[Federal Register Volume 59, Number 12 (Wednesday, January 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-613]


[[Page Unknown]]

[Federal Register: January 19, 1994]


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DEPARTMENT OF AGRICULTURE
Food and Nutrition Service

7 CFR Parts 272, 273, 276 and 277

[Amdt. No 342]
RIN 0584-AB08

 

Food Stamp Program: Recipient Claims and Automated Data 
Processing (ADP) Funding Requirements

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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SUMMARY: This rulemaking implements provisions of the Mickey Leland 
Memorial Domestic Hunger Relief Act. The Act amends the timeframe for 
household election of a repayment method for intentional Program 
violation (IPV) claims, changes retention rates on food stamp recipient 
claims for State agencies and reduces the enhanced funding rate for the 
costs of planning, designing, developing and installing ADP and 
information retrieval systems. This rule also implements a provision of 
the Food, Agriculture, Conservation, and Trade Act Amendments of 1991, 
relating to household election of repayment method for inadvertent 
household error (IHE) claims. This rule also implements a change to ADP 
requirements which limits enhanced funding requests for automated 
systems to initial development of a ``complete'' system and corrects 
errors made in previously published regulations relating to recipient 
claims and enhanced ADP funding. In addition, this rule clarifies 
exceptions to requirements to provide notice of adverse action when an 
allotment is reduced to recoup a recipient claim and clarifies the 
Federal funding rate allowed for preparation of a Planning Advance 
Planning Document (PAPD). Finally, this rule gives State agencies, at 
their request, the option to make payment by check for FNS-209 amounts 
due FNS, and to have payments due from FNS to the State made by check 
in place of amending the States' letter of credit.
    Section 13961 of the Omnibus Budget reconciliation Act of 1993 
(OBRA), (Public Law 103-66), Signed August 10, 1993, reduces the 
federal reimbursement rate for development of automated data processing 
and information retrieval systems development to the standard 50 
percent Federal reimbursement level effective April 1, 1994. During the 
last week of October 1993 and the first week of November 1993, the 
Department issued a memorandum which briefed States on the details of 
this change in the law. The memorandum will be followed by conforming 
regulations which will be effective April 1, 1994.

DATES: 7 CFR 273.18(d)(4)(ii) is effective retroactive to November 28, 
1990. 7 CFR 273.18(d)(4)(i) is effective December 13, 1991. 7 CFR 
273.18(h) and (i) are effective October 1, 1990. 7 CFR 277.4(b)(11) and 
(b)(12), 277.18(b), (c)(1) introductory text, (c)(1)(ii), (d)(1)(ii), 
(g) heading, (g)(1), (g)(2) and (g)(5) introductory text, (g)(2)(ii), 
(g)(3), (g)(6), (g)(7), (g)(8) introductory text, (g)(8)(iv), and 
(p)(5), and part 277, appendix A, paragraph B(1) are effective October 
1, 1991. All remaining amendments are effective February 18, 1994.

FOR FURTHER INFORMATION CONTACT: John Knaus, Chief, Quality Control 
Branch, Program Accountability Division, Food and Nutrition Service 
(FNS), USDA, 3101 Park Center Drive, Alexandria, Virginia 22302, (703) 
756-2474.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866/Secretary's Memorandum 1512-1

    This final rule is issued in conformance with Executive Order 
12866.

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.55l. For the reasons set forth in the final 
rule and related notice to 7 CFR 3015, subpart V (48 FR 29115), this 
Program is excluded from the scope of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials.

Executive Order 12778

    This rule has been reviewed under Executive Order 12778, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any state or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Effective Date'' section of this preamble. 
Prior to any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted.

Regulatory Flexibility Act

    This action has been reviewed with regard to the requirements of 
the Regulatory Flexibility Act of 1980 (Pub. L. 96-354, 94 Stat. 1164, 
September 19, 1980). George Braley, Acting Administrator of the Food 
and Nutrition Service, has certified that this rule does not have a 
significant economic impact on a substantial number of small entities. 
This rule will affect recipients who must elect a repayment method for 
IPV claims. State and local agencies which administer the Food Stamp 
Program will be affected by the change in retention rates on food stamp 
recipient claims and the reduction in the enhanced funding rate for 
development of ADP system.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 
3507), the reporting and recordkeeping burden associated with the 
Notice of Adverse Action and the demand letter for recipient claims is 
approved by the Office of Management and Budget (OMB) under OMB number 
0584-0064. The reporting and recordkeeping burdens associated with the 
collection of claims assessed against food stamp households have been 
approved by OMB under OMB number 0584-0069. Information collection 
requirements relating to automated data processing and information 
retrieval systems have been approved by OMB Approval No. 0584-0083. The 
provisions of this rule do not contain any additional reporting and/or 
recordkeeping requirements subject to OMB approval.

Background

    On September 10, 1991, the Department published in the Federal 
Register (56 FR 46127) a Notice of Proposed Rulemaking (NPRM) which 
proposed changes to Food Stamp Program recipient claims and ADP funding 
requirements as required by the Mickey Le Lano Memorial Hunger Relief 
Act, Pub. L. 101-624, (hereinafter ``Pub. L. 101-624''). The Department 
received 21 comment letters which addressed provisions of the proposed 
rule. FNS has given careful consideration to all comments received. The 
major concerns of the commenters are discussed below.

Recipient Claims

Repayment Decision Timeframe

    The proposed rule would have shortened the time for participating 
households to choose how they would repay inadvertent household error 
(IHE) and intentional Program violation (IPV) claims in order to 
forestall involuntary reduction of their allotments. The timeframe for 
such elections would have been shortened from 30 days to the day of 
receipt of the demand letter for repayment unless the adverse action 
period for the claim had not elapsed or the household had timely 
requested a fair hearing and continued benefits. Public Law 101-624 
mandates the shortened timeframe for IPV claims. The proposed rule 
would have also applied this timeframe to IHE claims. The preamble to 
the proposed rule should be consulted for the complete discussion of 
the background of this decision.
    We received 13 comments on this part of the proposed rule, 10 from 
State agencies, one from the welfare department of a large city, and 
two from public interest groups. Five State agencies supported the 
proposal; most other commenters objected to it, primarily because it 
applied the shortened timeframe to IHE claims.
    One commenter stated that since the statute spoke only to IPV 
claims, applying the ``same day'' decision timeframe to IHE claims was 
against the law. Several commenters objected to the proposal on the 
grounds that the shortened decision timeframe for IHE claims would 
cause hardship on households, especially those in rural areas, and was 
in any event too short to allow adequate time for due process. Two 
commenters objected to our statement that the proposal would enhance 
conformity with Aid to Families with Dependent Children (AFDC) rules on 
claims management. Several commenters stated that if it were 
established for either IHE or IPV claims, the ``same day'' standard 
would impose significant operational problems on State agencies, and 
that a 10-day minimum should be adopted for both types of claims. One 
of the operational difficulties cited was the need to track responses 
due at varying intervals because of the consideration of such 
circumstances as geography. One commenter believed that the proposed 
rule required a fair hearing on IPV claims in addition to an 
administrative disqualification hearing or comparable action 
establishing such claims.
    In section 911 of Public Law 102-237, which was signed December 13, 
1991, Congress resolved this issue by providing that for an IHE claim, 
``the household shall be given notice permitting it to elect another 
means of repayment [other than allotment reduction] and given 10 days 
to make such an election before the State agency commences action to 
reduce the household's monthly allotment.'' The Department understands 
by this language that no action to reduce the household's monthly 
allotment may be taken by the State agency until the eleventh day 
following the household's receipt of notice of the IHE claim.
    Typically households first receive notice about IHE claims through 
the mail in demand letters. Consequently, there is no practical way to 
determine exactly when households receive such notices and, in turn, 
the eleventh day afterwards. There is also the problem of allowing for 
return mail time. This rule provides that within 20 days of the date of 
the demand letter, households must notify State agencies of their 
choice of repayment method or be deemed to have elected allotment 
reduction. This timeframe should allow for the newly required 10-day 
decision timeframe and adequate mail time, five days for delivery to 
households and five days for household return mail to State agencies.
    As discussed below, the provision is restated to deal with IHE and 
IPV claims separately and to clarify that the timeframe for the IHE 
claim repayment decision relates both to initial demand letters and to 
demand letters following fair hearings which sustain IHE claims. 
Finally, to take account of demand letters which may be handed to the 
household, the language makes clear that the 20-day period begins on 
the date the demand letter is mailed or otherwise delivered to the 
household.
    Several commenters objected to the statement in the preamble to the 
proposed rule to the effect that the claim itself was the adverse 
action, not the collection action. (This statement was made in 
connection with exempting the initiation of allotment reductions from 
the adverse notice requirements when households have been provided 
notice about appeal rights on the underlying claim. That proposal is 
discussed later in this preamble.) The Department would like to clarify 
this matter. Current rules require that households be provided specific 
information about their rights to appeal recipient claims. Once this 
information is provided, if a fair hearing is requested and a 
determination to sustain the claim is made, the household's remaining 
decision is how it will pay the claim. Making that decision should take 
relatively little time. To clarify how this policy applies to IHE 
claims, the final rule provides that in cases of IHE claims, if a fair 
hearing sustains the claim, the household must notify the State agency 
of its election of repayment method within 20 days of receipt of the 
notice of the hearing decision or be deemed to have elected allotment 
reduction.
    With respect to IPV claims, the final rule provides that households 
must elect a method of repayment on the date of receipt of the demand 
letter required by 7 CFR 273.16(e)(9), 7 CFR 273.16(f)(3) and (g)(3) of 
current rules (or if the date of receipt is not a business day, on the 
next business day) or be deemed to have elected allotment reduction. 
The final rule requires that for an IPV claim, the first claim demand 
letter following an action which establishes the claim, inform the 
household about this timeframe for election of a method of repayment 
and the consequence of failing to meet it. This is intended to clarify 
that the timeframe for electing a repayment option begins with the 
demand for repayment.
    The final rule also provides that each State agency must, for IPV 
claims, determine a deadline for the return of completed election forms 
in order to determine if the election is timely. The Department does 
not expect State agencies to set such deadlines case by case. State 
agencies should establish uniform timeframes for responses to demands 
for repayment of IPV claims, if necessary allowing for situations such 
as mail time to and from remote areas. The final rule states that the 
deadline cannot exceed 10 days from the date that the demand letter is 
mailed or otherwise delivered to liable households. The time period is 
set at a maximum of 10 days because the law requires a ``same day'' 
decision from households and a relatively short response time is 
appropriate to that statutory requirement.
    In addition to these changes, to accommodate the different 
requirements for IHE and IPV claims relating to repayment decisions, 
the final rule treats IHE and IPV claims in separate sections. 
Furthermore, since recoupment is a method of collection which is used 
only for participating households, when appropriate, the final rule 
refers to ``participating households.'' In 7 CFR 273.18(d)(4), which 
contains the policies on repayment decision timeframes, the heading is 
changed to ``Further collection actions'' since that more accurately 
describes the material in the paragraph. Also, because IHE and IPV 
claims are treated in separate subparagraphs, the first sentence of 
paragraph (4)(i) of the proposed rule has been deleted to eliminate 
potential confusion. This deletion also eliminates the redundant phrase 
``do not respond timely or fail to respond.''
    The Department was concerned that a significant number of 
commenters believed that in reducing the time for electing repayment 
for IHE claims the proposed rule would also have abridged the right to 
appeal the claim. Consequently, in addition to treating IHE and IPV 
claims separately, the final rule sets forth requirements for the 
content of the initial demand letter for IHE claims separately from the 
content of a demand letter for IHE claims which are sustained by fair 
hearings. An initial IHE demand letter needs to inform the household 
that it has an option of timely electing a repayment method or 
requesting a fair hearing. A demand letter provided after a hearing 
decision which sustains the claim would not offer the hearing option. 
Similarly, the first demand letter for an IPV claim can only be issued 
following an administrative disqualification hearing or other action 
which establishes an IPV claim. The rule adds a phrase to clarify this 
point.
    In response to other comments, the final rule makes several other 
changes with respect to the required content of the demand letter for 
IHE and IPV claims. One commenter recommended that the proposed list of 
repayment methods in 7 CFR 273.18(d)(3)(iii) be expanded to include 
repayment in coupons. However, a full list of repayment methods is 
already contained in 7 CFR 273.18(g). Paragraph (d)(3)(i) of that 
section already requires that the demand letter inform the household of 
these methods of repayment. Consequently, in addition to being 
incomplete, the proposed list in paragraph (d)(3)(iii) is redundant, 
and so the final rule deletes it.
    Another commenter pointed out that we do not require that the 
demand letter inform households when recoupment would begin and the 
amount of benefits the household would then receive. The Department 
believes that it would be useful to include this information in the 
demand letter. Current rules at 7 CFR 273.18(g)(4) require that prior 
to reduction State agencies inform households about the effect of 
recoupment on their benefits. Consequently, the final rule provides 
that, unless the State agency has otherwise informed the household what 
its allotment would be net of the reduction for repaying the claim, it 
provide that information in the demand letter.
    Current rules at 7 CFR 273.12(c)(2) provide that decreases in 
benefits must be made effective no later than the month following the 
lapse of the adverse notice period. Consistent with this general policy 
and the required timeframe for election of a repayment method, the 
final rule provides that the initial demand letter for IHE claims must 
inform the household that the reduction will begin with the first 
allotment issued after the household either timely elects allotment 
reduction or, if it fails to make a timely election, with the first 
allotment issued after the expiration of the time for its election. 
Demand letters provided subsequent to a fair hearing sustaining an IHE 
claim must inform the household that if it fails to make a timely 
election, allotment reduction will begin with the first allotment 
issued after timely notice of such election is due to the State agency.
    Another commenter on this paragraph recommended that we be more 
specific about the acceptable ways for households to communicate their 
decisions about repayment. The Department is not aware of any 
operational difficulties with how State agencies and households 
currently communicate about claims collections. Current rules at 7 CFR 
273.15(h) provide that requests for fair hearings may be oral or in 
writing so long as they are clear and if they are not, State agencies 
may ask households for clarification. The Department encourages State 
agencies to apply this standard to communications concerning elections 
of repayment methods. Consequently, the final rule does not specify 
ways households must communicate elections about repayment methods.
    The proposed rule would have amended 7 CFR 273.13(b) which lists 
exemptions from notices of adverse action. As mentioned earlier in this 
preamble, the proposed rule would have added situations where the State 
agency initiates allotment reduction against a household which has been 
provided notice of its appeal rights for the underlying claim to the 
list of exemptions. No commenter objected to this action or indicated 
the need for clarification. Consequently, the final rule adopts the 
language as proposed in 7 CFR 273.13(b)(14). Several commenters did 
remark about an associated statement in the preamble which was that the 
claim itself was the adverse action, not the collection action. The 
Department believes that the changes in this final rule clarify that 
statement. Households are due notice of specific appeal rights 
regarding claims such as how the claim arose, the information on which 
the claim is based, how the amount of the claim was calculated and the 
right to contest the claim. Once those due process requirements have 
been met and the claim has been established, State agencies are 
expected to proceed to collection activities without additional notices 
of adverse action.

Technical Corrections to Current Rules

    The Department used the proposed rule to correct two errors in 7 
CFR 273.18(d)(3) of current rules which resulted from the final 
Administration-Management rule published February 22, 1990 (55 FR 
6233). The first correction clarified that a notice of adverse action 
is required when a claim is not established in a fair hearing. It 
deleted the phrase which limited this requirement to those 
circumstances where ``the amount of the claim'' had not been 
established. The one comment received on this matter was from a State 
agency which indicated it was already in compliance with the broader 
requirement. Consequently, the final rule adopts the language as stated 
in the proposed rulemaking.
    The second correction reinstated a provision in 7 CFR 
273.18(d)(4)(iii) allowing other methods of collecting claims for IHE 
and State agency error claims. A commenter objected on the grounds that 
the law does not authorize other collection methods for IHE claims. 
However, section 13(b)(2)(B) of the Food Stamp Act of 1977 (7 U.S.C. 
2022(b)(2)(B)) does authorize such collection action for IHE claims. 
Accordingly, the final rule adopts the language as stated in the 
proposed rulemaking.

State Agency Retention of Claims Against Households

    The proposed rule would have reduced the recipient claims retention 
rate for State agencies from 50 percent to 25 percent for IPV claims 
and from 25 percent to 10 percent for IHE claims. The proposed rule 
further specified that the new rates are effective for the period 
beginning October 1, 1990 and ending September 30, 1995. Beginning 
October 1, 1995 the old rates of 50 percent for IPV claims and 25 
percent for IHE claims will again take effect. The proposed rule also 
would have allowed State agencies the opportunity to submit a one-time 
request for any additional amount due under the old, higher retention 
rates by November 30, 1991. Four comments were received on this 
section.
    As explained in the proposed rule, the Department had previously 
directed State agencies to implement the new retention rates for 
reporting and payment purposes. This was done in order to comply with 
the Act and to minimize the need for revised reporting on the Form FNS-
209, Status of Claims Against Households. Effective with the first 
quarter Fiscal Year 1991 FNS-209 report, the Department has been 
recovering funds from State agencies at the new retention rates in 
accordance with the Act. The Department had also previously advised 
State agencies of the procedure for requesting any additional retention 
due on collections received prior to October 1, 1990 and the deadline 
for filing such requests.
    One State and one local agency felt that the retention rates should 
be restored to their former levels. The commenters indicated that the 
higher retention rates in effect prior to October 1, 1990 were a 
significant incentive for States to pursue the collection of Food Stamp 
Program claims and felt that the new lower retention rates could result 
in a loss of State or local support for collection and fraud control 
activity. The local agency stated that it used the money to help 
administer the fraud control program and that the cutback would hamper 
the county's effort to locate and prosecute food stamp fraud. The new 
retention rates were mandated in the Act and do not involve 
Departmental discretion. Since the retention rates are mandated by law, 
the final regulation retains the new retention rates as specified in 
the proposed rule.
    Two State agencies commented on the procedure in the proposed rule 
of claiming only the new retention rates on the FNS-209 and filing an 
adjustment request for any additional retention amount due the State 
agency. The proposed rule provided that a one-time request to claim the 
higher rates for transactions occurring on or after October 1, 1990 but 
involving collections received prior to October 1, 1990, may be filed 
with the Department after Fiscal Year 1991 but no later than November 
30, 1991. One State agency believed that States should be given the 
option of using the old, higher retention rates on the FNS-209 if they 
can identify those collections, or the lower retention rates if it is 
in the State's best interest. The commenter felt that States should not 
be burdened with requesting and justifying higher retention rates in a 
special request if their systems are able to identify those collections 
that qualify. Another State agency recommended that there be no time 
limitation to filing a request and that States should continue to 
receive the higher retention amount due under the higher rates in 
effect prior to October 1, 1990 if all other conditions are met.
    The Department is not adopting the suggestion to allow State 
agencies to claim higher retention rates for collections received prior 
to October 1990 on the FNS-209 rather than requiring submission of an 
adjustment request. The FNS-209 and the FNS automated system which 
supports State reporting are structured to recognize one retention 
percentage for each type of claim. Edit checks are designed to detect 
mathematical errors and inadvertent under- or over-retention for each 
claims category prior to the Department accepting the report. Instead 
of redesigning the FNS-209 and the automated system, the Department is 
permitting State agencies to claim for the additional retention by 
submitting an adjustment request after the end of the fiscal year.
    The Department is also not adopting the suggestion to eliminate the 
time limitation for filing a request for retention adjustment, but has 
decided to allow State agencies an additional year to claim any 
additional retention. The proposed rule allowed a one-time request for 
retention adjustment and specified a deadline of November 30, 1991 for 
filing the request. In October 1992, the Department advised State 
agencies that it would allow a second round of adjustment requests 
after Fiscal Year 1992 which must be filed no later than November 30, 
1992. Accordingly, the final rule allows State agencies to submit a 
first time request (if they have not previously done so), or second 
request for additional retention which must be filed no later than 
November 30, 1992. The Department believes the additional year should 
be sufficient time for any adjustments, transfers, and refunds of 
collections received in Fiscal Year 1990 or earlier to be adjusted and 
claimed by State agencies at the old, higher retention rates.
    The Department is also using this opportunity to update the 
reference in the proposed rule concerning amending the States' letter 
of credit for FNS-209 payments to reflect current practice. The 
proposed rule restated current policy in that it provided that FNS 
would collect amounts due FNS or pay State agencies by amending the 
States' letter of credit. Although in most cases the State agency owes 
FNS for FNS' share of collections, FNS may owe the State agency in 
situations where the retention amount due the State agency exceeds the 
cash collection. This occurs when the State agency experiences a 
preponderance of non-cash rather than cash collections.
    The regulations in 7 CFR 273.18 and 276.2 previously provided that 
FNS would collect amounts due FNS for recipient claims collections and 
title IV reimbursements and pay State agencies by offsetting or 
amending the States' letter of credit. However, in order to accommodate 
State and Federal financial management requirements, FNS has accepted 
FNS-209 payments by check from a number of State agencies and has sent 
checks to State agencies which were owed money. The Department believes 
it is appropriate to change the current language to provide for checks 
when requested by State agencies rather than require a number of State 
agencies to conform to the letter of credit procedure. In the final 
rule the Department is allowing State agencies to request that FNS 
accept checks from the State for FNS-209 amounts due FNS, or that FNS 
pay the State by check for FNS-209 amounts due the State. If such a 
request has not been or is not made, payment to the State agency and 
collection from the State agency will be made through the letter of 
credit. The Department reserves the right to offset any amount due FNS 
by letter of credit offset if payment is not made.
    The final rule also amends similar provisions relating to title IV 
reimbursements in 7 CFR 276.2 and letter of credit offsets in 7 CFR 
277.16 to conform with this change. Title IV reimbursements are 
reported as a separate line item on the FNS-209 and are used along with 
claims collection data in the calculation of the total amount due FNS 
from the FNS-209. Thus, a change in the method of collection or payment 
of the total amount due from the FNS-209 would also apply to the line 
items that make up the total figure. The change in the general 
authority for letter of credit offset in 7 CFR 277.16 is a 
consolidation of the authority for organization purposes. As noted 
above, the regulations in 7 CFR 273.18 and 276.2 previously allowed FNS 
to offset from the letter of credit for FNS-209 payments due FNS.

Automated Data Processing (ADP) Enhanced Funding Rate Reduction to 63 
Percent

    The proposed rule stated that section 1752(a) of Public Law 101-
624, enacted on November 28, 1990, changed the enhanced funding rate 
for ADP and information retrieval system development from 75 percent to 
63 percent effective October 1, 1991. The proposed rule also stated 
that pursuant to section 1752(b) of Public Law 101-624 this change in 
the funding rate does not apply to proposals approved prior to the 
enactment date of November 28, 1990.
    Three comments were received which stated that this reduction is 
unreasonable at a time when automation efforts need to be increased to 
keep pace with growing caseloads and decreasing resources. One other 
commenter stated that this reduction was unfair to those States that 
had never requested enhanced funding because they had not previously 
had the necessary resources available for development purposes and that 
were now in the process of pursuing such development. The reduction in 
the enhanced funding rate was mandated by law and does not allow 
Departmental discretion. Since the retention rate is mandated by law, 
the final regulation retains the 63 percent rate as specified in the 
proposed rule.
    One commenter requested clarification of whether approval of the 
planning advance planning document (PAPD) prior to November 28, 1990, 
constituted total project approval at the enhanced funding rate. The 
Department believes that the purpose of the PAPD is to determine 
whether the developing system would be a viable one and whether 
continued system development is appropriate. Therefore, approval for 
funding a PAPD is separate from later funding decisions.
    The Department was also made aware of concerns about the approval 
of funding proposals after November 28, 1990 that were submitted prior 
to that date. Specifically, there was a concern that States which had 
submitted complete implementation advance planning documents (IAPD) 
prior to November 28, 1990, but did not receive approval by FNS until 
after that date were being unfairly penalized. The Department reviewed 
the legislation in light of this concern and has made a change in 7 CFR 
277.4(b)(12) of the final rule. This section now provides that a State 
will receive 75 percent enhanced funding for automated system 
development, if prior to November 28, 1990, the State had both an 
approved (PAPD) and had submitted an IAPD along with all the paperwork 
required for approval. However, modifications to approved IAPDs and any 
increase in costs which occur after September 30, 1991 (during system 
development), will be funded at the 63 percent level. Other than this 
modification, 7 CFR 274.4(b)(12) is adopted as proposed.

One-time Enhanced Funding

    Nine comments were received on the proposed one-time enhanced 
funding provision which provided that all requests for more than one-
time enhanced funding for automated system development in a particular 
State be denied. These comments focused on the rapid pace of changes in 
technology and the need for federal enhanced funding to allow States to 
incorporate these changes into a system once the initial system 
development has been completed.
    As noted in the proposed rule, a 1988 audit issued by the General 
Accounting Office (GAO) interpreted the original legislation 
differently than the Department. According to GAO, the funding scheme 
was initially designed so that enhanced funding for automation should 
only be available for a State's first attempt at automation 
development.
    FNS recognizes the concern expressed by commenters to keep pace 
with the rapid change in computer technology. However, the legislative 
history accompanying Public Law 96-249, The Food Stamp Amendments of 
1980, specifically addressed the funding of upgrading or modification 
of a system originally funded at the enhanced level. In the House 
Report the Committee stated that the 75 percent rate for cost sharing 
was intended to be one-time and funds were to be strictly limited to 
initial development. H.R. Rep. No. 96-788, 96th Cong., 2nd Sess. 112-
113 (1980). Ongoing system utilization or upgrading expenses would be 
shared at the 50 percent level applicable to most other administrative 
costs.
    Based on the House Report and the General Accounting Office (GAO) 
audit cited in the proposed rule, the Department has decided that 
enhanced funding should not be available for system changes to an 
already existing system which was initially developed with enhanced 
funding. Accordingly, with some technical corrections described later, 
the proposed Sec. 277.18(g)(1) is adopted.
    The Department also wants to clarify that it will fund one 
``complete'' system development effort at the enhanced level one time, 
if the system meets all applicable standards. A ``complete'' system 
contains both certification and issuance components that meet existing 
standards. For example, a State may receive enhanced funding for the 
development of a certification component of a system which meets all of 
the applicable functional standards. The State may then also receive 
enhanced funding for a subsequent project to ``upgrade'' the system by 
adding an issuance component which also meets all of the applicable 
functional standards.
    States are currently given the opportunity to pay back the 
difference between regular and enhanced funding for a partial system 
(i.e. certification component only) and then move forward to develop a 
``complete'' new system. As of (insert effective date of final rule), 
States will no longer be given the opportunity to pay back this 
difference. The Department will fund to ``complete'' system development 
but will not permit paybacks that allow the State to replace at 
enhanced levels a component already funded at the enhanced level which 
is no longer useful in the new system design. For example, a State has 
received enhanced funding for a certification component and completes 
component development. At a later date, the State re-evaluates 
automation activity and a decision is made to automate the issuance 
function, and to redo the certification component. In this situation, 
the Department may allow enhanced funding for the issuance component 
but will not allow funding at the enhanced level for a new 
certification component. Finally, if a ``complete'' system was funded 
at the enhanced level, a replacement system is not eligible for 
enhanced funding.
    The Department will reimburse States at the enhanced level, if 
appropriate, for ``planning efforts'' that did not lead to 
implementation of a system. The purpose of the planning effort is to 
ensure that the ultimate system development effort is a viable one. 
Therefore, a State may qualify a second time for enhanced funding for 
planning if the previous planning effort was not successful. However, a 
State will not be eligible for enhanced funding for the actual 
implementation efforts for the second time if the initial 
implementation effort failed to develop a ``complete'' system that 
meets all applicable standards. Paybacks by States for failed 
implementation attempts will no longer be approved as of (insert the 
effective date of the final rule).

Federal Funding for Preparation of the Planning Advance Planning 
Document (PAPD)

    The Proposed rule provided clarification that the 50 percent rate 
of Federal Financial Participation (FFP) would be allowed for State 
administrative expense incurred during preparation of the PAPD. Two 
commenters felt that the preparation of a PAPD should be funded at the 
enhanced rate since the preparation took more time than suggested in 
the regulations and resulted in a document more extensive than 6-10 
pages. One commenter suggested that a clear description of specific 
costs eligible for enhanced funding would help to adequately 
differentiate between preparation of the PAPD and the actual planning 
phase activities.
    The Department is maintaining the requirement that the preparation 
of the PAPD by States be funded at the regular FFP rate of 50 percent. 
The PAPD is intended to be a brief written plan of action which 
describes the State agency's intended activities and proposed budget 
for planning phase activities as well as an estimate of the total 
project costs. At a minimum, the State agency is required to include 
information set forth in 7 CFR 277.18(d) in the PAPD submission. 
Planning phase activities will be reimbursed at the enhanced rate only 
if the PAPD was approved at that rate. Planning phase activities that 
are eligible for reimbursement at the enhanced funding rate are 
identified in 7 CFR 277.18(g) of these regulations. In addition, the 
Department would like to clarify language in paragraph 277.18(g)(8)(iv) 
of that section which may have contributed to the confusion surrounding 
the level of FFP allowed for the preparation of a PAPD. The second 
sentence in this paragraph has been changed to read as follows: ``The 
cost of planning activities which were approved for enhanced funding 
under a Planning APD may be funded at the 63 percent level regardless 
of final approval or denial of the Implementation APD''.

Miscellaneous Comments

    One commenter stated that the Department had failed to provide 
recipient protections in ADP systems through the proposed rule and 
requested that the Department republish the rule to include provisions 
for this concept. Through this rule the Department is addressing only 
the automation funding provision of the Public Law 101-624. Public Law 
101-624 also contains provisions concerning standards for automated 
systems that include concerns about recipient protection. However, this 
rule does not implement those provisions.
    The Department is primarily interested in the use of automated 
systems to provide more timely and accurate benefits to recipients as 
well as more program and system accountability and the APD process, the 
Department is emphasizing recipient protection when a system is under 
development as well as when the system is operational. Notices, 
expedited service and processing procedures are being emphasized.
    One commenter requested clarification regarding whether 
``development'' of an automated system includes transfer and 
modification of an existing State system in an enhanced funding 
situation. The Department believes that current regulations at 
Secs. 272.10(a)(3) and 277.18(d)(2)(ii) adequately address the 
requirement that a State, as part of the development of its automated 
system, assess whether the transfer or modification of an existing 
State system is cost effective. Transfer or modification may be 
reimbursed at either the regular or enhanced funding levels according 
to the criteria discussed above.

Other Revisions

    An additional change is contained in these final provisions in 
order to correct language in 7 CFR 277.4 and 277.18 of current 
regulations. There is a typographical error in 7 CFR 277.4(b) (11) and 
(12), 277.18(b), under the definitions for enhanced funding or enhanced 
FFP and regular funding or regular FFP, and in 7 CFR 277.18(g)(1) and 
277.18(g)(3). The word ``or'' appearing after the word ``development'' 
and before the word installation in these sections has been changed to 
``and''.

Implementation

    The provisions of this action relating to household election of 
repayment method for IPV claims at 7 CFR 273.18 are effective 
retroactive to November 28, 1990, when Public Law 101-624 was enacted. 
The provisions at 7 CFR 273.18 relating to household election of 
repayment method for IHE claims is effective December 13, 1991, the 
date of enactment of Public Law 102-237. The provisions at 7 CFR 273.18 
which reduce State agency retention rates on claim collections applies, 
by its terms, to the period beginning October 1, 1990 and ending 
September 30, 1995. Therefore, the new retention rates are effective 
retroactively to October 1, 1990. The provision at 7 CFR 277.18 which 
reduces the enhanced funding level for ADP is effective retroactively 
to October 1, 1991 for costs incurred on that date and thereafter and 
does not apply to ADP plans approved prior to November 28, 1990. The 
corrections to the Administration Management final rule, the correction 
to the reference to enhanced ADP funding, the change to FNS-209 methods 
of payment and the amendments relating to one-time enhanced funding and 
to Federal funding for preparation of Planning APD's are effective 30 
days following the date of publication of this final rule.

List of Subjects

7 CFR Part 272

    Alaska, Civil rights, Food stamps, Grant programs-social programs, 
Reporting and recordkeeping requirements.

7 CFR Part 273

    Administrative practice and procedure, Aliens, claims, Food stamps, 
Fraud, Grant programs-social programs, Penalties, Records, Reporting 
and recordkeeping requirements, Social Security, Students.

7 CFR Part 276

    Administrative practice and procedure, Food stamps, Fraud, Grant 
programs-social programs, Penalties.

7 CFR Part 277

    Food stamps, Government procedure, Grant programs-social programs, 
Investigations, Records, Reporting and recordkeeping requirements.

    Accordingly, 7 CFR parts 272, 273, 276 and 277 are amended as 
follows:

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    1. The authority citation for part 272 continues to read as 
follows:

    Authority: 7 U.S.C. 2011-2032.

    2. In Sec. 272.1, a new paragraph (g)(130) is added in numerical 
order to read as follows:


Sec. 272.1   General terms and conditions.

* * * * *
    (g) Implementation. * * *
    (130) Amendment (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.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    3. The authority citation for part 273 continues to read as 
follows:

    Authority: 7 U.S.C. 2011-2032.

    4. In Sec. 273.13, a new paragraph (b)(14) is added to read as 
follows:


Sec. 273.13  Notice of adverse action.

* * * * *
    (b) Exemptions from 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.
    5. In Sec. 273.18:
    a. The third sentence and the last sentence of the introductory 
text of paragraph (d)(3) are amended by removing the words ``the amount 
of'';
    b. Paragraph (d)(3)(iii) is revised, paragraphs (d)(3)(iv) through 
(d)(3)(viii) are redesignated (d)(3)(vi) through (d)(3)(x) respectively 
and new paragraphs (d)(3)(iv) and (d)(3)(v) are added;
    c. The heading of paragraph (d)(4) and paragraph (d)(4)(i) are 
revised, paragraphs (d)(4)(ii) and (d)(4)(iii) are redesignated 
(d)(4)(iii) and (d)(4)(iv) respectively; and a new paragraph (d)(4)(ii) 
is added;
    d. Newly redesignated paragraph (d)(4)(iv) is amended by adding a 
new sentence following the first sentence;
    e. Paragraphs (h) through (l) are redesignated as paragraphs (i) 
through (m) respectively, and a new paragraph (h) is added; and
    f. Newly redesignated paragraph (i)(1) is revised in its entirety.
    The revisions and additions read as follows:


Sec. 273.18  Claims against households.

* * * * *
    (d) Collecting claims against households. * * *
    (3) Initiating collection on claims. * * *
    (iii) For inadvertent household error claims, the first demand 
letter to a participating household shall inform the household:
    (A) That unless it elects a method of repayment and informs the 
State agency of its election within the time specified in paragraph 
(d)(4)(i) of this section, or timely requests a fair hearing and 
continued benefits, its allotment will be reduced;
    (B) How allotment reduction will affect household benefits, if the 
State agency has not otherwise informed the household about this 
matter;
    (C) That if the household timely elects allotment reduction, such 
reduction will begin with the first allotment issued after such 
election, as provided in Sec. 273.12(c)(2) of this part; and
    (D) That if the household fails to make a timely election, or to 
timely request a fair hearing and continued benefits, the reduction 
will begin with the first allotment issued after timely notice of such 
election or request is due to the State agency, as provided in 
Sec. 273.12(c)(2) of this part.
    (iv) For inadvertent household error claims, a demand letter 
provided to a participating household subsequent to a fair hearing 
which sustains the claim shall inform the household:
    (A) That unless it elects a method of repayment and informs the 
State agency of its election within the time specified in paragraph 
(d)(4)(i) of this section, its allotment will be reduced;
    (B) How allotment reduction will affect household benefits, if the 
State agency has not otherwise informed the household about this 
matter;
    (C) That if the household timely elects allotment reduction, such 
reduction will begin with the first allotment issued after such 
election, as provided in Sec. 273.12(c)(2) of this part; and
    (D) That if the household fails to make a timely election, the 
reduction will begin with the first allotment issued after timely 
notice of such election is due to the State agency, as provided in 
Sec. 273.12(c)(2) of this part.
    (v) For intentional Program violation claims, the first demand 
letter provided a participating household following the action which 
establishes the claim, as required in Sec. 237.16 of this part, shall 
inform the household:
    (A) That it must elect a method of repayment and inform the State 
agency of its election within the time specified in paragraph 
(d)(4)(ii) of this section, or its allotment will be reduced;
    (B) How allotment reduction will affect household benefits, if the 
State agency has not otherwise informed the household;
    (C) That if the household timely elects allotment reduction, such 
reduction will begin with the first allotment issued after such 
election, as provided in Sec. 273.12(c)(2) of this part; and
    (D) That if the household fails to make a timely election, the 
reduction will begin with the first allotment issued 10 days after the 
date of the demand letter, as provided in Sec. 273.12(c)(2) of this 
part.
* * * * *
    (4) Further collection actions. (i) Inadvertent household error 
claims. Participating households which are liable for inadvertent 
household error claims shall be deemed to have elected allotment 
reduction unless they notify the State agency of their choice of 
repayment method within 20 days of the date an initial demand letter, 
or a demand letter for payment following a fair hearing which sustains 
the claim, is mailed or otherwise delivered to them.
    (ii) Intentional Program violation claims. Participating households 
which are liable for intentional Program violation claims shall elect a 
method of repayment on the date of receipt of the demand letter 
required in Sec. 273.16(e)(9) and (g)(3) of this part (or if the date 
of receipt is not a business day, on the next business day) or be 
deemed to have elected allotment reduction. Each State agency shall 
determine a deadline for receipt of such elections for them to be 
considered timely. In no event shall that deadline exceed 10 days from 
the date the demand letter is mailed or otherwise delivered to liable 
households.
* * * * *
    (iv) * * * The State agency may also pursue other collection 
actions, as appropriate, to obtain restitution of a claim against any 
household which fails to respond to a written demand letter for 
repayment of any inadvertent household error or administrative error 
claim. * * *
* * * * *
    (h) Retention rates. The following retention rates shall apply for 
claims collected by the State agency, including the value of allotment 
reductions for the purpose of collecting claims but not allotment 
reductions due to disqualification:
    (1) For amounts collected prior to October 1, 1990, the State 
agency shall retain 25 percent of the value of inadvertent household 
error claims collected and 50 percent of the value of intentional 
Program violation claims collected;
    (2) For amounts collected during the period October 1, 1990 through 
September 30, 1995, the State agency shall retain 10 percent of the 
value of inadvertent household error claims collected and 25 percent of 
the value of intentional Program violation claims collected;
    (3) For amounts collected on or after October 1, 1995, the State 
agency shall retain 25 percent of the value of inadvertent household 
error claims collected and 50 percent of the value of intentional 
Program Violation claims collected;
    (4) The State agency shall not retain any percentage of the value 
of administrative error claims collected.
    (i) Submission of payments. (1) The State agency shall retain the 
value of funds collected for inadvertent household error, intentional 
Program violation, or administrative error claims rather than 
forwarding the payments to FNS. This amount includes the total value of 
allotment reductions to collect claims, but does not include the value 
of benefits not issued as a result of a household member being 
disqualified. The State's grant and letter of credit will be 
established or amended on a quarterly basis to reflect the State 
agency's retention of the value of claims collected as specified in 
paragraph (h) of this section unless the State agency requests or has 
requested that payment be by check. The State agency may request that 
FNS accept checks from the State for FNS-209 amounts due FNS, or that 
FNS pay the State by check for FNS-209 amounts due the State. If the 
State agency fails to pay FNS the amount due as reported on the FNS-
209, FNS shall offset the amount due from the State's letter of credit. 
For FNS-209 reporting purposes, State agencies shall calculate the 
retention amount using the appropriate rate specified in paragraph (h) 
of this section which is in effect during the reporting period for the 
report. For those claims collected in Fiscal Year 1990 or earlier for 
which adjustments are made and reported in Fiscal Year 1991 or 1992, 
States may request a correction to reflect the difference between the 
old, higher rate (paragraph (h)(1) of this section) which is applicable 
to those claims, and the new, lower rate (paragraph (h)(2) of this 
section) at which the adjustments to those claims were reported on the 
FNS-209. One request for correction for each of fiscal years 1991 and 
1992 may be filed with FNS after the fiscal year, but no later than 
November 30, 1991 for Fiscal Year 1991 reporting and no later than 
November 30, 1992 for Fiscal Year 1992 reporting. The request must be 
in writing, must include appropriate verifying documentation, and must 
reflect the net effect of all increases and decreases resulting from 
the application of the old retention rate.
* * * * *

PART 276--STATE AGENCY LIABILITIES AND FEDERAL SANCTIONS

    6. The authority citation for part 276 continues to read as 
follows:

    Authority: 7 U.S.C. 2011-2032.

    7. In Sec. 276.2 paragraph (e)(3) is revised to read as follows:


Sec. 276.2  State agency liabilities.

* * * * *
    (e) Title IV reimbursements. * * *
    (3) The State agency shall reimburse FNS through an adjustment to 
the Letter of Credit (LOC) unless it requests or has requested that it 
be allowed to pay by check. The reimbursement amount shall be reported 
quarterly on the Form FNS-209, Status of Claims Against Households, to 
be offset against LOC credit adjustments reported on that form. The 
State agency may request that FNS accept checks from the State for the 
amount due FNS. If a State agency fails to pay FNS the amount due as 
reported on the FNS-209, FNS shall offset the amount due from the State 
agency's Letter of Credit. The State agency shall maintain monthly 
records which detail the computation of reimbursement amounts reported 
on the Form FNS-209 for audit purposes.

PART 277--PAYMENTS OF CERTAIN ADMINISTRATIVE COSTS OF STATE 
AGENCIES

    8. The authority citation for part 277 continues to read as 
follows:

    Authority: 7 U.S.C. 2011-2032.

    9. In Sec. 277.4:
    a. Paragraph (b)(1) is revised; and
    b. New paragraphs (b)(11) and (b)(12) are added. The revision and 
additions read as follows:


Sec. 277.4  Funding.

* * * * *
    (b) Federal Reimbursement Rate. * * *
    (1) A 75 percent Federal reimbursement is payable for Food Stamp 
Program allowable costs incurred for State fraud investigations, 
prosecutions, and fraud hearings upon presentation and approval of a 
State Plan addendum as outlined in Sec. 277.15.
* * * * *
    (11) A 63 percent Federal reimbursement is payable for Food Stamp 
Program allowable costs incurred for State agency planning, designing, 
developing, and installing of computerized systems as described in 
Sec. 277.18 and approved for enhanced funding by FNS after September 
30, 1991.
    (12) A 75 percent Federal reimbursement is payable for Food Stamp 
Program allowable costs incurred for State agency planning, designing, 
developing, and installing of computerized systems as described in 
Sec. 277.18 and submitted for approval for enhanced funding by FNS 
before November 28, 1990. Those proposals, including modifications and 
cost increases, which received approval at the 75 percent level during 
the period from November 28, 1990 through September 30, 1991, shall be 
reimbursed at the 75 percent rate for costs incurred through September 
30, 1991, and at the 63 percent rate for costs incurred thereafter. All 
modifications approved after September 30, 1991 and any cost increases 
which occur after this date shall be reimbursed at 63 percent 
regardless of when the original system was approved. For purposes of 
this paragraph, no system shall be funded at 75 percent unless all 
required paperwork for enhanced funding is (or was) either approved by 
FNS prior to the appropriate date contained in this paragraph or a 
planning advance planning document (PAPD) was approved and an 
implementation advance planning document (IAPD) was submitted with all 
the required paperwork for enhanced funding to FNS prior to November 
28, 1990. The required paperwork is described in Sec. 277.18.
* * * * *
    10. In Sec. 277.16, paragraphs (c)(1)(ii) and (c)(1)(iii) are 
revised and a new paragraph (c)(1)(iv) is added.
    The revisions and addition read as follows:


Sec. 277.16  Suspension, disallowance and program closeout.

* * * * *
    (c) Offsets to the Letter of Credit. (1) * * *
    (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.
* * * * *
    11. In Sec. 277.18:
    a. In paragraph (b) the definitions of ``Enhanced funding or 
enhanced FFP rate'' and ``Regular funding or regular FFP rate'' are 
amended by removing ``75 percent'' and adding ``63 percent'' in their 
place. The reference to ``Sec. 277.4(b)(1)(ii)'' in both of these 
definitions is removed and a reference to ``Sec. 277.4(b)(11) and 
(b)(12)'' is added in its place. These definitions are further amended 
by removing the word ``or'' after the word ``development'', and adding 
the word ``and'' in its place;
    b. The introductory text of paragraph (c)(1), paragraphs (c)(1)(ii) 
and (d)(1)(ii), the heading of paragraph (g), paragraph (g)(1), the 
introductory text of paragraphs (g)(2) and (g)(5), paragraphs (g)(6) 
and (g)(7), the introductory text of paragraph (g)(8), and paragraphs 
(g)(8)(iv) and (p)(5) are amended by removing all references to ``75 
percent'' and adding the words ``63 percent'' in their place;
    c. Paragraph (g)(1) is further amended by adding the words ``one 
time'' after the word ``reimbursement''; by removing the word ``or'' 
after the word development, and adding the word ``and'' in its place;
    d. Paragraph (g)(2)(ii) is amended by removing the reference to 
``(g)(2)(vi), (g)(2)(vii), and (g)(3)(ix)'' and adding in their place 
reference to ``(b)(2)(vi), (b)(2)(vii), and (b)(3)(xi)'';
    e. The first sentence of paragraph (g)(3) is amended by removing 
the word ``or'' after the word development, and adding the word ``and'' 
in its place; and
    f. The last sentence of paragraph (g)(8)(iv) is revised to read as 
follows:


Sec. 277.18  Establishment of an Automated Data Processing (ADP) and 
Information Retrieval System.

* * * * *
    (g) * * *
    (8) * * *
    (iv) * * * The cost of planning activities, which were approved for 
enhanced funding under a planning APD, may be funded at the 63 percent 
level regardless of final approval or denial of the Implementation APD.
* * * * *

Appendix A to Part 277 [Amended]

    12. In part 277, appendix A in the section titled ``Standards for 
Selected Items of Cost'', paragraph B (1) is amended by removing the 
words ``75 percent'' and adding the words ``63 percent'' in their 
place.

    Dated: December 27, 1993.
Ellen Haas,
Assistant Secretary for Food and Consumer Services.
[FR Doc. 94-613 Filed 1-18-94; 8:45 am]
BILLING CODE 3410-30-U