; and dairy products. The 
meat, poultry, or fish staple food category also includes up to three 
types of plant-based protein sources (i.e., nuts/seeds, beans, and peas) 
as well as varieties of plant-based meat analogues (e.g., tofu). The 
dairy products staple food category also includes varieties of plant-
based dairy alternative staple food items such as, but not limited to, 
almond milk and soy yogurt. Hot foods are not eligible for purchase with 
SNAP benefits and, therefore, do not qualify as staple foods for the 
purpose of determining eligibility under Sec. [thinsp]278.1(b)(1) of 
this chapter. Commercially processed foods and prepared mixtures with 
multiple ingredients that do not represent a single staple food category 
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 
be included in the staple food category of the main ingredient as 
determined by FNS. Accessory food items include foods that are generally 
considered snack foods or desserts such as, but not limited to, chips, 
ice cream, crackers, cupcakes, cookies, popcorn, pastries, and candy, 
and other food items that complement or supplement meals, such as, but 
not limited to, coffee, tea, cocoa, carbonated and uncarbonated drinks, 
condiments, spices, salt, and sugar. Items shall not be classified as 
accessory food exclusively based on packaging size but rather based on 
the aforementioned definition and as determined by FNS. A food product 
containing an accessory food item as its main ingredient shall be 
considered an accessory food item. Accessory food items shall not be 
considered staple foods for purposes of determining the eligibility of 
any firm.

                                * * * * *



Sec. 271.3  Delegations to FNS for administration.

    (a) Delegation. Within the Department, FNS acts on behalf of the 
Department in the administration of SNAP 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.

[[Page 647]]

    (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;
    (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 
and Nutrition Act of 2008, 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 and Nutrition Act of 2008 or under any other 
applicable Federal, State or local law, regulation or ordinance.
    (1) Section 15(b)(1) of the Food and Nutrition Act of 2008 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 supplemental nutrition assistance 
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.


[[Page 648]]


    (2) Section 15(b)(2) of the Food and Nutrition Act of 2008 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 and Nutrition Act of 2008 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 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 supplemental nutrition assistance 
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 
and Nutrition Act of 2008 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

[[Page 649]]

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 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;

[[Page 650]]

    (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 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 disability; 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

[[Page 651]]

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 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; 76 FR 27606, May 12, 2011]



Sec. 271.7  Allotment reduction procedures.

    (a) General purpose. This section sets forth the procedures to be 
followed if the monthly SNAP 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 and Nutrition Act of 2008, 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 and Nutrition Act of 2008, 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 SNAP 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

[[Page 652]]

maximum SNAP 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 SNAP allotments amount is to be 
made, the reduction for all four-person households would be calculated 
as follows: The maximum SNAP 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 SNAP income would be deducted from the 
reduced maximum SNAP allotments amount. For example, 30 per cent of a 
net SNAP income of $200, $60, would be deducted from the reduced maximum 
SNAP 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 SNAP allotments, FNS shall notify 
State agencies of the date the reduction is to take effect and by what 
percentage maximum SNAP 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 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 SNAP 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 SNAP allotments amounts and reduce maximum SNAP 
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 SNAP 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

[[Page 653]]

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 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 SNAP allotments amount by the 
appropriate percentage for the applicant's household size and then 
deducting 30 percent of the household's net SNAP income from the reduced 
maximum SNAP 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

[[Page 654]]

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 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; 78 FR 11972, Feb. 21, 2013]



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 (c)(16)..............................................     0584-New
273.7 (f)..................................................    0584-0064

[[Page 655]]

 
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.
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), (f), (i).............................    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; 79 FR 10, Jan. 2, 2014]



Sec. 271.9  Promotional activities.

    No funds authorized to be appropriated under the Food and Nutrition 
Act of 2008, as amended, shall be used for recruitment or promotion 
activities as described in Sec. 277.4(b)(5). No entity receiving funds 
under the Food and Nutrition Act of 2008, as amended, shall be permitted 
to perform activities described in Sec. 277.4(b)(6) of this chapter.

[81 FR 92556, Dec. 20, 2016]

    Effective Date Note: At 81 FR 92556, Dec. 20, 2016, Sec. 271.9 was 
added, effective Jan. 19, 2017.



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.

[[Page 656]]

272.9  Approval of homeless meal providers.
272.10  ADP/CIS Model Plan.
272.11  Systematic Alien Verification for Entitlements (SAVE) Program.
272.12  Computer matching requirements.
272.13  Prisoner verification system (PVS).
272.14  Deceased matching system.
272.15  Major changes in program design.
272.16  National Directory of New Hires.

    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 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

[[Page 657]]

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 acting in 
their official capacity, upon written request by such law enforcement 
officers that includes the name of the household member being sought, 
for the purpose of obtaining the address, social security number, and, 
if available, photograph of the 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 a high 
misdemeanor in New Jersey), or is violating a condition of probation or 
parole imposed under a Federal or State law. The State agency shall 
provide information regarding a household member, upon written request 
of a law enforcement officer acting in his or her official capacity that 
includes the name of the person being sought, if the other household 
member has information necessary for the apprehension or investigation 
of the other household member who is fleeing to avoid prosecution or 
custody for a felony, or has violated a condition of probation or parole 
imposed under Federal or State law. The State agency must accept any 
document that reasonably establishes the identity of the household 
member being sought by law enforcement authorities. 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 follow the 
procedures in Sec. 273.11(n) to determine whether the member's 
eligibility in SNAP should be terminated. A determination and request 
for information that does not comply with the terms and procedures in 
Sec. 273.11(n) 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 written request of a law 
enforcement agency authorized by this paragraph.
    (viii) Local educational agencies administering the National School 
Lunch Program established under the Richard B. Russell National School 
Lunch Act or the School Breakfast Program established under the Child 
Nutrition Act of 1966, for the purpose of directly certifying the 
eligibility of school-aged children for receipt of free meals under the 
School Lunch and School Breakfast programs based on their receipt of 
Supplemental Nutrition Assistance Program benefits.
    (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

[[Page 658]]

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 no less 
than 3 years from the month of origin of each record. In addition:
    (1) 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.
    (2) Case records relating to intentional Program violation 
disqualifications and related notices to the household shall be retained 
indefinitely until the State agency obtains reliable information that 
the record subject has died or until FNS advises via the disqualified 
recipient database system edit report that all records associated with a 
particular individual, including the disqualified recipient database 
record, may be permanently removed from the database because of the 
individual's 80th birthday.
    (3) Disqualification records submitted to the disqualified recipient 
database must be purged by the State agency that submitted them when the 
supporting documents are no longer accurate, relevant, or complete. The 
State agency shall follow a prescribed records management program to 
meet this requirement. Information about this program shall be available 
for FNS review.
    (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.
    (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

[[Page 659]]

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 Secs. 273.17 and 273.18 of these 
regulations. The procedures for calculating lost benefits or 
overissuances as specified in Secs. 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 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

[[Page 660]]

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-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

[[Page 661]]

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 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

[[Page 662]]

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 dependency, 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 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.

[[Page 663]]

    (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. 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

[[Page 664]]

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 Secs. 273.16 and 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 Secs. 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 corrective action has not 
been completed. Ninety days after publication of these regulations, all 
provisions of Secs. 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

[[Page 665]]

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 
Secs. 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:
    (i) State agencies shall implement the income/resource disregard 
provision for Federal, State, and local energy assistance payments 
(Secs. 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 (Secs. 273.1, 273.2, 273.5,

[[Page 666]]

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 Project 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 project 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 
Secs. 273.8 and 273.9 of this amendment for all new applicants no later 
than February 1, 1981. States shall convert the 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 Secs. 273.2 and 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 Secs. 273.2 and 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

[[Page 667]]

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 
Secs. 272.2 and 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]
    (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

[[Page 668]]

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 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.

[[Page 669]]

    (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 Secs. 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 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

[[Page 670]]

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 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

[[Page 671]]

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, 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

[[Page 672]]

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.
    (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

[[Page 673]]

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 prohibition of 
State or local sales taxes on foods purchased with food stamp coupons 
shall be implemented on October 1 of the calendar 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 
Secs. 271.2, 273.2, 273.5, 273.9, 273.10(d)(6), and 273.21(b) 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

[[Page 674]]

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 Secs. 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.
    (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 
Secs. 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

[[Page 675]]

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 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

[[Page 676]]

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.
    (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.

[[Page 677]]

    (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;
    (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.

[[Page 678]]

    (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 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

[[Page 679]]

    (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 Secs. 273.2(e)(2), 273.7(b)(1)(vii), 
273.9(b)(1)(iii), 276.2(d) and 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 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

[[Page 680]]

Sec. 273.2(j)(2)(iii)(B) and amend Secs. 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 Secs. 273.9, 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:

[[Page 681]]

    (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 
Secs. 272.2 (a) and (d) and 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). 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

[[Page 682]]

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 
Secs. 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.
    (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 Secs. 271.2, 271.7, 
273.1(e)(1)(iii), 273.2(k)(1)(i)(H), 273.2(m), 273.10, 273.18

[[Page 683]]

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 (Secs. 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 Secs. 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 Secs. 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 Secs. 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 (Secs. 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 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

[[Page 684]]

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.
    (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

[[Page 685]]

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 
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 Secs. 271.2, 273.1, and 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;

[[Page 686]]

    (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 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.

[[Page 687]]

    (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.
    (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

[[Page 688]]

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. 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)

[[Page 689]]

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, 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

[[Page 690]]

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 amendment to Food 
Stamp Program regulations in Secs. 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), and (f), and 
2 CFR part 200, subpart D and USDA implementing regulations 2 CFR part 
400 and part 415 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 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

[[Page 691]]

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 Secs. 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.
    (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

[[Page 692]]

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) Amendment No. 394. The interim and final provisions of 
Amendment No. 394 are effective May 11, 2005. State agencies may 
implement the provisions anytime after May 11, 2005 but no later than 
October 11, 2005.
    (169) Amendment No. 395. The provisions of Amendment 395 are 
effective December 15, 2003.
    (170) Amendment No. 396. The provisions of amendment number 396 are 
effective April 8, 2005.
    (171) Amendment No. 397. The provisions of Amendment No. 397 are 
effective January 4, 2006. State agencies may implement the provisions 
anytime after the rule is published but no later than June 5, 2006.
    (172) Amendment No. 400. The provisions of Amendment No. 400, 
regarding the Employment and Training Program Provisions of the Farm 
Security and Rural Investment Act of 2002 are effective August 8, 2006.
    (173) Amendment No. 401. The provisions of Amendment No. 401 are 
implemented as follows:
    (i) The following amendments were to be implemented October 1, 2002: 
7 CFR 273.4(a)(6)(ii)(H), 7 CFR 273.8(b), and 7 CFR 273.9(d)(1).
    (ii) The following amendments were to be implemented April 1, 2003: 
7 CFR 273.4(a)(6)(ii)(B) through 7 CFR 273.4(a)(6)(ii)(F) and 
273.4(a)(6)(iii).
    (iii) The following amendments were to be implemented October 1, 
2003: 7 CFR 273.4 (a)(6)(ii)(J); 7 CFR 273.4(c)(3)(vi).
    (iv) State agencies must implement the following amendments no later 
than August 1, 2010: 7 CFR 273.4(c)(2)(v), 7 CFR 273.4(c)(3)(iv), 7 CFR 
273.4(c)(3)(vii), 7 CFR 273.9(b)(1)(vi), and 7 CFR 273.9(c)(3)(ii)(A).
    (v) State agencies may implement all other amendments on or after 
the effective date.
    (vi) State agencies that implemented discretionary provisions, 
either under existing regulations or policy guidance issued by the 
Department, prior to the publication of this final rule have until 
August 1, 2010 to amend their policies to conform to the final rule 
requirements.

[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 at www.fdsys.gov.

    Effective Date Note: At 81 FR 89839, Dec. 13, 2016, Sec. 272.1 was 
amended by removing paragraphs (g)(30) and (47), effective Jan. 12, 
2017.



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

[[Page 693]]

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 
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

[[Page 694]]

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 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 quarterly 
(unless otherwise directed by FNS), solicits a summary of Program 
activity for the State agency's operations during the preceding 
reporting period.
    (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

[[Page 695]]

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 Supplemental Nutrition Assistance Program Education (SNAP-Ed) 
grant funds to conduct nutrition education and obesity prevention 
services 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, 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) Claims Management Plan as required by Sec. 273.18(a)(3) to be 
submitted for informational purposes only; not subject to approval as 
part of the plan submission procedures under paragraph (e) of this 
section.
    (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.
    (xvi) If the State agency chooses to implement the optional 
provisions specified in:
    (A) Sections 273.2(f)(1)(xii), 273.2(f)(8)(i)(A), 273.9(d)(5), 
273.9(d)(6)(i), and 273.12(a)(4) of this chapter, it must include in the 
Plan's attachment the options it has selected;
    (B) Section 273.8(e)(19) of this chapter, it must include in the 
Plan's attachment a statement that the option has been selected and a 
description of the resources being excluded under the provision;
    (C) Section 273.9(c)(3) of this chapter, it must include in the 
Plan's attachment a statement that the option has been selected and a 
description of the types of educational assistance being excluded under 
the provision;
    (D) Section 273.9(c)(18) of this chapter, it must include in the 
Plan's attachment a statement that the option has been selected and a 
description of the types of payments being excluded under the provision;
    (E) Section 273.9(c)(19) of this chapter, it must include in the 
Plan's attachment a statement that the option has been selected and a 
description of

[[Page 696]]

the types of income being excluded under the provision;
    (F) Section 273.12(a)(5) of this chapter, it must include in the 
Plan's attachment a statement that the option has been selected and a 
description of the types of households to whom the option applies;
    (G) Section 273.12(c) of this chapter, it must include in the Plan's 
attachment a statement that the option has been selected and a 
description of the deductions affected; and
    (H) Section 273.26 of this chapter, it must include in the Plan's 
attachment a statement that the option has been selected and specify the 
categories of households eligible for transitional benefits and the 
maximum number of months for which such benefits will be provided.
    (xvii) A plan indicating the definition of fleeing felon the State 
agency has adopted, as provided for in Sec. 273.11(n).
    (2) Nutrition Education Plan. If submitted, the Supplemental 
Nutrition Assistance Program Education (SNAP-Ed) Plan must include the 
following:
    (i) Conform to standards established in this regulation, SNAP-Ed 
Plan Guidance, and other FNS policy. A State agency may propose to 
implement an annual or multiyear Plan of up to three years;
    (ii) Identify the methods the State will use to notify applicants, 
participants and eligible individuals to the maximum extent possible of 
the availability of SNAP-Ed activities in local communities;
    (iii) Describe methods the State agency will use to identify its 
target audience. FNS will consider for approval targeting strategies and 
supporting data sources included in SNAP-Ed Plan Guidance and alternate 
targeting strategies and supporting data sources proposed by State 
agencies;
    (iv) Present a valid and data-driven needs assessment of the 
nutrition, physical activity, and obesity prevention needs of the target 
population, and their barriers to accessing healthy foods and physical 
activity. The needs assessment should consider the diverse 
characteristics of the target population, including race/ethnicity, 
gender, employment status, housing, language, transportation/mobility 
needs, and other factors;
    (v) Ensure interventions are appropriate for the low-income 
population defined as SNAP participants and low-income individuals 
eligible to receive benefits under SNAP or other means-tested Federal 
assistance programs and individuals residing in communities with a 
significant low-income population. The interventions must recognize the 
population's constrained resources and potential eligibility for Federal 
food assistance;
    (vi) Describe the evidence-based nutrition education and obesity 
prevention services that the State will provide in SNAP-Ed and how the 
State will deliver those services, either directly or through agreements 
with other State or local agencies or community organizations, and how 
the interventions and strategies meet the assessed nutrition, physical 
activity, and obesity prevention needs of the target population;
    (vii) Use of Funds. (A) A State agency must use the SNAP-Ed 
nutrition education and obesity prevention grant to fund the 
administrative costs of planning, implementing, operating, and 
evaluating its SNAP-Ed program in accordance with its approved SNAP-Ed 
Plan; State agencies shall provide program oversight to ensure integrity 
of funds and demonstrate program effectiveness regarding SNAP-Ed 
outcomes and impacts;
    (B) Definitions. SNAP nutrition education and obesity prevention 
services are defined as a combination of educational strategies, 
accompanied by supporting environmental interventions, demonstrated to 
facilitate adoption of food and physical activity choices and other 
nutrition-related behaviors conducive to the health and well-being of 
SNAP participants and low-income individuals eligible to receive 
benefits under SNAP or other means-tested Federal assistance programs 
and individuals residing in communities with a significant low-income 
population. Nutrition education and obesity prevention services are 
delivered through multiple venues, often

[[Page 697]]

through partnerships, and involve activities at the individual, 
interpersonal, community, and societal levels. Acceptable policy level 
interventions are activities that encourage healthier choices based on 
the current Dietary Guidelines for Americans. Intervention strategies 
may focus on increasing consumption of certain foods, beverages, or 
nutrients as well as limiting consumption of certain foods, beverages, 
or nutrients consistent with the Dietary Guidelines for Americans;SNAP-
Ed nutrition education and obesity prevention activities must be 
evidence-based. An evidence-based approach for nutrition education and 
obesity prevention is defined as the integration of the best research 
evidence with best available practice-based evidence. The best research 
evidence refers to relevant rigorous nutrition and public health 
nutrition research including systematically reviewed scientific 
evidence. Practice-based evidence refers to case studies, pilot studies 
and evidence from the field on nutrition education interventions that 
demonstrate obesity prevention potential. Evidence may be related to 
obesity prevention target areas, intervention strategies and/or specific 
interventions. The target areas are identified in the current Dietary 
Guidelines for Americans. SNAP-Ed services may also include emerging 
strategies or interventions, which are community- or practitioner-driven 
activities that have the potential for obesity prevention, but have not 
yet been formally evaluated for obesity prevention outcomes. Emerging 
strategies or interventions require a justification for a novel approach 
and must be evaluated for effectiveness. Intervention strategies are 
broad approaches to intervening on specific target areas. Interventions 
are a specific set of evidence-based, behaviorally-focused activities 
and/or actions to promote healthy eating and active lifestyles. 
Evidence-based allowable uses of funds for SNAP-Ed include conducting 
and evaluating intervention programs, and implementing and measuring the 
effects of policy, systems and environmental changes in accordance with 
SNAP-Ed Plan Guidance;
    (C) SNAP-Ed activities must promote healthy food and physical 
activity choices based on the most recent Dietary Guidelines for 
Americans.
    (D) SNAP-Ed activities must include evidence-based activities using 
two or more of these approaches: individual or group-based nutrition 
education, health promotion, and intervention strategies; comprehensive, 
multi-level interventions at multiple complementary organizational and 
institutional levels; community and public health approaches to improve 
nutrition and physical activity;
    (viii) Include a description of the State's efforts to coordinate 
activities with national, State, and local nutrition education, obesity 
prevention, and health promotion initiatives and interventions, whether 
publicly or privately funded. States must consult and coordinate with 
State and local operators of other FNS programs, including the Special 
Supplemental Nutrition Program for Women, Infants, and Children (WIC), 
the National School Lunch Program, Farm to School, and the Food 
Distribution Program on Indian Reservations, to ensure SNAP-Ed 
complements the nutrition education and obesity prevention activities of 
those programs. States may engage in breastfeeding education, promotion, 
and support that is supplementary to and coordinated with WIC, which has 
the lead and primary role in all breastfeeding activities among FNS 
programs. The relationship between the State agency and other 
organizations it plans to coordinate with for the provision of services, 
including statewide organizations must be described. Copies of contracts 
and Memoranda of Agreement or Understanding that involve funds made 
available under the State agency's Federal SNAP-Ed grant must be 
available for inspection upon request;
    (ix) Include an operating budget for the Federal fiscal year with an 
estimate of the cost of operation for one or more years, according to 
the State's approved SNAP-Ed Plan. As part of the budget process, the 
State must inform FNS by the end of the first quarter of each Federal 
fiscal year (December 31) of any portion of its prior year allocation 
that it cannot or does not plan to

[[Page 698]]

spend for SNAP-Ed activities by the end of the Federal fiscal year.
    (x) Federal financial participation and allocation of grants. (A) A 
State agency's receipt of a Federal SNAP-Ed grant is contingent on FNS' 
approval of the State agency's SNAP-Ed Plan. If an adequate Plan is not 
submitted or an extension granted, FNS may reallocate a State agency's 
grant among other State agencies with approved Plans. These funds are 
the only source of Federal funds to States available under section 28 of 
the Food and Nutrition Act of 2008, as amended, for SNAP nutrition 
education and obesity prevention services. Funds in excess of the grants 
are not eligible for SNAP Federal reimbursement. The grant requires no 
State contribution or match;
    (B) Shall identify the uses of funding for State or local projects 
and show that the funding received shall remain under the administrative 
control of the State agency;
    (C) For each of fiscal years (FY) 2011-2013, each State agency that 
submitted an approved 2009 SNAP-Ed Plan received a Federal grant based 
on the State's SNAP-Ed expenditures in FY 2009, as reported to the 
Secretary in February 2010, in proportion to FY 2009 SNAP-Ed 
expenditures by all States in that year.
    (D) For FY 2014 and subsequent years, the allocation formula 
(prescribed insection 28(d)(2)(A) of the Food and Nutrition Act of 2008) 
is based on a ratio of:
    (1) A State's share of national SNAP-Ed expenditures in FY 2009 in 
relation to State SNAP-Ed expenditures nationally (as described in 
paragraph (d)(2)(x)(C) of this section) and
    (2) The percentage of the number of individuals participating in 
SNAP in the State during the preceding fiscal year in relation to the 
percentage of SNAP participation nationally during that year.
    (E) The second part of the formula applicable to FY 2014 and 
subsequent years, the ratio of SNAP participation in a State in relation 
to SNAP participation nationally, will annually increase as a percentage 
of the annual Federal SNAP-Ed funding. In FY 2014, the formula's ratio 
of State FY 2009 SNAP-Ed expenditures to SNAP participation was 90/10. 
SNAP participation will increase as a factor in the funding formula 
until FY 2018, when the ratio will be 50/50. The 50/50 ratio shall 
continue after FY 2018.
    The allocations to a State for SNAP-Ed grants will be:
    (1) For FY 2013, in direct proportion to a State's SNAP-Ed 
expenditures for FY 2009, as reported in February 2010;
    (2) For FY 2014, 90 percent based on a State's FY 2009 SNAP-Ed 
expenditures, and 10 percent based on the State's share of national SNAP 
participants for the 12-month period February 1, 2012 to January 31, 
2013;
    (3) For FY 2015, 80 percent based on a State's FY 2009 SNAP-Ed 
expenditures, and 20 percent based on the State's share of national SNAP 
participants for the 12-month period February 1, 2013 to January 31, 
2014;
    (4) For FY 2016, 70 percent based on a State's FY 2009 SNAP-Ed 
expenditures, and 30 percent based on the State's share of national SNAP 
participants for the 12-month period February 1, 2014 to January 31, 
2015;
    (5) For FY 2017, 60 percent based on a State's FY 2009 SNAP-Ed 
expenditures, and 40 percent based on the State's share of national SNAP 
participants for the 12-month period February 1, 2015 to January 31, 
2016; and,
    (6) For FY 2018 and subsequent years, 50 percent based on a State's 
FY 2009 SNAP-Ed expenditures, and 50 percent based on the State's share 
of national SNAP participants for the previous 12-month period ending 
January 31;
    (F) If a participating State agency notifies FNS as required in (ix) 
above that it will not obligate or expend all of the funds allocated to 
it for a fiscal year under this section, FNS may reallocate the 
unobligated or unexpended funds to other participating State agencies 
that have approved SNAP-Ed Plans during the period for which the funding 
is available for new obligations by FNS. Reallocated funds received by a 
State will be considered part of its base FY 2009 allocation for the 
purpose of determining the State's allocation for the next fiscal year; 
funds surrendered by a State shall not be considered part of its base FY 
2009 allocation for the next fiscal year for the purpose

[[Page 699]]

of determining the State's allocation for the next fiscal year.
    (xi) Fiscal recordkeeping and reporting requirements. Each 
participating State agency must meet FNS fiscal recordkeeping and 
reporting requirements. Total SNAP-Ed expenditures and State, private, 
and other contributions to SNAP-Ed activities are reported through the 
financial reporting means and in the timeframe designated by FNS;
    (xii) Additional information may be required of the State agency, on 
an as needed basis, regarding the type of nutrition education and 
obesity prevention activities offered and the characteristics of the 
target population served, depending on the contents of the State's SNAP-
Ed Plan, to determine whether nutrition education goals are being met;
    (xiii) The State agency must submit a SNAP-Ed Annual Report to FNS 
by January 31 of each year. The report shall describe SNAP-Ed Plan 
project activities, outcomes, and budget for the prior year.
    (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 quarterly 
(unless otherwise directed by FNS) based on the Federal 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 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 SNAP-Ed Plan shall be signed by the head of the State agency 
and submitted prior to funding of nutrition education and obesity 
prevention activities when the State agency elects to request Federal 
grant funds to conduct these SNAP-Ed activities. The Plan shall be 
submitted for approval no later than August 15. Approved plans become 
effective the following FFY October 1 to September 30.
    (7) Where applicable, State agencies shall consult (on an ongoing 
basis)

[[Page 700]]

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)(8).
    (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 subagency, 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 specified 2 CFR part 200, subpart E and USDA implementing 
regulations 2 CFR part 400 and part 415.
    (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

[[Page 701]]

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 at www.fdsys.gov.



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 
Secs. 273.8(e)(14) and 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 
directives 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.
    (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 Secs. 273.2(b) 
and 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;

[[Page 702]]

    (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).
    (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 at www.fdsys.gov.



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

[[Page 703]]

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, 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

[[Page 704]]

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 project 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
    (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

[[Page 705]]

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' Program 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. 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

[[Page 706]]

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) 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.
    (2) 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 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; 78 FR 20422, Apr. 5, 2013]

    Effective Date Note: At 81 FR 92556, Dec. 20, 2016, Sec. 272.5 was 
amended by revising paragraph (c), effective Jan. 19, 2017. For the 
convenience of the user, the revised text is set forth as follows:



Sec. 272.5  Program informational activities.

                                * * * * *

    (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 availability, eligibility requirements, application 
procedures, and benefits of SNAP. Allowable informational activities 
shall not include recruitment activities as described in 
Sec. 277.4(b)(5) of this chapter. 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 allowable 
informational activities eligible for reimbursement at the fifty percent 
rate under part 277 of this chapter, State agencies shall obtain 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 shall report 
projected costs for this Program activity in accordance with 
Sec. 272.2(c), (e), and (f).

[[Page 707]]



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, disability, 
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), Americans with Disabilities Act of 1990 (42 U.S.C. 12101) 
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. 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,

[[Page 708]]

complaint procedures, and the rights of participants, within 10 days of 
the date of a request.
    (g) Data collection. The State agency must obtain racial and ethnic 
data on participating households in the manner specified by FNS. The 
application form must clearly indicate that the information is 
voluntary, that it will not affect the 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 must develop alternative means of 
collecting the ethnic and racial data on households, such as by 
observation during the interview, when the information is not provided 
voluntarily by the household on the application form.
    (h) Reports. As required by FNS, the State agency must report the 
racial and ethnic data on participating household contacts on forms or 
formats 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; 71 FR 28763, May 18, 2006; 76 FR 27606, May 12, 2011]



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 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

[[Page 709]]

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-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

[[Page 710]]

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 Secs. 273.15 and 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]

    Editorial Note: For 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 at www.fdsys.gov.



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:

[[Page 711]]

    (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.
    (5) State agencies must provide information to FNS and to the State 
agencies administering the National School Lunch Program for the purpose 
of direct certification of children for school meals as described in 
Sec. 245.12(c)(2) of this chapter. In addition, State agencies must 
execute a data exchange and privacy agreement in accordance with 
paragraph (a)(4) of this section and Sec. 272.1(c).
    (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 as specified in Secs. 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

[[Page 712]]

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, as amended at 78 FR 12231, Feb. 22, 2013]



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, as amended at 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 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

[[Page 713]]

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 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.

[[Page 714]]

    (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 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:

[[Page 715]]

    (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 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.

[[Page 716]]

    (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]



Sec. 272.12  Computer matching requirements.

    (a) General purpose. The Computer Matching and Privacy Protection 
Act (CMA) of 1988, as amended, addresses the use of information from 
computer matching programs that involve a Federal System of Records. 
Each State agency participating in a computer matching program shall 
adhere to the provisions of the CMA if it uses an FNS system of records 
for the following purposes:
    (1) Establishing or verifying initial or continuing eligibility for 
Federal Benefit Programs;
    (2) Verifying compliance with either statutory or regulatory 
requirements of the Federal Benefit Programs; or
    (3) Recouping payments or delinquent debts under such Federal 
Benefit Programs.
    (b) Matching agreements. State agencies must enter into written 
agreements with USDA/FNS, consistent with 5 U.S.C. 552a(o) of the CMA, 
in order to participate in a matching program involving a USDA/FNS 
Federal system of records.
    (c) Use of computer matching information. (1) A State agency shall 
not take any adverse action to terminate, deny, suspend, or reduce 
benefits to an applicant or recipient based on information produced by a 
Federal computer matching program that is subject to the requirements of 
the CMA, unless:
    (i) The information has been independently verified by the State 
agency (in accordance with the independent verification requirements set 
out in the State agency's written agreement as required by paragraph (b) 
of this section) and a Notice of Adverse Action or Notice of Denial has 
been sent to the household, in accordance with Sec. 273.2(f); or
    (ii) The Federal agency's Data Integrity Board has waived the two-
step independent verification and notice requirement and notice of 
adverse action has been sent to the household, in accordance with 
Sec. 273.2(f) of this chapter.
    (2) A State agency which receives a request for verification from 
another State agency, or from FNS pursuant to

[[Page 717]]

the provisions of Sec. 273.16(i) of this chapter shall, within 20 
working days of receipt, respond to the request by providing necessary 
verification (including copies of appropriate documentation and any 
statement that an individual has asked to be included in their file).

[77 FR 48055, Aug. 13, 2012]



Sec. 272.13  Prisoner verification system (PVS).

    (a) General. Each State agency shall establish a system to monitor 
and prevent individuals who are being held in any Federal, State, and/or 
local detention or correctional institutions for more than 30 days from 
being included in a SNAP household.
    (b) Use of match data. State prisoner verification systems shall 
provide for:
    (1) The comparison of identifying information about each household 
member, excluding minors, as that term is defined by each State, and 
one-person households in States where a face-to-face interview is 
conducted, against identifying information about inmates of institutions 
at Federal, State and local levels;
    (2) The reporting of instances where there is a match;
    (3) The independent verification of match hits to determine their 
accuracy;
    (4) Notice to the household of match results;
    (5) An opportunity for the household to respond to the match prior 
to an adverse action to deny, reduce, or terminate benefits; and
    (6) The establishment and collections of claims as appropriate.
    (c) Match frequency. State agencies shall make a comparison of match 
data for adult household members at the time of application and at 
recertification. States that opt to obtain and use prisoner information 
collected under Section 1611(e)(1)(I)(i)(I) of the Social Security Act 
(42 U.S.C. 1382(e)(1)(I)(i)(I)) shall be considered in compliance with 
this section. States shall enter into a computer matching agreement with 
the SSA under authority contained in 42 U.S.C. 405(r)(3).

[77 FR 48055, Aug. 13, 2012]



Sec. 272.14  Deceased matching system.

    (a) General. Each State agency shall establish a system to verify 
and ensure that benefits are not issued to individuals who are deceased.
    (b) Data source. States shall use the SSA's Death Master File, 
obtained through the State Verification and Exchange System (SVES) and 
enter into a computer matching agreement with SSA pursuant to authority 
to share data contained in 42 U.S.C. 405(r)(3).
    (c) Use of match data. States shall provide a system for:
    (1) Comparing identifiable information about each household member 
against information from databases on deceased individuals. States shall 
make the comparison of matched data at the time of application and no 
less frequently than once a year.
    (2) The reporting of instances where there is a match;
    (3) The independent verification of match hits to determine their 
accuracy;
    (4) Notice to the household of match results;
    (5) An opportunity for the household to respond to the match prior 
to an adverse action to deny, reduce, or terminate benefits; and
    (6) The establishment and collection of claims as appropriate.

[77 FR 48055, Aug. 13, 2012]



Sec. 272.15  Major changes in program design.

    (a) States' reporting of major changes. (1) State agencies shall 
notify FNS when they make major changes in their operation of SNAP. 
State agencies shall notify FNS when the plans for the change are 
approved by State leadership, but no less than 120 days prior to 
beginning implementation of the change or entering into contractual 
obligations to implement any proposed major changes. If it is not 
possible for a State to provide notification 120 days in advance, the 
State shall provide notification as soon as it is aware of the major 
change and explain why it could not meet the 120-day requirement. No 
approval from FNS is necessary for a State to proceed with 
implementation of the major change.

[[Page 718]]

    (2) Major changes shall include the following:
    (i) Closure of any local office that performs major functions for 
750 or more SNAP households or 5 percent of the State's total SNAP 
monthly caseload, whichever is less, and there is not another office 
available to serve the affected households within 35 miles. An office 
performing major functions is an office where households can file an 
application for SNAP in person and receive assistance from merit system 
personnel staff.
    (ii) Substantial increased reliance on automated systems for the 
performance of responsibilities previously performed by State merit 
system personnel (as described in section 11(e)(6)(B) of the Act) or 
changes in the way that applicants and participants interact with the 
State's SNAP agency. This includes the replacement of the State's 
automated systems used in the certification process, adding 
functionality to the existing automated systems used in the 
certification process, or changes in the way applicants and participants 
interact with SNAP. For example, adding an overlay on an existing legacy 
automated system used by eligibility workers, adding online portals to 
an existing automated system for use by SNAP applicants, participants or 
community partners, establishment of an online application, use of 
telephonic technology to accept applications, relying upon an 
interactive voice response system to provide case status information to 
participants or implementation of finger imaging shall be considered 
major changes. Under this criterion, if the State documents that the 
change is expected to impact less than five percent of the State's SNAP 
applicants or participants, it will not be considered a major change. 
Reporting a major change as required in this section does not relieve 
States of meeting the requirements for new system approvals in 
Sec. 277.18 of this chapter.
    (iii) Changes in operations that potentially increase the difficulty 
of households reporting required information. This could include 
implementation of a call center or internet web portal for change 
reporting, a major modification to forms that households use to report 
changes or the discontinuation of an existing avenue for reporting 
changes (e.g., households can no longer contact the local office because 
all changes must be reported to a unit that handles change reports). 
Selecting a different change reporting policy option as allowed in 
Sec. 273.12 of this chapter, or the implementation of a policy waiver 
related to change reporting would not be a major change.
    (iv) Any reduction or change of the functions or responsibilities 
currently assigned to SNAP merit system personnel.
    (v) A decrease of more than 5 percent in the total number of merit 
system personnel involved in the SNAP certification process in the State 
from one year to the next. In addition, a decrease of more than eight 
percent in the total number of merit system personnel involved in the 
SNAP certification process in the State over a two year period would be 
a major change. These decreases would include those resulting from State 
budget cuts or hiring freezes, but not include loss of personnel through 
resignation, retirement or release when the State is seeking to replace 
the personnel within 6 months. Evidence of the intent to replace 
personnel shall include advertising to fill positions and having 
sufficient funding in the personnel budget for the new hires.
    (vi) Other major changes identified by FNS.
    (3) When a State initially reports a major change to FNS as required 
in paragraph (a)(1) of this section, an analysis of the expected impact 
of the major change shall accompany the report. The initial report to 
FNS that the State is making one of the major changes identified in 
paragraph (a)(2) of this section, shall include a description of the 
change and an analysis of its anticipated impacts on program 
performance.
    (i) The description of the change shall include the following:
    (A) Identification of the major change the State is implementing;
    (B) An explanation of what the change is intended to accomplish;
    (C) The schedule for implementation;
    (D) How the change will be tested and whether it will be piloted;

[[Page 719]]

    (E) Whether the change is statewide or identification of the 
jurisdictions it will encompass;
    (F) How the major change is expected to affect applicants and/or 
participants and how they will be informed;
    (G) How the change will affect caseworkers and, as applicable, how 
they will be trained;
    (H) The projected administrative cost of the major change in the 
year it is implemented and the subsequent year;
    (I) How the impact of the major change will be monitored;
    (J) How the major change will affect operation of the State 
automated system;
    (K) The State's backup plans if the major change creates significant 
problems in one or more of the program measures in paragraph (a)(3)(ii) 
of this section;
    (L) A description of any consultation with stakeholders/advocacy 
groups or public comment obtained regarding the planned changes; and
    (M) Procedures the State will put in place to minimize the burdens 
on people with disabilities and other populations (as identified in 
paragraph (a)(3)(ii)(E) of this section) relative to the change.
    (ii) The analysis portion of the State's initial report shall 
include the projected impact of the major change on:
    (A) The State's payment error rate;
    (B) Program access, including the impact on applicants filing 
initial applications and recertification applications;
    (C) The State's negative error rate;
    (D) Application processing timeliness including both the households 
entitled to 7-day expedited service and those subject to the 30-day 
processing standards;
    (E) Whether the major change will increase the difficulty elderly 
households, households living in rural areas, households containing a 
disabled member, homeless households, non-English speaking households, 
or households living on a reservation will have obtaining SNAP 
information, filing an initial application, providing verification, 
being interviewed, reporting changes or reapplying for benefits;
    (F) Customer service including the time it takes for a household to 
contact the State, be interviewed, report changes and any other 
parameter defined by the State agency; and
    (G) Timeliness of recertification actions.
    (b) FNS and State action on reports. (1) FNS will evaluate the 
initial report provided by a State to determine if the change is, in 
fact, a major change as described in paragraph (a)(2) of this section 
and notify the State of its determination. States implementing a major 
change shall report the following monthly State-level information to FNS 
on a quarterly basis beginning with the quarter prior to implementation 
of the major change:
    (i) The number of initial applications received;
    (ii) Of the number of initial applications received in paragraph 
(b)(1)(i) of this section, the number subject to expedited service;
    (iii) Of the number of initial applications received in paragraph 
(b)(1)(i) of this section, the number broken out by method of 
application (i.e., in-person, online, telephone, mail, fax);
    (iv) The number of initial applications that are approved timely;
    (v) Of the number of initial applications approved timely in 
paragraph (b)(1)(iv) of this section, the number subject to expedited 
service processed within the 7-day processing requirement;
    (vi) The number of initial applications that are approved untimely;
    (vii) Of the number of initial applications approved untimely in 
paragraph (b)(1)(vi) of this section, the number subject to expedited 
service processed outside the 7-day processing requirement;
    (viii) The number of initial applications that are denied;
    (ix) Of the number of initial applications that were denied in 
paragraph (b)(1)(viii) of this section, the number broken out by those 
denied due to ineligibility and those denied because the State agency 
was unable to determine eligibility;
    (x) The total number of households due for recertification;
    (xi) The number of recertification applications received;

[[Page 720]]

    (xii) Of the number of recertification applications received in 
paragraph (b)(1)(xi) of this section, the number broken out by method of 
application (i.e., in-person, online, telephone, mail, fax);
    (xiii) The number of households that were recertified without a 
delay or break in benefits;
    (xiv) The number of households that the State recertifies with a 
delay or break in benefits of less than one month;
    (xv) Of the total number of households due for recertification in 
paragraph (b)(1)(x) of this section, the number of households that fail 
to reapply for recertification by the required deadline;
    (xvi) The number of recertification applications that are denied; 
and
    (xvii) Of the number of recertification applications that were 
denied in paragraph (b)(1)(xvi) of this section, the number broken out 
by those denied due to ineligibility and those denied because the State 
agency was unable to determine eligibility.
    (2) The information required by paragraph (b)(1)(1) of this section 
shall be reported separately for households with elderly members and 
households with members that have a disability.
    (3) At a minimum, the information required by paragraphs (b)(1)(i), 
(iv), (vi), (viii), (x), (xi), (xiii), (xiv), (xv), and (xvi) of this 
section shall be disaggregated to provide sub-state information. FNS 
will require the State to disaggregate all the information in paragraph 
(b)(2) if FNS determines that such data are necessary to evaluate the 
impact of the change. FNS will consult with States on a case-by-case 
basis to determine if this information shall be reported by: Local 
offices, call centers, county, project areas, or by other administrative 
structures within the State. FNS' determination will be based upon the 
type of major change and the State's SNAP organization.
    (4) In addition the information required in paragraphs (b)(1), (2) 
and (3) of this section, FNS may require additional information to be 
included in a State's quarterly report. FNS reserves the right to 
require the information it needs to determine the impact of a major 
change on integrity and access in SNAP. FNS will work with States to 
determine what additional information is practicable and require only 
the data that is necessary and not otherwise available from ongoing 
reporting mechanisms. While the data elements outlined in paragraph 
(b)(2) of this section will generally be required to be reported on a 
statewide basis and at a sub-state level, major changes that are limited 
to localized areas, such as a county or project area, may only require 
localized reporting. Depending upon the nature of the major change, 
States will be required to report more specific or timely information 
concerning the impact of the major change within the following areas:
    (i) Payment accuracy. FNS will use Quality Control (QC) data when 
possible, but may require data from case reviews focused on households 
with specific characteristics, to obtain greater local reliability, or 
to provide more timely data.
    (ii) Negative error rates. FNS will use QC data when possible, but 
may require data from case reviews focused on households with specific 
characteristics, to obtain greater local reliability or to provide more 
timely data on the causes of incorrect denials.
    (iii) Impact on households with specific characteristics. In 
addition to the information required by paragraph (b)(2) of this 
section, a major change that could disproportionately impact the 
households identified at paragraph (a)(3)(ii)(E) of this section may 
require additional information on the impact of the change on the 
participation of these households. The nature of the change and its 
potential impact would dictate how this information would need to be 
reported.
    (iv) Impact of certain major changes on customer service. Some major 
changes may require specific information that is not typically available 
from a States automated SNAP system. For example, if a State implements 
a major change that allowed (or required) households to report changes 
in their individual circumstances through a change center or allows 
applicants to apply or reapply for SNAP through the use of call center, 
the following data may be required:

[[Page 721]]

    (A) The total number of calls made to the center;
    (B) The average time a caller has to wait to talk to a SNAP worker 
(includes hold time for transfers);
    (C) Based upon the call centers standards and negotiation with FNS, 
the percentage of calls with excessive wait times;
    (D) The percentage of calls abandoned by callers prior to and after 
being answered by the call center;
    (E) The total number of calls dropped by the call center system and 
the number of callers that received a busy signal; and
    (F) Customer satisfaction (based upon survey results).
    (5) States shall submit reports containing monthly data on a 
quarterly basis. As practicable, and based upon consultation with the 
State, FNS may require any additional information under paragraph (b)(4) 
of this section regarding the State's operation to be reported for the 
quarter just prior to implementation of the major change.
    (6) States shall submit reports for one year after the major change 
is fully in place. FNS may extend this timeframe as it deems necessary.
    (7) If FNS becomes aware that a State appeared to be implementing a 
major change that had not been formally reported, FNS would work with 
the State to determine if it is a major change, and if so proceed as 
required by this section.
    (8) If the data a State submits regarding its major change or other 
information FNS obtains indicates an adverse impact on SNAP access or 
integrity, FNS would work with the State to correct the cause of the 
problem and provide relevant technical assistance, and will require the 
State to provide additional information as it deems appropriate. 
Depending upon the severity of the problem, FNS may also require a 
formal corrective action plan as identified in Sec. 275.16 and 
Sec. 275.17 of this chapter. States agencies that fail to comply with 
reporting requirements may be subject to the suspension or disallowance 
of Federal Financial Participation administrative funds per Sec. 276.4 
of this chapter.

[81 FR 2739, Jan. 19, 2016]



Sec. 272.16  National Directory of New Hires.

    (a) General. Each State agency shall establish a system to verify 
applicant employment data for the determination of SNAP eligibility and 
correct benefit amount.
    (b) Data source. States shall use the U.S. Department of Health and 
Human Service (HHS) National Directory of New Hires (NDNH) and enter 
into a computer matching agreement with HHS pursuant to the authority in 
42 U.S.C. 653(j)(10).
    (c) Use of match data. In accordance with the procedural 
requirements and privacy protections required for computer data matching 
at 5 U.S.C. 552a(p), States shall provide a system for:
    (1) Comparing identifiable information about each adult household 
member against data from the NDNH. States must, at minimum, match 
household members against new hire data available in the database. 
States shall make the comparison of matched data at the time of 
application and recertification.
    (2) The reporting of instances where there is a match;
    (3) The independent verification of match hits to determine their 
accuracy;
    (4) Notice to the household of match results;
    (5) An opportunity for the household to respond to the match prior 
to an adverseaction to deny, reduce, or terminate benefits; and
    (6) The establishment and collection of claims as appropriate.

[81 FR 4163, Jan. 26, 2016]



PART 273_CERTIFICATION OF ELIGIBLE HOUSEHOLDS--Table of Contents



Sec.

                         Subpart A_General Rules

273.1  Household concept.
273.2  Office operations and application processing.

                   Subpart B_Residency and Citizenship

273.3  Residency.
273.4  Citizenship and alien status.

[[Page 722]]

                   Subpart C_Education and Employment

273.5  Students.
273.6  Social security numbers.
273.7  Work provisions.

                Subpart D_Eligibility and Benefit Levels

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.

                   Subpart E_Continuing Participation

273.12  Reporting requirements for change reporting households.
273.13  Notice of adverse action.
273.14  Recertification.

                  Subpart F_Disqualification and Claims

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]

                     Subpart G_Program Alternatives

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.

             Subpart H_The Transitional Benefits Alternative

273.26  General eligibility guidelines.
273.27  General administrative guidelines.
273.28  Application for Food Stamp Program recertification.
273.29  Transitional notice requirements.
273.30  Transitional benefit alternative change reporting requirements.
273.31  Closing the transitional period.
273.32  Households who return to TANF during the transitional period.

    Authority: 7 U.S.C. 2011-2036.

    Editorial Note: OMB control numbers relating to this part 273 are 
contained in Sec. 271.8.



                         Subpart A_General Rules



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;
    (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

[[Page 723]]

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.
    (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 Secs. 273.4 and 
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;

[[Page 724]]

    (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 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

[[Page 725]]

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 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 at www.fdsys.gov.



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.

[[Page 726]]

    (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;
    (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

[[Page 727]]

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 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

[[Page 728]]

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 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. If the State agency maintains a Web page, 
it must make the application available on the Web page in each language 
in which the State agency makes a printed application available.

[[Page 729]]

The State agency must provide on the Web page the addresses and phone 
numbers of all State food stamp offices and a statement that the 
household should return the application form to its nearest local 
office. The applications must be accessible to persons with disabilities 
in accordance with Section 504 of the Rehabilitation Act of 1973, Public 
Law 93-112, as amended by the Rehabilitation Act Amendments of 1974, 
Public Law 93-516, 29 U.S.C. 794. 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 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 Secs. 275.3(c)(5) and 275.12(g)(1)(ii) of 
this chapter, the household may reapply, but shall not be determined 
eligible until it cooperates with the quality

[[Page 730]]

control reviewer. If a household terminated for refusal to cooperate 
with a State quality control reviewer reapplies after 125 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 paragraph (f)(1)(ix) of this section. If 
a household terminated for refusal to cooperate with a Federal quality 
control reviewer reapplies after nine 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 paragraph (f)(1)(ix) of this section. In the event that one or more 
household members no longer resides with a household terminated for 
refusal to cooperate, the penalty for refusal to cooperate will attach 
to household of the person(s) who refused to cooperate. If the State 
agency is unable to determine which household member(s) refused to 
cooperate, the State agency shall determine the household to which the 
penalty shall apply.
    (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 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

[[Page 731]]

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 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

[[Page 732]]

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, 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

[[Page 733]]

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 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

[[Page 734]]

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 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

[[Page 735]]

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. For 
households that pay their child support exclusively through their State 
CSE agency, the State agency may use information provided by that agency 
in determining a household's legal obligation to pay child support, the 
amount of its obligation and amount the household has actually paid. A 
household would not have to provide additional verification unless it 
disagrees with the data presented by the State CSE agency. Before the 
State agency may use the CSE agency's information, the household must 
sign a statement authorizing release of the household's child support 
payment records to the State agency. State agencies that choose to rely 
on information provided by their State CSE agency in accordance with 
this paragraph (f)(1)(xii) must specify in their State plan of operation 
that they have selected this option. 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 party attestation of U.S. citizenship or

[[Page 736]]

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).
    (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 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

[[Page 737]]

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.
    (v) Homeless households. Homeless households claiming actual shelter 
expenses or those with extremely low shelter costs 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.
    (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. However, the 
State agency has primary responsibility for verifying fleeing felon and 
parole or

[[Page 738]]

probation violator status in accordance with Sec. 273.11(n).
    (ii) Whenever documentary evidence is insufficient to make a firm 
determination of eligibility or benefit level, 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. For households eligible for the child support deduction or 
exclusion, the State agency may use information provided by the State 
CSE agency in determining the household's legal obligation to pay child 
support, the amount of its obligation and amounts the household has 
actually paid if the household pays its child support exclusively 
through its State CSE agency and has signed a statement authorizing 
release of its child support payment records to the State agency. A 
household would not have to provide any additional verification unless 
they disagreed with the information provided by the State CSE agency. 
State agencies that choose to use information provided by their State 
CSE agency in accordance with this paragraph (f)(8)(i)(A) must specify 
in their State plan of operation that they have selected this option. 
For all other households eligible for the child support deduction or 
exclusion, the State agency shall require the household 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.

[[Page 739]]

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 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

[[Page 740]]

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-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.
    (11) Use of disqualification data. (i) Pursuant to Sec. 273.16(i), 
information in the disqualified recipient database will be available for 
use by any State agency that executes a computer matching agreement with 
FNS. The State agency shall use the disqualified recipient database for 
the following purposes:
    (A) Ascertain the appropriate penalty to impose based on past 
disqualifications in a case under consideration;
    (B) Conduct matches as specified in Sec. 273.16 on:
    (1) Program application information prior to certification and for a 
newly added household member whenever that might occur; and
    (2) The current recipient caseload at the time of recertification 
for a period of 1 year after the implementation date of this match. 
State agencies do not need to include minors, as that term is defined by 
each State.
    (3) States having the ability to conduct a one-time match of their 
entire active caseload against active cases from the disqualified 
recipient database may do so and be exempted from

[[Page 741]]

the 1-year requirement to conduct matches at recertification.
    (ii) State agencies shall not take any adverse action to terminate, 
deny, suspend, or reduce benefits to an applicant, or SNAP recipient, 
based on disqualified recipient match results unless the match 
information has been independently verified. The State agency shall 
provide to an applicant, or recipient, an opportunity to contest any 
adverse disqualified recipient match result pursuant to the provisions 
of Sec. 273.13.
    (iii) Independent verification shall take place separate from and 
prior to issuing a notice of adverse action--a two-step process. 
Independent verification for disqualification purposes means contacting 
the applicant or recipient household and/or the State agency that 
originated the disqualification record immediately to obtain 
corroborating information or documentation to support the reported 
disqualification information in the intentional Program violation 
database.
    (A) Documentation may be in any form deemed appropriate and legally 
sufficient by the State agency considering the adverse action. Such 
documentation may include, but shall not be limited to, electronic or 
hard copies of court decisions, administrative disqualification hearing 
determinations, signed disqualification consent agreements or 
administrative disqualification hearing waivers.
    (B) A State may accept a verbal or written statement from another 
State agency attesting to the existence of the documentation listed in 
paragraph (f)(11)(iii)(A) of this section.
    (C) A State may accept a verbal or written statement from the 
household affirming the accuracy of the disqualification information if 
such a statement is properly documented and included in the case record.
    (D) If a State agency is not able to provide independent 
verification because of a lack of supporting documentation, the State 
agency shall so advise the requesting State agency or FNS, as 
appropriate, and shall take immediate action to remove the unsupported 
record from the disqualified recipient database in accordance with 
Sec. 273.16(i)(6).
    (iv) Once independent verification has been received, the requesting 
State agency shall review and immediately enter the information into the 
case record and send the appropriate notice(s) to the record subject and 
any remaining members of the record subject's SNAP household.
    (v) Information from the disqualified recipient database is subject 
to the disclosure provisions in Sec. 272.1(c) of this chapter and the 
routine uses described in the most recent ``Notice of Revision of 
Privacy Act System of Records'' published in the Federal Register.
    (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

[[Page 742]]

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 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

[[Page 743]]

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 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 
Secs. 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

[[Page 744]]

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 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

[[Page 745]]

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 
(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

[[Page 746]]

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 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

[[Page 747]]

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, 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

[[Page 748]]

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 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

[[Page 749]]

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 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

[[Page 750]]

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.
    (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

[[Page 751]]

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 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:

[[Page 752]]

    (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 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 Secs. 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

[[Page 753]]

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;
    (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 Secs. 273.2(d) and 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

[[Page 754]]

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:
    (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

[[Page 755]]

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.
    (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 benefits 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

[[Page 756]]

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.
    (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.

[[Page 757]]

    (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).
    (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

[[Page 758]]

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 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 Secs. 273.12(a) and 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

[[Page 759]]

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 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

[[Page 760]]

Finding Aids section of the printed volume and at www.fdsys.gov.

    Effective Date Note: At 81 FR 89839, Dec. 13, 2016, effective Jan. 
12, 2017, Sec. 273.2 was amended by:
    a. Amending paragraph (a)(1) by adding to the end of the third 
sentence the words, ``, including in the implementation of a photo EBT 
card policy'' and by adding a new sentence between the third and fourth 
sentences.
    b. Amending paragraph (a)(2) by adding a new sentence before the 
last sentence.
    c. Amending paragraph (e)(1) by adding a new sentence after the 
third sentence.
    d. Amending paragraph (n)(2) by removing in the third sentence the 
words, ``and on the food stamp identification (ID) card, as provided in 
7 CFR 274.10(a)(1) of this chapter'' and by removing the last sentence.
    e. Amend the first sentence of paragraph (n)(3) by removing the 
words, ``ID card and benefits'' and adding in its place the words, ``EBT 
card''.
    For the convenience of the user, the added text is set forth as 
follows:



Sec. 273.2  Office operations and application processing.

    (a) * * *
    (1) * * * The State agency's photo EBT card policy must not affect 
the certification process for purposes of determining eligibility 
regardless of whether an individual has his/her photo placed on the EBT 
card. * * *
    (2) * * * States must meet application processing timelines, 
regardless of whether a State agency implements a photo EBT card policy. 
* * *

                                * * * * *

    (e) * * * State agencies may not require an in person interview 
solely to take a photo. * * *

                                * * * * *



                   Subpart B_Residency and Citizenship



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 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

[[Page 761]]

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:
    (i) An alien who has been subjected to a severe form of trafficking 
in persons and who is certified by the Department of Health and Human 
Services, to the same extent as an alien who is admitted to the United 
States as a refugee under Section 207 of the INA; or
    (ii) An alien who has been subjected to a severe form of trafficking 
in persons and who is under the age of 18, to the same extent as an 
alien who is admitted to the United States as a refugee under Section 
207 of the INA;
    (iii) The spouse, child, parent or unmarried minor sibling of a 
victim of a severe form of trafficking in persons under 21 years of age, 
and who has received a derivative T visa, to the same extent as an alien 
who is admitted to the United States as a refugee under Section 207 of 
the INA; or
    (iv) The spouse or child of a victim of a severe form of trafficking 
in persons 21 years of age or older, and who has received a derivative T 
visa, to the same extent as an alien who is admitted to the United 
States as a refugee under Section 207 of the INA; or
    (6) An individual who is both a qualified alien as defined in 
paragraph (a)(6)(i) of this section and an eligible alien as defined in 
paragraph (a)(6)(ii) or (a)(6)(iii) 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 alien whose child has been battered or subjected to 
battery or cruelty, or an alien child whose parent has been battered; 
\2\ or
---------------------------------------------------------------------------

    \2\ For guidance, see Exhibit B to Attachment 5 of the DOJ Interim 
Guidance published at 62 FR 61344 on November 17, 1997.
---------------------------------------------------------------------------

    (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)(6)(i) of this 
section, is eligible to receive food stamps and is not subject to the 
requirement to be in qualified status for 5 years as set forth in 
paragraph (a)(6)(iii) of this section,

[[Page 762]]

if such individual meets at least one of the criteria of this paragraph 
(a)(6)(ii):
    (A) An alien age 18 or older lawfully admitted for permanent 
residence under the INA who has 40 qualifying quarters as determined 
under Title II of the SSA, including qualifying quarters of work not 
covered by Title II of the SSA, 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;
    (C) An alien granted asylum under section 208 of the INA;
    (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;
    (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);
    (F) An Amerasian admitted pursuant to section 584 of Public Law 100-
202, as amended by Public Law 100-461;
    (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 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)(6)(ii)(G)(1) or (a)(6)(ii)(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)(6)(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)(6)(ii)(G)(3), child means the

[[Page 763]]

legally adopted or biological child of the person described in paragraph 
(a)(6)(ii)(G)(1) or (a)(6)(ii)(G)(2) of this section.
    (H) An individual who is 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 is under 18 years of age.
    (iii) The following qualified aliens, as defined in paragraph 
(a)(6)(i) of this section, must be in a qualified status for 5 years 
before being eligible to receive food stamps. The 5 years in qualified 
status may be either consecutive or nonconsecutive. Temporary absences 
of less than 6 months from the United States with no intention of 
abandoning U.S. residency do not terminate or interrupt the individual's 
period of U.S. residency. If the resident is absent for more than 6 
months, the agency shall presume that U.S. residency was interrupted 
unless the alien presents evidence of his or her intent to resume U.S. 
residency. In determining whether an alien with an interrupted period of 
U.S. residency has resided in the United States for 5 years, the agency 
shall consider all months of residency in the United States, including 
any months of residency before the interruption:
    (A) An alien age 18 or older lawfully admitted for permanent 
residence under the INA.
    (B) 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;
    (C) 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 alien whose child has been battered or subjected to 
battery or cruelty, or an alien child whose parent has been battered;
    (D) An alien who is granted conditional entry pursuant to section 
203(a)(7) of the INA as in effect prior to April 1, 1980.
    (iv) 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.
    (7) For purposes of determining eligible alien status in accordance 
with paragraphs (a)(4) and (a)(6)(ii)(I) 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

[[Page 764]]

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)(6)(ii)(A) of this section, or the sponsor 
dies.
    (i) The monthly income of the sponsor and sponsor's spouse (if he or 
she 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. The State agency must use the same 
procedure to determine the amount of deemed income and resources to 
exclude in the case of a sponsored alien or a citizen child of a 
sponsored alien who is exempt from deeming in accordance with paragraphs 
(c)(3)(vi) or (c)(3)(vii) of this section.
    (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). Prior to determining 
whether an alien is indigent, the State agency must explain the purpose 
of the determination to the alien and/or household representative and 
provide the alien and/or household representative the opportunity to 
refuse the determination. If the household refuses the determination, 
the State agency will not complete the determination and will deem the 
sponsor's income and resources to the alien's household in accordance 
with paragraph (c)(2) of this section. The State agency must inform the 
sponsored

[[Page 765]]

alien of the consequences of refusing this determination. 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. State agencies may develop an administrative process 
under which information about the sponsored alien is not shared with the 
Attorney General or the sponsor without the sponsored alien's consent. 
The State agency must inform the sponsored alien of the consequences of 
failure to provide such consent. If the sponsored alien fails to provide 
consent, he or she shall be ineligible pursuant to paragraph (c)(5) of 
this section, and the State agency shall determine the eligibility and 
benefit level of the remaining household members in accordance with 
Sec. 273.11(c).
    (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 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).
---------------------------------------------------------------------------

    (vi) A sponsored alien child under 18 years of age of a sponsored 
alien.
    (vii) A citizen child under age 18 of a sponsored alien.
    (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

[[Page 766]]

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, as amended at 75 FR 4947, Jan. 
29, 2010]



                   Subpart C_Education and Employment



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;
    (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;

[[Page 767]]

    (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 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

[[Page 768]]

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). 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

[[Page 769]]

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.
    (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

[[Page 770]]

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 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

[[Page 771]]

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 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

[[Page 772]]

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;
    (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 
as of the first day of the new 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 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.
    (xv) The combined (Federal/State) State agency reimbursement rate 
for transportation costs and other expenses reasonably necessary and 
directly related to participation incurred by E&T participants. If the 
State agency proposes to provide different reimbursement amounts to 
account for varying levels of expenses, for instance for greater or 
lesser costs of transportation in different areas of the State, it must 
include them here.
    (xvi) Information about expenses the State agency proposes to 
reimburse.

[[Page 773]]

FNS must be afforded the opportunity to review and comment on the 
proposed reimbursements before they are implemented.
    (xvii) For each component that is expected to include 100 or more 
participants, reporting measures that the State will collect and include 
in the annual report in paragraph (c)(17) of this section. Such measures 
may include:
    (A) The percentage and number of program participants who received 
E&T services and are in unsubsidized employment subsequent to the 
receipt of those services;
    (B) The percentage and number of participants who obtain a 
recognized credential, a registered apprenticeship, or a regular 
secondary school diploma (or its recognized equivalent), while 
participating in, or within 1 year after receiving E&T services;
    (C) The percentage and number of participants who are in an 
education or training program that is intended to lead to a recognized 
credential, a registered apprenticeship an on-the-job training program, 
a regular secondary school diploma (or its recognized equivalent), or 
unsubsidized employment;
    (D) Measures developed to assess the skills acquisition of E&T 
program participants that reflect the goals of the specific components 
including the percentage and number of participants who are meeting 
program requirements or are gaining skills likely to lead to employment; 
and
    (E) Other indicators approved by FNS in the E&T State plan.
    (7) A State agency interested in receiving additional funding for 
serving able-bodied adults without dependents (ABAWDs) subject to the 3-
month time limit, in accordance with paragraph (d)(3) of this section, 
must include in its annual E&T plan:
    (i) Its pledge to offer a qualifying activity to all at-risk ABAWD 
applicants and recipients;
    (ii) Estimated costs of fulfilling its pledge;
    (iii) A description of management controls in place to meet pledge 
requirements;
    (iv) A discussion of its capacity and ability to serve at-risk 
ABAWDs;
    (v) Information about the size and special needs of its ABAWD 
population; and
    (vi) Information about the education, training, and workfare 
components it will offer to meet the ABAWD work requirement.
    (8) The State agency will submit its E&T Plan annually, 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.
    (9) The State agency will submit an E&T Program Activity Report to 
FNS no later than 45 days after the end of each Federal fiscal quarter. 
The report will contain monthly figures for:
    (i) Participants newly work registered;
    (ii) Number of ABAWD applicants and recipients participating in 
qualifying components;
    (iii) Number of all other applicants and recipients (including 
ABAWDs involved in non-qualifying activities) participating in 
components; and
    (iv) ABAWDs subject to the 3-month 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).
    (10) The State agency will submit annually, on its first quarterly 
report, the number of work registrants in the State on October 1 of the 
new fiscal year.
    (11) The State agency will submit annually, on its final quarterly 
report:
    (i) A list of E&T components it offered during the fiscal year and 
the number of ABAWDs and non-ABAWDs who participated in each; and
    (ii) The number of ABAWDs and non-ABAWDs who participated in the E&T 
Program during the fiscal year. Each individual must be counted only 
once.
    (12) 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.

[[Page 774]]

    (13) The State agency must ensure, to the maximum extent 
practicable, that E&T programs are provided for Indians living on 
reservations.
    (14) 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.
    (15) 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.
    (16) FNS may require a State agency to make modifications to its 
SNAP E&T plan to improve outcomes if FNS determines that the E&T 
outcomes are inadequate.
    (17) The State agency shall submit an annual E&T report by January 1 
each year that contains the following information for the Federal fiscal 
year ending the preceding September 30.
    (i) The number and percentage of E&T participants and former 
participants who are in unsubsidized employment during the second 
quarter after completion of participation in E&T.
    (ii) The number and percentage of E&T participants and former 
participants who are in unsubsidized employment during the fourth 
quarter after completion of participation in E&T.
    (iii) Median average quarterly earnings of the E&T participants and 
former participants who are in unsubsidized employment during the second 
quarter after completion of participation in E&T.
    (iv) The total number and percentage of participants that completed 
an educational, training work experience or an on-the-job training 
component.
    (v) The number and percentage of E&T participants who:
    (A) Are voluntary vs. mandatory participants;
    (B) Have received a high school degree (or GED) prior to being 
provided with E&T services;
    (C) Are ABAWDs;
    (D) Speak English as a second language;
    (E) Are male vs. female
    (F) Are within each of the following age ranges: 16-17, 18-35, 36-
49, 50-59, 60 or older.
    (vi) Of the number and percentage of E&T participants reported in 
paragraphs (c)(17)(i) through (iv) of this section, a disaggregation of 
the number and percentage of those participants and former participants 
by the characteristics listed in paragraphs (c)(17)(v)(A), (B), and (C) 
of this section.
    (vii) Reports for the measures identified in a State's E&T plan 
related to components that are designed to serve at least 100 
participants a year; and
    (viii) States that have committed to offering all at-risk ABAWDs 
participation in a qualifying activity and have received an additional 
allocation of funds as specified in Sec. 273.7(d)(3) shall include:
    (A) The monthly average number of individuals in the State who meet 
the conditions of Sec. 273.7(d)(3)(i);
    (B) The monthly average number of individuals to whom the State 
offers a position in a program described in Sec. 273.24(a)(3) and (4);
    (C) The monthly average number of individuals who participate in 
such programs; and
    (D) A description of the types of employment and training programs 
the State agency offered to at risk ABAWDs and the availability of those 
programs throughout the State.
    (ix) States may be required to submit the annual report in a 
standardized format based upon guidance issued by FNS.
    (d) Federal financial participation--(1) Employment and training 
grants--(i) Allocation of grants. Each State agency will receive a 100 
percent Federal grant each fiscal year to operate an E&T program in 
accordance with paragraph (e) of this section. The grant requires no 
State matching.
    (A) In determining each State agency's 100 percent Federal E&T 
grant, FNS will apply the percentage determined in accordance with 
paragraph (d)(1)(i)(B) of this section to the total amount of 100 
percent Federal funds authorized under section 16(h)(1)(A) of the Act 
for each fiscal year.
    (B) FNS will allocate the funding available each fiscal year for E&T

[[Page 775]]

grants using a formula designed to ensure that each State agency 
receives its appropriate share.
    (1) Ninety percent of the annual 100 percent Federal E&T grant will 
be allocated based on the number of work registrants in each State as a 
percentage of work registrants nationwide. FNS will use work registrant 
data reported by each State agency on the FNS-583, Employment and 
Training Program Activity Report, from the most recent Federal fiscal 
year.
    (2) Ten percent of the annual 100 percent Federal E&T grant will be 
allocated based on the number of ABAWDs in each State, as determined by 
food stamp QC data for the most recently available completed fiscal 
year, which provide a breakdown of each State's population of adults age 
18 through 49 who are not disabled and who do not live with children.
    (C) No State agency will receive less than $50,000 in Federal E&T 
funds. To ensure this, FNS will, if necessary, reduce the grant of each 
State agency allocated more than $50,000. In order to guarantee an 
equitable reduction, FNS will calculate grants as follows. First, 
disregarding those State agencies scheduled to receive less than 
$50,000, FNS will calculate each remaining State agency's percentage 
share of the fiscal year's E&T grant. Next, FNS will multiply the 
grant--less $50,000 for every State agency under the minimum--by each 
remaining State agency's same percentage share to arrive at the revised 
amount. The difference between the original and the revised amounts will 
represent each State agency's contribution. FNS will distribute the 
funds from the reduction to State agencies initially allocated less than 
$50,000.
    (D) If a State agency will not obligate or expend all of the funds 
allocated to it for a fiscal year under paragraph (d)(1)(i)(B) of this 
section, FNS will reallocate the unobligated, unexpended funds to other 
State agencies during the fiscal year or the subsequent fiscal year on a 
first come-first served basis. Each year FNS will notify all State 
agencies of the availability of carryover funding. Interested State 
agencies must submit their requests for carryover funding to FNS. If the 
requests are determined reasonable and necessary, FNS will allocate 
carryover funding to meet some or all of the State agencies' requests, 
as it considers appropriate and equitable. The factors that FNS will 
consider when reviewing a State agency's request will include the size 
of the request relative to the level of the State agency's E&T spending 
in prior years, the specificity of the State agency's plan for spending 
carryover funds, and the quality of program and scope of impact for the 
State's E&T program and proposed use of carryover funds.
    (ii) Use of Funds. (A) 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.
    (B) 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.
    (C) 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

[[Page 776]]

costs exceed the normal cost of services provided to persons not 
participating in an E&T program.
    (D) 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.
    (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) Additional allocations. In addition to the E&T program grants 
discussed in paragraph (d)(1) of this section, FNS will allocate $20 
million in Federal funds each fiscal year to State agencies that ensure 
availability of education, training, or workfare opportunities that 
permit ABAWDs to remain eligible beyond the 3-month time limit.
    (i) To be eligible, a State agency must make and comply with a 
commitment, or ``pledge,'' to use these additional funds to defray the 
cost of offering a position in an education, training, or workfare 
component that fulfills the ABAWD work requirement, as defined in 
Sec. 273.24(a), to each applicant and recipient who is:
    (A) In the last month of the 3-month time limit described in 
Sec. 273.24(b);
    (B) Not eligible for an exception to the 3-month time limit under 
Sec. 273.24(c);
    (C) Not a resident of an area of the State granted a waiver of the 
3-month time limit under Sec. 273.24(f); and
    (D) Not included in each State agency's 15 percent ABAWD exemption 
allotment under Sec. 273.24(g).
    (ii) While a participating pledge State may use a portion of the 
additional funding to provide E&T services to ABAWDs who do not meet the 
criteria discussed in paragraph (d)(3)(i) of this section, it must 
guarantee that the ABAWDs who do meet the criteria are provided the 
opportunity to remain eligible.
    (iii) State agencies will have one opportunity each fiscal year to 
take the pledge described in paragraph (d)(3)(i) of this section. An 
interested State agency, in its E&T Plan for the upcoming fiscal year, 
must include the following:
    (A) A request to be considered as a pledge State, along with its 
commitment to comply with the requirements of paragraph (d)(3)(i) of 
this section;
    (B) The estimated costs of complying with its pledge;
    (C) A description of management controls it has established to meet 
the requirements of the pledge;
    (D) A discussion of its capacity and ability to serve vulnerable 
ABAWDs;
    (E) Information about the size and special needs of the State's 
ABAWD population; and
    (F) Information about the education, training, and workfare 
components that it will offer to allow ABAWDs to remain eligible.
    (iv) If the information provided in accordance with paragraph 
(d)(3)(iii) of this section clearly indicates that the State agency will 
be unable to fulfill its commitment, FNS may require the State agency to 
address its deficiencies before it is allowed to participate as a pledge 
State.
    (v) If the State agency does not address its deficiencies by the 
beginning of the new fiscal year on October 1, it will not be allowed to 
participate as a pledge State.

[[Page 777]]

    (vi) No pledges will be accepted after the beginning of the fiscal 
year.
    (vii)(A) Once FNS determines how many State agencies will 
participate as pledge States in the upcoming fiscal year, it will, as 
early in the fiscal year as possible, allocate among them the $20 
million based on the number of ABAWDs in each participating State, as a 
percentage of ABAWDs in all the participating States. FNS will determine 
the number of ABAWDs in each participating State using food stamp QC 
data for the most recently available completed fiscal year, which 
provide a breakdown of each State's population of adults age 18 through 
49 who are not disabled and who do not live with children.
    (B) Each participating State agency's share of the $20 million will 
be disbursed in accordance with paragraph (d)(6) of this section.
    (C) Each participating State agency must meet the fiscal 
recordkeeping and reporting requirements of paragraph (d)(7) of this 
section.
    (viii) If a participating State agency notifies FNS that it will not 
obligate or expend its entire share of the additional funding allocated 
to it for a fiscal year, FNS will reallocate the unobligated, unexpended 
funds to other participating State agencies during the fiscal year, as 
it considers appropriate and equitable, on a first come-first served 
basis. FNS will notify other pledge States of the availability of 
additional funding. To qualify, a pledge State must have already 
obligated its entire annual 100 percent Federal E&T grant, excluding an 
amount that is proportionate to the number of months remaining in the 
fiscal year, and it must guarantee in writing that it intends to 
obligate its entire grant by the end of the fiscal year. A State's 
annual 100 percent Federal E&T grant is its share of the regular 100 
percent Federal E&T allocation plus its share of the additional $20 
million (if applicable). Interested pledge States must submit their 
requests for additional funding to FNS. FNS will review the requests 
and, if they are determined reasonable and necessary, will reallocate 
some or all of the unobligated, unspent ABAWD funds.
    (ix) Unlike the funds allocated in accordance with paragraph (d)(1) 
of this section, the additional pledge funding will not remain available 
until obligated or expended. Unobligated funds from this grant must be 
returned to the U.S. Treasury at the end of each fiscal year.
    (x) The cost of serving at-risk ABAWDs is not an acceptable reason 
to fail to live up to the pledge. A slot must be made available and the 
ABAWD must be served even if the State agency exhausts all of its 100 
percent Federal E&T funds and must use State funds to guarantee an 
opportunity for all at-risk ABAWDs to remain eligible beyond the 3-month 
time limit. State funds expended in accordance with the approved State 
E&T Plan are eligible for 50 percent Federal match. If a participating 
State agency fails, without good cause, to meet its commitment, it may 
be disqualified from participating in the subsequent fiscal year or 
years.
    (4) 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. The Federal government will 
fund 50 percent of State agency payments for allowable expenses, except 
that Federal matching for dependent care expenses is limited to the 
maximum amount specified in paragraph (d)(4)(i) of this section. These 
payments may be provided as a reimbursement for expenses incurred or in 
advance as payment for anticipated expenses in the coming month. The 
State agency must inform each E&T participant that allowable expenses up 
to the amounts specified in paragraphs (d)(4)(i) and (d)(4)(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

[[Page 778]]

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)(4)(i) and 
(d)(4)(ii) of this section. The State agency may reimburse participants 
for expenses beyond the amounts specified in paragraphs (d)(4)(i) 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 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.
    (ii) The State agency will reimburse the actual costs of 
transportation and other costs (excluding dependent care costs) it 
determines to be necessary

[[Page 779]]

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.
    (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)(4)(i) and (d)(4)(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)(4)(i) of this section will be considered in determining a dependent 
care deduction under Sec. 273.9(d)(4).
    (5) 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.
    (6) 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.
    (7) Fiscal recordkeeping and reporting requirements. Total E&T 
expenditures are reported on the Financial Status Report (SF-425 using 
FNS-778/FNS-778A worksheet) in the column containing ``other'' expenses. 
E&T expenditures are also separately identified in an attachment to the 
SF-425 using FNS-778/FNS-778A worksheet 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 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.

[[Page 780]]

    (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 
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

[[Page 781]]

(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 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

[[Page 782]]

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 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.

[[Page 783]]

    (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 (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) or (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.

[[Page 784]]

    (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 
exemption in paragraphs (b)(1)(iii) 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 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.

[[Page 785]]

    (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.
    (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

[[Page 786]]

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. If 
the individual reduces his or her work hours to less than 30 a week, but 
continues to earn weekly wages that exceed the Federal minimum wage 
multiplied by 30 hours, the individual remains exempt from Program work 
requirements, in accordance with paragraph (b)(1)(vii) of this section, 
and the reduction in work effort provision does not apply. Minor 
variations in the number of hours worked or in the weekly minimum wage 
equivalent wages are inevitable and must be taken into consideration 
when assessing a recipient's compliance with Program work rules.
    (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 
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.

[[Page 787]]

    (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.
    (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.

[[Page 788]]

    (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 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;

[[Page 789]]

    (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-425, using FNS-778 
worksheet, 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-425 
using FNS-778/FNS-778A worksheet, 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.
    (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

[[Page 790]]

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 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

[[Page 791]]

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.
    (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

[[Page 792]]

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 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

[[Page 793]]

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 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

[[Page 794]]

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 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

[[Page 795]]

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 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

[[Page 796]]

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, as amended at 71 FR 33382, June 9, 2006; 81 
FR 15622, Mar. 24, 2016; 81 FR 66497, Sept. 28, 2016]



                Subpart D_Eligibility and Benefit Levels



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 one or more disabled members or 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 any) that would be exacted for the early withdrawal of 
the entire amount in the account or plan; and

[[Page 797]]

    (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 are being considered 
available to the household)--for example, the vehicle of a traveling 
sales person or a migrant

[[Page 798]]

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:
    (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

[[Page 799]]

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 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

[[Page 800]]

amount. For purposes of this paragraph (e)(17), if an individual 
receives non-cash or in-kind services from a program specified in 
Secs. 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.
    (19) At State agency option, any resources that the State agency 
excludes when determining eligibility or benefits for TANF cash 
assistance, as defined by 45 CFR 260.31 (a)(1) and (a)(2), or medical 
assistance under Section 1931 of the SSA. Resource exclusions under TANF 
and Section 1931 programs that do not evaluate the financial 
circumstances of adults in the household and programs grandfathered 
under Section 404(a)(2) of the SSA shall not be excluded under this 
paragraph (e)(19). Additionally, licensed vehicles not excluded under 
Section 5(g)(2)(C) or (D) of the Food Stamp Act of 1977, as amended (7 
U.S.C. 2014(g)(2)(C) or (D)), cash on hand, amounts in any account in a 
financial institution that are readily available to the household 
including money in checking or savings accounts, savings certificates, 
stocks, or bonds shall also not be excluded. The term ``readily 
available'' applies to resources that the owner can simply withdraw from 
a financial institution. State agencies may exclude deposits in 
individual development accounts (IDAs). A State agency that chooses to 
exclude resources under this paragraph (e)(19) must specify in its State 
plan of operation that it has selected this option and provide a 
description of the resources that are being excluded.
    (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

[[Page 801]]

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) is not accurate must be 
given the opportunity to acquire verification of the true value of the 
vehicle from a reliable source.
    (4) A State agency may substitute for the vehicle evaluation 
provisions in paragraphs (f)(1) through (f)(3) of this section the 
vehicle evaluation provisions of a program in that State that uses TANF 
or State or local funds to meet TANF maintenance of effort requirements 
and provides benefits that meet the definition of ``assistance'' 
according to TANF regulations at 45 CFR 260.31, where doing so results 
in a lower attribution of resources to the household. States electing 
this option must:
    (i) Apply the substituted TANF vehicle rules to all food stamp 
households in the State, whether or not they receive or are eligible to 
receive TANF assistance of any kind;
    (ii) Exclude from household resources any vehicles excluded by 
either the substituted TANF vehicle rules or the food stamp vehicle 
rules at paragraphs (e)(3), (e)(5), (e)(11) and (f) of this section;
    (iii) Apply either the substituted TANF rules or the food stamp 
vehicle rules to each of a household's vehicles in turn, using whichever 
set of rules produces the lower attribution of resources to the 
household;
    (iv) Apply any vehicle exclusions allowed by their TANF vehicle 
rules to the vehicles with the highest values; and
    (v) Exclude any vehicle owned by any household in the State if it 
selects TANF vehicle rules that exclude all vehicles completely or 
contain no resource provisions at all.
    (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

[[Page 802]]

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

    (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 at www.fdsys.gov.



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

[[Page 803]]

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 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

[[Page 804]]

with a work requirement) in excess of the amount excluded under 
Sec. 273.9(c)(3). Earned income from work study programs that are funded 
under section 20 U.S.C. 1087uu of the Higher Education Act is excluded.
    (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 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

[[Page 805]]

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 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:

[[Page 806]]

    (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 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.

[[Page 807]]

    (ii) To be excluded, educational assistance referred to in paragraph 
(c)(3)(i) must be:
    (A) Received under 20 CFR 1087uu. This exemption includes student 
assistance received under part E of subchapter IV of Chapter 28 of title 
20 and part C of subchapter I of chapter 34 of title 42, or under Bureau 
of Indian Affairs student assistance programs.
    (B) 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;
    (C) 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)(C) 
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 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.
    (v) At its option, the State agency may exclude any educational 
assistance that must be excluded under its State Medicaid rules that 
would not already be excluded under this section. A State agency that 
chooses to exclude educational assistance under this paragraph (c)(3)(v) 
must specify in its State plan of operation that it has selected this 
option and provide a description of the educational assistance that is 
being excluded. The provisions of paragraphs (c)(3)(ii), (c)(3)(iii) and 
(c)(3)(iv) of this section do not apply to income excluded under this 
paragraph (c)(3)(v).

[[Page 808]]

    (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 allowances, 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, 
1988), 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 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

[[Page 809]]

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. 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). 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.
    (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 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

[[Page 810]]

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.
    (17) 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) and 
amounts paid toward child support arrearages. However, at its option, 
the State agency may allow households a deduction for such child support 
payments in accordance with paragraph (d)(5) of this section rather than 
an income exclusion.
    (18) At the State agency's option, any State complementary 
assistance program payments excluded for the purpose of determining 
eligibility under section 1931 of the SSA for a program funded under 
Title XIX of the SSA. A State agency that chooses to exclude 
complementary assistance program payments under this paragraph (c)(18) 
must specify in its State plan of operation that it has selected this 
option and provide a description of the types of payments that are being 
excluded.
    (19) At the State agency's option, any types of income that the 
State agency excludes when determining eligibility or benefits for TANF 
cash assistance as defined by 45 CFR 260.31(a)(1) and (a)(2), or medical 
assistance under Section 1931 of the SSA, (but not for programs that do 
not evaluate the financial circumstances of adults in the household and 
programs grandfathered under Section 404(a)(2) of the SSA). The State 
agency must exclude for food stamp

[[Page 811]]

purposes the same amount of income it excludes for TANF or Medicaid 
purposes. A State agency that chooses to exclude income under this 
paragraph (c)(19) must specify in its State plan of operation that it 
has selected this option and provide a description of the resources that 
are being excluded. The State agency shall not exclude:
    (i) Wages or salaries;
    (ii) Gross income from a self-employment enterprise, including the 
types of income referenced in paragraph (b)(1)(ii) of this section. 
Determining monthly income from self-employment must be calculated in 
accordance with Sec. 273.11(a)(2);
    (iii) Benefits under Title I, II, IV, X, XIV or XVI of the SSA, 
including supplemental security income (SSI) benefits, TANF benefits, 
and foster care and adoption payments from a government source;.
    (iv) Regular payments from a government source. Payments or 
allowances a household receives from an intermediary that are funded 
from a government source are considered payments from a government 
source;
    (v) Worker's compensation;
    (vi) Child support payments, support or alimony payments made to the 
household from a nonhousehold member;
    (vii) Annuities, pensions, retirement benefits;
    (viii) Disability benefits or old age or survivor benefits; and
    (ix) Monies withdrawn or dividends received by a household from 
trust funds considered to be excludable resources under 
Sec. 273.8(e)(8).
    (d) Income deductions. Deductions shall be allowed only for the 
following household expenses:
    (1) Standard deduction--(i) 48 States, District of Columbia, Alaska, 
Hawaii, and the Virgin Islands. Effective October 1, 2002, in the 48 
States and the District of Columbia, Alaska, Hawaii, and the Virgin 
Islands, the standard deduction for household sizes one through six 
shall be equal to 8.31 percent of the monthly net income eligibility 
standard for each household size established under paragraph (a)(2) of 
this section rounded up to the nearest whole dollar. For household sizes 
greater than six, the standard deduction shall be equal to the standard 
deduction for a six-person household.
    (ii) Guam. Effective October 1, 2002, in Guam, the standard 
deduction for household sizes one through six shall be equal to 8.31 
percent of double the monthly net income eligibility standard for each 
household size for the 48 States and the District of Columbia 
established under paragraph (a)(2) of this section rounded up to the 
nearest whole dollar. For household sizes greater than six, the standard 
deduction shall be equal to the standard deduction for a six-person 
household.
    (iii) Minimum deduction levels. Notwithstanding paragraphs (d)(1)(i) 
and (d)(1)(ii) of this section, the standard deduction in any year for 
each household in the 48 States and the District of Columbia, Alaska, 
Hawaii, Guam, and the Virgin Islands shall not be less than $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 this section shall not be included in gross earned 
income for purposes of computing the earned income deduction, except 
that the State agency must count any earnings used to pay child support 
that were excluded from the household's income in accordance with the 
child support exclusion in paragraph (c)(17) of this section.
    (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 benefits 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

[[Page 812]]

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.
    (A) Medical supplies and equipment. Costs of medical supplies, sick-
room equipment (including rental) or other prescribed equipment are 
deductible;
    (B) Exclusions. The cost of any Schedule I controlled substance 
under The Controlled Substances Act, 21 U.S.C. 801 et seq., and any 
expenses associated with its use, are not 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) Optional child support deduction. At its option, the State 
agency may provide a deduction, rather than the income exclusion 
provided under paragraph (c)(17) of this section, for 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) and amounts paid toward 
child support arrearages. Alimony payments made to or for a nonhousehold 
member shall not be included in the child support deduction. A State 
agency that chooses to provide a child support deduction rather than an 
exclusion in accordance with this paragraph (d)(5) must specify in its 
State plan of operation that it has chosen to provide the deduction 
rather than the exclusion.
    (6) Shelter costs--(i) Homeless shelter deduction. A State agency 
may provide a standard homeless shelter deduction of $143 a month to 
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

[[Page 813]]

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. A State agency that chooses to 
provide a homeless household shelter deduction must specify in its State 
plan of operation that it has selected this option.
    (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. For fiscal 
year 2001, effective March 1, 2001, the maximum monthly excess shelter 
expense deduction limits are $340 for the 48 contiguous States and the 
District of Columbia, $543 for Alaska, $458 for Hawaii, $399 for Guam, 
and $268 for the Virgin Islands. FNS will set the maximum monthly excess 
shelter expense deduction limits for fiscal year 2002 and future years 
by adjusting the previous year's limits to reflect changes in the 
shelter component and the fuels and utilities component of the Consumer 
Price Index for All Urban Consumers for the 12 month period ending the 
previous November 30. 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

[[Page 814]]

offer the lower standard to such households. The State agency may use 
different types of standards but cannot 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 unless the State agency mandates the use of 
standard utility allowances in accordance with paragraph (d)(6)(iii)(E) 
of this section. 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. If the State agency chooses to mandate use of 
standard utility allowances, it must provide a standard utility 
allowance that includes heating or cooling costs to residents of public 
housing units which have central utility meters and which charge the 
households only for excess heating or cooling costs. The State agency 
also must not prorate a standard utility allowance that includes heating 
or cooling costs provided to a household that lives and shares heating 
or cooling expenses with others. In determining whether the standard 
utility allowances increase program costs, the State agency shall not 
consider any increase in costs that results from providing a standard 
utility allowance that includes heating or cooling costs to residents of 
public

[[Page 815]]

housing units which have central utility meters and which charge the 
households only for excess heating or cooling costs. The State agency 
shall also not consider any increase in costs that results from 
providing a full (i.e., not prorated) standard utility allowance that 
includes heating or cooling costs to a household that lives and shares 
heating or cooling expenses with others. 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. 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, or both, the State agency 
shall not prorate the standard for such households if the State agency 
mandates use of standard utility allowances in accordance with paragraph 
(d)(6)(iii)(E) of this section. 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 at www.fdsys.gov.



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

[[Page 816]]

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

 [GRAPHIC] [TIFF OMITTED] TR25SE06.014

    (B) For State agencies which use the exact number of days in a 
month, the formula is:
[GRAPHIC] [TIFF OMITTED] TR07OC94.022

 [GRAPHIC] [TIFF OMITTED] TR25SE06.015

    (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.

[[Page 817]]

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.
    (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

[[Page 818]]

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 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 expenses include only certain 
dependent care, shelter, medical and, at State agency option, child 
support 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

[[Page 819]]

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. 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

[[Page 820]]

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.
    (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) Optional child support deduction. If the State agency opts to 
provide households with an income deduction rather than an income 
exclusion for legally obligated child support payments in accordance 
with Sec. 273.9(d)(5), the State agency may budget such payments 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

[[Page 821]]

and add that to the total monthly unearned income, minus income 
exclusions. If the State agency has chosen to treat legally obligated 
child support payments as an income exclusion in accordance with 
Sec. 273.9(c)(17), multiply the excluded earnings used to pay child 
support by 20 percent and subtract that amount from the total gross 
monthly income.
    (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) If the State agency has chosen to treat legally obligated child 
support payments as a deduction rather than an exclusion in accordance 
with Sec. 273.9(d)(5), subtract allowable monthly child support payments 
in accordance with Sec. 273.9(d)(5).
    (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 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

[[Page 822]]

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 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

[[Page 823]]

(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 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

[[Page 824]]

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 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.

[[Page 825]]

    (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 month for which the household is 
eligible to participate. The certification period cannot exceed 12 
months except to accommodate a household's transitional benefit period 
and 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, the household has not complied

[[Page 826]]

with the requirements of Sec. 273.12(c)(3), or the State agency must 
shorten the household's certification period to comply with the 
requirements of Sec. 273.12(a)(5). 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 must issue a notice of adverse action 
as provided in Sec. 273.13 to shorten a participating household's 
certification period in connection with imposing the simplified 
reporting requirement. The State agency may not use the Notice of 
Expiration to shorten a certification period, except that the State 
agency must use the Notice of Expiration to shorten a household's 
certification period when the household is receiving transitional 
benefits under Subpart H, has not reached the maximum allowable number 
of months in its certification period during the transitional period, 
and the State agency has chosen to recertify the household in accordance 
with Sec. 273.28(b). If the transition period results in a shortening of 
the household's certification period, the State agency shall not issue a 
household a notice of adverse action but shall specify in the 
transitional notice required under Sec. 273.29 that the household must 
be recertified when it reaches the end of the transitional benefit 
period or if it returns to TANF during the transitional 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 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.

[[Page 827]]

    (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 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 at www.fdsys.gov.



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

[[Page 828]]

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 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 SNAP 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.

[[Page 829]]

    (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 SNAP 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 SNAP 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, 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) Assigning a standard deduction to the household;
    (C) Comparing the household's monthly income with the income 
eligibility standards; or
    (D) 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

[[Page 830]]

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) Assigning a standard deduction to the household;
    (C) Comparing the household's monthly income with the income 
eligibility standards; or
    (D) 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
    (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

[[Page 831]]

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. However, 
a participating household is entitled to a notice of adverse action 
prior to any action to reduce, suspend or terminate its benefits, if a 
State agency determines that it contains an individual who was 
disqualified in another State and is still within the period of 
disqualification.
    (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 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.

[[Page 832]]

    (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 SNAP. 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 SNAP, 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 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

[[Page 833]]

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 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

[[Page 834]]

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 records 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 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

[[Page 835]]

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 SNAP 
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 SNAP, the GLA must 
ensure that the resident's SNAP 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).
    (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 SNAP households. Homeless SNAP households shall be 
permitted to use their SNAP benefits to purchase prepared meals from 
homeless meal providers authorized by FNS under Sec. 278.1(h).

[[Page 836]]

    (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 SNAP 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 SNAP household member to perform an action required 
under the assistance program or for fraud, the State agency shall not 
increase the household's SNAP allotment as the result of the decrease in 
income. In addition to prohibiting an increase in SNAP benefits, the 
State agency may impose a penalty on the household that represents a 
percentage of the SNAP allotment that does not exceed 25 percent. The 25 
percent reduction in SNAP benefits must be based on the amount of SNAP 
benefits the household should have received under the regular SNAP 
benefit formula, taking into account its actual (reduced) income. 
However, under no circumstances can the SNAP 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 SNAP 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 SNAP 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 SNAP benefits, and may reduce SNAP 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 SNAP benefits 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 
other programs and changes in those sanctions.
    (2) The prohibition on increasing SNAP 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 SNAP 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

[[Page 837]]

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 SNAP change processing and notice procedures.
    (3) The State agency shall determine how to prevent an increase in 
SNAP 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 SNAP 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 SNAP allotment may not be reduced by more than 25 percent.
    (5) The State agency must lift the ban on increasing SNAP 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 SNAP 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 SNAP. 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 SNAP 
recipients. The State agency shall be responsible for obtaining 
information about sanctions from other programs and changes in those 
sanctions. In the case of disqualification from the Food Distribution 
Program on Indian Reservations (FDPIR) for an intentional program 
violation as described under Sec. 253.8 of this chapter, the State 
agency shall impose the same disqualification on the member of the 
household under SNAP. The State agency must, in cooperation with the 
appropriate FDPIR agency, develop a procedure that ensures that these 
household members are identified.
    (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 reapply or complete the application 
process for continued assistance, failing to perform an action that the 
individual is unable to perform as opposed

[[Page 838]]

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 SNAP 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 SNAP 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 SNAP at the time of the 
disqualification in the assistance program to be disqualified from SNAP 
under this provision.
    (3) The State agency must stop the SNAP 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 SNAP.
    (5) Only the individual who committed the violation in the 
assistance program may be disqualified for SNAP purposes even if the 
entire assistance unit is disqualified for Title IV-A purposes.
    (6) A comparable disqualification for SNAP purposes shall be imposed 
concurrently with the disqualification in the assistance program to the 
extent allowed by normal SNAP 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. In instances 
where the disqualification is a reciprocal action based on 
disqualification from the Food Distribution Program on Indian 
Reservations, the length of disqualification shall mirror the period 
prescribed by the Food Distribution Program on Indian Reservations.
    (7) If there is a pending disqualification for a SNAP 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 SNAP 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 SNAP 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 SNAP benefits and shall be treated as a new applicant or a new 
household member, except that a current disqualification based on a SNAP 
work requirement shall be considered in determining eligibility.
    (10) A comparable SNAP 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 839]]

    (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 SNAP 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 SNAP 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 SNAP 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.
    (1) Fleeing felon. An individual determined to be a fleeing felon 
shall be an ineligible household member. To establish an individual as a 
fleeing felon, a State agency must verify that an individual is a 
fleeing felon as provided in paragraph (n)(1)(i) of this section, or a 
law enforcement official acting in his or her official capacity must 
have provided the State agency with a felony warrant as provided in 
paragraph (n)(1)(ii) of this section. The State shall specify in its 
State plan of operation which fleeing felon test it has adopted as 
required at Sec. 272.2(d)(1)(xvii) of this chapter.
    (i) Four-part test to establish fleeing felon status. To establish 
that an individual is a fleeing felon, the State agency must verify 
that:
    (A) There is an outstanding felony warrant for the individual by a 
Federal, State, or local law enforcement agency, and the underlying 
cause for the warrant is for committing or attempting to commit a crime 
that is a felony under the law of the place from which the individual is 
fleeing or a high misdemeanor under the law of New Jersey;
    (B) The individual is aware of, or should reasonably have been able 
to expect that, the felony warrant has already or would have been 
issued;
    (C) The individual has taken some action to avoid being arrested or 
jailed; and
    (D) The Federal, State, or local law enforcement agency is actively 
seeking the individual as provided in paragraph (n)(3) of this section.
    (ii) Alternative test to establish fleeing felon status. 
Alternatively, a State agency may establish that an individual is a 
fleeing felon when a Federal, State, or local law enforcement

[[Page 840]]

officer acting in his or her official capacity presents an outstanding 
felony arrest warrant that conforms to one of the following National 
Crime Information Center Uniform Offense Classification Codes, to the 
State agency to obtain information on the location of and other 
information about the individual named in the warrant:
    (A) Escape (4901);
    (B) Flight to Avoid (prosecution, confinement, etc.) (4902); or
    (C) Flight-Escape (4999).
    (2) Probation and parole violator. An individual determined a parole 
or probation violator shall not be considered to be an eligible 
household member. To be considered a probation or parole violator, an 
impartial party, as designated by the State agency, must determine that 
the individual violated a condition of his or her probation or parole 
imposed under Federal or State law and that Federal, State, or local law 
enforcement authorities are actively seeking the individual to enforce 
the conditions of the probation or parole, as provided in paragraph 
(n)(3) of this section.
    (3) Actively seeking. For the purposes of this paragraph (n), 
actively seeking is defined as follows:
    (i) A Federal, State, or local law enforcement agency informs a 
State agency that it intends to enforce an outstanding felony warrant or 
to arrest an individual for a probation or parole violation within 20 
days of submitting a request for information about the individual to the 
State agency;
    (ii) A Federal, State, or local law enforcement agency presents a 
felony arrest warrant as provided in paragraph (n)(1)(ii) of this 
section; or
    (iii) A Federal, State, or local law enforcement agency states that 
it intends to enforce an outstanding felony warrant or to arrest an 
individual for a probation or parole violation within 30 days of the 
date of a request from a State agency about a specific outstanding 
felony warrant or probation or parole violation.
    (4) Response time. The State agency shall give the law enforcement 
agency 20 days to respond to a request for information about the 
conditions of a felony warrant or a probation or parole violation, and 
whether the law enforcement agency intends to actively pursue the 
individual. If the law enforcement agency does not indicate that it 
intends to enforce the felony warrant or arrest the individual for the 
probation or parole violation within 30 days of the date of the State 
agency's request for information about the warrant, the State agency 
shall determine that the individual is not a fleeing felon or a 
probation or parole violator and document the household's case file 
accordingly. If the law enforcement agency indicates that it does intend 
to enforce the felony warrant or arrest the individual for the probation 
or parole violation within 30 days of the date of the State agency's 
request for information, the State agency will postpone taking any 
action on the case until the 30-day period has expired. Once the 30-day 
period has expired, the State agency shall verify with the law 
enforcement agency whether it has attempted to execute the felony 
warrant or arrest the probation or parole violator. If it has, the State 
agency shall take appropriate action to deny an applicant or terminate a 
participant who has been determined to be a fleeing felon or a probation 
or parole violator. If the law enforcement agency has not taken any 
action within 30 days, the State agency shall not consider the 
individual a fleeing felon or probation or parole violator, shall 
document the case file accordingly, and take no further action.
    (5) Application processing. The State agency shall continue to 
process the application while awaiting verification of fleeing felon or 
probation or parole violator status. If the State agency is required to 
act on the case without being able to determine fleeing felon or 
probation or parole violator status in order to meet the time standards 
in Sec. 273.2(g) or Sec. 273.2(i)(3), the State agency shall process the 
application without consideration of the individual's fleeing felon or 
probation or parole violator status.
    (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.

[[Page 841]]

    (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 SNAP 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 the individual to be 
cooperating for SNAP 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

[[Page 842]]

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 SNAP. 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 SNAP 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 SNAP 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

[[Page 843]]

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 SNAP. 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 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 SNAP 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 SNAP. 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 at www.fdsys.gov.



                   Subpart E_Continuing Participation



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. Simplified reporting households are 
subject to the procedures as provided in paragraph (a)(5) 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

[[Page 844]]

(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;
    (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. However, 
the State agency may remove this reporting requirement if it has chosen 
to use information provided by the State's CSE agency in determining a 
household's legal obligation to pay child support, the amount of its 
obligation, and amounts the household has actually paid in accordance 
with Sec. 273.2(f)(1)(xii).
    (vii) 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 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:

[[Page 845]]

    (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 establish a simplified reporting system in 
lieu of the change reporting requirements specified under paragraph 
(a)(1) of this section. The following requirements are applicable to 
simplified reporting systems:
    (i) Included households. The State agency may include any household 
certified for at least 4 months within a simplified reporting system.
    (ii) Notification of simplified reporting requirement. At the 
initial certification, recertification and when the State agency 
transfers the households to simplified reporting, the State agency shall 
provide the household with the following:
    (A) A written and oral explanation of how simplified reporting 
works;
    (B) A written and oral explanation of the reporting requirements 
including:
    (1) What needs to be reported and verified;
    (2) When the report is due;
    (3) How to obtain assistance; and
    (4) The consequences of failing to file a report.
    (C) Special assistance in completing and filing periodic 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 
report; and
    (D) 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

[[Page 846]]

to ask questions or to obtain help in completing the periodic report.
    (iii) Periodic report. (A) The State agency may require a household 
to submit a periodic report on its circumstances from once every 4 
months up to once every 6 months. The State agency need not require a 
household certified for 6 months or less to submit a periodic report 
during its certification period. However, except for households in which 
all adults are elderly or disabled with no earned income, a household 
certified for more than 6 months must submit a periodic report at least 
once every 6 months. Households in which all adults are elderly or 
disabled with no earned income must not be required to submit periodic 
reports more frequently than once a year.
    (B) The periodic report form must request from the household 
information on any changes in circumstances in accordance with 
paragraphs (a)(1)(i) through (a)(1)(vii) of this section and conform to 
the requirements of paragraph (b)(2) of this section.
    (C) 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 the household will receive it 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.
    (D) 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)(5)(iii)(C) of this section.
    (E) The periodic report form shall be the sole reporting requirement 
for any information that is required to be reported on the form, except 
that a household required to report less frequently than quarterly shall 
report when its monthly gross income exceeds the monthly gross income 
limit for its household size in accordance with paragraph (a)(5)(v) of 
this section, and 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.
    (iv) Processing periodic reports. In selecting a due date for the 
periodic report, the State agency must provide itself sufficient time to 
process reports so that households will receive adequate notice of 
action on the report in the first month of the new reporting period.
    (v) Reporting when gross income exceeds 130 percent of poverty. A 
household subject to simplified reporting in accordance with paragraph 
(a)(5)(i) of this section, whether or not it is required to submit a 
periodic report, must report when its monthly gross income exceeds the 
monthly gross income limit for its household size, as defined at 
Sec. 273.9(a)(1). The household shall use the monthly gross income limit 
for the household size that existed at the time of its most recent 
certification or recertification, regardless of any subsequent changes 
in its household size.
    (vi) State agency action on changes reported outside of a periodic 
report. The State agency must act when the household reports that its 
gross monthly income exceeds the gross monthly income limit for its 
household size. For other changes, the State agency need not act if the 
household reports a change for another public assistance program in 
which it is participating and the change does not trigger action in that 
other program but results in a decrease in the household's food stamp 
benefit. The State agency must act on all other changes reported by a 
household outside of a periodic report in accordance with one of the 
following two methods:
    (A) The State agency must act on any change in household 
circumstances in accordance with paragraph (c) of this section; or

[[Page 847]]

    (B) The State agency must act on any change in accordance with 
paragraph (c)(1) of this section if it would increase the household's 
benefits. The State agency must not act on changes that would result in 
a decrease in the household's 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) A household member has been identified as a fleeing felon or 
probation or parole violator in accord with Sec. 273.11(n);
    (4) 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).
    (vii) State plan requirement. A State agency that chooses to use 
simplified reporting procedures in accordance with this section must 
state in its State plan of operation that it has implemented simplified 
reporting and specify the types of households to whom the reporting 
requirement applies.
    (6) For households eligible for the child support exclusion at 
Sec. 273.9(c)(17) or deduction at Sec. 273.9(d)(5), the State agency may 
use information provided by the State CSE agency in determining the 
household's legal obligation to pay child support, the amount of its 
obligation and amounts the household has actually paid if the household 
pays its child support exclusively through its State CSE agency and has 
signed a statement authorizing release of its child support payment 
records to the State agency. A household would not have to provide any 
additional verification unless they disagreed with the information 
provided by the State CSE agency. State agencies that choose to utilize 
information provided by their State CSE agency in accordance with this 
paragraph (a)(6) must specify in their State plan of operation that they 
have selected this option. If the State agency chooses not to utilize 
information provided by its State CSE agency, the State agency may make 
reporting child support payments an optional change reporting item in 
accordance with paragraph (a)(5) of this section.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 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.
    (7) 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

[[Page 848]]

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 
understandable 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.
    (vi) If the State agency has chosen to disregard reported changes 
that affect some deductions in accordance with paragraph (c) of this 
section, a statement explaining that the State agency will not change 
certain deductions until the household's next recertification and 
identifying those deductions.
    (2) The quarterly report form, including the form for the quarterly 
reporting of the child support obligation, and the periodic report form 
used in simplified reporting under paragraph (a)(5)(ii) of this section, 
must:
    (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;
    (iv) Specify the consequences of submitting a late or incomplete 
form including whether the State agency shall delay payment if the form 
is not received by a specified date;
    (v) Specify the verification the household must submit with the 
form;
    (vi) Inform the household where to call for help in completing the 
form;
    (vii) Include a statement to be signed by a member of the household 
indicating his or her understanding that the information provided may 
result in a reduction or termination of benefits;
    (viii) Include a brief description of the Food Stamp Program fraud 
penalties;
    (ix) Include a statement explaining that the State agency will not 
change certain deductions until the household's next recertification and 
identify those deductions if the State agency has chosen to disregard 
reported changes that affect certain deductions in accordance with 
paragraph (c) of this section;
    (x) If the form requests Social Security numbers, include a 
statement of the State agency's authority to require Social Security 
numbers (including the statutory citation, the title of the statute, and 
the fact that providing Social Security numbers is mandatory), the 
purpose of requiring Social Security numbers, the routine uses for 
Social Security numbers, and the effect of not providing Social Security 
numbers. This statement may be on the form itself or included as an 
attachment to the form.
    (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. However, the State agency has the 
option to disregard a reported change to an established deduction in 
accordance with paragraph (c)(4) of this section. 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 may act on the change in accordance with paragraphs (c)(1) 
and (c)(2) of this section. The

[[Page 849]]

time frames in paragraphs (c)(1) and (c)(2) of this section apply to 
these actions. 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 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

[[Page 850]]

(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 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

[[Page 851]]

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 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.
    (4) State agency option for processing changes in deductible 
expenses. (i) If the household reports a change to an established 
deduction amount during the first six months of the certification 
period, other than a change in earnings or residence, that would affect 
the household's eligibility for, or amount of, the deduction under 
Sec. 273.9(d), the State agency may at its option disregard the change 
and continue to provide the household the deduction amount that was 
established at certification until the household's next recertification 
or after the sixth month for households certified for 12 months. When a 
household reports a change in residence, the State agency must 
investigate and take action on potential changes in shelter costs 
arising from this reported change. However, if a household fails to 
provide information regarding the associated changes in shelter costs 
within 10 days of the report, the State agency should send a notice to 
the household that their allotment will be recalculated without the 
deduction. The notice will make it clear that the household does not 
need to await its first regular utility or rental payments to contact 
the food stamp office. Alternative forms of verification can be 
accepted, if necessary.
    (ii) In the case of a household assigned a 24-month certification 
period in accordance with Sec. 273.10(f)(1) and (f)(2), the State agency 
must act on any disregarded changes reported during the first 12 months 
of the certification period at the required 12-month contact for elderly 
and disabled households and in the thirteenth month of the certification 
period for households residing on a reservation who are required to 
submit monthly reports. Changes reported during the second 12 months of 
the certification period can be disregarded until the household's next 
recertification.
    (iii) If the State agency chooses to act on changes that affect a 
deduction, it may not act on changes in only one direction, i.e., 
changes that only increase or decrease the amount of the deduction, but 
must act on all changes that affect the deduction.
    (iv) The State agency may disregard changes reported by the 
household in accordance with paragraph (a)(1) of this section and 
changes it learns of from a source other than the household. The State 
agency must not disregard new deductions, changes in earned income or 
changes in shelter costs arising from a reported change in residence 
until the household's next recertification or after the sixth month of a 
12-month certification period but must act on those reports in 
accordance with paragraphs (c)(1) and (c)(2) of this section. When a 
household reports a change in residence, the State agency must 
investigate and take action on potential changes in shelter costs 
arising from this reported change. However, if a household fails to 
provide information regarding the associated changes in shelter costs 
within 10 days of the report, the State agency should send a notice to 
the household that their allotment will be recalculated without the 
deduction. The notice will make it clear that the household does not 
need to await its first regular utility or rental payments to contact 
the food stamp office. Alternative forms of verification can be 
accepted, if necessary.
    (v) A State agency that chooses to postpone action on reported 
changes in deductions in accordance with this paragraph (c) must state 
in its State plan of operation that it has selected this option and 
specify the deductions affected.
    (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

[[Page 852]]

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 (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

[[Page 853]]

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. A State agency may 
require households to report the change on the appropriate monthly 
report or may handle the change using the mass change procedures in this 
section. If the State agency requires the household to report the 
information on the monthly report, the State agency shall handle such 
information in accordance with its normal procedures. Households that 
are not required to report the change on the monthly report, and 
households not subject to monthly reporting, shall not be responsible 
for reporting these changes. The State agency shall be responsible for 
automatically adjusting these households' SNAP benefit levels in 
accordance with either paragraph (e)(3)(i) or (e)(3)(ii) of this 
section.
    (i) The State agency may make mass changes by applying percentage 
increases communicated by the source agency to represent cost-of-living 
increases provided in other benefit programs. These changes shall be 
reflected no later than the second allotment issued after the month in 
which the change becomes effective.
    (ii) The State agency may update household income information based 
on cost-of-living increases supplied by a data source covered under the 
Computer Matching and Privacy Protection Act of 1988 (CMA) in accordance 
with Sec. 272.12 of this chapter. The State agency shall take action, 
including proper notices to households, to terminate, deny or reduce 
benefits based on this information if it is considered verified upon 
receipt under Sec. 273.2(f)(9). If the information is not considered 
verified upon receipt, the State agency shall initiate appropriate 
action and notice in accordance with Sec. 273.2(f)(9).
    (4) Notice for mass change. When the State agency makes a mass 
change in SNAP eligibility or benefits by simultaneously converting the 
caseload, or that portion of the caseload that is affected, using the 
percentage increase calculation provided for in Sec. 273.12(e)(3)(i), or 
by conducting individual desk reviews using information not covered 
under the Computer Matching and Privacy Protection Act (CMA) 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

[[Page 854]]

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 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:

[[Page 855]]

    (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 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.

[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 
Finding Aids section of the printed volume and at www.fdsys.gov.



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. A notice of adverse action that combines the request for 
verification of information received through an IEVS computer match 
shall meet the requirements in Sec. 273.2(f)(9). A notice of adverse 
action that combines the request for verification of information 
received through a SAVE computer match shall meet the requirements in 
Sec. 273.2(f)(10).
    (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).

[[Page 856]]

    (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 through means other than 
computer matches as described in Sec. 273.12(e)(1), (e)(2), or 
(e)(3)(i).
    (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 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 an 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, except as provided in 
Sec. 273.11(c)(3)(i). A notice of adverse action must be sent to a 
currently participating household prior to the reduction or termination 
of benefits if a household member is found through a disqualified 
recipient match to be within the period of disqualification for an 
intentional Program violation penalty determined in another State. In 
the case of applicant households, State agencies shall follow the 
procedures in Sec. 273.2(f)(11) for issuing notices to the disqualified 
individual and the remaining household members. 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

[[Page 857]]

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 at www.fdsys.gov.



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 
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

[[Page 858]]

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 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

[[Page 859]]

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 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]



                  Subpart F_Disqualification and Claims



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

[[Page 860]]

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 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

[[Page 861]]

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 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

[[Page 862]]

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 
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.

[[Page 863]]

    (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.
    (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

[[Page 864]]

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 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

[[Page 865]]

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 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 project 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.

[[Page 866]]

    (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.
    (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

[[Page 867]]

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 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

[[Page 868]]

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 
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

[[Page 869]]

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
    (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

[[Page 870]]

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 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 determination 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

[[Page 871]]

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 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

[[Page 872]]

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.
    (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.

[[Page 873]]

    (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 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

[[Page 874]]

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 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

[[Page 875]]

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 an 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 more than 30 days after the date the disqualification took 
effect.
    (2) State agencies shall report information concerning each 
individual disqualified for an intentional Program violation to FNS. FNS 
will maintain this information and establish the format for its use.
    (i) State agencies shall report information to the disqualified 
recipient database in accordance with procedures specified by FNS.
    (ii) State agencies shall access disqualified recipient information 
from the database that allows users to check for current and prior 
disqualifications.
    (3) The elements to be reported to FNS are name, social security 
number, date of birth, gender, disqualification number, disqualification 
decision date, disqualification start date, length of disqualification 
period (in months), locality code, and the title, location and telephone 
number of the locality contact. These elements shall be reported in 
accordance with procedures prescribed by FNS.
    (i) The disqualification decision date is the date that a 
disqualification decision was made at either an administrative or 
judicial hearing, or the date an individual signed a waiver to forego an 
administrative or judicial hearing and accept a disqualification 
penalty.
    (ii) The disqualification start date is the date the 
disqualification penalty was imposed by any of the means identified in 
Sec. 273.16(i)(3)(i).
    (iii) The locality contact is a person, position or entity 
designated by a State agency as the point of contact for other State 
agencies to verify disqualification records supplied to the disqualified 
recipient database by the locality contact's State.
    (4) All data submitted by State agencies will be available for use 
by any State agency that is currently under a valid signed Matching 
Agreement with FNS.
    (i) State agencies shall, at a minimum, use the data to determine 
the eligibility of individual Program applicants prior to certification, 
and for 1 year following implementation, to determine the eligibility at 
recertification of its currently participating caseload. In lieu of the 
1-year match at recertification requirement and for the same purpose, 
State agencies may conduct a one-time match of their participating 
caseload against active disqualifications in the disqualified recipient 
database. State agencies have the option of exempting minors from this 
match.
    (ii) State agencies shall also use the disqualified recipient 
database for the purpose of determining the eligibility of newly added 
household members.
    (5) The disqualification of an individual for an intentional Program 
violation in one political jurisdiction

[[Page 876]]

shall be valid in another. However, one or more disqualifications for an 
intentional Program violation, 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 encouraged to identify and report to FNS any 
individuals disqualified for an intentional Program violation prior to 
April 1, 1983. A State agency submitting such historical information 
should take steps to ensure the availability of appropriate 
documentation to support the disqualifications in the event it is 
contacted for independent verification.
    (6) If a State determines that supporting documentation for a 
disqualification record that it has entered is inadequate or 
nonexistent, the State agency shall act to remove the record from the 
database.
    (7) If a court of appropriate jurisdiction reverses a 
disqualification for an intentional Program violation, the State agency 
shall take action to delete the record in the database that contains 
information related to the disqualification that was reversed in 
accordance with instructions provided by FNS.
    (8) If an individual disputes the accuracy of the disqualification 
record pertaining to him/herself the State agency submitting such 
record(s) shall be responsible for providing FNS with prompt 
verification of the accuracy of the record.
    (i) If a State agency is unable to demonstrate to the satisfaction 
of FNS that the information in question is correct, the State agency 
shall immediately, upon direction from FNS, take action to delete the 
information from the disqualified recipient database.
    (ii) In those instances where the State agency is able to 
demonstrate to the satisfaction of FNS that the information in question 
is correct, the individual shall have an opportunity to submit a brief 
statement representing his or her position for the record. The State 
agency shall make the individual's statement a permanent part of the 
case record documentation on the disqualification record in question, 
and shall make the statement available to each State agency requesting 
an independent verification of that disqualification.
    (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; 77 FR 48057, Aug. 13, 2012]



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 877]]

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 878]]

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 879]]

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 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.
------------------------------------------------------------------------

    (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 880]]


------------------------------------------------------------------------
 
------------------------------------------------------------------------
you . . .
------------------------------------------------------------------------
 
(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                          (c)(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

[[Page 881]]

referrals are referred for prosecutorial or similar action.
    (3) States must establish claims even if they cannot be established 
within the timeframes outlined under paragraph (d) of this section.
    (e) Initiating collection action and managing claims--(1) 
Applicability. State agencies must begin collection action on all claims 
unless the conditions under paragraph (e)(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 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 fair 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 fair 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.
------------------------------------------------------------------------

[[Page 882]]

 
(J) That, if not paid, the claim will be referred to the Federal
 government for federal collection action.
------------------------------------------------------------------------
(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, a due date or time frame to
 either repay or make arrangements to repay the claim in the event that
 the household stops receiving benefits.
------------------------------------------------------------------------
(P) 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 unless the claim was delinquent prior to entering into a 
repayment agreement, in which case the due date will be the due date on 
the initial notification/demand letter. 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.

[[Page 883]]

    (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.
    (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.

[[Page 884]]

 
(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.
(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.
------------------------------------------------------------------------


[[Page 885]]

    (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:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
   (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,

[[Page 886]]

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 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:
    (i) Any reduction in benefits when you disqualify someone for an 
IPV;
    (ii) The value of court-ordered public service performed in lieu of 
the payment of a claim; or
    (iii) Payments made to a court that are not subsequently forwarded 
as payment of an established claim.
    (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

[[Page 887]]

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;
    (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:

[[Page 888]]

    (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, 65 FR 41775, July 6, 2000; 65 FR 47587, Aug. 2, 2000, as 
amended at 75 FR 78153, Dec. 15, 2010]



Sec. 273.19  [Reserved]



                     Subpart G_Program Alternatives



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, as 
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

[[Page 889]]

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:
    (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.

[[Page 890]]

    (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 
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

[[Page 891]]

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 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.

[[Page 892]]

    (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:
    (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;

[[Page 893]]

    (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.
    (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

[[Page 894]]

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 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

[[Page 895]]

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:
    (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

[[Page 896]]

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 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

[[Page 897]]

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 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

[[Page 898]]

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;
    (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 at www.fdsys.gov.



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

[[Page 899]]

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.
    (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

[[Page 900]]

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 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

[[Page 901]]

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 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-

[[Page 902]]

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 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. 273.7(m); 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

[[Page 903]]

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 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;

[[Page 904]]

    (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.
    (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;

[[Page 905]]

    (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 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.

[[Page 906]]

    (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 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; 71 FR 33384, June 9, 2006]



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.

[[Page 907]]

    (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 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]



             Subpart H_The Transitional Benefits Alternative

    Source: 75 FR 4953, Jan. 29, 2010, unless otherwise noted.



Sec. 273.26  General eligibility guidelines.

    The State agency may elect to provide households leaving TANF with 
transitional food stamp benefits as provided in this section. A State 
agency that chooses to provide transitional benefits must state in its 
State plan of operation that it has selected this option and specify the 
categories of households eligible for such benefits, the maximum number 
of months for which transitional benefits will be provided and any other 
items required to be included under this subpart H. The State agency may 
choose to limit transitional benefits to households in which all members 
had been receiving TANF, or it may provide such benefits to any 
household in which at least one member had been receiving TANF.
    The State agency may not provide transitional benefits to a 
household which is leaving TANF when:
    (a) The household is leaving TANF due to a TANF sanction;
    (b) The household is a member of a category of households designated 
by the State agency as ineligible for transitional benefits;
    (c) All household members are ineligible to receive food stamps 
because they are:
    (1) Disqualified for intentional program violation in accordance 
with Sec. 273.16;

[[Page 908]]

    (2) Ineligible for failure to comply with a work requirement in 
accordance with Sec. 273.7;
    (3) Receiving SSI in a cash-out State in accordance with 
Sec. 273.20;
    (4) Ineligible students in accordance with Sec. 273.5;
    (5) Ineligible aliens in accordance with Sec. 273.4;
    (6) Disqualified for failing to provide information necessary for 
making a determination of eligibility or for completing any subsequent 
review of its eligibility in accordance with Sec. 273.2(d) and 
Sec. 273.21(m)(1)(ii);
    (7) Disqualified for knowingly transferring resources for the 
purpose of qualifying or attempting to qualify for the program as 
provided at Sec. 273.8(h);
    (8) Disqualified for receipt of multiple food stamps;
    (9) Disqualified for being a fleeing felon in accordance with 
Sec. 273.11(n); or
    (10) Able-bodied adults without dependents who fail to comply with 
the requirements of Sec. 273.24;
    (d) The State agency has the option to exclude households where all 
household members are ineligible to receive food stamps because they 
are:
    (1) Disqualified for failure to perform an action under Federal, 
State or local law relating to a means-tested public assistance program 
in accordance with Sec. 273.11(k);
    (2) Ineligible for failing to cooperate with child support agencies 
in accordance with Sec. 273.11(o) and (p); or
    (3) Ineligible for being delinquent in court-ordered child support 
in accordance with Sec. 273.11(q).
    (e) The State agency must use procedures at Sec. 273.12(f)(3) to 
determine the continued eligibility and benefit level of households 
denied transitional benefits under this section 273.26.



Sec. 273.27  General administrative guidelines.

    (a) When a household leaves TANF, the State agency may freeze for up 
to 5 months the household's benefit amount after making an adjustment 
for the loss of TANF. This is the household's transitional period. To 
provide the full transitional period, the State agency may extend the 
certification period for up to 5 months and may extend the household's 
certification period beyond the maximum periods specified in 
Sec. 273.10(f). Before initiating the transitional period, the State 
agency must recalculate the household's food stamp benefit amount by 
removing the TANF payment from the household's food stamp income. At its 
option, the State agency may also adjust the benefit to account for:
    (1) Changes in household circumstances that it learns about from 
another State or Federal means-tested assistance program in which the 
household participates; or
    (2) Automatic annual changes in the food stamp benefit rules, such 
as the annual cost of living adjustment.
    (b) The State agency must include in its State plan of operation 
whether it has elected to make these changes:
    (1) At the beginning of the transitional period; or
    (2) Both at the beginning and during the transitional period.
    (c) When a household leaves TANF, the State agency at its option may 
end the household's existing certification period and assign the 
household a new certification period that conforms to the transitional 
period. The recertification requirements at Sec. 273.14 that would 
normally apply when the household's certification period ends must be 
postponed until the end of the new certification period. If the 
transitional period results in a shortening of the household's 
certification period, the State agency shall not issue a household a 
notice of adverse action under Sec. 273.10(f)(4) but shall specify in 
the transitional notice required under Sec. 273.29 that the household 
must be recertified when it reaches the end of the transitional benefit 
period or if it returns to TANF during the transitional period.



Sec. 273.28  Application for Food Stamp Program recertification.

    At any time during the transitional period, the household may apply 
for recertification. If a household applies for recertification during 
its transitional period, the State agency shall observe the following 
procedures:
    (a) The State agency must schedule an interview in accordance with 
Sec. 273.2(e);

[[Page 909]]

    (b) The State agency must provide the household with a notice of 
required verification in accordance with Sec. 273.2(c)(5) and provide 
the household a minimum of 10 days to provide the required verification 
in accordance with Sec. 273.2(f).
    (c) Households that have met all of the required application 
procedures shall be notified of their eligibility or ineligibility as 
soon as possible, but no later than 30 calendar days following the date 
the application was filed.
    (1) 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 continue 
processing the application while continuing the household's transitional 
benefits.
    (2) If the application process cannot be completed due to State 
agency fault, the State agency must continue to process the application 
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. 273.2(h)(1).
    (d) If the application process cannot be completed because the 
household failed to take a required action, the State agency may deny 
the application at that time or at the end of the 30 days. If the 
household is determined to be ineligible for the program, the State 
agency will deny the household's application for recertification and 
continue the household's transitional benefits to the end of the 
transitional benefit period, at which time the State agency will either 
recertify the household or send a RFC in accordance with Sec. 273.31;
    (e) If the household is determined eligible for the regular Food 
Stamp Program but is entitled to a benefit lower than its transitional 
benefit, the State agency shall encourage the household to withdraw its 
application for recertification and continue to receive transitional 
benefits. If the household chooses not to withdraw its application, the 
State agency has the option to deny the application and allow the 
transitional period to run its course, or complete the recertification 
process and issue the household the lower benefit amount beginning with 
the first month of the new certification period.
    (f) If the household is determined eligible for the program, its new 
certification period will begin with the first day of the month 
following the month in which the household submitted the application for 
recertification. The State agency must issue the household full benefits 
for that month. For example, if the household applied for 
recertification on the 25th day of the third month of a 5-month 
transitional period, and the household is determined eligible for the 
regular Food Stamp Program, the State agency will begin the household's 
new certification period on the first day of what would have been the 
fourth month of the transitional period.
    (g) If the household is eligible for the regular Food Stamp Program 
and entitled to benefits higher than its transitional benefits, and the 
State agency has already issued the household transitional benefits for 
the first month of its certification period, the State agency must issue 
the household a supplement.
    (h) Applications for recertification submitted in the final month of 
the transitional period must be processed in accordance with 
Sec. 273.14.



Sec. 273.29  Transitional notice requirements.

    The State agency must issue a transitional notice (TN) to the 
household that includes the following information:
    (a) A statement informing the household that it will be receiving 
transitional benefits and the length of its transitional period;
    (b) A statement informing the household that it has the option of 
applying for recertification at any time during the transitional period. 
The household must be informed that if it does not apply for 
recertification during the transitional period, the State agency must, 
at the end of the transitional period, either reevaluate the household's 
food stamp case or require the household to undergo a recertification;
    (c) A statement that if the household returns to TANF during its 
transitional benefit period, the State agency will either reevaluate the 
household's

[[Page 910]]

food stamp case or require the household to undergo a recertification. 
However, if the household has been assigned a new certification period 
in accordance with Sec. 273.27(c), the notice must inform the household 
that it must be recertified if it returns to TANF during its 
transitional period;
    (d) A statement explaining any changes in the household's benefit 
amount due to the loss of TANF income and/or changes in household 
circumstances learned from another State or Federal means-tested 
assistance program;
    (e) A statement informing the household that it is not required to 
report and provide verification for any changes in household 
circumstances until the deadline established in accordance with 
Sec. 273.12(c)(3) or its recertification interview; and
    (f) A statement informing the household that the State agency will 
not act on changes that the household reports during the transitional 
period prior to the deadline specified in Sec. 273.29(e) and that if the 
household experiences a decrease in income or an increase in expenses or 
household size prior to that deadline, the household should apply for 
recertification.



Sec. 273.30  Transitional benefit alternative change reporting 
requirements.

    If the household does report changes in its circumstances during the 
transitional period, the State agency may make the change effective the 
month following the last month of the transitional period or invite the 
household to reapply and be certified to receive benefits. However, in 
order to prevent duplicate participation, the State agency must act to 
change the household's transitional benefit when a household member 
moves out of the household and either reapplies as a new household or is 
reported as a new member of another household. Moreover, the State 
agency must remove any income, resources and deductible expenses clearly 
attributable to the departing member.



Sec. 273.31  Closing the transitional period.

    In the final month of the transitional benefit period, the State 
agency must do one of the following:
    (a) Issue the RFC specified in Sec. 273.12(c)(3) and act on any 
information it has about the household's new circumstances in accordance 
with Sec. 273.12(c)(3). The State agency may extend the household's 
certification period in accordance with Sec. 273.10(f)(5) unless the 
household's certification period has already been extended past the 
maximum period specified in Sec. 273.10(f) in accordance with 
Sec. 273.27(a); or
    (b) Recertify the household in accordance with Sec. 273.14. If the 
household has not reached the maximum number of months in its 
certification period during the transitional period, the State agency 
may shorten the household's prior certification period in order to 
recertify the household. When shortening the household's certification 
period pursuant to this section, the State agency must send the 
household a notice of expiration in accordance with Sec. 273.14(b).



Sec. 273.32  Households who return to TANF during the transitional
period.

    If a household receiving transitional benefits returns to TANF 
during the transitional period, the State agency shall end the 
household's transitional benefits and follow the procedures in 
Sec. 273.31 to determine the household's continued eligibility and 
benefits for the Food Stamp Program. This includes processing the 
application within 30 days. However, for a household assigned a new 
certification period in accordance with Sec. 273.27(c), the household 
must be recertified if it returns to TANF during its transitional 
period.



PART 274_ISSUANCE AND USE OF PROGRAM BENEFITS--Table of Contents



Sec.
274.1  Issuance system approval standards.
274.2  Providing benefits to participants.
274.3  Retailer management.
274.4  Reconciliation and reporting.
274.5  Record retention and forms security.
274.6  Replacement issuances and cards to households.

[[Page 911]]

274.7  Benefit redemption by eligible households.
274.8  Functional and technical EBT system requirements.

    Authority: 7 U.S.C. 2011-2036.
    Editorial Note: OMB control numbers relating to this part 274 are 
contained in Sec. 271.8.

    Source: 75 FR 18381, Apr. 12, 2010, unless otherwise noted.



Sec. 274.1  Issuance system approval standards.

    (a) Basic issuance requirements. State agencies shall establish 
issuance and accountability systems which ensure that only certified 
eligible households receive benefits; that Program benefits are timely 
distributed in the correct amounts; and that benefit issuance and 
reconciliation activities are properly conducted and accurately reported 
to FNS.
    (b) System classification. State agencies may issue benefits to 
households through any of the following systems:
    (1) An on-line Electronic Benefit Transfer (EBT) system in which 
Program benefits are stored in a central computer database and 
electronically accessed by households at the point of sale via reusable 
plastic cards.
    (2) An off-line EBT 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 (POS) terminal without real-time authorization 
from a central processor.
    (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 
benefits using another method. The alternative method may be one of the 
methods described in paragraph (b) of this section. 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 of this chapter.
    (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) Contracting or delegating issuance responsibilities. State 
agencies may assign to others such as banks, savings and loan 
associations, and other commercial businesses, the responsibility for 
the issuance of benefits. 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 
benefits, 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 of this chapter.
    (3) The State agency shall not assign the issuance of benefits to 
any retail food firm.
    (e) Ownership rights and procurement requirements. (1) The State 
agency shall comply with the software and automated data processing 
equipment ownership rights prescribed under Secs. 277.13 and 277.18(1) 
of this chapter.
    (2) The State agency shall comply with the procurement standards 
prescribed under Sec. 277.18(c)(2)(iii) of this chapter. Under service 
agreements, the procurement of equipment and services which will be 
utilized in the SNAP EBT system shall be conducted in accordance with 
the provisions set forth under Sec. 277.18(e) of this chapter.
    (f) Advance planning documentation. State agencies must comply with 
the procurement requirements of part 277 of this chapter for the 
acquisition, design, development, or implementation of initial and 
subsequent EBT systems. With certain exceptions detailed in part 277, 
State agencies must receive prior approval for the design and 
acquisition of EBT systems through submission of advance planning 
documents (APDs).

[[Page 912]]

    (1) Pilot project approval requirements. To the extent the State is 
moving EBT to new technology or incorporating enhancements or upgrades 
that significantly change the architecture and interface requirements or 
functionality of issuing benefits electronically:
    (i) The State agency shall comply with the two stage approval 
process for submitting an EBT system proposal to FNS for approval. The 
Planning APD shall contain the requirements specified under 
Sec. 277.18(d)(1) of this chapter, including a brief letter of intent, 
planning budget, cost allocation plan, and schedule of activities and 
deliverables.
    (ii) 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.
    (A) 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 Program participants and households, the number and type of 
authorized food retailers and authorized retailers bordering the pilot 
and expanded areas, the SNAP redemption patterns of food retailers, the 
status of commercial POS deployment and the estimated number of checkout 
lanes that will require POS equipment; and
    (B) 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.
    (iii) Pilot project reporting. The State agency is required to 
report to FNS all issues that arise during the pilot period. Reports to 
FNS shall be provided as problems occur. In instances where the State 
agency must investigate the issue, FNS must receive the information no 
later than 1 month after completion of the pilot operations.
    (iv) Expansion requirements. The pilot and expansion schedule must 
be delineated in the State agency's approved implementation plan. As 
part of the plan, the State agency must indicate a suitable pilot area 
to serve as the basis of the 3-month analysis and reporting, however, 
expansion can occur simultaneously with pilot operations. Submission of 
an Advanced Planning Document Update to request FNS approval to 
implement and operate the EBT system in areas beyond the pilot area is 
only required in instances where there are substantial changes to the 
implementation plan. However, if significant problems arise during the 
pilot period or expansion, the Department can require the roll-out be 
suspended until such problems are resolved.
    (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. 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 project area:
    (i) Functional demonstration. A functional demonstration of the 
functional requirements prescribed in Sec. 274.8 in combination with the 
system components described by the approved system design is recommended 
in order to identify and resolve any problems prior to acceptance 
testing. The Department reserves the right to participate in the 
functional demonstration if one is conducted. FNS may require that any 
or all of these tests be repeated in instances where significant 
modifications are made to the system after these tests are initially 
completed or if problems that surfaced during initial testing warrant a 
retest;
    (ii) An acceptance test plan. The Acceptance Test Plan for the 
project shall

[[Page 913]]

describe the methodology to be utilized to verify that the EBT system 
complies with 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.
    (iii) An acceptance test report. The State agency shall provide a 
separate report after the completion of the acceptance test only in 
instances where FNS is not present at the testing or when serious 
problems are uncovered during the testing that remain unresolved by the 
end of the test session. 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.
    (iv) A prototype food retailer agreement. The State agency shall 
enter an agreement with each FNS authorized retailer that complies with 
the requirements under Sec. 274.3.
    (v) An implementation plan. The implementation plan shall include 
the following:
    (A) A description of the tools, procedures, detailed schedules, and 
resources needed to implement the 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 from one EBT system to another. In describing this strategy, 
the plan shall address schedules that avoid disruption of normal 
shopping patterns and operations of participating households and food 
retailers. Training of SNAP 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 ongoing training, document updates, equipment maintenance, on-site 
support and system adjustments, as needed to meet Program requirements; 
and,
    (E) A plan for orderly phase-out of the project and/or for 
continuing benefit issuance operations if it is demonstrated during the 
pilot project or conversion operations that the new system is not 
acceptable.
    (vi) 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(m) 
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.
    (g) EBT system administration. (1) 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

[[Page 914]]

has failed to comply with the requirements of this section and/or 
Sec. 277.18 of this chapter.
    (2) All EBT systems within a State must follow a single 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 transparent to participating 
households that move within the State; operating costs are the same or 
lower; and the different systems have the ability to readily communicate 
(transaction interchange) with one another.
    (3) 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 SNAP 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.
    (4) 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 SNAP 
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.
    (h) Master issuance file. (1) The State agency shall establish a 
master issuance file which is a composite of the issuance records of all 
certified SNAP 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 issuance file to ensure that 
the household is not currently participating in, or disqualified from, 
the Program. If benefits are issued under the expedited service 
requirements of Secs. 273.2(i) of this chapter and 274.2(b), the State 
agency shall complete as much of the master issuance file review as 
possible prior to issuing the benefits. 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, the posting of benefits to an EBT account and 
preparation of EBT cards and PINs for mailing. If issuance functions in 
an office are handled by one person, a second-party review shall be made 
to verify card 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 expedited and normal 
issuance services.
    (4) State agencies shall clearly identify issuances in their 
accountability systems as initial, supplemental, replacement, or 
restored benefits.
    (i) State monitoring, examinations, and audits. (1) The State 
agency's accountability system shall include procedures for monitoring 
benefit issuers to assure that the day-to-day operations of all benefit 
issuers comply with these regulations, to identify and correct 
deficiencies, and to report violations of the Act or regulations to FNS.
    (2) The State agency must obtain an examination by an independent 
auditor of the transaction processing of the

[[Page 915]]

State EBT service provider regarding the issuance, redemption, and 
settlement of 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.
    (i) 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 2 CFR part 
200, subpart F and Appendix XI, Compliance Supplement, and USDA 
implementing regulations 2 CFR part 400 and part 415 to the extent the 
guidelines refer to SNAP benefits.
    (ii) The State agency must retain a copy of the SAS No. 70 
examination report.
    (iii) The State agency shall respond to written requests from the 
Food and Nutrition Service (FNS), USDA Office of the Inspector General 
(OIG), or the Government Accountability Office (GAO) for completed SAS 
No. 70 examination reports by providing the report within thirty days of 
receipt of the written request.
    (iv) 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.
    (v) 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.
    (vi) 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 2 CFR part 200, 
subpart F and Appendix XI, Compliance Supplement and USDA implementing 
regulations 2 CFR part 400 and part 415.
    (j) Compliance Investigations. State agencies shall provide on-line 
read-only access to State EBT systems for compliance investigations.
    (1) The State agency is required to provide software and 
telecommunications capability as necessary to FNS Retailer Investigation 
Branch Area offices, Regional offices and Field offices so that FNS 
compliance investigators, other appropriate FNS personnel and USDA OIG 
investigators have access to the system in order to conduct 
investigations of program abuse and alleged violations;
    (2) The State agency must ensure that FNS compliance investigators 
and USDA OIG investigators have access to EBT cards and accounts that 
are updated as necessary to conduct SNAP investigations.
    (k) 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.
    (2) The State agency shall comply with the provisions set forth 
under Sec. 277.18 of this chapter and 2 CFR part 200, subparts D and E 
and USDA implementing regulations 2 CFR part 400 and part 415, as 
applicable.
    (3) 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.
    (4) State agencies may receive one hundred percent Federal funding 
for the costs they incur for switching and settling all SNAP 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 State to a 
retail food store, or wholesale food concern, that is located in another 
State,

[[Page 916]]

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. To qualify for this funding, the State 
agency must:
    (i) Meet standards of interoperability and portability under 
Sec. 274.8;
    (ii) 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
    (iii) 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.

[75 FR 18381, Apr. 12, 2010, as amended at 79 FR 10, Jan. 2, 2014; 81 FR 
66498, Sept. 28, 2016]



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, 
including EBT system compliance with the expedited service benefit 
delivery standard and the normal application processing standards, as 
prescribed by these regulations. Those households located in rural areas 
or comprised of elderly or disabled members who 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 an EBT card. State agencies shall assist these households by 
arranging for the mailing of EBT cards 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 an active EBT card and PIN, and benefits that 
have been posted to the household's EBT account and are available for 
spending. State agencies, utilizing a centralized mailing system, must 
mail EBT cards and PINs, if applicable, in time to assure that the 
benefits can be 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 EBT card or PIN is mailed 
on the 29th or 30th day. For households entitled to expedited service, 
the State agency shall make benefits available to the household not 
later than the seventh 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, made available at the same time, in accordance with the 
timeframes specified in Sec. 273.2 of this chapter.
    (d) Ongoing households. State agencies shall establish an 
availability date for household access to their benefits and inform 
households of this date. 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 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

[[Page 917]]

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 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 
and households on a fluctuating schedule within a staggered 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 of this 
chapter, 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) 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:
    (1) Content which will familiarize each household with the 
provisions of paragraphs (e) through (h) of this section and Sec. 274.6 
and Sec. 274.7;
    (2) Notification to the household of the procedures for manual 
transactions and re-presentation as described in Sec. 274.8(d);
    (3) The appropriate utilization and security of the PIN;
    (4) 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. Information on a 24 hour hotline telephone number shall 
be provided to each household during training;
    (5) 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. This shall include the statement of non-
discrimination found in Departmental Regulation 4300-3 (available from 
USDA, Office of Civil Rights, Room 326-W, Whitten Building, Washington, 
DC 20250). Written materials shall be prepared at an educational reading 
level suitable for SNAP households;
    (6) Information on the signs or other appropriate indicators located 
in checkout lanes that enable the household to identify lanes equipped 
to accept EBT cards.
    (7) 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.
    (f) EBT cards and Personal Identification Numbers (PINs). (1) State 
agencies which issue EBT cards by mail shall, at a minimum, use first 
class mail and sturdy nonforwarding envelopes or packages to send EBT 
cards to households.
    (2) The State agency shall permit SNAP households to select their 
PIN.

[[Page 918]]

    (i) PIN assignment procedures shall be permitted in accordance with 
industry standards as long as PIN selection is available to clients if 
they so desire and clients are informed of this option.
    (ii) If assigning a PIN by mail in conjunction with card issuance, 
State agencies shall mail the PIN separate from the card one business 
day after the card is mailed.
    (g) Adjustments. (1) 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.
    (2) 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 POS device. These 
adjustments may occur after the availability date and may result in 
either a debit or credit to the household.
    (i) 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.
    (ii) 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 owed is subject to collection from the household's next 
future month's benefits.
    (A) The household shall have 90 days from the date of the notice to 
request a fair hearing.
    (B) 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 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.
    (3) 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 (h)(3) of 
this section.
    (h) Stale account handling. Stale benefit accounts are those Program 
benefit accounts which are not accessed for three months or longer.
    (1) If EBT accounts are inactive for 3 months or longer, the State 
agency may store such benefits offline.
    (i) Benefits stored off-line shall be made available upon 
reapplication or re-contact by the household;
    (ii) 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;
    (2) The State agency shall expunge benefits that have not been 
accessed by the household after a period of one

[[Page 919]]

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.
    (3) 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. 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.

[75 FR 18381, Apr. 12, 2010,, as amended at 78 FR 51657, Aug. 21, 2013]



Sec. 274.3  Retailer management.

    (a) 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 authorization shall be accommodated by an alternative system 
(e.g., manual vouchers with preliminary or delayed telephone 
verification) for redeeming Program benefits from eligible SNAP 
customers. These retailers include stationary food stores which opt to 
make home deliveries to SNAP 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 authorization.
    (ii) Newly authorized retailers shall have access to the EBT system 
within 2 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.
    (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 SNAP. In addition, if 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. The State 
agency may choose to charge retailers reasonable fees in the following 
circumstances:
    (i) Cost for the replacement of lost, stolen or damaged equipment;
    (ii) The cost of materials and supplies for POS terminals not 
provided by the State agency;
    (iii) Telecommunication costs for all non-EBT use by retailers when 
lines are provided by the State agency. In addition, State agencies may 
remove phone lines from retailers in instances where there is 
significant misuse of the lines.
    (3) 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 to define the end of a transaction day for 
settlement and reconciliation.
    (b) POS deployment. POS terminals shall be deployed as follows:

[[Page 920]]

    (1) For an FNS authorized retailer with Program benefit redemption 
amounting to 15 percent or more of total food sales, all checkout lanes 
shall be equipped;
    (2) For an FNS authorized retailer with Program benefit redemptions 
representing less than 15 percent of total food sales, superstores and 
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.
    (3) For newly authorized retailers, the State agency and 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 SNAP 
redemption activity that could be utilized in determining the initial 
number of terminals to deploy in newly authorized retailer firms. State 
agencies will also need to make accommodations for border stores 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. 
Unauthorized release of redemption information is subject to penalties 
defined in Section 15 of the Food and Nutrition Act of 2008 (7 U.S.C. 
2024).
    (4) Any FNS authorized retailer shall be able to submit further 
evidence that it warrants additional terminals after the initial POS 
terminals are deployed. SNAP households may also submit evidence to the 
State agency that additional POS terminals are needed. State agencies 
may provide retailers with additional terminals above the minimum number 
required by this paragraph at customer service booths or other locations 
if appropriate.
    (c) Retailer agreements. The State agency shall enter into an 
agreement with each authorized retailer. The retailer agreement shall 
describe the terms and conditions of participation in the SNAP EBT 
system. At a minimum, the agreement shall:
    (1) Describe all terms and conditions with respect to equipment 
ownership, lease arrangements, handling and maintenance for which the 
State agency and merchant are liable;
    (2) Describe the agreed upon procedures and policies for 
participation and withdrawal from the EBT system;
    (3) Comply with all Program regulations with respect to retailer 
participation in the Program and treatment of SNAP households. This 
shall include specific requirements with respect to the deployment of 
terminals and the identification of checkout lanes for SNAP customers;
    (4) 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.
    (d) 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.
    (1) In order to participate in a SNAP EBT system, a third party 
processor must be able to meet all third party interface specifications 
and certification standards associated with Sec. 274.8. The State agency 
shall make available to third party processors the third party interface 
specifications prior to implementation of the EBT system to enable third 
party processors to access

[[Page 921]]

the database. Third party processors shall undergo functional and 
acceptance tests as specified by the State agency;
    (2) Third party processors shall be liable for transactions until 
the transaction has been electronically accepted by the contracted 
vendor or an intermediate processing facility;
    (3) The State agency shall ensure that third party processors and 
food retailers driving their own terminals comply with this section and 
all applicable Program regulations.
    (e) Managing retailer participation. The State agency shall:
    (1) Convey retailer authorization information provided by FNS to the 
system operator using the Retailer 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 SNAP transactions are updated on a 
daily basis.
    (2) Follow-up on actions taken regarding any disqualification or 
withdrawal of an authorized retailer from the Program must occur within 
two business days after receipt;
    (3) Add newly authorized retailers or third party processors to the 
EBT system as prescribed under paragraph (a)(1)(ii) of this section.
    (4) Ensure that only currently authorized retailers can access the 
system;
    (5) Monitor retailers to ensure that equipment deployment complies 
with paragraph (b) of this section;
    (6) 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 48 hours;
    (7) Ensure that retail store employees are trained in system 
operation prior to redeeming benefits. Retailer training shall be 
offered by the State agency and include the provision of appropriate 
written and program specific materials. Retailers have the option to 
waive instruction by the State agency if they desire. State agencies 
shall direct retailers to confirm in writing that they are waiving their 
option to training;
    (8) Conduct adjustments as prescribed under Sec. 274.2(g) of this 
chapter;



Sec. 274.4  Reconciliation and reporting.

    (a) Reconciliation. State agencies shall account for all issuance 
through a reconciliation process. 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 SNAP 
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 automated clearinghouse (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 POS transactions at retailers 
through settlement of retailer credits.
    (b) 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:
    (1) Information on how the system operates relative to its 
performance standards, the incidence, type and cause of system problems, 
and utilization patterns.
    (2) Retailer transaction data submitted to FNS on a monthly basis. 
This data must be submitted in the specified format in accordance with 
the required schedule.
    (3) Data detailing by specified category the amount of Program 
benefits issued or returned through the EBT system shall be provided in 
a format and mechanism specified by FNS to the

[[Page 922]]

FNS Account Management Agent as the benefits become available to 
recipients. This data will be used to increase or decrease the SNAP EBT 
benefit funding authorization for the State's Automated Standard 
Application for Payment (ASAP) account.
    (c) Required reports. The State agency shall review and submit the 
following reports to FNS on a monthly basis:
    (1) 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 posted benefits and the master issuance file occurs.
    (i) The State agency shall identify and report the number and value 
of all issuances which do not reconcile with the 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.
    (2) Form FNS-388, State 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 benefit 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 Statewide estimated dollar value of benefits issued and 
the 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 benefit 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.



Sec. 274.5  Record retention and forms security.

    (a) Availability of records. (1) 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.
    (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

[[Page 923]]

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.
    (c) Accountable documents. (1) EBT cards shall be considered 
accountable documents. The State agency shall provide the following 
minimum security and control procedures for these documents:
    (i) Secure storage;
    (ii) Access limited to authorized personnel;
    (iii) Bulk inventory control records;
    (iv) Subsequent control records maintained through the point of 
issuance or use; and
    (v) 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, the State agency shall, at a minimum, provide 
secure storage and shall limit access to authorized personnel.



Sec. 274.6  Replacement issuances and cards to households.

    (a) Providing replacement issuance. (1) Subject to the restrictions 
in paragraph (a)(3) of this section, State agencies shall provide 
replacement issuances to a household when the household reports that 
food purchased with Program benefits was destroyed in a household 
misfortune.
    (2) Where a Federal disaster declaration has been issued and the 
household is eligible for disaster SNAP benefits under the provisions of 
part 280, the household shall not receive both the disaster allotment 
and a replacement allotment for a misfortune.
    (3) Replacement restrictions. (i) Replacement issuances shall be 
provided only if a household timely reports a loss orally or in writing. 
The report will be considered timely if it is made to the State agency 
within 10 days of the date food purchased with Program benefits is 
destroyed in a household misfortune.
    (ii) No limit on the number of replacements shall be placed on the 
replacement of food purchased with Program benefits which was destroyed 
in a household misfortune.
    (iii) Except for households certified under 7 CFR part 280, 
replacement issuances shall be provided in the 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.
    (4) Household statement of loss. (i) 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. 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.
    (ii) 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.
    (iii) The statement shall be retained in the case record. It shall 
attest to the destruction of food purchased with the original issuance 
and the reason for the replacement. It shall also state 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.
    (5) Time limits for making issuance replacements. (i) Replacement 
issuances shall be provided to households within 10 days after report of 
loss or within two (2) working days of receiving the signed household 
statement required in paragraph (a)(4) of this section, whichever date 
is later.
    (ii) 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.
    (iii) 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.

[[Page 924]]

    (6) Verifying issuance and household misfortune. (i) Upon receiving 
a request for replacement of an issuance for food destroyed in a 
household misfortune, the State agency shall determine if the issuance 
was validly issued. The State agency shall also comply with all 
applicable provisions in paragraphs (a)(3) through (a)(5)of this 
section.
    (ii) Prior to replacing destroyed food that was purchased with 
Program 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.
    (7) Documentation and reconciliation of replacement issuances. (i) 
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 (a)(4) of this section.
    (ii) The State agency shall maintain, in readily-identifiable form, 
a record of the replacements granted to the household, the reason, and 
the month. 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.
    (iii) 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 benefit 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 benefit, so that 
all duplicate transactions may be identified.
    (b) Providing replacement EBT cards or PINs. The State agency shall 
make replacement EBT cards available for pick up or place the card in 
the mail within two business days following notice by the household to 
the State agency that the card has been lost, stolen or damaged unless 
the State agency implements a replacement procedure pursuant to 
paragraph (b)(5) of this section.
    (1) 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.
    (2) 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.
    (3) 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.
    (4) Replacement card. The State agency shall issue replacement cards 
and PINs in accordance with Sec. 274.2(f) of this chapter.
    (5) State option to withhold replacement card. The State agency may 
require an individual member of a household to contact the State agency 
to provide an explanation in cases where the number

[[Page 925]]

of requests for card replacements is determined excessive. If they so 
require, the State agency must establish a threshold for the number of 
card replacements during a specified period of time to be considered 
excessive. That threshold shall not be less than four cards requested 
within 12 months prior to the request, unless the State agency has 
additional evidence indicating a suspected trafficking violation, as 
defined at Sec. 271.2 of this chapter. If a trafficking violation is 
suspected prior to the fourth card request, the State agency shall refer 
the client for investigation and, if deemed appropriate, may provide a 
notice to the client, requiring the individual or household to contact 
the State agency to provide an explanation prior to receiving a 
subsequent replacement card.
    (i) The State agency shall notify the household in writing when it 
has reached the threshold, indicating that the next request for card 
replacement will require contact with the State agency to provide an 
explanation for the requests, before the replacement card will be 
issued. The State agency shall also notify the household in writing once 
the threshold has been exceeded that the State agency is withholding the 
card until contact is made. These notices must:
    (A) Be written in clear and simple language;
    (B) Meet the language requirements described at Sec. 272.4(b) of 
this chapter;
    (C) Specify the number of cards requested and over what period of 
time;
    (D) Explain that the next request, or the current request if the 
threshold has been exceeded, requires contact with the State agency 
before another card is issued;
    (E) Provide all applicable information on how contact is to be made 
in order for the client to comply, such as whom to contact, a telephone 
number and address;
    (F) Include a statement that explains what is considered a misuse or 
fraudulent use of benefits and the possibility of referral to the fraud 
investigation unit for suspicious activity.
    (ii) Following notification, should another card be requested, the 
State agency shall require that the household contact the State agency 
to provide an explanation for the requests. If the client makes contact, 
the State agency shall make the replacement EBT card available for pick 
up or place the card in the mail in accordance with Sec. 274.2(f) of 
this chapter within two business days following household contact with 
the State agency, regardless of whether or not an explanation was 
provided.
    (A) If a household does not contact the State agency in response to 
the State agency's notice, the State agency shall not issue a 
replacement card to the household and the case must be referred for 
investigation.
    (B) The State agency shall educate the client on the proper use of 
the card if the explanation is deemed appropriate and the State agency 
shall not require contact upon subsequent requests, unless the pattern 
of card activity has changed since the initial contact and indicates 
possible trafficking activity.
    (C) The State agency shall refer the individual for investigation in 
cases where the individual contacts the State agency but refuses to 
explain the card losses or the explanation provided appears to be 
indicative of trafficking in accordance with Sec. 271.2 of this chapter. 
The State agency shall issue a replacement card to any household that 
makes the required contact so that the household has access to benefits 
in its EBT account while the investigation is underway and while 
awaiting a hearing, in accordance with Sec. 273.16(e)(5).
    (iii) In all cases, a State agency shall act to protect households 
containing homeless persons, elderly or disabled members, victims of 
crimes and other vulnerable persons who may lose EBT cards but are not 
committing fraud.
    (6) Excessive Replacement Card Notice. The State agency shall 
monitor all client requests for EBT card replacements and send a notice, 
upon the fourth request in a 12-month period, alerting the household 
that their account is being monitored for potential, suspicious 
activity. If another replacement card is subsequently requested and 
trafficking is suspected, the State agency shall refer that case to the 
State's fraud investigation unit.

[[Page 926]]

    (i) The State agency shall be exempt from sending the Excessive 
Replacement Card Notice if they have chosen to exercise the option to 
withhold the replacement card until contact is made with the State 
agency, in accordance with paragraph (b)(5) of this section, as long as 
the State agency has chosen to use the minimum threshold, which requires 
sending the first warning notice on the fourth card replacement request 
within 12 months. If the State agency chooses to use a threshold higher 
than the fourth card replacement request, the State agency must send the 
Excessive Replacement Card Notice on the fourth card request in 
accordance with this section.
    (ii) The State agency shall notify the household in writing upon 
their fourth card request that their case is being monitored. This 
notice shall, at a minimum:
    (A) Be written in clear and simple language;
    (B) Meet the language requirements described at Sec. 272.4(b) of 
this chapter;
    (C) Specify the number of cards requested and over what period of 
time;
    (D) Explain that the transactions of the cardholder's account are 
being monitored for potential trafficking activity;
    (E) Include a statement that explains what is considered a misuse or 
fraudulent use of benefits and the possibility of referral to the 
State's fraud investigation unit for suspicious activity.
    (F) Provide contact information, including a telephone number, 
should the household have questions or concerns regarding the notice.

[75 FR 18381, Apr. 12, 2010, as amended at 78 FR 51657, Aug. 21, 2013]



Sec. 274.7  Benefit redemption by eligible households.

    (a) Eligible food. Program benefits 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, the 
purchase of prepared meals, and for other households residing in certain 
designated areas of Alaska, the purchase of hunting and fishing 
equipment with benefits.
    (b) Prior payment prohibition. Program benefits shall not be used to 
pay for any eligible food purchased prior to the time at which an EBT 
card is presented to authorized retailers or meal services. Neither 
shall benefits 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.
    (c) Transaction limits. No minimum dollar amount per transaction or 
maximum limit on the number of transactions shall be established. In 
addition, no transaction fees shall be imposed on SNAP households 
utilizing the EBT system to access their benefits.
    (d) Access to balances. (1) Households shall be permitted to 
determine their SNAP account balances without making a purchase or 
standing in a checkout line.
    (2) The State agency shall ensure that the EBT system is capable of 
providing a transaction history for a period of up to 2 calendar months 
to households upon request.
    (3) Households shall be provided printed receipts at the time of 
transaction in accordance with Sec. 274.8(b)(7).
    (e) Access to retail stores. (1) The EBT system shall provide for 
minimal disruption of access to and service in retail stores by eligible 
households.
    (2) The EBT system shall not result in a significant increase in the 
cost of food or cost of transportation to authorized retailers for SNAP 
households.
    (f) Equal treatment. The EBT system shall be implemented and 
operated in a manner that maintains equal treatment for SNAP households 
in accordance with Sec. 278.2(b) of this chapter. The following 
requirements for the equal treatment of SNAP households shall directly 
apply to EBT systems:
    (1) Retailers shall not establish special checkout lanes which are 
only for SNAP households. If special lanes are designated for the 
purpose of accepting other electronic debit or credit cards and/or other 
payment methods such as checks, SNAP customers with EBT cards may also 
be assigned to such lanes as long as other commercial customers are 
assigned there as well.
    (2) Checkout lanes equipped with POS devices shall be made available 
to

[[Page 927]]

SNAP households during all retail store hours of operation.
    (g) Households eligible for prepared meals. (1) 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 Program benefits to purchase meals prepared for and 
delivered to them by a nonprofit meal delivery service authorized by 
FNS.
    (2) Communal dining facilities. Eligible household members 60 years 
of age or over and their spouses, or those receiving SSI and their 
spouses, may use Program benefits issued to them to purchase meals 
prepared especially for them at communal dining facilities authorized by 
FNS for that purpose.
    (3) Residents of certain institutions. (i) Members of eligible 
households who are narcotics addicts or alcoholics and who regularly 
participate in a drug or alcoholic treatment rehabilitation program may 
use Program benefits to purchase food prepared for them during the 
course of such program by a private nonprofit organization or 
institution or publicly operated community mental health center which is 
authorized by FNS to redeem benefits in accordance with Secs. 278.1 and 
278.2(g) of this chapter.
    (ii) Eligible residents of a group living arrangement may use 
Program benefits issued to them to purchase meals prepared especially 
for them at a group living arrangement which is authorized by FNS to 
redeem benefits in accordance with Secs. 278.1 and 278.2(g) of this 
chapter.
    (iii) Residents of shelters for battered women and children as 
defined in Sec. 278.1(g) of this chapter may use their Program benefits 
to purchase meals prepared especially for them at a shelter which is 
authorized by FNS to redeem benefits in accordance with Secs. 278.1 and 
278.2(g) of this chapter.
    (4) Homeless households. (i) Homeless SNAP households may use their 
Program benefits to purchase prepared meals from authorized homeless 
meal providers.
    (ii) Eligible homeless households may use Program benefits to 
purchase meals from restaurants authorized by FNS for such purpose.
    (h) Eligible households residing in areas of Alaska determined by 
FNS as areas where access to authorized retailers is difficult and which 
rely substantially on hunting and fishing for subsistence may use all or 
any part of the Program benefits issued to purchase hunting and fishing 
equipment such as nets, hooks, rods, harpoons and knives, but may not 
use benefits to purchase firearms, ammunition, and other explosives.
    (i) State agencies shall implement a method to ensure that access to 
prepared meals and hunting and fishing equipment is limited to eligible 
households as described in paragraphs (g) through (h) of this section.
    (j) Container deposit fees. Program benefits may not be used to pay 
for deposit fees in excess of the amount of the State fee reimbursement 
required to purchase any food or food product contained in a returnable 
bottle or can, regardless of whether the fee is included in the shelf 
price posted for item. The returnable container type and fee must be 
included in State law in order for the customer to be able to pay for 
the upfront deposit with SNAP benefits. If a SNAP eligible product has a 
State deposit fee associated with it, the product remains eligible for 
purchase with SNAP benefits, and the State deposit fee may be paid with 
SNAP as well; however, any fee in excess of the State deposit fee must 
be paid in cash or other form of payment other than with SNAP benefits.

[75 FR 18381, Apr. 12, 2010, as amended at 80 FR 53243, Sept. 3, 2015]



Sec. 274.8  Functional and technical EBT system requirements.

    (a) 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;

[[Page 928]]

    (iii) Establishing benefit cards and accounts with the central 
computer database;
    (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 off-set, 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) 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) Totaling 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 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 in accordance with 
Sec. 274.3(e).
    (b) Performance and technical standards. The State agency shall 
ensure that EBT systems comply with 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

[[Page 929]]

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 re-ports, 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, 7 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 SNAP 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 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(m) 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 POS 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

[[Page 930]]

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) Reversal 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;
    (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 as prescribed under Sec. 277.18(m) 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,

[[Page 931]]

network transactions from POS terminals to EBT central computer database 
and system file updates.
    (vi) The State agency shall incorporate the contingency plan 
approved by FNS 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) Minimum card requirements. (i) The address of the office where a 
card can be returned if found or no longer in use should be printed on 
the card.
    (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.
    (6) 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.
    (7) 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 SNAP 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 SNAP households member's account number (the PAN) 
using a truncated number or coded transaction number. The households' 
name shall not appear on the receipt except when a signature is required 
when utilizing a manual transaction voucher.
    (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

[[Page 932]]

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 portability nationwide. The term 
``interoperability'' means the EBT system must enable benefits issued in 
the form of an EBT card to be redeemed in any State. The term 
``portability'' means the EBT system must enable benefits 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 and Nutrition Act of 2008. 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 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) and Sec. 273.15(k) of this 
chapter and paragraph (f) of this section. State agencies or their 
designated agents must draw funds from State SNAP accounts for SNAP 
benefits transacted by that State's SNAP recipients, regardless of where 
benefits were transacted.
    (ii) Message format. Each authorization system must use the 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 PAN. The PAN must comply with 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 7 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 also 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.

[[Page 933]]

    (c) 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 format suitable for the 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 through the ASAP system 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 SNAP redemptions 
provided the entity is acceptable to FNS and U.S. Treasury;
    (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.
    (d) 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, 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 percent 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 percent maximum, however, this lesser 
amount must be applied to all households.
    (B) $50 in the first month and the greater of $10 or 10 percent 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.

[[Page 934]]

The State agency may ask households to voluntarily pay the amount of a 
represented transaction or arrange for a faster schedule of payment than 
identified in paragraph (d)(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.
    (e) Store-and-forward. As an alternative to manual transactions:
    (1) State agencies may opt to allow retailers, at the retailer's own 
choice and liability, to perform store-and-forward transactions when the 
EBT system cannot be accessed for any reason. The retailer may forward 
the transaction to the host one time within 24 hours of when the system 
again becomes available. Should the 24-hour window cross into the 
beginning of a new benefit issuance period, retailers may draw against 
all available benefits in the account.
    (2) State agencies may also opt, in instances where there are 
insufficient funds to authorize an otherwise approvable store-and-
forward transaction, to allow the retailer to collect the balance 
remaining in the client's account, in accordance with the requirements 
detailed in this section.
    (i) State Agencies may elect to allow store-and-forward to provide 
remaining balances to retailers as follows:
    (A) The EBT processor may provide partial approval of the store-and-
forward transaction, crediting the retailer with the balance remaining 
in the account through a one-step process;
    (B) The transaction should be in accordance with the standard 
message format requirements for store and forward; and
    (C) Re-presentation, as described in paragraph (d) of this section, 
to obtain the uncollected balance from current or future months' 
benefits shall not be allowed for store-and-forward transactions.
    (ii) In States that elect not to give retailers the option described 
in this paragraph, all store-and-forward transactions with insufficient 
funds will be denied in full.

[75 FR 18381, Apr. 12, 2010, as amended at 79 FR 11, Jan. 2, 2014]

    Effective Date Note: At 81 FR 89840, Dec. 13, 2016, Sec. 274.8 was 
amended by redesignating paragraphs (b)(5)(ii) through (iv) as 
paragraphs (b)(5)(iii) through (v), and adding a new paragraph 
(b)(5)(ii) and paragraph (f), effective Jan. 12, 2017. For the 
convenience of the user, the added text is set forth as follows:



Sec. 274.8  Functional and technical EBT system requirements.

                                * * * * *

    (b) * * *
    (5) * * *
    (ii) State agencies that implement the photo EBT card option in 
accordance with paragraph (f) of this section must print on the EBT 
cards the text ``Any user with valid PIN can use SNAP benefits on card 
and need not be pictured.'' or similar alternative text approved by FNS.

                                * * * * *

[[Page 935]]

    (f) State agency requirements for photo EBT card implementation--(1) 
Minimum requirements. Prior to implementation, State agencies must be 
performing sufficiently well in program administration to be eligible to 
implement the photo EBT card option.
    Prior to implementation, State agencies must demonstrate to FNS 
successful administration of SNAP based on SNAP performance standards. 
Successful program administration will take into account at a minimum 
the metrics related to program access, the State's payment error rate, 
the State's Case and Procedural Error Rate, application processing 
timeliness, including both the 7-day expedited processing and the 30-day 
processing standards, timeliness of recertification actions, and other 
metrics, as determined by the Secretary, that may be relevant to the 
State agency's implementation of photo EBT cards.
    (2) Function of issuance. The photo EBT card option is a function of 
issuance and not a condition of eligibility. Any implementation of the 
option to place a photo on the EBT card must not impact the 
certification of households. An application will be considered complete 
with or without a photo and a case shall be certified regardless of the 
status of a photo in accordance with timeframes established under 7 CFR 
273.2. If a State agency chooses to implement a voluntary photo EBT card 
policy, issuance shall not be impacted. If a State agency chooses to 
implement a mandatory photo EBT card policy, a State agency may not deny 
or terminate a household because a household member who is exempted by 
paragraph (f)(4) of this section does not comply with the requirement to 
place a photo on the EBT card.
    (3) Mandatory vs. voluntary. (i) State agencies shall have the 
option to implement a photo on EBT cards on a mandatory or voluntary 
basis. Regardless of whether the photo is mandatory or voluntary, the 
certification process must not be altered in order to facilitate photos, 
and clients must be informed that certification will not be impacted by 
whether or not a photo is on the card.
    (ii) Under mandatory implementation, State agencies must exempt 
certain clients, as stated in paragraph (f)(4) of this section. State 
agencies must establish which member(s) of the household would be 
required to be photographed and the procedures that allow eligible 
nonexempt household members who do not agree to the photo to come into 
compliance at a later time.
    (iii) Under voluntary implementation, clients must be clearly 
informed of the voluntary nature of the option. All applicant members of 
households, whether or not they are in an exempted category, must opt in 
to have a photo on their EBT card. States shall not require a photo be 
taken if the State is implementing a voluntary option.
    (4) Exemptions. Under a mandatory implementation, the State agency 
must exempt, at a minimum, the elderly, the disabled, children under 18, 
homeless households, and victims of domestic violence. A victim of 
domestic violence shall be able to self-attest and cannot be required to 
submit documentation to prove domestic violence. The ability to self-
attest must be applied equally regardless of if the victim is a female 
or male. Non-applicants cannot have a photo taken for an EBT card 
whether or not they desire to have their photo taken. A State agency may 
establish additional exempted categories.
    (5) Serving clients with hardship. State agencies must have 
sufficient capacity to issue photo EBT cards and a process or procedure 
in place to address, on a case-by-case basis, household hardship 
situations as determined by the State agency so that such household 
benefits are not unduly withheld. Examples of 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 being available during the hours that photos are taken 
in-office. These are households that do not already fall under the 
mandatory exemptions or other exemptions established by the State under 
paragraph (f)(4) of this section .
    (6) Issuance of photo EBT card. (i) States can require households to 
come in to be photographed, but cannot do so for the purposes of 
certification. The amount of time provided to households to come in and 
be photographed needs to be sufficient and reasonable and be documented 
in the Implementation Plan as required in paragraph (f)(14) of this 
section.
    (ii) Regardless of whether the State's photo EBT card policy is 
voluntary or mandatory, if a household meets expedited criteria, the 
State must issue the EBT card without a photo and provide the full 
benefit allotment to the entire household without delay. The State 
agency may require a nonexempt head of household member to comply at the 
next recertification.
    (iii) Card issuance procedures for new SNAP households must ensure 
adherence to application processing standards as required at 7 CFR 
273.2(g) and (i) and benefit issuance standards at Sec. 274.2(b).
    (iv) State agencies shall not store photos that are collected in 
conjunction with its photo EBT card policy but are not placed on an EBT 
card.
    (v) The process for issuing and activating photo EBT cards must not 
disrupt, inhibit or delay access to benefits nor cause a gap in access 
for ongoing benefits for eligible households.
    (vi) Any card issued as part of the implementation of the photo EBT 
card option may

[[Page 936]]

not count against the household with respect to card replacement fees or 
the card replacement threshold defined in Sec. 274.6(b).
    (7) Prorating household benefits when photo EBT cards are mandatory. 
For multi-person households, State agencies shall not withhold benefits 
for an entire household because nonexempt household members do not 
comply with the photo EBT card policy. If benefits of the nonexempt 
household member(s) are to be withheld, a prorated share of benefits 
shall be issued to the household member(s) that are in compliance with 
or are exempt from the photo requirement. For example, if there are four 
household members and one household member is not in compliance with the 
photo requirement, 3-4 of the household's monthly benefit allotment must 
be issued, and 1-4 of the benefit allotment must be held in abeyance and 
allowed to accrue until the household member complies. For a single 
person household, the State agency would hold all the benefits in 
abeyance until the household complies.
    (8) Benefits held for noncompliance. Benefits held for noncompliance 
with the photo EBT card requirement must be withheld from issuance in 
accordance with paragraph (f)(7) of this section. Benefits withheld for 
noncompliance shall not remain authorized for perpetuity, and States 
must treat such benefits in accordance with the same timeframe used for 
handling expungements under Sec. 274.2(h)(2). If the noncompliant member 
comes into compliance, the non-expired benefits must be issued within 
two business days of when the State agency obtains the client photo. Any 
action to withhold benefits from issuance is subject to fair hearings in 
accordance with 7 CFR 273.15.
    (9) Household and authorized representative card usage. The State 
agency must establish procedures to ensure that all appropriate 
household members and authorized representatives (including individuals 
permitted by the household to purchase food or meals on their behalf, as 
provided for in 7 CFR 273.2(n)(3) and Sec. 274.7(a)), can access SNAP 
benefits for the household regardless of who is pictured on the card or 
if there is no picture. States shall not require households to notify or 
provide the State information regarding individuals making purchases 
permitted by the household on an ad-hoc basis.
    (10) Client and staff training. State agencies must ensure staff and 
clients are properly trained on photo EBT card requirements. At a 
minimum, this training shall include: Whether the State option is 
voluntary or mandatory, who must comply with the photo requirement, 
which household members are exempt, and that all appropriate household 
members and authorized representatives (including individuals permitted 
by the household to purchase food or meals on its behalf) are able to 
use the card regardless of who is pictured on the card or if there is no 
picture.
    (i) All staff and client training materials must clearly describe 
the following statutory and regulatory requirements:
    (A) Retailers must allow all appropriate household members and 
authorized representatives (including individuals permitted by the 
household to purchase food or meals on its behalf), regardless of 
whether they are pictured on the card, to utilize the card without 
having to submit additional verification of identity as long as the 
transaction is secured by the use of the PIN;
    (B) EBT cards with or without a photo are valid in any State; and
    (C) Retailers must treat all SNAP clients in the same manner as non-
SNAP clients;
    (ii) State agencies may not specifically reference which categories 
of individuals are exempt from the photo EBT requirement in any 
materials to retailers.
    (11) Retailer education and responsibility. State agencies must 
conduct sufficient education of retailers if photos are used on cards. 
The State agency must clearly inform all retailers in the State and 
contiguous areas of implementation. State agency communications with 
retailers must clearly state:
    (i) All household members and authorized representatives (including 
individuals permitted by the household to purchase food or meals on its 
behalf) are entitled to use the EBT card regardless of the picture on 
the card if the EBT card is presented with the valid PIN;
    (ii) Retailers must treat all SNAP clients in the same manner as 
non-SNAP clients in accordance with 7 CFR 278.2(b);
    (iii) Retailers must not prohibit individuals who have a EBT card 
and valid PIN, including but not limited to authorized representatives 
(including individuals permitted by the household to purchase food or 
meals on its behalf), from using an EBT card because they are not 
pictured on the card or there is no picture on the card;
    (iv) EBT cards from any State are valid with or without a photo.
    (12) Interoperability. Interoperability of EBT cards will remain the 
same regardless of whether or not there is a photo and regardless of 
which State issued the card. State agencies must conduct sufficient 
education of clients and retailers, including retailers in contiguous 
areas, to inform them that the photo EBT cards remain interoperable and 
authorized retailers must accept EBT cards from all States as long as 
the user has a valid PIN.
    (13) Advance Planning Document. Appropriate implementation and 
administration of the photo EBT card consistent with all applicable 
requirements is an allowable State administrative cost that FNS shall 
reimburse at 50 percent in accordance with 7 CFR part 277. Increased 
costs related to placing photos on the EBT card, whether contractual or

[[Page 937]]

produced from other sources, require an Implementation Advance Planning 
Document Update.
    (14) Implementation Plan. (i) State agencies must submit an 
Implementation Plan for approval prior to implementation that delineates 
how the State agency will operationalize the photo EBT option. FNS shall 
review the plan and issue an approval, request modifications prior to 
granting approval or issue an approval subject to conditions. In cases 
where FNS finds that the steps outlined in the Implementation Plan are 
not sufficient for a successful implementation, FNS may deny the 
Implementation Plan or issue an approval subject to conditions, such as 
requiring the State agency to implement a successful pilot in a selected 
region of the State before a statewide implementation. Should a State be 
required to implement a pilot before statewide implementation, that 
requirement would be documented in the State's Implementation Plan 
approval, along with any information the State must report to FNS before 
expansion approval would be provided by FNS.
    (ii) State agencies must demonstrate successful administration of 
SNAP based on SNAP performance standards as established in paragraph 
(f)(1) of this section. State agencies shall not issue EBT cards with 
photos before the State's Implementation Plan is approved and the State 
agency has also received FNS authorization to proceed to issue photo EBT 
cards.
    (iii) The Implementation Plan shall include but not be limited to:
    (A) A description of card issuance procedures;
    (B) The text required at paragraph (b)(5)(ii) of this section;
    (C) A detailed description of how client protections and ability to 
use SNAP benefits will be preserved;
    (D) Specific information about exempted recipients, the State 
agency's exemption criteria, and how it will address the needs of 
household members with hardships;
    (E) A description of how the State agency will obtain photographs 
for the EBT card;
    (F) The procedures for opting into a voluntary photo EBT card policy 
and how the State agency will document that a household voluntarily 
chose to have a photo on its EBT card;
    (G) Training materials and training plans for State agency staff;
    (H) A description of any planned stakeholder assistance with 
implementation;
    (I) Communication plans for informing clients, retailers and other 
stakeholders of the State agency's photo EBT card policy, including 
copies of letters and other materials communicating the policy to 
clients, retailers, and other stakeholders. Communication plans must 
describe compliance with language requirements at 7 CFR 272.4(b);
    (J) A timeline for the implementation; and
    (K) Draft memoranda of understanding if the State agency plans to 
share SNAP client data in accordance with 7 CFR 272.1(c) for purposes of 
implementing its photo EBT card option. The memoranda of understanding 
must state how any information collected will be securely stored and 
that the information can only be shared for the purpose of SNAP in 
accordance with 7 CFR 272.1(c).
    (iv) The Implementation Plan shall also address the anticipated 
timetable with specific action steps for the State agency and 
contractors, if any, that may be involved regarding implementation of 
the photo EBT card option, the State agency's capacity to issue photo 
EBT cards, and the logistics that shall allow for activation of the 
photo EBT card simultaneously or followed by deactivation of the active 
non-photo EBT card. This shall also include the description of the 
capacity at the facility where the photo EBT cards will be produced, 
both for transition and ongoing production, and confirmation that the 
State agency and any contractor will continue to meet regulatory time 
requirements for all EBT card issuances and replacements, including for 
expedited households. The Implementation Plan must also include 
indicators related to the photo EBT card implementation that the State 
will collect and analyze for the post implementation evaluation required 
by paragraph (f)(16) of this section in addition to the State's approach 
for continued oversight, which may include activities as such as the use 
of test shoppers.
    (v) The State agency shall provide all applicable proposed written 
policy for staff to implement the photo EBT card option to FNS for 
review. State agencies shall include copies of all materials that will 
be used to inform clients, retailers and other stakeholders regarding 
photo EBT card implementation. In addition, the State agencies shall 
provide a detailed description of how the notifications, communication, 
policies, and procedures regarding the implementation of any new photo 
EBT card option will comply with applicable civil rights laws specified 
at 7 CFR 272.4(b)and 272.6(a).
    (vi) The State agency's Implementation Plan shall also include: (A) 
An education component for retailers and clients to ensure all eligible 
household members and authorized representatives (including individuals 
permitted by the household to purchase food or meals on their behalf) 
are able to use the EBT card, and understand the timeframes associated 
with the implementation and rollout.
    (B) A description of the resources that will be in place to handle 
comments, questions and complaints from clients, retailers, and external 
stakeholders, and

[[Page 938]]

    (C) A description of procedures to address unexpected events related 
to the photo EBT card option.
    (vii) Upon approval of the Implementation Plan by FNS, the State may 
proceed with tasks described in the Implementation Plan, as modified by 
the approval, but may not proceed to issuing actual cards until it 
receives FNS authorization to do so. FNS may also require the State to 
implement in a phased manner, which may include criteria as determined 
by the Secretary.
    (15) Authorization to issue photo EBT cards. States agencies shall 
not be permitted to issue EBT cards with photos until FNS provides an 
explicit authorization to issue photo EBT cards. After an Implementation 
Plan is approved, FNS will review the State agency's actions at an 
appropriate time interval to ensure that the process and steps outlined 
by the State agency in the Implementation Plan are fulfilled. In cases 
where the State agency has not acted consistently with the process and 
steps outlined in its photo EBT card Implementation Plan, FNS may deny 
authorization for the State agency to issue EBT cards with photos until 
the State agency has done so successfully.
    (16) Post implementation assessment and evaluation. State agencies 
must submit to FNS a post-implementation assessment that provides FNS 
with a report of the results of its implementation, including any issues 
that arose and how they were resolved, the degree to which State agency 
staff, clients and retailers properly understood and implemented the new 
provisions.
    (i) This report shall be delivered to FNS within 120 days of 
implementation. This report shall cover the first 90 days of 
implementation. The Department also reserves the right to conduct its 
own review of the State agency's implementation. The State agency's 
post-implementation report shall include at a minimum:
    (A) A survey of clients conducted by an independent evaluator to 
demonstrate the clients' clear understanding of the State agency's photo 
EBT policy;
    (B) A survey of retailers conducted by an independent evaluator that 
demonstrates evidence that at least 80 percent of retailers, including 
smaller independent retailers, demonstrate a full understanding of the 
policies related to the photo EBT card, which may include the use of 
test shoppers;
    (C) The amount and percent of benefits held for noncompliance if 
mandatory;
    (D) The number and percent of households with photo EBT cards;
    (E) The number of households affected by withholding for 
noncompliance, if mandatory;
    (F) The number and percent of households exempt from the photo EBT 
card requirement if mandatory;
    (G) The number and percent of exempted households who opted for 
photo EBT cards if mandatory;
    (H) The number and scope of complaints related to the implementation 
of the policy;
    (I) The State agency's Case and Procedural Error Rate; and
    (J) SNAP performance metrics as established in paragraph (f)(1) of 
this section and other SNAP performance metrics that may have been 
adversely affected by the implementation of the State agency's photo EBT 
card option, as determined by the Secretary.
    (ii) [Reserved]
    (17) Ongoing monitoring. FNS will continue to monitor and evaluate 
the operation of the option. State agencies shall provide FNS additional 
information upon request or as may be required by other guidelines 
established by the Secretary to conduct such evaluations.
    (18) Modifying implementation of photo EBT card option. If any 
review or evaluation of a State's operations, including photo EBT 
operation implementation, finds deficiencies, FNS may require a 
corrective action plan consistent with 7 CFR 275.16 to reduce or 
eliminate deficiencies. If a State does not take appropriate actions to 
address the deficiencies, FNS would consider possible actions such as 
requiring an updated photo EBT Implementation Plan, suspension of the 
photo EBT policy and/or withholding funds in accordance with 7 CFR 
276.4.



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.

                 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.

[[Page 939]]

                       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.
275.24  High performance bonuses.

    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.

    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.

[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; 75 FR 33436, 
June 11, 2010]



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.
    (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

[[Page 940]]

Program and the Performance Reporting System in accordance with program 
requirements. The Federal reviewer may consolidate the scheduling and 
conduction 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, 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 shall validate each 
State agency's reported negative error rate. 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(d)(4).
    (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')
------------------------------------------------------------------------
31,489 and over...........................  n' = 400
10,001 to 31,488..........................  n' = .011634 N + 33.66
10,000 and under..........................  n' = 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')
------------------------------------------------------------------------
60,000 and over...........................  n' = 400
10,001 to 59,999..........................  n' = .005 N + 100
10,000 and under..........................  n' = 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.

[[Page 941]]

    (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 Secs. 275.11 and 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:

------------------------------------------------------------------------
    Average monthly reviewable negative       Federal subsample target
               caseload (N)                             (n')
------------------------------------------------------------------------
5,000 and over............................  n' = 160
501 to 4,999..............................  n' = .0188 N + 65.7
Under 500.................................  n' = 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 Secs. 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.

[[Page 942]]

    (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.
    (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

[[Page 943]]

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; 75 FR 33436, June 11, 
2010]



Sec. 275.4  Record retention.

    (a) The State agency shall maintain Performance Reporting System 
records to permit ready access to, and use of, these records. 
Performance Reporting System records include information used in data 
analysis and evaluation, 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 
Supplemental Nutrition Assistance Program, FNS-380-1, Quality Control 
Review Schedule, FNS-245, Negative Quality Control Review Schedule; 
other materials supporting the review decision; sample lists; sampling 
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; 75 FR 33436, 
June 11, 2010]



              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

[[Page 944]]

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.
    (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 SNAP and include but are not limited to certification 
offices, call centers, and employment and training offices.

[[Page 945]]

    (b) Selection of Sub-units for Review. State agencies shall select a 
representative number of sub-units of each category for 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; 
81 FR 2741, Jan. 19, 2016]



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 sub-units selected for review and the 
techniques used to select them;
    (iv) 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;

[[Page 946]]

    (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 records; 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; 81 FR 2741, Jan. 19, 2016]



                 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 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.
    (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 performance measure.
    (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; 75 FR 33436, June 
11, 2010]



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.

[[Page 947]]

    (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.
    (2) Criteria. Sampling plans proposing non-proportional 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 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 rate.
    (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
------------------------------------------------------------------------


[[Page 948]]

    (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 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

[[Page 949]]

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, 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 actions to deny an application in 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 actions to suspend or terminate a household in the sample 
month except those excluded from the universe in paragraph (f)(2) of 
this section. Each action to suspend or terminate a household in the 
sample month shall be listed separately in the sample frame.
    (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 Secs. 275.12(g) and 275.13(e).

[[Page 950]]

    (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 actions taken to deny, suspend, or terminate a household 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 has been sent a notice of pending status but 
which was not actually denied participation;
    (vi) 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;
    (vii) 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(b)(2). The review 
of these cases shall be conducted in accordance with the provisions 
specified in Secs. 275.12(h) and 275.13(f). FNS shall establish on an 
individual demonstration project basis whether the results of the 
reviews of active and negative demonstration project cases shall be 
included or excluded from the determination of State agencies' error 
rates as described in Sec. 275.23(b). Cases processed by SSA in 
accordance with Sec. 273.2(k) of this chapter, except demonstration 
project cases, shall be excluded from the determination of State 
agencies' error rates. FNS shall establish on an individual project 
basis whether demonstration project cases processed by SSA shall be 
included or excluded from

[[Page 951]]

the determination of State agencies' error rates.

[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; 75 FR 33436, June 11, 2010]



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 Secs. 273.1 and 273.3 through 273.9 of 
this chapter. 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 Secs. 273.12, 273.13 
and 273.21 of this chapter, 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 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 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 of this chapter. 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

[[Page 952]]

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 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 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 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

[[Page 953]]

the variance was State agency or participant caused. The results of 
these determinations shall be coded and recorded in column (4) of the 
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) of this chapter, and 
related to work requirements, specified in Sec. 273.7(f) of this 
chapter.
    (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) of this chapter.
    (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) of this chapter. 
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 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 Secs. 273.12(a) and 273.21(h) and (i) of this 
chapter, as appropriate. If, however, a change in any element is 
reported, and the State agency fails to act in accordance with 
Secs. 273.12(c) and 273.21(j) of this chapter, 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) of this chapter. 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) of this chapter, 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

[[Page 954]]

(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 of a mandatory or optional change in Federal law that occurs 
during the first 120 days from the required implementation date. The 
variance exclusion shall apply to any action taken on a case directly 
related to implementation of a covered provision during the 120-day 
exclusionary period until the case is required to be recertified or 
acted upon for some other reason.
    (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 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

[[Page 955]]

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 of this chapter; 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 computation sheet as 
well as other information documented on other portions of the 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 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 of errors. If the reviewer determines that 
SNAP allotments were either overissued or underissued to eligible 
households in the sample month, the State agency shall code and report 
any variances that directly contributed to the error determination that 
were discovered and verified during the course of the review. For fiscal 
year 2014, only variances that exceed $37.00 (the threshold) shall be 
included in the calculation of the underissuance error rate, 
overissuance error rate, and payment error. For fiscal years 2015 and 
thereafter, this QC tolerance level shall be adjusted annually by the 
percentage by which the Thrifty Food Plan (TFP) for the 48 contiguous 
States and the District of Columbia is

[[Page 956]]

adjusted. 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 that were discovered and 
verified during the course of the review.
    (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 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 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 must- 
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:

[[Page 957]]

    (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 of this chapter 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;
    (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) of this chapter.

[Amdt. 260, 49 FR 6306, Feb. 17, 1984; 49 FR 14495, Apr. 12, 1984]

    Editorial Note: For Federal Register citations affecting 
Sec. 275.12, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 275.13  Review of negative cases.

    (a) General. A sample of actions to deny applications, or suspend or 
terminate a household in the sample month shall be selected for quality 
control review. These negative actions 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, or the date of the notice to the 
client. State agencies must consistently apply the same definition for 
review date to all sample

[[Page 958]]

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. In certain instances, contact with the household or a 
collateral contact may be permitted.
    (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. 
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 valid if 
the reviewer is able to verify through documentation in the household 
case record that a household was correctly denied, suspended, or 
terminated from the program in accordance with the reason for the action 
given by the State agency in the notice. 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, the QC reviewer may contact the household or a collateral 
contact to verify the correctness of the specific negative action under 
review. If the reviewer is unable to verify the correctness of the State 
agency's decision to deny, suspend, or terminate the case for the 
specific reason given for the action, the negative case shall be 
considered invalid.
    (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 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 
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

[[Page 959]]

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; 75 FR 33437, June 11, 
2010]



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 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 Worksheet, 
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 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; 75 FR 33438, June 11, 2010]



                 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

[[Page 960]]

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 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 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);
    (3) Are identified by FNS reviews, GAO audits, contract audits, 
reports to FNS regarding the implementation of major changes (as 
discussed in Sec. 272.15) or USDA audits or investigations at the State 
agency or project area level (except deficiencies in isolated cases as 
indicated by FNS); and,
    (4) 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.
    (5) Result in underissuances, improper denials, improper 
suspensions, improper termination, or improper systemic suspension of 
benefits to eligible

[[Page 961]]

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; 75 FR 33438, June 11, 2010; 81 FR 2741, Jan. 19, 
2016]



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 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

[[Page 962]]

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;
    (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

[[Page 963]]

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 
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 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 have at least 115 days from the end of 
the sample month to dispose of and report the findings of all cases 
selected in a sample month. FNS may grant additional time as warranted 
upon request by a State agency for cause shown to complete and dispose 
of individual cases.
    (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 115 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 extends the time frames in 
paragraph (b)(2) of this section, this date will be extended 
accordingly. 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 in a manner 
directed by the regional office the monthly

[[Page 964]]

progress of sample selection and completion within 125 days after the 
end of the sample month. Each report shall reflect sampling and review 
activity for a given sample month. If FNS extends the time frames in 
paragraph (b)(2) of this section, this date will be extended 
accordingly.
    (d) 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)) in accordance with paragraph (c) 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; 75 FR 33438, 
June 11, 2010]



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 according to the time 
frames established in Secs. 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) Determination of efficiency and effectiveness. FNS shall 
determine the efficiency and effectiveness of a State's administration 
of the Supplemental Nutrition Assistance Program by measuring State 
compliance with the standards contained in the Food and Nutrition Act, 
regulations, and the State Plan of Operation and State efforts to 
improve program operations through corrective action. 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.
    (b) State agency error rates. FNS shall estimate each State agency's 
active case, payment, and negative case error rate based on the results 
of quality control review reports submitted in accordance with the 
requirements outlined in Sec. 275.21. The determination of the 
correctness of the case shall be based on certification policy as set 
forth in part 273 of this chapter.
    (1) Demonstration projects/SSA processing. FNS shall make a 
determination for each individual project whether the reported results 
of reviews of active and negative demonstration project cases shall be 
included or excluded from the estimate of the active case error rate, 
payment error rate, and negative case error rate. The reported results 
of reviews of cases processed by SSA in accordance with Sec. 273.2(k) of 
this chapter shall be excluded from the estimate of the active case 
error rate, payment error rate, and negative case error rate. FNS shall 
make a project by project determination whether the reported results of 
reviews of active and negative demonstration project cases processed by 
SSA shall be included or excluded from the estimate of the active case 
error rate, payment error rate, and negative case error rate.
    (2) Determination of payment error rates. As specified in 
Sec. 275.3(c), FNS will validate each State agency's estimated payment 
error rate by 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.

[[Page 965]]

    (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 b2 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 
(b)(2)(iii) of this section, the adjusted regressed payment error rate 
shall be calculated to yield the State agency's payment error rate. 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 and negative case 
error rates 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 or negative case error rate based upon the best information 
available. After consultation with the State agency, the assigned 
payment error rate will then be used in the liability determination. 
After consultation with the State agency, the assigned negative case 
error rate will be the official State negative case error rate for any 
purpose. State agencies shall have the right to appeal assessment of an 
error rate in this situation in accordance with the procedures of Part 
283 of this chapter.
    (iii) Should a State agency fail to complete 98 percent of its 
required sample size, FNS shall adjust the State 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 (b)(2)(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 (b)(2)(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

[[Page 966]]

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'.
    (c) FNS Time frames for completing case review process, arbitration, 
and issuing error rates. The case review process and the arbitration of 
all difference cases shall be completed by May 31 following the end of 
the fiscal year. FNS shall determine and announce the national average 
payment and negative case error rates 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 and negative case error 
rates and payment error rate liabilities, if any. FNS shall provide a 
copy of each State agency's notice of potential liability 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 appeal relating to the claim is pending. Such appeals include 
administrative and judicial appeals pursuant to Section 14 of the Food 
and Nutrition 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 Debt Collection Improvement Act of 1996 (Pub. L. 
104-134) and the Federal Claims Collection Standards (31 CFR Parts 900-
904), depending upon the amount of the State's liability. FNS is not 
bound by the time frames referenced in paragraph (c) of this section 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 the State's 
payment error rate and payment error rate liability within the 
prescribed time frame.
    (d) State agencies' liabilities for payment error rates. At the end 
of each fiscal year, each State agency's payment error rate over the 
entire fiscal year will be computed and evaluated to determine whether 
the payment error rate goal (national performance measure) established 
in paragraph (d)(1) of this section has been met. Each State agency that 
fails to achieve its payment error rate goal during a fiscal year shall 
be liable as specified in the paragraph (d)(2) of this section.
    (1) National performance measure. 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 multiplied by 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 administrative or judicial appeal.
    (2) Liability. For fiscal year 2003 and subsequent years, liability 
for payment shall be established whenever there is a 95 percent 
statistical probability that, for the second or 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 the value of all allotments issued by the State 
agency in the second (or subsequent consecutive) fiscal year; multiplied 
by the difference between the State agency's payment error rate and 6 
percent; multiplied by 10 percent.
    (3) Right to appeal payment error rate liability. Determination of a 
State agency's payment error rate or whether that payment error rate 
exceeds 105 percent of the national performance measure shall be subject 
to administrative or judicial review only if a liability amount is 
established for that fiscal year. Procedures for good cause appeals of 
excessive payment error rates are addressed in paragraph (f) of this 
section. The established national performance measure is not subject to 
administrative or judicial appeal, nor is any prior fiscal year payment 
error rate subject to appeal as part of the appeal of a later fiscal 
year's liability amount. However, State agencies may address matters 
related to good cause in an immediately prior fiscal year that impacted 
the fiscal year for which a liability amount has been established. The 
State agency will need to

[[Page 967]]

address how year 2 was impacted by the event(s) in the prior year.
    (4) Relationship to warning process and negligence. (i) States' 
liability for payment error rates as determined above in paragraphs 
(d)(1) through (d)(3) of this section are not subject to the warning 
process of Sec. 276.4(d) of this chapter.
    (ii) FNS shall not determine negligence (as described in Sec. 276.3 
of this chapter) 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 of this chapter for dollar losses from failure to 
comply, due to negligence on the part of the State agency (as defined in 
Sec. 276.3 of this chapter), with specific certification requirements. 
Thus, FNS will not use the result of States' QC reviews to determine 
negligence.
    (iii) Whenever a State is assessed a liability amount 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.
    (e) Liability amount determinations. (1) FNS shall provide for each 
State agency whose payment error rate subjects it to a liability amount 
the following determinations, each expressed as a percentage of the 
total liability amount. FNS shall:
    (i) Require the State agency to invest up to 50 percent of the 
liability in activities to improve program administration (new 
investment money shall not be matched by Federal funds) and
    (ii) 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
    (iii) Choose any combination of these options.
    (2) Once FNS determines the percentages in accordance with 
paragraphs (e)(1)(i) through (e)(1)(iv) of this section, 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 agency shall 
settle any waiver percentage amount or new investment percentage amount 
before the end of the fiscal year in which the liability amount is 
determined. The determination of percentages for waiver, new investment, 
and/or at-risk amounts by the Department is not appealable. Likewise, a 
settlement of the waiver and new investment amounts cannot be appealed.
    (f) Good cause. 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. Paragraphs (f)(1) through (f)(5) of this section describe the 
unusual events that are considered to have a potential for disrupting 
program operations and increasing error rates to an extent that relief 
from a resulting liability amount or increased liability amount 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 amount attributable to the 
unusual event. The following are unusual

[[Page 968]]

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:
    (1) Natural disasters and civil disorders. Natural disasters such as 
those under the authority of The Disaster Relief and Emergency 
Assistance Amendments of 1988 (Pub. L. 100-707), which amended The 
Robert T. Stafford Disaster Relief and Emergency Assistance Act (Pub. L. 
93-288), or civil disorders that adversely affect program operations.
    (i) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (A) 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;
    (B) The date(s) of the occurrence;
    (C) The date(s) after the occurrence when program operations were 
affected;
    (D) The geographic extent of the occurrence (i.e., the county or 
counties where the disaster occurred);
    (E) The proportion of the Supplemental Nutrition Assistance Program 
caseload whose management was affected;
    (F) The reason(s) why the State agency was unable to control the 
effects of the disaster on program administration and errors.
    (G) 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.).
    (H) The percentage of the payment error rate that resulted from the 
occurrence and how this figure was derived; and
    (I) The degree to which the payment error rate exceeded the national 
performance measure in the subject fiscal year.
    (ii) (A) 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 amount 
attributable to the uncontrollable effects of a disaster or civil 
disorder:
    (1) Geographical impact of the disaster;
    (2) State efforts to control impact on program operations;
    (3) The proportion of Supplemental Nutrition Assistance Program 
caseload affected; and/or
    (4) The duration of the disaster and its impact on program 
operations.
    (B) Adjustments for these factors may result in a waiver of all, 
part, or none of the liability amount 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 waiver 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.
    (iii) 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). The counties considered 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 Supplemental Nutrition Assistance 
Program certification

[[Page 969]]

or administrative staff). The amount of the waiver of liability will be 
determined using the linear equation W = 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 percent of the liability amount; however, no more than 100 
percent of a State's liability amount 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.
    (2) Strikes. Strikes by State agency staff necessary to determine 
Supplemental Nutrition Assistance Program eligibility and process case 
changes.
    (i) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (A) Which workers (i.e., eligibility workers, clerks, data input 
staff, etc.) and how many (number and percentage of total staff) were on 
strike or refused to cross picket lines;
    (B) The date(s) and nature of the strike (i.e., the issues 
surrounding the strike);
    (C) The date(s) after the occurrence when program operations were 
affected;
    (D) The geographic extent of the strike (i.e., the county or 
counties where the strike occurred);
    (E) The proportion of the Supplemental Nutrition Assistance Program 
caseload whose management was affected;
    (F) The reason(s) why the State agency was unable to control the 
effects of the strike on program administration and errors;
    (G) 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.);
    (H) The percentage of the payment error rate that resulted from the 
strike and how this figure was derived; and
    (I) The degree to which the payment error rate exceeded the national 
performance measure in the subject fiscal year.
    (ii) (A) The following criteria shall be used to assess, evaluate 
and respond to claims by the State agency for a good cause waiver of a 
liability amount in conjunction with the appeals process, and to 
determine that portion of the error rate/liability amount attributable 
to the uncontrollable effects of the strike:
    (1) Geographical impact of the strike;
    (2) State efforts to control impact on program operations;
    (3) The proportion of Supplemental Nutrition Assistance Program 
caseload affected; and/or
    (4) The duration of the strike and its impact on program operations.
    (B) Adjustments for these factors may result in a waiver of all, 
part, or none of the liability amount 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 based upon the degree to which the error rate exceeded 
the national performance measure.
    (iii) 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 (f)(1) 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.

[[Page 970]]

    (3) Caseload growth. A significant growth in Supplemental Nutrition 
Assistance Program 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.
    (i) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (A) The amount of growth (both actual and percentage);
    (B) The time the growth occurred (what month(s)/year);
    (C) The date(s) after the occurrence when program operations were 
affected;
    (D) The geographic extent of the caseload growth (i.e. Statewide or 
in which particular counties);
    (E) The impact of caseload growth;
    (F) The reason(s) why the State agency was unable to control the 
effects of caseload growth on program administration and errors;
    (G) The percentage of the payment error rate that resulted from the 
caseload growth and how this figure was derived; and
    (H) The degree to which the error rate exceeded the national 
performance measure in the subject fiscal year.
    (ii) (A) 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 amount 
attributable to the uncontrollable effects of unusual caseload growth:
    (1) Geographical impact of the caseload growth;
    (2) State efforts to control impact on program operations;
    (3) The proportion of Supplemental Nutrition Assistance Program 
caseload affected; and/or
    (4) The duration of the caseload growth and its impact on program 
operations.
    (B) Adjustments for these factors may result in a waiver of all, 
part, or none of the liability amount 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 waiver 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.
    (iii) 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:
    (A) Step 1--determine the average number of households certified to 
participate Statewide in the Supplemental Nutrition Assistance Program 
for the base period consisting of twelve consecutive months ending with 
March of the prior fiscal year;
    (B) 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 Supplemental Nutrition 
Assistance Program for any twelve consecutive months in the period 
beginning with April of the prior fiscal year and ending with June of 
the current year;
    (C) Step 3--determine the percentage the error rate for the subject 
fiscal year, as calculated under paragraph (b)(2) of this section, 
exceeds the national performance measure determined in accordance with 
paragraph (d)(1) of this section;
    (D) 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
    (E) 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.

[[Page 971]]

    (iv) 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 percent of the liability amount; however, no more than 100 
percent of a State's liability amount will be waived for any one fiscal 
year.
    (4) Program changes. A change in the Supplemental Nutrition 
Assistance Program or other Federal or State program that has a 
substantial adverse impact on the management of the Supplemental 
Nutrition Assistance 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.
    (i) When submitting a request for good cause relief based on unusual 
changes in the Supplemental Nutrition Assistance Program or other 
Federal or State programs, the State agency shall provide the following 
information:
    (A) The type of changes(s) that occurred;
    (B) When the change(s) occurred;
    (C) The nature of the adverse effect of the changes on program 
operations and the State agency's efforts to mitigate these effects;
    (D) Reason(s) the State agency was unable to adequately handle the 
change(s);
    (E) 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.);
    (F) The percentage of the payment error rate that resulted from the 
adverse impact of the change(s) and how this figure was derived; and
    (G) The degree to which the payment error rate exceeded the national 
performance measure in the subject fiscal year.
    (ii) (A) 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 error rate/liability amount attributable to the 
uncontrollable effects of unusual changes in the Supplemental Nutrition 
Assistance Program or other Federal and State programs:
    (1) State efforts to control impact on program operations;
    (2) The proportion of Supplemental Nutrition Assistance Program 
caseload affected; and/or
    (3) The duration of the unusual changes in the Supplemental 
Nutrition Assistance Program or other Federal and State programs and the 
impact on program operations.
    (B) Adjustments for these factors may result in a waiver of all, 
part, or none of the liability amount 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.
    (5) Significant circumstances beyond the control of a State agency. 
Requests for relief from errors caused by the uncontrollable effect of a 
significant circumstance other than those specifically set forth in 
paragraphs (f)(1) through (f)(4) 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.
    (i) The State agency shall provide the following information when 
submitting a request for good cause relief based on significant 
circumstances, the State agency shall provide the following information:
    (A) The significant circumstances that the State agency believes 
uncontrollably and adversely affected the payment error rate for the 
fiscal year in question;
    (B) Why the State agency had no control over the significant 
circumstances;
    (C) How the significant circumstances had an uncontrollable and 
adverse impact on the State agency's error rate;
    (D) Where the significant circumstances existed (i.e. Statewide or 
in particular counties);
    (E) When the significant circumstances existed (provide specific 
dates whenever possible);

[[Page 972]]

    (F) The proportion of the Supplemental Nutrition Assistance Program 
caseload whose management was affected;
    (G) 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.);
    (H) The percentage of the payment error rate that was caused by the 
significant circumstances and how this figure was derived; and
    (I) The degree to which the payment error rate exceeded the national 
performance measure in the subject fiscal year.
    (ii) (A) 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 amount attributable to the 
uncontrollable effects of a significant circumstance beyond the control 
of the State agency, other than those set forth in paragraph (f)(5) of 
this section:
    (1) Geographical impact of the significant circumstances;
    (2) State efforts to control impact on program operations;
    (3) The proportion of Supplemental Nutrition Assistance Program 
caseload affected; and/or
    (4) The duration of the significant circumstances and the impact on 
program operations.
    (B) Adjustments for these factors may result in a waiver of all, 
part, or none of the liability amount 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.
    (6) Adjustments. When good cause is found under the criteria in 
paragraphs (f)(1) through (f)(5) 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.
    (7) 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 (f) of this section so as to fully 
explain how a particular significant circumstance(s) uncontrollably 
affected its payment error rate.
    (8) Finality. The initial decision of the ALJ concerning good cause 
shall constitute the final determination for purposes of judicial review 
as established under the provisions of Sec. 283.17 and Sec. 283.20 of 
this chapter.
    (g) Results of appeals on liability amount determinations. (1) If a 
State agency wholly prevails on appeal and, consequently, its liability 
amount is reduced to $0 through the appeal, and if the State agency 
began new investment activities prior to the appeal determination, FNS 
shall pay to the State agency an amount equal to 50 percent of the new 
investment amount that was expended by the State agency.
    (2) 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 new investment to be invested or to be paid to the 
Federal government.
    (3) If neither the State agency nor FNS wholly prevails on a State 
agency's appeal, FNS shall apply the original waiver, new investment, 
and at-risk percentage determinations to the liability amount 
established through the appeal. If the State agency began new investment 
prior to the appeal decision and has already expended more than the 
amount produced for new investment as a result of the appeal decision, 
the Department will match the amount of funds expended in excess of the 
amount now required by the Department for new investment.
    (h) New investment requirements. Once FNS has determined the 
percentage of a liability amount to be invested or following an appeal 
and recalculation by FNS of an amount to be invested, a State agency 
shall submit a plan of offsetting investments in program administration 
activities intended to reduce error rates.
    (1) The State agency's investment plan activity or activities must 
meet the following conditions to be accepted by the Department:

[[Page 973]]

    (i) 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.
    (ii) The program administration 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 correction 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.
    (iii) Investment activities must be funded in full by the State 
agency, without any matching Federal funds until the entire amount 
agreed to is spent. Amounts spent in excess of the settlement amount 
included in the plan may be subject to Federal matching funds.
    (2) The request shall include:
    (i) A statement of the amount of money that is a quality control 
liability claim that is to be offset by investment in program 
improvements;
    (ii) A detailed description of the planned program administration 
activity;
    (iii) Planned expenditures, including time schedule and anticipated 
cost breakdown;
    (iv) Anticipated impact of the activity, identifying the types of 
error expected to be affected;
    (v) Documentation that the funds would not replace expenditures 
already earmarked for an ongoing effort; and
    (vi) A statement that the expenditures are not simply a reallocation 
of resources.
    (3) A State agency may choose to begin expending State funds for any 
amount of the liability designated as ``new investment'' in the 
liability amount determination prior to any appeal. FNS reserves the 
right to approve whether the expenditure meets the requirements for new 
investment. Expenditures made prior to approval by the Department will 
be subject to approval before they are accepted. Once a new investment 
plan is approved, the State agency shall submit plan modifications to 
the Department for approval, prior to implementation.
    (4) Each State agency which has part of a liability designated for 
new investment shall submit periodic documented reports according to a 
schedule in its approved investment plan. At a minimum, these reports 
shall contain:
    (i) 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;
    (ii) A detailed description of the actual activity; and
    (iii) An explanation of the activity's effect on errors, including 
an explanation of any discrepancy between the planned effect and the 
actual effect.
    (5) Any funds that the State agency's reports do not document as 
spent as specified in the new investment plan may be recovered by the 
Department. Before the funds are withdrawn, the State agency will be 
provided an opportunity to provide the missing documentation.
    (6) If the funds are recovered, the Department shall charge interest 
on the

[[Page 974]]

funds not spent according to the plan in accordance with paragraph (j) 
of this section.
    (i) At-risk money. If appropriate, 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 administrative and judicial appeals pursuant to Section 14 of 
the Food and Nutrition Act. If a State agency, in the subsequent year, 
is again subject to a liability amount based on the national performance 
measure and the error rate issued to the State agency, the State agency 
will be required to remit to FNS any money designated as at-risk for the 
prior fiscal year in accordance with either the original liability 
amount or a revised liability amount arising from an appeal, as 
appropriate, within 30 days of the date of the final billing. The 
requirement that the State agency pay the at-risk amount for the prior 
year will be held in abeyance pending the outcome of any pending appeal 
for the subsequent liability. If the subsequent year's liability is 
reduced to $0, the at-risk money from for the prior fiscal year will not 
be required to be paid. If the subsequent year's liability is not 
reduced to $0, the State agency will be required to pay the at-risk 
money within 30 days of the date of the appeal decision. The amount of a 
State's at-risk money may be recovered through offsets to the State 
agency's 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 Debt 
Collection Improvement Act of 1996 (Pub. L. 104-134) and the Federal 
Claims Collection Standards (31 CFR Parts 900-904), depending upon the 
amount of the State's liability.
    (j) Interest charges. (1) To the extent that a State agency does not 
pay an at-risk amount within 30 days from the date on which the bill for 
collection 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. If the State agency is notified that it failed to invest funds 
in accordance with an approved new investment plan, the State agency has 
30 days from the date of receipt of notification of non-expenditure of 
new investment funds to pay the Department the amount of funds not so 
invested. If the State agency does not pay the Department the amount of 
funds not invested within 30 days from the date of receipt of the 
notification of non-expenditure, the State agency shall be liable for 
interest on the non-expended funds from the date on which the 
notification was received by the State agency. 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.
    (2) A State agency may choose to pay the amount designated as at-
risk prior to resolution of any appeals. If the State agency pays such 
claim (in whole or in part) and the claim is subsequently overturned or 
adjusted 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.
    (3) Any interest assessed under paragraph (j)(1) of this section 
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 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

[[Page 975]]

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.

[75 FR 33438, June 11, 2010, as amended at 80 FR 53243, Sept. 3, 2015]



Sec. 275.24  High performance bonuses.

    (a) General rule. (1) FNS will award bonuses totaling $48 million 
for each fiscal year to State agencies that show high or improved 
performance in accordance with the performance measures under paragraph 
(b) of this section.
    (2) FNS will award the bonuses no later than September 30th of the 
fiscal year following the performance measurement year.
    (3) A State agency is not eligible for a bonus payment in any fiscal 
year for which it has a liability amount established as a result of an 
excessive payment error rate in the same year. If a State is 
disqualified from receiving a bonus payment under this paragraph (a)(3), 
and the State is not tied for a bonus, the State with the next best 
performance will be awarded a bonus payment.
    (4) The determination whether, and in what amount, to award a 
performance bonus payment is not subject to administrative or judicial 
review.
    (5) In determining the amount of the award, FNS will first award a 
base amount of $100,000 to each State agency that is an identified 
winner in each category. Subsequently, FNS will divide the remaining 
money among the States in each category (see paragraph (b) of this 
section) in proportion to the size of their caseloads (the average 
number of households per month for the fiscal year for which performance 
is measured).
    (6) A State cannot be awarded two bonuses in the same category; the 
relevant categories are payment accuracy (which is outlined in paragraph 
(b)(1) of this section), negative error rate (which is outlined in 
paragraph (b)(2) of this section), or program access index (which is 
outlined in paragraph (b)(3) of this section). If a State is determined 
to be among the best and the most improved in a category, it will be 
awarded a bonus only for being the best. The next State in the best 
category will be awarded a bonus as being among the best States.
    (7) Where there is a tie to the fourth decimal point for the 
categories outlined in paragraphs (b)(1) through (b)(4) of this section, 
FNS will add the additional State(s) into the category and the money 
will be divided among all the States in accordance with paragraph (a)(5) 
of this section.
    (8) Bonus award money shall be used only on SNAP-related expenses 
including, but not limited to, investments in technology; improvements 
in administration and distribution; and actions to prevent fraud, waste 
and abuse.
    (i) Bonus payments shall not be used for household benefits, 
including incentive payments.
    (ii) State agency awardees shall submit their intended spending 
plans of bonus payments to FNS to verify appropriate use.
    (b) Performance measures. FNS will measure performance by and base 
awards on the following categories of performance measures:
    (1) Payment accuracy. FNS will divide $24 million among the 10 
States with the lowest and the most improved combined payment error 
rates as specified in paragraphs (b)(1)(i) and (b)(1)(ii) of this 
section.
    (i) Excellence in payment accuracy. FNS will provide bonuses to the 
7 States with the lowest combined payment error rates based on the 
validated quality control payment error rates for the performance 
measurement year as determined in accordance with this part.
    (ii) Most improved in payment accuracy. FNS will provide bonuses to 
the 3 States with the largest percentage point decrease in their 
combined payment error rates based on the comparison of the validated 
quality control payment error rates for the performance measurement year 
and the previous fiscal year, as determined in accordance with this 
part.
    (2) Negative error rate. FNS will divide $6 million among the 6 
States with the lowest and the most improved negative

[[Page 976]]

error rates as specified in paragraphs (b)(2)(i) and (b)(2)(ii) of this 
section.
    (i) Lowest negative error rate. FNS will provide bonuses to the 4 
States with the lowest negative error rates based on the validated 
quality control negative error rates for the performance year as 
determined in accordance with this part.
    (ii) Most improved negative error rate. FNS will provide bonuses to 
the 2 States with the largest percentage point decrease in their 
negative error rates, based on the comparison of the performance 
measurement year's validated quality control negative error rates with 
those of the previous fiscal year, as determined in accordance with this 
part. A State agency is not eligible for a bonus under this criterion if 
the State's negative error rate for the fiscal year is more than 50 
percent above the national average.
    (3) Program access index (PAI). FNS will divide $12 million among 
the 8 States with the highest and the most improved level of 
participation as specified in paragraphs (b)(3)(i) through (b)(3)(iii) 
of this section. The PAI is the ratio of participants to persons with 
incomes below 125 percent of poverty, as calculated in accordance with 
paragraph (b)(3)(iii) of this section (the PAI was formerly known as the 
participant access rate (PAR)).
    (i) High program access index. FNS will provide bonuses to the 4 
States with the highest PAI as determined in accordance with paragraph 
(b)(3)(iii) of this section.
    (ii) Most improved program access index. FNS will provide bonuses to 
the 4 States with the most improved PAI as determined in accordance with 
paragraph (b)(3)(iii) of this section.
    (iii) Data. For the number of participants (numerator), FNS will use 
the administrative annual counts of participants minus new participants 
certified under special disaster program rules by State averaged over 
the calendar year. For the number of people below 125 percent of poverty 
(denominator), FNS will use the Census Bureau's March Supplement to the 
Current Population Survey's (CPS) count of people below 125 percent of 
poverty for the same calendar year. FNS will reduce the count in each 
State where a Food Distribution Program on Indian Reservations (FDPIR) 
program is operated by the administrative counts of the number of 
individuals who participate in this program averaged over the calendar 
year. FNS will reduce the count in California by the Census Bureau's 
percentage of people below 125% of poverty in California who received 
Supplemental Security Income in the previous year. FNS reserves the 
right to use data from the American Community Survey (ACS) in lieu of 
the CPS, and to use the count of people below 130 percent of poverty, 
should these data become available in a timely fashion and prove more 
accurate. Such a substitution would apply to all States.
    (4) Application processing timeliness. FNS will divide $6 million 
among the 6 States with the highest percentage of timely processed 
applications.
    (i) Data. FNS will use quality control data to determine each 
State's rate of application processing timeliness.
    (ii) Timely processed applications. A timely processed application 
is one that provides an eligible applicant the ``opportunity to 
participate'' as defined in Sec. 274.2 of this chapter, within thirty 
days for normal processing or 7 days for expedited processing. New 
applications that are processed outside of this standard are untimely 
for this measure, except for applications that are properly pended in 
accordance with Sec. 273.2(h)(2) of this chapter because verification is 
incomplete and the State agency has taken all the actions described in 
Sec. 273.2(h)(1)(i)(C) of this chapter. Such applications will not be 
included in this measure. Applications that are denied will not be 
included in this measure.
    (iii) Evaluation of applications. Only applications that were filed 
on or after the beginning of the performance measurement (fiscal) year 
will be evaluated under this measure.

[70 FR 6322, Feb. 7, 2005, as amended at 80 FR 53243, Sept. 3, 2015]



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.

[[Page 977]]

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.

    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

[[Page 978]]

    (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 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 
Secs. 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

[[Page 979]]

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 
Secs. 272.2(a)(2) and 272.2(d)(1)(iii).
    (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(l). 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; 75 FR 78154, 
Dec. 15, 2010]



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.

[[Page 980]]

    (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, 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 2 CFR part 
200, subparts D and E and USDA implementing regulations 2 CFR part 400 
and part 415, FNS shall provide State agencies with written advance 
notification that such action is

[[Page 981]]

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 
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; 79 FR 11, Jan. 2, 2014; 81 FR 66499, Sept. 28, 2016]



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

[[Page 982]]

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 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 Secs. 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. When asserting a claim against a State agency, 
FNS shall provide the notice to the State agency using any delivery 
method as long as the method provides evidence of the delivery.
    (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.

[[Page 983]]

    (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 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

[[Page 984]]

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 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

[[Page 985]]

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; Amdt. 397, 70 
FR 72354, Dec. 5, 2005]



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  State Systems Advance Planning Document (APD) process.

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

[[Page 986]]

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.
    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.

[[Page 987]]



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 stamps 
to change his or her decision and apply.
    (1) 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.
    (2) 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.
    (3) 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)(1) and (b)(2) of 
this section shall not be reduced based upon the agency's payment error 
rate.
    (4) 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.
    (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]

    Editorial Note: For Federal Register citations affecting Sec. 277.4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.

    Effective Date Note: At 81 FR 92556, Dec. 20, 2016, Sec. 277.4 was 
amended by removing the phrase ``Food Stamp Program'' wherever it 
appears and adding in its place ``SNAP''; amending paragraph (b) 
introductory text by removing the last two sentences; and adding 
paragraphs (b)(5) and (b)(6), effective Jan. 19, 2017. For the 
convenience of the user, the added and revised text is set forth as 
follows:



Sec. 277.4  Funding.

                                * * * * *

    (b) * * *

[[Page 988]]

    (5) The Federal reimbursement rate shall include reimbursement for 
SNAP informational activities, but shall not include the following:
    (i) Recruitment activities designed to persuade an individual to 
apply for SNAP benefits through the use of persuasive practices. 
Persuasive practices constitute coercing or pressuring an individual to 
apply, or providing incentives to fill out an application for SNAP 
benefits. Communicating factual information pertaining to SNAP so that 
an individual can make an informed choice is not a recruitment activity 
designed to persuade an individual to apply for SNAP benefits.
    (ii) Television, radio or billboard advertisements that are designed 
to promote SNAP benefits and enrollment, excepting the use of such 
advertisements for programmatic activities undertaken with respect to 
benefits provided under Sec. 280.1 of this chapter. This restriction 
does not apply to radio, television, or billboard advertisements that 
are not designed to promote SNAP benefits and enrollment and that 
provide factual information identifying retail food stores where SNAP 
benefits are accepted.
    (iii) Agreements with foreign governments that are designed to 
promote SNAP benefits and enrollment.
    (6) Any entity that receives funding from the programs identified by 
this section and Sec. 251.4 of this chapter is prohibited from 
compensating any person for conducting outreach activities relating to 
participation in, or for recruiting individuals to apply to receive 
benefits under, the Supplemental Nutrition Assistance Program, if the 
amount of the compensation would be based on the number of individuals 
who apply to receive the benefits.



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 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415.
    (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.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended at 81 FR 66499, Sept. 
28, 2016]



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 subagencies 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 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

[[Page 989]]

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 2 CFR part 200, subpart D and USDA implementing 
regulations 2 CFR part 400 and part 415.
    (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.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended at 79 FR 11, Jan. 2, 
2014; 81 FR 66499, Sept. 28, 2016]



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.
    (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 2 CFR

[[Page 990]]

part 200, subpart E and USDA implementing regulations 2 CFR part 400 and 
part 415.
    (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; 79 FR 11, Jan. 2, 2014; 81 FR 66499, Sept. 28, 
2016]



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 (SF-425, using FNS-778/FNS-778A 
worksheet) to report program costs.
    (2) Frequency. The report (SF-425, using FNS-778/FNS-778A worksheet) 
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 991]]

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-425, using 
FNS-778/FNS-778A worksheet, 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 2 CFR part 200, subpart F and Appendix 
XI, Compliance Supplement and USDA implementing regulations 2 CFR part 
400 and part 415, and must have been started within 3 years of the date 
of submission of the final SF-425, using FNS-778/FNS-778A worksheet 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; 81 FR 66499, Sept. 28, 2016]

[[Page 992]]



Sec. 277.12  Retention and custody of records.

    (a) Retention period. All financial records, supporting documents, 
statistical records, negotiated contracts, and 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 records 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 
$5,000, 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 $5,000 
per unit,

[[Page 993]]

the State agency may sell the property and retain the proceeds.
    (ii) If the property had an acquisition cost of $5,000 or more per 
unit, the State agency shall:
    (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' share $500 or 10 percent of the proceeds, whichever is 
greater, for the State agency's 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 $5,000 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

[[Page 994]]

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 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 $5,000 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 2 CFR part 200, subpart D and USDA implementing 
regulations 2 CFR part 400 and part 415.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended at 79 FR 11, Jan. 2, 
2014; 81 FR 66499, Sept. 28, 2016]



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

[[Page 995]]

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.
    (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.

[[Page 996]]

    (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.
    (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.

[[Page 997]]

    (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 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.

[[Page 998]]

    (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:
    (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

[[Page 999]]

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 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 2 CFR part 200, subpart D and USDA implementing regulations 2 
CFR part 400 and part 415.
    (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.

[[Page 1000]]

    (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.
    (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; 79 FR 12, Jan. 2, 2014; 81 FR 66499, Sept. 28, 
2016]



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 2 CFR part 200, subpart F and 
Appendix XI, Compliance Supplement and USDA implementing regulations 2 
CFR part 400 and part 415.
    (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 2 CFR part 200, subpart F and Appendix XI, Compliance Supplement 
and USDA implementing regulations 2 CFR part 400 and part 415.
    (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

[[Page 1001]]

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;
    (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 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415; 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.

[[Page 1002]]

    (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 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.

[Amdt. 188, 45 FR 85702, Dec. 30, 1980, as amended at 81 FR 66499, Sept. 
28, 2016]



Sec. 277.18  State Systems Advance Planning Document (APD) process.

    (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 Information System (IS) 
equipment and services used in the administration of the Supplemental 
Nutrition Assistance Program (SNAP) and as prescribed by appropriate 
Food and Nutrition Service (FNS) directives and guidance (i.e., FNS 
Handbook 901, OMB Circulars, etc.).
    (b) Definitions. As used in this section:
    Acquisition means obtaining supplies or services through a purchase 
or lease, regardless of whether the supplies or services are already in 
existence or must be developed, created or evaluated.
    Advance Planning Document for project planning or Planning APD (APD 
or PAPD) means a brief written plan of action that requests FFP to 
accomplish the planning activities necessary for a State agency to 
determine the need for, feasibility of, projected costs and benefits of 
an IS equipment or services acquisition, plan the acquisition of IS 
equipment and/or services, and to acquire information necessary to 
prepare an Implementation APD.
    Advance Planning Document Update (APDU) means a document submitted 
annually (Annual APDU) by the State agency to report the status of 
project activities and expenditures in relation to the approved Planning 
APD or Implementation APD; or on an as needed basis (As Needed APDU) to 
request funding approval for project continuation when significant 
project changes occur or are anticipated.
    Commercial Off-the-Shelf (COTS) means proprietary software products 
that are ready-made and available for sale to the general public at 
established catalog or market prices in which the software vendor is not 
positioned as the sole implementer or integrator of the product.
    Enhancement means modifications which change the functions of 
software and hardware beyond their original purposes, not just to 
correct errors or deficiencies which may have been present in the 
software or hardware, or

[[Page 1003]]

to improve the operational performance of the software or hardware. 
Software enhancements that substantially increase risk or cost or 
functionality will require submission of an IAPD or an As Needed IAPDU.
    Implementation Advance Planning Document or Implementation APD 
(IAPD) means a written plan of action requesting FFP to acquire and 
implement information system (IS) services and/or equipment. The 
Implementation APD includes the design, development, testing and 
implementation phases of the project.
    Information System (IS) means a combination of hardware and 
software, data and telecommunications that performs specific functions 
to support the State agency, or other Federal, State or local 
organization.
    Project means a related set of information technology related tasks, 
undertaken by a State, to improve the efficiency, economy and 
effectiveness of administration and/or operation of its human services 
programs. A project may also be a less comprehensive activity such as 
office automation, enhancements to an existing system, or an upgrade of 
computer hardware.
    Request for Proposal (RFP) means the document used for public 
solicitations of competitive proposals from qualified sources as 
outlined in Sec. 277.14(g)(3).
    (c) Requirements for FNS prior approval of IS projects--(1) General 
prior approval requirements. The State agency shall request prior FNS 
approval by submitting the Planning APD, the Implementation APD, an APD 
Update, the draft acquisition instrument, and/or the justification for 
the sole source acquisition if applicable, as specified in paragraph 
(c)(2) of this section. A State agency must obtain written approval from 
FNS to receive FFP of any of the following activities:
    (i) When it plans a project to enhance or replace its IS that it 
anticipates will have total project costs in Federal and State funds of 
$6 million or more.
    (ii) Any IS competitive acquisition that costs $6 million or more in 
Federal and State funds.
    (iii) When the State agency plans to acquire IS equipment or 
services non-competitively from a nongovernmental source, and the total 
State and Federal cost is more than $1 million.
    (iv) For the acquisition of IS equipment or services to be utilized 
in an Electronic Benefit Transfer (EBT) system regardless of the cost of 
the acquisition in accordance with Sec. 274.12 (EBT issuance system 
approval standards).
    (2) Specific prior approval requirements. (i) For IS projects 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) Conducting planning activities, entering into contractual 
agreements or making any other commitment for acquiring the necessary 
planning services;
    (B) Conducting design, development, testing or implementation 
activities, entering into contractual agreements or making any other 
commitment for the acquisition of IS equipment or services.
    (ii) For IS 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) Requests for Proposals (RFPs). Unless specifically exempted by 
FNS, the State agency shall obtain prior written approval of the RFP 
before the RFP may be released. However, RFPs for acquisitions estimated 
to cost less than $6 million or competitive procurements from non-
governmental sources and that are an integral part of the approved APD, 
need not receive prior approval from FNS. The State agency shall submit 
a written request to get prior written approval to acquire IS equipment 
or services non-competitively from a nongovernmental source when the 
total State and Federal cost is $1 million or more. State agencies shall 
submit RFPs under this threshold amount on an exception basis. The State 
agency shall obtain prior written approval from FNS for RFPs which are 
associated with an EBT system regardless of the cost.
    (B) Contracts. All contracts must be submitted to FNS. Unless 
specifically exempted by FNS, the State agency shall obtain prior 
written approval before the contract may be signed by the

[[Page 1004]]

State agency. However, contracts for competitive procurements costing 
less than $6 million and for noncompetitive acquisitions from 
nongovernmental sources costing less than $1 million and that are an 
integral part of the approved APD need not be submitted to FNS. State 
agencies shall submit contracts under this threshold amount on an 
exception basis. 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. All contract amendments must be submitted 
to FNS. Unless specifically exempted by FNS, the State agency shall 
obtain prior written approval from FNS of any contract amendments which 
cumulatively exceed 20 percent of the base contract costs before being 
signed by the State agency. The State agency shall obtain prior written 
approval from FNS for contracts which are associated with an EBT system 
regardless of the cost.
    (iii) Procurement requirements. (A) Procurements of IS equipment and 
services are subject to Sec. 277.14 (procurement standards) regardless 
of any conditions for prior approval contained in this section, except 
the requirements of Sec. 277.14(b)(1) and (b)(2) regarding review of 
proposed contracts. Those procurement standards include a requirement 
for maximum practical open and free competition regardless of whether 
the procurement is formally advertised or negotiated.
    (B) The standards prescribed by Sec. 277.14, as well as the 
requirement for prior approval in this paragraph (c), apply to IS 
services and equipment acquired primarily to support SNAP regardless of 
the acquiring entity.
    (C) The competitive procurement policy prescribed by Sec. 277.14 
shall be applicable except for IS services provided by the agency 
itself, or by other State or local agencies.
    (iv) The State agency must obtain prior written approval from FNS, 
as specified in paragraphs (c)(2)(i) and (c)(2)(ii) of this section, to 
claim and receive reimbursement for the associated costs of the IS 
acquisition.
    (3) Document submission requirements. (i) For IS projects requiring 
prior approval as specified in paragraphs (c)(1) and (c)(2) of this 
section, the State agency shall submit the following documents to FNS 
for approval:
    (A) Planning APD as described in paragraph (d)(1) of this section.
    (B) Implementation APD as described in paragraph (d)(2) of this 
section.
    (C) Annual APDU as described in paragraph (d)(3) of this section. 
The Annual APDU shall be submitted to FNS 60 days prior to the 
expiration of the FFP approval, unless the submission date is 
specifically altered by FNS. In years where an As Needed APDU is 
required, as described in paragraph (c)(3)(i)(D) of this section, FNS 
may waive or modify the requirement to submit the annual APDU.
    (D) As Needed APDU as described in paragraph (d)(4) of this section. 
As Needed APDU are required to obtain a commitment of FFP whenever 
significant project changes occur. Significant project changes are 
defined as changes in cost, schedule, scope or strategy which exceed 
FNS-defined thresholds or triggers. 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 APDU until such time as approval is specifically 
granted by FNS.
    (E) Acquisition documents as described in Sec. 277.14(g).
    (F) Emergency Acquisition Requests as described in paragraph (i) of 
this section.
    (ii) The State agency must obtain prior 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 IS 
acquisition.
    (4) Approval by the State agency. Approval by the State agency is 
required for all documents and acquisitions specified in Sec. 277.18 
prior to submission for FNS approval. However, the State agency may 
delegate approval authority to any subordinate entity for those 
acquisitions of IS equipment and services not requiring prior approval 
by FNS.
    (5) Prompt action on requests for prior approval. FNS will reply 
promptly to State agency requests for prior approval. If FNS has not 
provided written

[[Page 1005]]

approval, disapproval or a request for additional information within 60 
days of FNS' acknowledgment of receipt of the State agency's request, 
the request will be deemed to have provisionally met the prior approval 
requirement in this paragraph (c). However, provisional approval will 
not exempt a State agency from having to meet all other Federal 
requirements which pertain to the acquisition of IS equipment and 
services. Such requirements remain subject to Federal audit and review.
    (d) APD content requirements--(1) Planning APD (PAPD). The PAPD is a 
written plan of action to acquire proposed services or equipment and to 
perform necessary activities to investigate the feasibility, system 
alternatives, requirements and resources needed to replace, modify or 
upgrade the State agency's IS. The PAPD shall contain adequate 
documentation to demonstrate the need to undertake a planning process, 
as well as a thorough description of the proposed planning activities, 
and estimated costs and timeline, as specified by FNS in Handbook 901.
    (2) Implementation APD (IAPD). The IAPD is a written plan of action 
to acquire the proposed IS services or equipment and to perform 
necessary activities to design, develop, acquire, install, test, and 
implement the new IS. The IAPD shall contain detailed documentation of 
planning and preparedness for the proposed project, as enumerated by FNS 
in Handbook 901, demonstrating the feasibility of the project, thorough 
analysis of system requirements and design, a rigorous management 
approach, stewardship of federal funds, a realistic schedule and budget, 
and preliminary plans for key project phases.
    (3) Annual APDU content requirements. The Annual APDU is a yearly 
update to ongoing IS projects when planning or implementation activities 
occur. The Annual APDU shall contain documentation on the project 
activity status and a description of major tasks, milestones, budget and 
any changes, as specified by FNS in Handbook 901.
    (4) As Needed APDU content requirements. The As Needed APDU document 
shall contain the items as defined in paragraph (c)(3)(i)(D) of this 
section with emphasis on the area(s) where changes have occurred or are 
anticipated that triggered the submission of the APDU, as detailed by 
FNS in Handbook 901.
    (e) Service agreements. The State agency shall execute service 
agreements when IS services are to be provided by a State central IT 
facility or another State or local agency. Service Agreement means the 
document signed by the State or local agency and the State or local 
central IT facility whenever an IT facility provides IT services to the 
State or local agency. Service agreements shall:
    (1) Identify the IS services that will be provided;
    (2) Include a schedule of rates for each identified IS service, and 
a certification that these rates 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;
    (5) Include assurances that information in the IS as well as access, 
use and disposal of IS data will be safeguarded in accordance with 
provisions of Sec. 272.1(c) (disclosure) and Sec. 277.13 (property);
    (6) Require the provider to obtain prior approval from FNS pursuant 
to paragraph (c)(1) of this section for IS equipment and IS services 
that are acquired from commercial sources primarily to support federally 
aided public assistance programs and require the provider to comply with 
Sec. 277.14 (procurement standards) for procurements related to the 
service agreement. IS equipment and services are considered to be 
primarily acquired to support federally aided public assistance programs 
when the Programs may reasonably be expected to either be billed for 
more than 50 percent of the total charges made to all users of the IS 
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 IS equipment or services;

[[Page 1006]]

    (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.
    (9) State Agency Maintenance of Service Agreements. The State agency 
shall maintain a copy of each service agreement in its files for Federal 
review upon request.
    (f) Conditions for receiving Federal financial participation (FFP)--
(1) A State agency may receive FFP at the 50 percent reimbursement rate 
for the costs of planning, design, development or installation of IS and 
information retrieval systems if the proposed system will:
    (i) Assist the State agency in meeting the requirements of the Food 
and Nutrition Act of 2008, as amended;
    (ii) Meet the Automation of Data Processing/Computerization of 
Information Systems Model Plan program standards specified in 
Sec. 272.10(b)(1) through (b)(3) of this chapter, except 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 FNS;
    (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 other State agency programs including the program of 
Temporary Assistance for Needy Families (TANF).
    (2) State agencies seeking FFP for the planning, design, development 
or installation of IS shall develop State wide 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 State wide 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.
    (g) Basis for continued Federal financial participation (FFP)--(1) 
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 IS 
resources are used for the purposes authorized. FNS will use the APDU to 
monitor IS project development. The submission of the Update as 
prescribed in Sec. 277.18(d) for the duration of project development is 
a condition for continued FFP. In addition, periodic onsite reviews of 
IS project development and State and local agency IS operations may be 
conducted by or for FNS to assure compliance with approved APDs, proper 
use of IS resources, and the adequacy of State or local agency IS 
operations.
    (2) Pre-implementation. The State agency must demonstrate through 
thorough testing that the system meets all program functional and 
performance requirements. FNS may require a pre-implementation review of 
the system to validate system functionality prior to State agency 
testing.
    (i) Testing. The State agency must provide a complete test plan 
prior to the start of the testing phase. The State agency must provide 
documentation to FNS of the results of User Acceptance Testing (UAT) 
before the system is piloted in a production environment. FNS 
concurrence to advance from testing to pilot is a condition for 
continued FFP. All aspects of program eligibility must be tested to 
ensure that the system makes accurate eligibility determinations in 
accordance with federal statutes and regulations and approved State 
policies, and that system functionality meets the required functional 
specifications. The State agency shall describe how all system testing 
will be conducted and the resources to be utilized in order to verify 
the system complies with SNAP

[[Page 1007]]

requirements, system design specifications, and performance standards 
including responsiveness, usability, capacity and security. Testing 
includes but is not limited to unit testing, integration testing, 
performance testing, end-to-end testing, UAT and regression testing. 
During UAT detailed scripts covering all areas of program functionality 
shall be used so that any errors identified can be replicated, corrected 
and re-tested. At a minimum, the Test Plan shall address:
    (A) The types of testing to be performed;
    (B) The organization of the test team and associated 
responsibilities;
    (C) Test database generation;
    (D) Test case development;
    (E) Test schedule;
    (F) Documentation of test results;
    (G) Acceptance testing, to include functional requirements testing, 
error condition handling and destructive testing, security testing, 
recovery testing, controls testing, stress and throughput performance 
testing, and regression testing; and
    (H) The decision criteria, including specific test results which 
must be met before the State may exit the testing phase, the roles or 
titles of the individuals responsible for verifying that these criteria 
have been met, and the sign-off process which will document that the 
criteria have been met.
    (I) FNS may require any or all of these tests to be repeated in 
instances where significant modifications are made to the system after 
these tests are initially completed or if problems that surfaced during 
initial testing warrant a retest. FNS reserves the right to participate 
and conduct independent testing, as necessary, during UAT and at 
appropriate times during system design, development, implementation and 
operations.
    (ii) Pilot. Prior to statewide rollout of the system there must be a 
test of the fully operational system in a live production environment. 
Pilots must operate until a state of routine operation is reached with 
the full caseload in the pilot area. The design of this pilot shall 
provide an opportunity to test all components of the system as well as 
the data conversion process and system performance. The duration of the 
pilot must be for a sufficient period of time to thoroughly evaluate the 
system (usually a minimum duration of three months). The State agency 
must provide documentation to FNS of the pilot evaluation. FNS approval 
to implement the system more broadly is a condition for continued FFP.
    (iii) Post-implementation Review. After the system is fully 
implemented, FNS may conduct a review to validate that program policy is 
correctly applied, whether project goals and objectives were met, that 
IS equipment and services are being properly used and accurate inventory 
records exist, and the actual costs of the project.
    (h) Disallowance of Federal financial participation (FFP). If FNS 
finds that any acquisition approved under the provisions of paragraph 
(c) of this section fails to comply with the criteria, requirements and 
other undertakings described in the approved or modified APD, payment of 
FFP may be suspended or may be disallowed in whole or in part.
    (i) Emergency acquisition requirements. The State agency may request 
FFP for the costs of IS equipment and services acquired to meet 
emergency situations in which the State agency can demonstrate to FNS an 
immediate need to acquire IS equipment or services in order to continue 
operation of SNAP; and the State agency can clearly document that the 
need could not have been anticipated or planned for and precludes the 
State from following the prior approval requirements of paragraph (c) of 
this section. 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 IS equipment or services. The written request 
shall include:
    (i) A brief description of the IS 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 fulfilling 
approval requirements at paragraph (c) of this section; and
    (iii) A description of the adverse impact which would result if the 
State

[[Page 1008]]

agency does not immediately acquire the IS 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,
    (ii) FNS recognizes that an emergency situation exists and grants 
conditional approval pending receipt of the State agency's formal 
submission of the IAPD information specified at paragraph (d)(2) of this 
section within 90 days from the date of the State agency's initial 
written request.
    (iii) If FNS approves the request submitted under paragraph (i)(1) 
of this section, FFP will be available from the date the State agency 
acquires the IS equipment and services.
    (iv) If the complete IAPD submission required by paragraph (d)(2) of 
this section is not received by FNS within 90 days from the date of the 
initial written request, costs may be subject to disallowance.
    (j) General cost requirements--(1) Cost determination. Actual costs 
must be determined in compliance with 2 CFR part 200, subpart E and USDA 
implementing regulations 2 CFR part 400 and part 415 and an FNS approved 
budget, and must be reconcilable with the approved FNS funding level. A 
State agency shall not claim reimbursement for costs charged to any 
other Federal program or uses of IS systems for purposes not connected 
with SNAP. The approved APD cost allocation plan includes 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) of this section. 
Operational costs are to be allocated based on the statewide cost 
allocation plan rather than the APD cost plan. Approved cost allocation 
plans for ongoing operational costs shall not apply to IS system 
development costs under this section unless documentation required under 
paragraph (c) of this section is submitted to and approvals are obtained 
from FNS. Any APD-related costs approved by FNS 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, in accordance with the cost principles set forth in 2 CFR part 
200, subpart E and USDA implementing regulations 2 CFR part 400 and part 
415, 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 (administrative cost 
principles) 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 IS 
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 (administrative cost principles).
    (iii) Service agreement costs. States that operate a central data 
processing facility shall use their approved central service cost 
allocation plan required by 2 CFR part 200, subpart E and USDA 
implementing regulations 2 CFR part 400 and part 415 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 (j)(2)(i) and (ii) of this section.
    (3) Capital expenditures. The State agency shall charge the costs of 
IT 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

[[Page 1009]]

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 paragraph (c) of this section.
    (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 As Needed APD Update as 
prescribed in paragraphs (c)(3)(i)(D) and (d)(4) of this section, 
including an amended State budget. Requests to amend the budget 
authorization approved by FNS shall be submitted to FNS prior to 
claiming such expenses.
    (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 
to all parts of the system may result in suspension and/or termination 
of SNAP 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 which meet the 
definition of COTS at paragraph (b) of this section 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 development costs for proprietary 
application software developed specifically for SNAP.
    (2) Information Systems equipment. The policies and procedures 
governing title, use and disposition of property purchased with FFP, 
which appear at Sec. 277.13 (Property) are applicable to IS equipment.
    (m) Information system security requirements and review process--(1) 
Information system security requirements. State and local agencies are 
responsible for the security of all IS projects under development, and 
operational systems involved in the administration of SNAP. State and 
local agencies shall determine appropriate IS security requirements 
based on recognized industry standards or compliance with standards 
governing security of Federal information systems and information 
processing.
    (2) Information security program. State agencies shall implement and 
maintain a comprehensive Security Program for IS and installations 
involved in the administration of the SNAP. Security Programs shall 
include the following components:
    (i) Determination and implementation of appropriate security 
requirements as prescribed in paragraph (m)(1) of this section.
    (ii) Establishment of a security plan and, as appropriate, policies 
and procedures to address the following areas of IS security:
    (A) Physical security of IS resources;
    (B) Equipment security to protect equipment from theft and 
unauthorized use;

[[Page 1010]]

    (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 IS 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) IS security reviews. State agencies shall review the security of 
IS involved in the administration of SNAP 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 IS security reviews, together 
with pertinent supporting documentation, for Federal review upon 
request.
    (4) Applicability. The security requirements of this section apply 
to all IS systems used by State and local governments to administer 
SNAP.

[79 FR 12, Jan. 2, 2014, as amended at 81 FR 66499, Sept. 28, 2016]



Sec. 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:
    (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.

[[Page 1011]]

    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.
    (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

[[Page 1012]]

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.
    (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

[[Page 1013]]

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.
    (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 allowability 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,

[[Page 1014]]

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 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

[[Page 1015]]

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 Treasurer 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.
    (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

[[Page 1016]]

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 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

[[Page 1017]]

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 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 uncollectible 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

[[Page 1018]]

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 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

[[Page 1019]]

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 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,

[[Page 1020]]

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;
    (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

[[Page 1021]]

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) The submission of collateral bonds or irrevocable letters of 
credit for firms with previous sanctions. (i) If the applicant firm has 
been sanctioned for violations of this part, by withdrawal, or 
disqualification for a period of more than six months, or by a civil 
money penalty in lieu of a disqualification period of more than six 
months, or if the applicant firm has been previously sanctioned for 
violations and incurs a subsequent sanction, regardless of the 
disqualification period, FNS shall, as a condition of future 
authorization, require the applicant to present a collateral bond or 
irrevocable letter of credit that meets the following conditions:
    (A) The collateral bond must be issued by a bonding agent/company 
recognized under the law of the State in which the applicant is 
conducting business and which is represented by a negotiable certificate 
only. The irrevocable letter of credit must be issued by a commercial 
bank;
    (B) The collateral bond or irrevocable letter of credit must be made 
payable to the Food and Nutrition Service, U.S. Department of 
Agriculture;
    (C) The collateral bond cannot be canceled by the bonding agent/
company for non-payment of the premium by the applicant. The irrevocable 
letter of credit cannot be canceled by the commercial bank for non-
payment by the applicant;
    (D) The collateral bond or irrevocable letter of credit must have a 
face value of $1,000 or an amount equal to ten percent of the average 
monthly food stamp benefit redemption volume of the applicant for the 
immediate twelve months prior to the effective date of the most recent 
sanction which necessitated the collateral bond or irrevocable letter of 
credit, whichever amount is greater;
    (E) The applicant is required to submit a collateral bond or 
irrevocable

[[Page 1022]]

letter of credit that is valid for a period of five years when re-
entering the program; and
    (F) The collateral bond or irrevocable letter of credit shall remain 
in the custody of FNS 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 or irrevocable letter of credit 
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 or 
letter of credit 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 or irrevocable letter of credit 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 result of the transfer or purchase 
of a disqualified firm, be required to furnish a bond or letter of 
credit 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 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

[[Page 1023]]

    (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 benefits 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 benefits. 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 benefits. 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 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

[[Page 1024]]

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;
    (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 
Secs. 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 (using any delivery method that

[[Page 1025]]

provides evidence of delivery) to inform the firm of any authorization 
denial and 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 
Secs. 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 
using any delivery method as long as the method provides evidence of 
delivery 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 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

[[Page 1026]]

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 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)).

[[Page 1027]]

    (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 
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

[[Page 1028]]

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.
    (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

[[Page 1029]]

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 at www.fdsys.gov.

    Effective Date Notes: 1. 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.
    2. At 81 FR 90699, Dec. 15, 2016, effective Jan. 17, 2017, 
Sec. 278.1 was amended by:
    a. Amending the last sentence in paragraph (b)(1)(i)(A) by removing 
the word ``two'' and adding in its place the word ``three''.
    b. Revising paragraph (b)(1)(ii)(A);
    c. Amending the first sentence in paragraph (b)(1)(ii)(B) by 
removing the word ``two'' and adding in its place the word ``three''.
    d. Revising paragraph (b)(1)(ii)(C);
    e. Revising the fourth sentence in paragraph (b)(1)(iv);
    f. Redesignating paragraph (b)(6) as paragraph (b)(7);
    g. Adding new paragraph (b)(6); and
    h. Adding paragraph (q)(5).For the convenience of the user, the 
added and revised text is set forth as follows:



Sec. [thinsp]278.1  Approval of retail food stores and wholesale food 
          concerns.

                                * * * * *

    (b) * * *
    (1) * * *
    (ii) * * *
    (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 seven different varieties of food 
items in each of the four staple food categories with a minimum depth of 
stock of three stocking units for each qualifying staple variety and at 
least one variety of perishable foods in at least three 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 firm has 
made reasonable stocking efforts to meet the stocking requirement. Such 
documentation can be achieved through verifying information, when 
requested by FNS, such as invoices and receipts in order to prove that 
the firm had ordered and/or received a sufficient amount of required 
staple foods up to 21 calendar days prior to the date of the store 
visit. Failure to provide verifying information related to stock when 
requested may result in denial or withdrawal of authorization. Failure 
to cooperate with store visits shall result in the denial or withdrawal 
of authorization.

                                * * * * *

    (C) Offer a variety of staple foods which means different types of 
foods within each staple food category. For example: Apples, cabbage, 
tomatoes, bananas, pumpkins, broccoli, and grapes in the vegetables or 
fruits category; or cow milk, almond milk, soy yogurt, soft cheese, 
butter, sour cream, and cow milk yogurt in the dairy products category; 
or rice, bagels, pitas, bread, pasta, oatmeal, and whole wheat flour in 
the bread or cereals category; or chicken, beans, nuts, beef, pork, 
eggs, and tuna in the meat, poultry, or fish category. Variety of foods 
is not to be interpreted as different brands, nutrient values (e.g., low 
sodium and lite), flavorings (e.g., vanilla and chocolate), packaging 
types or styles (e.g., canned and frozen) or package sizes of the same 
or similar foods. Similar food items such as, but not limited to, 
tomatoes and tomato juice, different types of rice, whole milk and skim 
milk, ground beef and beefsteak, or different types of apples (e.g., 
Empire, Jonagold, and McIntosh), shall count as depth of stock but shall 
not each be counted as more than one staple food variety for the purpose 
of determining the number of varieties in any staple food category. 
Accessory foods shall not be counted as staple foods for purposes of 
determining eligibility to participate in SNAP as a retail food store.

                                * * * * *

    (iv) * * * In addition, firms that are considered to be restaurants, 
that is, firms that have more than 50 percent of their total gross sales 
in foods cooked or heated on-site by the retailer before or after 
purchase; and hot and/or cold prepared foods not intended for home 
preparation or consumption, including prepared foods that are consumed 
on the premises or sold for carryout, shall not qualify for 
participation as retail food stores under Criterion A orB. * * *

                                * * * * *

    (6) Need for access. FNS will consider whether the applicant firm is 
located in an area with significantly limited access to food when the 
applicant firm fails to meet Criterion A per paragraph (b)(1)(ii) or 
Criterion B per paragraph (b)(1)(iii) of this section so long as the 
applicant firm meets all other

[[Page 1030]]

SNAP authorization requirements. In determining whether an applicant is 
located in such an area, FNS may consider access factors such as, but 
not limited to, the distance from the applicant firm to the nearest 
currently SNAP authorized firm and transportation options. In 
determining whether to authorize an applicant despite its failure to 
meet Criterion A and Criterion B, FNS will also consider factors such 
as, but not limited to, the extent of the applicant firm's stocking 
deficiencies in meeting Criterion A and Criterion B and whether the 
store furthers the purposes of the Program. Such considerations will be 
conducted during the application process as described in paragraph (a) 
of this section.

                                * * * * *

    (q) * * *
    (5) Public disclosure of firms sanctioned for SNAP violations. FNS 
may disclose information to the public when a retail food store has been 
disqualified or otherwise sanctioned for violations of the Program after 
the time for administrative and judicial appeals has expired. This 
information is limited to the name and address of the store, the 
owner(s') name(s) and information about the sanction itself. FNS may 
continue to disclose this information for as long as the duration of the 
sanction. In the event that a sanctioned firm is assigned a civil 
penalty in lieu of a period of disqualification, as described in 
Sec. 278.6(a), FNS may continue to disclose this information for as long 
as the duration of the period of disqualification or until the civil 
penalty has been paid in full, whichever is longer.



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 
meal providers, retail food stores may accept detached coupons which 
have been accepted by the homeless meal

[[Page 1031]]

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. Food stamp benefits shall not be 
accepted by an authorized retail food store in payment for items sold to 
a household on credit. A firm that commits such violations shall be 
disqualified from participation in the Food Stamp Program for a period 
of one year.
    (g)(1) 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.
    (2) Notwithstanding paragraph (g)(1) of this section, 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 may be authorized to redeem EBT benefits directly 
through an insured financial institution in areas where an Electronic 
Benefit Transfer (EBT) system has been implemented.
    (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

[[Page 1032]]

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 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; Amdt. 
397, 70 FR 72354, Dec. 5, 2005; 73 FR 79595, Dec. 30, 2008]

    Effective Date Note: At 81 FR 89843, Dec. 13, 2016, Sec. 278.2 was 
amended by revising paragraph (h) and removing paragraphs (i) and (k), 
effective Jan. 12, 2017. For the convenience of the user, the revised 
text is set forth as follows:



Sec. 278.2  Participation of retail food stores.

                                * * * * *

    (h) Identifying benefit users. Retailers must accept payment from 
EBT cardholders who have a valid PIN regardless of which State the card 
is from or whether the individual is pictured on the card. Where photo 
EBT cards are in use, the person presenting the photo EBT card need not 
be pictured on the card, nor does the individual's name need to match 
the one on the card if the State includes names on the card. However, 
benefits may not knowingly be accepted from persons who have no right to 
possession of benefits. If fraud is suspected, retailers shall report 
the individual to the USDA OIG Fraud Hotline.

                                * * * * *



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:

[[Page 1033]]

    (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 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

[[Page 1034]]

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 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

[[Page 1035]]

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 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

[[Page 1036]]

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 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

[[Page 1037]]

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.
    (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

[[Page 1038]]

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
    (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:
    (i) 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; or
    (ii) The firm has accepted food stamp benefits in payment for items 
sold to a household on credit.
    (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;

[[Page 1039]]

    (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
    (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

[[Page 1040]]

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 or irrevocable letter of credit 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 present a collateral bond or irrevocable letter of credit 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 or irrevocable letter of credit 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. 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

[[Page 1041]]

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 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 the amount specified in 
Sec. 3.91(b)(3)(ii) of this title for each violation and shall not 
exceed the amount specified in Sec. 3.91(b)(3)(ii) of this title for all 
violations occurring during a

[[Page 1042]]

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 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).

[[Page 1043]]

    (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 any method that provides 
evidence of delivery 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]

    Editorial Note: For Federal Register citations affecting Sec. 278.6, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



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.
    (b) Forfeiture of a collateral bond or draw down on an irrevocable 
letter of credit. 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 or draw down 
of the irrevocable letter of credit. If FNS determines that forfeiture 
or a draw down 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 or irrevocable 
letter of credit drawn down 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 method of proof of delivery to the 
firm and the bonding agent or commercial bank of FNS' determination 
regarding forfeiture or draw down of all or specified part of the 
collateral bond or irrevocable letter of credit and the reasons for the 
forfeiture or draw down action;
    (3) Advise the firm and the bonding agent or commercial bank of the 
firm's right to administrative review of the claim determination;
    (4) Advise the firm and the bonding agent or commercial bank that if 
payment of the current claim is not received directly from the firm, FNS 
shall obtain full payment through forfeiture of the bond or draw down of 
the irrevocable letter of credit;
    (5) Proceed with collection of the bond or irrevocable letter of 
credit in the amount forfeited or drawn down if a request for review is 
not filed by the firm within the period established in Sec. 279.5 of 
this chapter, or if such review is unsuccessful; and
    (6) Upon the expiration of time permitted for the filing of a 
request for administrative and/or judicial review, deposit the bond or 
irrevocable letter of credit 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 or irrevocable letter of credit to satisfy a claim, 
the entire bond or irrevocable letter of credit 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

[[Page 1044]]

    (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 using any delivery method as long as the method provides evidence of 
delivery. 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; Amdt. 397, 70 FR 
72354, Dec. 5, 2005; 73 FR 79595, Dec. 30, 2008]



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.

[[Page 1045]]

    (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 
Secs. 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 Secs. 278.1 and 
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 Secs. 271.2 and 
278.6 by this amendment are effective October 1, 1993.
    (k) Amendment No. 331. The program changes made to Secs. 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 Finding Aids 
section of the printed volume and at www.fdsys.gov.



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

[[Page 1046]]

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 or a draw down of 
part or all of a letter of credit 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 or 
commercial bank.
    (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, as amended at 73 FR 79595, Dec. 30, 2008]



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 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

[[Page 1047]]

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 the denial of a claim brought by a firm 
against FNS, or the forfeiture of a collateral bond or the draw down on 
an irrevocable letter of credit, the designated reviewer shall direct 
the firm not be approved for participation, not be paid any part of the 
disputed claim, or not be reimbursed for any bond forfeiture or 
irrevocable letter of credit withdrawal, as appropriate 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; 73 FR 
79595, Dec. 30, 2008]



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.

[[Page 1048]]

    (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 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 using any delivery method as long as 
the method provides evidence of delivery 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; 
Amdt. 397, 70 FR 72354, Dec. 5, 2005]

[[Page 1049]]



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.

    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. The Secretary may also approve alternate methods 
for issuing food stamp benefits during a disaster when reliance on 
Electronic Benefits Transfer (EBT) systems is impracticable.

[Amdt. 192, 46 FR 8922, Jan. 27, 1981, as amended by Amdt. 338, 56 FR 
63617, Dec. 4, 1991; Amdt. 397, 70 FR 72354, Dec. 5, 2005]



PART 281_ADMINISTRATION OF SNAP ON INDIAN RESERVATIONS--Table of Contents



Sec.
281.1  General purpose and scope.
281.2  Administration.
281.3  Determination of failure.
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.

    Editorial Note: Nomenclature changes to part 281 appear at 78 FR 
11972, Feb. 21, 2013.



Sec. 281.1  General purpose and scope.

    (a) These regulations govern the operation of SNAP on Indian 
reservations either separately or concurrently with the Food 
distribution program. In order to assure that SNAP 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 SNAP on reservations. Also, under certain specified conditions Indian 
tribal organizations on reservations can administer SNAP. The Act 
authorizes the Secretary to pay such amounts for administrative costs as 
are determined to be necessary for the effective operation of SNAP on 
Indian reservations.
    (b) The operation of SNAP on Indian reservations is governed by all 
of the terms and conditions set forth in the Food and Nutrition Act of 
2008 as amended and the regulations of this chapter.

[[Page 1050]]

    (c) Additionally, under no circumstances shall any household 
participate simultaneously in SNAP and the Food Distribution Program. 
Policy governing this prohibition is found in Sec. 253.7(e).

[44 FR 35925, June 19, 1979, as amended at 78 FR 11972, Feb. 21, 2013]



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 SNAP, 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 SNAP 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 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 SNAP 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;

[[Page 1051]]

    (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 SNAP 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 SNAP 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 SNAP 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 SNAP on a specific reservation. When an 
agency of State government is administering the Program on a 
reservation, 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.

[[Page 1052]]

    (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 SNAP 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 SNAP on the reservation. The State agency shall 
continue to administer SNAP 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 SNAP on the reservation FNS shall determine the ITO's potential 
capability for administering SNAP in accordance with the criteria listed 
in Sec. 281.4(b). FNS shall begin to evaluate the ITO's capability for 
all aspects of SNAP 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 SNAP effectively and efficiently, and of complying with 
all provisions of the Food and Nutrition Act of 2008, as amended, and 
the regulations of this chapter, including provisions 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 SNAP 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.

[[Page 1053]]

    (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 and Nutrition Act of 2008 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 SNAP. 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 SNAP, 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 SNAP and that the ITO is 
potentially capable of operating an effective and efficient SNAP, 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 SNAP.
    (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 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 SNAP on a reservation shall adhere to the Food 
and Nutrition Act of 2008, 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 SNAP 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

[[Page 1054]]

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 SNAP. 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 SNAP 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 Food and Nutrition Act of 2008. FNS may pay each agency of 
State government administering a SNAP 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. 
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 SNAP on a reservation 75 percent of all 
administrative costs approved by FNS as needed for operation of a SNAP 
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 SNAP 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 SNAP;
    (iii) The capability or incapability of an ITO to administer SNAP;
    (iv) The failure of an ITO to properly administer SNAP;
    (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.

[[Page 1055]]

    (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 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

[[Page 1056]]

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.
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).

[[Page 1057]]



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.



            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;

[[Page 1058]]

    (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 
Secs. 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:
    (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

[[Page 1059]]

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 Secs. 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. 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 Secs. 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.

[[Page 1060]]



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;
    (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

[[Page 1061]]

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.
    (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

[[Page 1062]]

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 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

[[Page 1063]]

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;
    (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.

[[Page 1064]]

    (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 Secs. 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,
    (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

[[Page 1065]]

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 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,

[[Page 1066]]

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 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

[[Page 1067]]

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 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,

[[Page 1068]]

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.



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

[[Page 1069]]

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.
    (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.

[[Page 1070]]

    (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 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

[[Page 1071]]

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).
    (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,

[[Page 1072]]

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: Secs. 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 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 Secs. 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:

[[Page 1073]]

    (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.



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 Secs. 283.17(d) and 
283.20.



Sec. 283.28  Discovery.

    Upon motion and as ordered by the ALJ, written interrogatories, 
written

[[Page 1074]]

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 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

[[Page 1075]]

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.

    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

[[Page 1076]]

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 Secs. 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.
    (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

[[Page 1077]]

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.
    (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]

[[Page 1078]]



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 1079]]



                    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 1080]]

    (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;
    (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.

[[Page 1081]]

                        PARTS 296	299 [RESERVED]

[[Page 1083]]



                              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.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 1085]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2017)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)

[[Page 1086]]

    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   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)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         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 (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)
    XXVIII  Department of Justice (Parts 3800--3899)

[[Page 1087]]

      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 (Parts 4300--
                4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)

[[Page 1088]]

     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Partys 10000--10049)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         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)

[[Page 1089]]

        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)
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      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 Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      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  National Institute of Food and 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)

[[Page 1090]]

         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)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      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)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)

[[Page 1091]]

        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      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 (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (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--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 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)

[[Page 1092]]

       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)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. 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  U.S. 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)

[[Page 1093]]

         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, 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 Service, 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 (Parts 900--999)
         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)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       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)

[[Page 1094]]

       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)
      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)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 1095]]

                           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 (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           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)
       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)

[[Page 1096]]

        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  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 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)

[[Page 1097]]

      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)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      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)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     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)
        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)

[[Page 1098]]

        IV  Office of Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             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)
        VI  [Reserved]
       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 (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

[[Page 1099]]

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory 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)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            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)
   62--100  [Reserved]
            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)
  103--104  [Reserved]
       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)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [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)

[[Page 1100]]

       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       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--599)
         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 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             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
        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)

[[Page 1101]]

        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         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  Administration for Children and Families, 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)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)

[[Page 1102]]

         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  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  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)
        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) 
                [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)

[[Page 1103]]

        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  Pipeline and Hazardous Materials Safety 
                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 (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   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)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 1105]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2017)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  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
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 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
  National Institute of Food and Agriculture      7, XXXIV
  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

[[Page 1106]]

Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
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
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
Career, Technical and Adult Education, Office of  34, IV
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  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
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       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 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 Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I

[[Page 1107]]

Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 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
Denali Commission                                 45, IX
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical and Adult Education, Office   34, IV
       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
  Career, Technical, and Adult Education, Office  34, IV
       of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
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                             2, IX; 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                   2, XV; 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
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99

[[Page 1108]]

  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 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                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
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 Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
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
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
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

[[Page 1109]]

Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  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 Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 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, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 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
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI

[[Page 1110]]

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
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
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  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
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  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 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
Investment Security, Office of                    31, VIII
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                                2, XXVIII; 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
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  2, XXIX; 5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI

[[Page 1111]]

  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
  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, VII
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 Royalty Board                         37, III
  U.S. 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, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
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
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 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   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
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                    5, C; 34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
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

[[Page 1112]]

National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 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, IV
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
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
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
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                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 5, IV; 45, 
                                                  VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory 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
Privacy and Civil Liberties Oversight Board       6, X
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
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
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
Safety and Environmental Enforcement, Bureau of   30, II
Saint Lawrence Seaway Development Corporation     33, IV

[[Page 1113]]

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                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 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                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
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
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                     2, XII; 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; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  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                               2, X;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                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, 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
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
   Commission
[[Page 1114]]

Veterans Affairs Department                       2, VIII; 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
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1115]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2012 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, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.fdsys.gov. For changes to this volume of the CFR 
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The 
``List of CFR Sections Affected 1986-2000'' is available at 
www.fdsys.gov.

                                  2012

7 CFR
                                                                   77 FR
                                                                    Page
Chapter II
210.2  Amended......................................................4143
    Regulation at 76 FR 35316 confirmed............................19525
210.4  (b)(1) revised; interim.....................................25034
210.5  (d)(2) revised; interim.....................................25034
210.7  (d) redesignated as (e); new (d) added; interim.............25034
210.9  Regulation at 76 FR 35316 confirmed.........................19525
210.10  Revised.....................................................4143
210.14  Regulation at 76 FR 35316 confirmed........................19525
210.15  Regulation at 76 FR 35317 confirmed........................19527
    (b)(2) revised; interim........................................25035
210.18  (a), (b)(2)(ii), (c), (g)(2), (i)(3)(ii) and (m) revised; 
        (h)(2) removed; (h)(3) through (6) redesignated as new 
        (h)(2) through (5); (i)(4)(iv) amended......................4152
    (a), (d)(3) and (m)(2) introductory text revised; (e)(4), 
(g)(2)(v) and (m)(2)(iv) added; interim............................25035
210.19  (a)(1) removed; (a)(2) through (6) redesignated as new 
        (a)(1) through (5); (c) introductory text, (1) and (6) 
        revised.....................................................4153
    Regulation at 76 FR 35317 confirmed............................19527
    (c)(1) amended; interim........................................25036
210.20  Regulation at 76 FR 35318 confirmed........................19525
210.21  (e) amended.................................................4153
210.30  Revised.....................................................4153
210  Appendix B amended.............................................4153
220.2  Amended......................................................4153
220.8  Revised......................................................4154
220.13  (f)(2) amended; (f)(3) revised..............................4159
220.23  Added.......................................................4159
220  Appendix A amended.............................................4167
253.11  Heading revised; (a) and (b) removed; (c) through (h) 
        redesignated as (e) through (j); new (a) through (d) added
                                                                   50907
272.1  (f) revised.................................................48055
272.12  Added......................................................48055
272.13  Added......................................................48055
272.14  Added......................................................48055
273.2  (f)(11) added...............................................48056
273.11  (c)(4)(i) amended..........................................48056
273.12  Heading and (e)(4) introductory text revised; (e)(3) 
        introductory text amended; (e)(3)(i) and (ii) added........48056
273.13  (a)(2) and (b)(7) amended; (b)(1) revised..................48057
273.16  (i) revised................................................48057

[[Page 1116]]

                                  2013

7 CFR
                                                                   78 FR
                                                                    Page
Chapter II
210.1  (b) amended; interim........................................39090
    Regulation at 78 FR 39090 confirmed............................79567
210.2  Amended.....................................................13448
    Regulation at 77 FR 4143 confirmed.............................40625
210.4  Regulation at 77 FR 25034 confirmed.........................39163
210.5  Regulation at 77 FR 25034 confirmed.........................39163
210.7  Regulation at 77 FR 25034 confirmed.........................39163
210.9  (b)(19)(iv), (v) and (21) amended; (b)(19)(vi) added........13448
    Regulation at 76 FR 22797 confirmed............................64153
210.10  (c)(2)(iv)(A) and (e) amended..............................13448
    (a)(1)(i) amended; interim.....................................39090
    Regulation at 77 FR 4143 confirmed.............................40625
    Regulation at 78 FR 39090 confirmed............................79567
210.11  (b) amended................................................13448
    Redesignated as 210.11a; interim...............................39091
    New 210.11 added; interim......................................39091
    Regulation at 78 FR 39091 confirmed............................79567
210.11a  Redesignated from 210.11; interim.........................39091
    (c) added; interim.............................................39092
    Regulation at 78 FR 39091 confirmed............................79567
    Regulation at 78 FR 39092 confirmed............................79567
210.12  (d) added..................................................13448
210.13  (c) introductory text revised..............................13448
210.15  Regulation at 77 FR 25035 confirmed........................39163
210.18  (e) introductory text amended..............................13448
    (h)(6) added; interim..........................................39093
    Regulation at 77 FR 25035 confirmed............................39163
    Regulation at 77 FR 4152 confirmed.............................40625
    Regulation at 76 FR 22797 confirmed............................64153
    Regulation at 78 FR 39093 confirmed............................79567
210.19  (f) amended; (g) added.....................................13448
    Regulation at 77 FR 25036 confirmed............................39163
    Regulation at 77 FR 4153 confirmed.............................40625
    Regulation at 76 FR 22797 confirmed............................64153
210.20  (a)(8) amended; (b)(12) revised............................13449
210.21  Regulation at 77 FR 4153 confirmed.........................40625
210.23  Regulation at 76 FR 22797 confirmed........................64153
210.30  Regulation at 77 FR 4153 confirmed.........................40625
210  Appendix B amended; interim...................................39093
    Regulation at 77 FR 4153 confirmed.............................40625
    Regulation at 78 FR 39093 confirmed............................79567
215.13a  (f) revised; (i)(1) and (2) amended.......................13449
    Regulation at 76 FR 22798 confirmed............................64153
220.2  Amended; interim............................................39093
    Regulation at 77 FR 4153 confirmed.............................40625
    Regulation at 76 FR 22798 confirmed............................64153
    Regulation at 78 FR 39093 confirmed............................79567
220.7  (a)(3) revised; (e)(14)(ii)(D) and (E) amended; 
        (e)(14)(ii)(F) added.......................................13449
    Regulation at 76 FR 22798 confirmed............................64153
220.8  (a)(1) amended; interim.....................................39093
    Regulation at 77 FR 4154 confirmed.............................40625
    Regulation at 78 FR 39093 confirmed............................79567
220.12  Redesignated as 220.12a; new 210.12 added; interim.........39093
    Regulation at 78 FR 39093 confirmed............................79567
220.12a  Redesignated from 220.12; (c) and (d) added; interim......39093
    Regulation at 78 FR 39093 confirmed............................79567
220.13  (b)(3) revised.............................................13449
    Regulation at 77 FR 4159 confirmed.............................40625
220.23  Regulation at 77 FR 4159 confirmed.........................40625
220  Regulation at 77 FR 4167 confirmed............................40625
    Regulation at 78 FR 39093 confirmed............................79567

[[Page 1117]]

225.2  Amended; (a)(4) amended.....................................13449
    Regulation at 76 FR 22798 confirmed............................64153
225.6  (b)(6) and (e) introductory text revised; (c)(2)(ii)(C), 
        (3)(ii)(C), (4)(i), (ii) and (F) amended...................13450
    Regulation at 76 FR 22798 confirmed............................64153
225.7  Regulation at 76 FR 22798 confirmed.........................64153
225.13  Amended....................................................13450
225.14  (d)(6) revised.............................................13450
225.15  (e), (f)(2)(iii), (4)(ii), (i)(1) and (2) amended; 
        (f)(4)(iii) removed; (f)(4)(iv) through (viii) 
        redesignated as (f)(4)(iii) through (vii); new (f)(4)(iii) 
        and (5) revised............................................13450
    Regulation at 76 FR 22798 confirmed............................64153
225.18  (g) amended................................................13450
226.2  Amended; (a)(4) and (b) amended.............................13451
    Regulation at 76 FR 22798 confirmed............................64153
226.4  (b) amended.................................................13451
226.6  (b)(4)(i) revised; (b)(4)(ii), (iii) and (c)(2)(iii)(D) 
        removed; (b)(4)(iv), (v) and (c)(2)(iii)(E) redesignated 
        as (b)(4)(ii), (iii) and (c)(2)(iii)(D); 
        (c)(2)(iii)(A)(5), (6), (C)(1), (D)(1), (d)(3)(iv)(C), 
        (f)(1)(viii)(A), (ix)(A), (3)(i) and (iv)(C) amended.......13451
    Regulation at 76 FR 22798 confirmed............................64153
226.10  Regulation at 76 FR 22798 confirmed........................64153
226.15  (e)(3) and (f) amended.....................................13451
226.16  (f) amended................................................13451
226.17  (b)(4) amended.............................................13451
226.17a  (f)(2) and (i)(1) amended.................................13451
226.23  (e)(1)(ii)(E), (2)(vi) and (h)(2)(iii)(A) through (E) 
        removed; (e)(1)(ii)(F), (G) and (2)(vii) redesignated as 
        (e)(1)(ii)(E), (F) and (2)(vi); (c)(2), (d), (e)(1)(i), 
        (iv), (A), (h)(2)(iii), (v)(A), (k)(1) and (2) amended.....13451
    Regulation at 76 FR 22798 confirmed............................64153
245.2  Amended.....................................................13452
    Regulation at 76 FR 22799 confirmed............................64153
245.3  Regulation at 76 FR 22800 confirmed.........................64153
245.5  (a)(1)(viii) removed; (a)(1)(ix) through (xii) redesignated 
        as (a)(1)(viii) through (xi); (a)(1)(viii) and (ix) 
        amended; (a)(1)(ix) revised................................13452
    Regulation at 76 FR 22800 confirmed............................64153
245.6  (a)(1), (6), (b)(2), (4), (6)(ii), (c)(5)(ii), (h)(1) and 
        (2) amended; (a)(8), (b)(5)(iii) and (b)(8) revised........13453
    Regulation at 76 FR 22800 confirmed............................64153
245.6a  (h) amended................................................12230
    (a)(7)(iii) and (f)(1) revised; (c)(2) and (f)(3) amended......13453
    Regulation at 78 FR 12230 confirmed............................40625
    Regulation at 76 FR 22802 confirmed............................64153
245.9  Regulation at 76 FR 22802 confirmed.........................64153
245.10  Regulation at 76 FR 22802 confirmed........................64153
245.11  (i) revised................................................12230
    Regulation at 78 FR 12230 confirmed............................40625
    Regulation at 76 FR 22802 confirmed............................64153
245.12  Redesignated as 245.13; new 245.12 added...................12230
    Regulation at 78 FR 12230 confirmed............................40625
245.13  Redesignated as 245.14; New 245.13 redesignated from 
        245.12.....................................................12230
    Regulation at 78 FR 12230 confirmed............................40625
245.14  Redesignated from 245.13...................................12230
    Regulation at 78 FR 12230 confirmed............................40625
253.6  Regulation at 76 FR 18865 confirmed.........................39548
    (d) removed; (e) and (f) redesignated as (d) and (e); new 
(d)(2)(ii)(F) redesignated as (d)(2)(ii)(G); (c) introductory 
text, (1), (2) and new (d)(3)(viii) amended; (d)(2)(ii)(F), 
(3)(xii) and (e)(5) added; (e)(4) revised..........................52831

[[Page 1118]]

    Regulation at 78 FR 52831 confirmed............................79567
253.7  (a)(6)(i)(C) and (c)(1) revised; (a)(6)(i)(D) added; 
        (f)(2)(i) removed; (f)(2)(ii) and (iii) redesignated as 
        (f)(2)(i) and (ii).........................................52831
    Regulation at 78 FR 52831 confirmed............................79567
271  Amended.......................................................11972
272.1  Regulation at 76 FR 28167 confirmed.........................46799
271.2  Amended.....................................................11972
    (6) added; interim.............................................51657
    Regulation at 78 FR 51657 confirmed............................51657
271.5  Amended.....................................................11972
    Regulation at 78 FR 51657 comment period extended..............65515
272.2  (d)(1)(iii), (2) and (6) revised; interim...................20421
272.5  (b)(1) and (2) removed; (b)(3) and (4) redesignated as 
        (b)(1) and (2); interim....................................20422
272.8  (a)(5) added................................................12231
    Regulation at 78 FR 12231 confirmed............................40625
273.11  Amended; (k) introductory text and (6) amended.............11972
274.2  (b) amended; (f) revised; interim...........................51657
    Regulation at 78 FR 51657 comment period extended..............65515
    Regulation at 78 FR 51657 confirmed............................79567
274.6  (b) introductory text revised; (b)(4) and (5) added; 
        interim....................................................51657
    Regulation at 78 FR 51657 comment period extended..............65515
    Regulation at 78 FR 51657 confirmed............................79567
281  Amended.......................................................11972
281.1  (c) amended.................................................11972

                                  2014

7 CFR
                                                                   79 FR
                                                                    Page
Chapter II
210  Technical correction...........................................2761
210.5  (d)(2)(ii) revised............................................330
210.7  (d)(1)(iii) through (vii) redesignated as (d)(1)(iv) 
        through (viii); new (d)(1)(iii) added........................330
210.15  (a)(7) and (8) amended; (a)(9) added........................7053
    Regulation at 79 FR 7053 confirmed.............................36387
210.18  (g)(2)(vi) added.............................................330
210.20  (a)(8) and (9) amended; (a)(10) added.......................7054
    Regulation at 79 FR 7054 confirmed.............................36387
220.8  (e) corrected; CFR correction...............................35279
245.6  (c)(6)(i) revised............................................7054
    Regulation at 79 FR 7054 confirmed.............................36387
245.11  Redesignated as 245.12; new 245.11 added....................7054
    Regulation at 79 FR 7054 confirmed.............................36387
245.12  Redesignated as 245.13; new 245.12 redesignated from 
        245.11......................................................7054
    Regulation at 79 FR 7054 confirmed.............................36387
245.13  Redesignated as 245.14; new 245.13 redesignated from 
        245.12......................................................7054
    Regulation at 79 FR 7054 confirmed.............................36387
245.14  Redesignated as 245.15; new 245.14 redesignated from 
        245.13......................................................7054
    Regulation at 79 FR 7054 confirmed.............................36387
245.15  Redesignated from 245.14....................................7054
    Regulation at 79 FR 7054 confirmed.............................36387
246.2  Amended.....................................................12290
    Regulation at 79 FR 12290 confirmed............................24995
246.4  (a)(14)(v) through (xvii) redesignated as (a)(14)(vi) 
        through (xviii); new (a)(14)(v) added; (a)(11)(iii), new 
        (vi) and (18) amended; (a)(14)(iii) and new (xii) revised 
                                                                   12290
    Regulation at 79 FR 12290 confirmed............................24995
246.10  Amended; (b)(1)(i), (d)(2) heading, (3)(i), (4)(ii)(D), 
        (e) introductory text through (1)(iii), (v), (2)(ii), 
        (iv), (3)(v), (4)(ii) through (7)(ii) and (9) through (12) 
        revised; (b)(2)(ii)(C), (d)(1)(ii) and (2)(ii) amended; 
        (d)(1)(vi), (vii) and (viii) removed; (d)(1)(ix) 
        redesignated as (d)(1)(vi).................................12290

[[Page 1119]]

    (e)(11) Table 3 corrected......................, 13497, 15214, 15626
    Regulation at 79 FR 12290 confirmed............................24995
246.12  Amended; (a)(1), (f)(2)(ii), (iv), (g)(3)(i), (h)(3)(i), 
        (3)(vii), (viii), (x), (l)(1)(ii)(A), (r)(3), (t), (u)(5), 
        (v)(1) through (6) amended; (h)(2)(xi) through (xxv) and 
        (v)(4), (5) and (6) redesignated as as (h)(2)(xii) through 
        (xxvi) and (v)(5), (6) and (7); (f)(4), new (h)(3)(xi), 
        new (v)(4) and (8) added; (o), (v) heading, introductory 
        text, (1)(iv), (3) revised.................................12299
    Regulation at 79 FR 12299 confirmed............................24995
246.16  (j)(2) revised.............................................12300
    Regulation at 79 FR 12300 confirmed............................24995
246.18  (a)(4) and (c)(2) revised; (b), (9), (c) introductory 
        text, (d), (e) and (f) amended.............................12300
    Regulation at 79 FR 12300 confirmed............................24995
246.23  (a)(1) amended; (a)(2) revised.............................12300
    Regulation at 79 FR 12300 confirmed............................24995
247  Authority citation revised....................................38750
247.2  (a) revised.................................................38750
247.5  (b)(8) revised..............................................38750
247.6  (a) revised; (c)(2), (4), (5), (8) and (d) amended..........38750
247.8  (a) introductory text, (4) and (b) amended..................38750
247.9  (a) revised; (b)(4) added; (d) and (e)(3) amended...........38750
247.12  (a)(2) revised.............................................38751
247.14  (a) heading revised........................................38751
247.16  (a)(1) and (c) amended; (b) revised........................38751
247.18  (c) revised................................................38751
247.19  (a) revised; (b) amended...................................38751
247.20  Amended....................................................38751
247.21  (a)(3) and (c) amended.....................................38751
247.29  (b)(1) amended; (d) removed................................38751
247.30  (c) amended................................................38751
247.33  (c) amended................................................38751
271.8  Table amended (OMB numbers)....................................10
    Regulation at 79 FR 10 confirmed...............................28606
272.1  (g)(159) amended...............................................10
    Regulation at 79 FR 10 confirmed...............................28606
272.2  (f)(1)(i)(D) revised...........................................10
    Regulation at 79 FR 10 confirmed...............................28606
274.1  (e)(2) and (k)(2) revised; (f)(2)(vi) amended..................10
    Regulation at 79 FR 10 confirmed...............................28606
274.6  Regulation at 78 FR 51657 confirmed in part.................22767
274.8  (b)(3) introductory text revised; (b)(3)(v) amended............11
    Regulation at 79 FR 11 confirmed...............................28606
276.4  (d) amended....................................................11
    Regulation at 79 FR 11 confirmed...............................28606
277.6  (b)(6) revised.................................................11
    Regulation at 79 FR 11 confirmed...............................28606
277.9  (c)(2) revised.................................................11
    Regulation at 79 FR 11 confirmed...............................28606
277.13  (b)(2)(iii) introductory text, (A), (3), (c)(1) and (e)(3) 
        revised; (g) amended..........................................11
    Regulation at 79 FR 11 confirmed...............................28606
277.16  (b)(2) revised................................................12
    Regulation at 79 FR 12 confirmed...............................28606
277.18  Revised.......................................................12
    Regulation at 79 FR 12 confirmed...............................28606

                                  2015

7 CFR
                                                                   80 FR
                                                                    Page
Chapter II
210.2  Amended.....................................................11091
210.15  (b)(6) and (7) amended; (b)(8) added.......................11092
210.18  (h)(7) added...............................................11092
210.20  (b)(13) and (14) amended; (b)(15) added....................11092
210.30  Redesignated as 210.31; new 210.30 added...................11092
    (b)(1)(i)(B) and (2) table correctly revised; (b)(3) correctly 
amended............................................................26181
210.31  Redesignated as 210.32; redesignated from 210.30...........11092
210.32  Redesignated from 210.31...................................11092
    Revised........................................................11095

[[Page 1120]]

226.6  (c)(3)(iii)(B)(1)(ii) and (2)(iii) amended; CFR correction 
                                                                   79459
235.4  (b)(2) revised..............................................11095
235.6  (a-1) amended...............................................11095
235.11  (b)(2)(iv) and (v) amended; (b)(2)(vi) and (g) added.......11095
235.12  Revised....................................................11096
245.6a  (h) amended; CFR correction................................79459
250.30  (f)(2) amended; CFR correction.............................79459
271.2  Amended.....................................................53242
272.1  (c)(1)(vii) revised.........................................54416
272.2  (d)(1)(xvii) added..........................................54416
273.2  (f)(5)(i) amended...........................................54416
273.9  (d)(3)(iii) revised.........................................53243
273.11  (n)(1) through (5) added...................................54416
273.12  (a)(5)(vi)(B)(3) redesignated as (a)(5)(vi)(B)(4); new 
        (a)(5)(vi)(B)(3) added.....................................54417
274.7  (j) added...................................................53243
275.11  (g) amended; CFR correction................................79655
275.12  (f)(2) revised.............................................53243
275.23  (e)(1)(i), (ii) and (iii) revised; (e)(1)(iv) removed......53243
275.24  (a)(8) added...............................................53243
278.6  (h) introductory text amended; CFR correction...............79655

                                  2016

7 CFR
                                                                   81 FR
                                                                    Page
Chapter II
210  Nomenclature change...........................................50185
210.2  Amended.....................................................66489
210.3  (b) and (d) amended.........................................66489
210.5  Amended.....................................................66488
210.7  (d)(1)(vii) removed; (d)(1)(viii) redesignated as new 
        (d)(1)(vii)................................................50185
210.8  (a) introductory text, (1) and (3)(ii) amended..............50185
210.9  (b)(18) amended; (b)(19) introductory text and (20) revised
                                                                   50185
    Amended........................................................66488
210.10  (a)(1)(i), (ii), (g) and (l)(1) amended; (e) heading, (j), 
        (o)(2), (3), (4) and (p) revised; (q) added................24372
    (h) heading, (i) heading, (1), (3)(i) and (j) heading revised; 
(h)(1) amended; (o)(5) added.......................................50185
    (a)(1)(i) correctly amended; (o)(3)(ii) table, (4)(ii) table, 
(p)(2) table and (q)(2) table correctly revised....................75671
210.11  (a)(3), (d), (i) heading and (j) revised; (a)(6) and 
        (f)(3)(iv) added; (c)(2)(v) removed; (c)(2)(vi) 
        redesignated as new (c)(2)(v); (i) amended; interim........50151
210.11a  Removed; interim..........................................50151
210.12  Heading revised; (e) added.................................50168
210.14  (d) amended; (g) added.....................................50185
210.15  (b)(9) added...............................................50169
    (b)(4) amended.................................................50185
210.18  (h)(8) added...............................................50169
    Revised........................................................50185
210.19  (a)(1), (5), (c) introductory text, (1), (2)(i), (ii) and 
        (iii) amended; (a)(2) revised; (g) removed.................50192
    Amended........................................................66488
210.20  (a)(5) and (b)(7) removed; (a)(6) through (10) and (b)(8) 
        through (15) redesignated as new (a)(5) through (9) and 
        new (b)(7) through (14)....................................50193
210.21  (a), (b) and (c) introductory text revised.................66489
210.22  Amended....................................................66488
210.23  (d) removed; (e) redesignated as new (d)...................50193
210.24  Amended....................................................66488
210.25  Amended.............................................66488, 66490
210.29  (b), (d)(1) and (2) amended................................50193
210.30  Redesignated as 210.31; added..............................50169
    Correctly redesignated as 210.31...............................93792
210.31  Redesignated as 210.32; redesignated from 210.30...........50169
    Correctly redesignated as 210.30; (b)(1)(iv) correctly amended
                                                                   93792
210.32  Redesignated as 210.33; redesignated from 210.31...........50169
210.33  Redesignated from 210.32...................................50169
210  Appendix B removed; interim...................................50151
215.2  Amended.....................................................66490
215.3  Amended.....................................................66490
215.7a  Added......................................................24375
215.11  (b)(2) amended.............................................50193
    Amended........................................................66490

[[Page 1121]]

215.13  Amended; (a) amended.......................................66490
215.14a  (a), (b) and (c) introductory text revised................66490
215.15  Amended....................................................66490
215.16  Amended....................................................66490
215.18  Revised....................................................50193
220.2  Amended.....................................................66491
220.3  Amended.....................................................66491
220.7  (h) added...................................................50169
220.8  (a) introductory text, (3) and (g) amended; (c) heading, 
        (e) heading, (j) and (o) revised; (p) added................24375
    (h)(1) amended; (i) and (j) revised............................50193
    (a)(1) correctly amended; (o)(1), (2) table, (p)(1) and (2) 
table correctly revised............................................75675
220.11  (d) added..................................................50193
220.12a  Removed; interim..........................................50151
220.13  (b)(2) and (j) amended; (f)(2), (3), (4) and (g) revised 
                                                                   50194
    Amended........................................................66491
220.14  (h) amended................................................50194
220.15  Amended....................................................66491
220.16  (a), (b) and (c) introductory text revised.................66491
220.18  Amended....................................................66491
220.19  Amended....................................................66491
220.22  Revised....................................................50194
220.23  Removed....................................................24377
220  Appendix B removed; interim...................................50151
225.2  Amended.....................................................66492
225.7  Amended.....................................................66492
225.8  Amended.....................................................66492
225.10  Amended....................................................66492
225.17  Amended....................................................66492
225.18  Amended....................................................66492
226.1  Revised.....................................................24377
226.2  Amended..............................................24377, 66493
226.4  Amended.....................................................66492
226.6  Amended.....................................................66492
226.7  (m) revised.................................................24377
    Amended........................................................66492
226.8  (a) and (b) revised.........................................66493
226.10  Amended....................................................66492
226.20  Revised....................................................24377
    (a)(4)(ii) and (b)(4)(ii)(A) correctly amended; (b)(5) table, 
(c)(1) table, (2) table, (3) table and (o) correctly revised.......75677
226.22  Amended....................................................66492
226.24  Amended....................................................66492
226.25  (i) added..................................................24383
    Amended........................................................66492
227.30  Amended....................................................66493
227.31  Amended....................................................66493
227.35  Amended....................................................66493
227.42  Amended....................................................66493
235.2  Amended..............................................50194, 66494
235.3  Amended.....................................................66493
235.5  Amended.....................................................66493
235.6  Amended.....................................................66493
235.7  Amended.....................................................66493
235.8  Amended.....................................................66493
235.9  Amended.....................................................66493
235.11  Amended; (a), (b)(5)(v) and (d) amended....................66493
240.9  (c) amended.................................................66494
245.6  (b)(1)(v) and (c)(2) revised................................50206
245.9  (b)(5), (c)(2)(iii)(A), (B), (d)(3) introductory text, (7), 
        (e)(2)(iii)(A) and (B) amended; (f) through (j) revised; 
        (k) redesignated as (m); new (k) and (l) added; amended....50206
245.13  (c)(3) revised.............................................50210
246.2  Amended..............................................10448, 66495
246.3  (b) revised.................................................10449
    Amended........................................................66494
    (f) revised....................................................66495
246.4  (a)(1) revised; (a)(19) through (28) redesignated as 
        (a)(20) through (29); (a)(14)(xix), (xx) and new (19) 
        added......................................................10449
    Amended........................................................66494
246.6  (b)(1) revised..............................................66495
246.7  (j)(10) added...............................................10449
246.12  Heading revised; (a) introductory text, (b) and 
        (f)(2)(iii) amended; (g)(5) removed; (g)(6) through (11) 
        redesignated as (g)(5) through (10); (h)(3)(xxvii) through 
        (xxxi) and (w) through (cc) added..........................10449
    (y)(3) corrected...............................................18447
    Amended........................................................66494
246.13  Amended....................................................66494
246.14  Amended....................................................66494
246.15  Amended....................................................66494
246.17  Amended....................................................66494
246.20  Amended....................................................66494
246.24  (b), (c) and (d) amended...................................66494
    (a) revised....................................................66495
246.25  Amended....................................................66494
247.1  Amended.....................................................66495
247.25  (a) introductory text revised..............................66496
248.3  (b) revised.................................................66496
248.10  Amended....................................................66496
248.11  Amended....................................................66496

[[Page 1122]]

248.12  Amended....................................................66496
248.13  Amended....................................................66496
248.14  Amended....................................................66496
248.15  Amended....................................................66496
248.18  Amended....................................................66496
248.21  (a) through (d) amended....................................66496
248.22  Revised....................................................66497
248.23  Amended....................................................66496
249.2  Amended.....................................................66497
249.3  Amended.....................................................66497
249.10  Amended....................................................66497
249.11  Amended....................................................66497
249.12  Amended....................................................66497
249.13  Amended....................................................66497
249.15  Amended....................................................66497
249.18  Amended....................................................66497
249.21  (a), (b) and (d) amended...................................66497
249.22  Revised....................................................66498
249.23  Amended.....................................................6497
250.1--250.3 (Subpart A)  Revised..................................23100
250.10--250.24 (Subpart B)  Revised................................23100
250.30  Amended; (b)(2) introductory text, (i), (c)(4)(iii), 
        (d)(1)(iii), (f)(1), (2), (3)(vii), (j)(3), (k)(3), (n)(3) 
        amended; (c)(1)(vi), (4)(viii)(G), (xi), (d)(1)(i), 
        (e)(1)(i) revised; (c)(4)(xiv), (m)(1)(vii), (viii), 
        (n)(4), (o), (q) and (r) removed; (c)(4)(xv) through 
        (xviii), (m)(1)(ix), (n)(5), (p), (s) and (t) redesignated 
        as (c)(4)(xiv) through (xvii), (m)(1)(vii), (n)(4), (o), 
        (p), and (q)...............................................23111
    (c)(1)(vi)(A), (B) and new (5)(xiv) correctly removed; (c)(2), 
(3), (4) and new (5)(xv) through (xviii) correctly redesignated as 
(c)(3), (4), (5) and (5)(xiv) through (xvii); (c)(1), new (5)(ii), 
(iii) and new (f)(1) correctly amended; new (c)(4)(xi) and 
(5)(viii)(G) revised; new (c)(2) correctly added...................39869
    (c)(2) correctly added.........................................75683
250.50  (a) and (c) amended........................................23111
250.51  (d) revised................................................23111
250.52  Revised....................................................23111
250.53  (a)(5) revised.............................................23111
250.58  (a) and (e) revised........................................23111
250.59  Revised....................................................23111
250.60  Removed; new 250.60 redesignated from 250.61; (d) revised 
                                                                   23112
250.61  Redesignated as 250.70; new 250.61 redesignated from 
        250.62; (d) revised........................................23112
250.62  Redesignated as 250.61..........................................
250.63--250.66 (Subpart F)  Revised................................23112
250.67--250.70 (Subpart G)  Heading revised........................23113
250.68  Revised....................................................23113
250.69  Revised....................................................23113
250.70  Revised....................................................23113
250.71  Added......................................................23114
251  Authority citation revised.............................23115, 92556
251.4  (c)(4) and (5) added; (f)(4) and (l) removed; (f)(5) 
        redesignated as (f)(4); (g) revised........................23115
251.8  (b) revised.................................................23115
251.9  (c) introductory text and (2)(i) revised....................23115
251.10  (a)(2) amended.............................................23115
    (i) revised; eff. 1-19-17......................................92556
253.5  Amended.....................................................66498
253.11  Amended....................................................66498
271.2  Amended......................................................2739
    Regulation at 81 FR 2739 confirmed.............................20524
    Amended; eff. 1-12-17..........................................89839
    Amended; eff. 1-17-17..........................................90698
271.8  Table amended; interim......................................15622
271.9  Added; eff. 1-19-17.........................................92556
272.1  Amended.....................................................66498
    (g)(30) and (47) removed; eff. 1-12-17.........................89839
272.2  (c)(1)(ii) and (e)(2)(ii) revised; interim...................4163
    Regulation at 78 FR 20421 confirmed; (d)(2) and (e)(6) revised
                                                                   18454
    Amended........................................................66498
272.5  Regulation at 78 FR 20422 confirmed.........................18454
    (c) revised; eff. 1-19-17......................................92556
272.15  Added.......................................................2739
    Regulation at 81 FR 2739 confirmed.............................20524
272.16  Added; interim..............................................4163
273.2  (a)(1), (2), (e)(1), (n)(2) and (3) amended; eff. 1-12-17 
                                                                   89839
273.7  (c)(6)(xvii), (16) and (17) added; interim..................15622
    (d)(7) amended; (l)(4) revised.................................66498
274.1  Amended.....................................................66498
    (i)(2)(i) amended..............................................66499

[[Page 1123]]

274.8  (b)(5)(ii), (iii) and (iv) redesignated as (b)(5)(iii), 
        (iv) and (v); new (b)(5)(ii) and (f) added; eff. 1-12-17 
                                                                   89840
275.7  (a) revised; (b), (c) and (d) removed; (e) redesignated as 
        new (b); new (b) amended....................................2741
    Regulation at 81 FR 2741 confirmed.............................20524
275.9  (b)(1)(iii) revised; (b)(1)(iv) amended......................2741
    Regulation at 81 FR 2741 confirmed.............................20524
275.16  (b)(3) revised..............................................2741
    Regulation at 81 FR 2741 confirmed.............................20524
276.4  (d) amended.................................................66499
277.4  Amended; (b) introductory text amended; (b)(5) and (6) 
        added; eff. 1-19-17........................................92556
277.5  Amended.....................................................66499
277.6  Amended.....................................................66499
277.9  Amended.....................................................66499
277.11  Amended; (d)(1) and (5) amended............................66499
277.13  Amended....................................................66499
277.16  Amended....................................................66499
277.17  Amended....................................................66499
277.18  Amended....................................................66499
278.1  (b)(1)(i)(A), (ii)(B) and (iv) amended; (b)(1)(ii)(A) and 
        (C) revised; (b)(6) redesignated as (b)(7); new (b)(6) and 
        (q)(5) added; eff. 1-17-17.................................90698
278.2  (h) revised; (i) and (k) removed; eff. 1-12-17..............89843


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