[Federal Register Volume 60, Number 121 (Friday, June 23, 1995)]
[Proposed Rules]
[Pages 32615-32627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15460]



 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 60, No. 121 / Friday, June 23, 1995 / 
Proposed Rules  

[[Page 32615]]

DEPARTMENT OF AGRICULTURE

Food and Consumer Service

7 CFR Parts 273 and 275

[Amdt. No. 366]
RIN 0584-AB75


Food Stamp Program: Quality Control Provisions of the Mickey 
Leland Childhood Hunger Relief Act

AGENCY: Food and Consumer Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: This action proposes changes to Food Stamp Program regulations 
based on section 13951 of the Mickey Leland Childhood Hunger Relief 
Act. This action proposes to modify the quality control system of the 
Food Stamp Program in the following areas: timeframes for completion of 
all review activity, exclusion of variances resulting from the 
application of new regulations, the tolerance level for excessive error 
rates, the calculation of liability amounts, interest charges on 
liability amounts, good cause relief from liabilities, and the 
authority of the Administrative Law Judges to determine good cause. 
This action proposes to incorporate these legislative provisions into 
the Food Stamp Program regulations.

DATES: Comments must be received by August 22, 1995 to be assured of 
consideration.

ADDRESSES: Send comments to Quality Control Policy Section, Quality 
Control Branch, Food Stamp Program, Food and Consumer Service, USDA, 
3101 Park Center Drive, Room 904, Alexandria, Virginia 22302.

FOR FURTHER INFORMATION CONTACT: John H. Knaus, Chief, Quality Control 
Branch, Program Accountability Division, Food and Consumer Service, 
USDA, 3101 Park Center Drive, Room 904, Alexandria, Virginia 22302, 
(703) 305-2472.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget under Executive Order 12866.

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.551. For the reasons set forth in the final 
rule at 7 CFR 3015, Subpart V and related Notice (48 FR 29115, June 24, 
1983), this Program is excluded from the scope of Executive Order 12372 
which requires intergovernmental consultation with State and local 
officials.

Executive Order 12778

    This action 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 ``Implementation'' 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. In the Food Stamp Program the administrative 
procedures are as follows: (1) For program benefit recipients--State 
administrative procedures issued pursuant to 7 U.S.C. 2020(e)(10) and 7 
CFR 273.15; (2) for State agencies--administrative procedures issued 
pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 (for rules related to 
non-QC liabilities) or Part 283 (for rules related to QC liabilities); 
(3) for program retailers and wholesalers-- administrative procedures 
issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 278.8.

Regulatory Flexibility Act

    This action has been reviewed with regard to the requirements of 
the Regulatory Flexibility Act of 1980 (5 U.S.C. 601 through 612). 
William E. Ludwig, Administrator of the Food and Consumer Service, has 
certified that this rule does not have a significant economic impact on 
a substantial number of small entities. The requirements will affect 
State and local agencies that administer the Food Stamp Program.

Paperwork Reduction Act

    This proposed rule contains information collections which are 
subject to review by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3507). The title, 
description, and respondent description of the information collections 
are shown below with an estimate of the annual reporting and 
recordkeeping burdens. The estimate covers the time that a State agency 
will need to complete and transmit a checklist with each request for 
arbitration. As FCS will provide the content of the checklist to the 
State agency it is believed that any time spent on the design of the 
checklist will be minimal. The increase in burden hours reflects 
current requirements for the arbitration process which were not 
previously submitted for approval.
    Title: Arbitration Checklist.
    Description: Final regulations published January 21, 1988 (53 FR 
1603) required State agencies to provide full documentation of the case 
and the policy(s) in question when requesting arbitration. The burden 
on the States for providing the documentation necessary for arbitration 
under the requirements of that final rule were not submitted for 
approval and inclusion under OMB No. 0584-0303 which covers existing 
reporting and recordkeeping requirements of 7 CFR part 275. The 
existing requirements in OMB No. 0584-0303 have been approved for use 
through July 31, 1994. Thus, the following does not represent a change 
in actual burden, but rather it reflects a redefinition of what is to 
be included as burden under 7 CFR part 275.
    Description of Respondents: State agencies.
    Estimated Annual Reporting and Recordkeeping Burden: 

                                                                                                                
[[Page 32616]]
------------------------------------------------------------------------
                                                     Average            
                              Annual                 burden     Annual  
         Section            number of     Annual       per      burden  
                           respondents   frequency  response     hours  
                                                      hours             
------------------------------------------------------------------------
7 CFR 275:                                                              
    Existing.............          53           1   5.0236          266 
    Proposed.............          53          10     10.4         5512 
Total Existing Burden                                                   
 Hours: 266                                                             
Total Proposed Burden                                                   
 Hours: 5512                                                            
  Total Difference: 5246.                                               
------------------------------------------------------------------------

  Send comments regarding this burden estimate or any other aspect of 
this collection of information, including suggestions for reducing this 
burden to the Department of Agriculture, Clearance Officer, OIRM, Room 
404-W, Washington, DC 20250; and to the Office of Management and 
Budget, Paperwork Reduction Project (OMB # 0584-A679), Washington, DC 
20503, ATTN: Wendy Taylor.
Background

    Section 13951 of the Mickey Leland Childhood Hunger Relief Act, 
(the ``Leland Act''), Chapter 3, Title XIII of the Omnibus Budget 
Reconciliation Act of 1993 (Pub. L. 103-66), revises sections 13(a)(1), 
14(a), and 16(c) of the Food Stamp Act of 1977, as amended, (the 
``Act'').
    Section 13 of the Food Stamp Act is entitled ``Collection and 
Disposition of Claims''. Subsection (a)(1) of this section concerns the 
settlement and adjustment of claims, including the waiver, for good 
cause, of all or a portion of a quality control (QC) liability claim 
established against a State agency. This subsection also addresses the 
collection of interest on such liability claims. The Leland Act has 
amended the Food Stamp Act to remove the authority of the Secretary of 
Agriculture's designee, the Food and Consumer Service (``FCS''), to 
render good cause determinations. In addition, the timeframes for 
charging interest on any unpaid portion of a liability claim has been 
changed from two years to one year after the date that a bill for 
collection of a liability claim has been received by a State agency.
    Section 14 of the Act is entitled ``Administrative and Judicial 
Review''. Subsection (a) of this section concerns the authority of 
Department of Agriculture Administrative Law Judges (ALJs) to review 
liability claims. The Leland Act has amended the Act to grant the ALJs 
the authority to determine, upon the request of a State agency, whether 
or not good cause exists to waive all or a portion of a liability 
claim.
    Section 16 of the Food Stamp Act is entitled ``Administrative Cost-
Sharing and Quality Control''. Subsection (c) of this section concerns 
payment accuracy and provides for liabilities against State agencies 
with payment error rates that exceed established tolerance levels, and 
provides for enhanced funding for State agencies with the lowest error 
rates. The Leland Act includes a number of provisions which replace key 
features of the existing liability/incentive system. The Leland Act 
establishes the national average error rate (also referred to as the 
national performance measure) for a given fiscal year as the tolerance 
level for individual State agency error rates for that year. 
Previously, the tolerance level was equivalent to the lowest national 
average error rate ever achieved, plus one percentage point. The Leland 
Act also modifies the calculation of sanction amounts. Prior to the 
Leland Act, a State agency with an individual error rate which exceeded 
the tolerance level had a liability equivalent to the difference 
between the State agency's error rate and the tolerance level, times 
the total value of food stamp issuance by the State agency for that 
fiscal year. The Leland Act modifies this calculation by the addition 
of another factor, the percentage by which a State agency's error rate 
exceeds the tolerance level or 1 (one), whichever is smaller. In 
addition, the Leland Act has modified the variance exclusion period for 
implementation of new regulations from 60/90 days to 120 days. The 
Leland Act has also changed the timeframes for the determination of 
final State agency error rates, the national average payment error 
rate, and the amounts of liability claims against State agencies. The 
Leland Act provides that these figures must be determined, and State 
agencies notified, no later than 30 days after the completion of the 
case review and arbitration process. The case review and arbitration 
process itself will now be required to be completed no later than 180 
days after the end of the fiscal year. Finally, the Leland Act adds 
specific criteria into the language of section 16(c) of the Food Stamp 
Act for what will be considered ``good cause'' for the waiver of 
liability claims.
    As part of the implementation of the new payment accuracy system, 
this proposed rule addresses amendments made by section 13951 of the 
Leland Act. Other provisions of section 13951 concerned with the 
timeframes involved in the administrative law judge appeal process have 
been published in a separate rulemaking.

Time Limits

    Section 13951 of the Leland Act amends the Act by specifying that 
``not later than 180 days after the end of the fiscal year, the case 
review and all arbitrations of State-Federal difference cases shall be 
completed''. This means that by March 29th (March 28th in leap years) 
each year, all State agency QC reviews must be disposed of and 
transmitted into the Integrated Quality Control System, all Federally 
subsampled QC reviews must be selected and completed by FCS, and any 
disparity between the State agency and Federal review findings must be 
resolved. It should be recognized that these activities can, and do, 
take place concurrently over the course of the annual review period, 
but that they cannot be completed simultaneously. The final Federal 
subsample cannot be selected until all State agency reviews have been 
disposed of, and final arbitration requests and determinations cannot 
be made until all Federal reviews have been completed, and the findings 
transmitted to the State agencies. Current regulations at 7 CFR 275.21 
provide State agencies with a deadline of January 5th to dispose of all 
QC reviews, and regulations at 7 CFR 275.23(e)(8) specify that FCS must 
determine final payment error rates, and notify State agencies of these 
error rates by June 30th. Current regulations do not specify any 
deadline for the completion of the arbitration process. The Department 
has determined that the deadlines mandated by section 13951 of the 
Leland Act cannot be met without changes in the timeframes for the 
completion of QC reviews, and changes [[Page 32617]] in the arbitration 
system. The specific Departmental proposals for meeting the deadlines 
mandated by the Leland Act are contained in paragraphs entitled 
Validation of State Agency Error Rates--Sec. 275.3(c), Arbitration--
Sec. 275.3(c)(4), and Quality control review reports--Sec. 275.21.
Validation of State Agency Error Rates--Sec. 275.3(c)

    Current regulations at 7 CFR 275.3(c)(1)(iii), published February 
17, 1984 (49 FR 6292), specify that FCS Regional Offices shall assist 
State agencies in completing case reviews that State agencies were 
unable to complete due to refusal on the part of a household to 
cooperate with the State agency QC reviewer. It was determined that FCS 
Regional Offices should assist State agencies in completing these 
difficult cases because of the importance that accepted statistical 
practices place on completion of the maximum possible percentage of 
sampled cases. Regulations require a State agency to complete 100 per 
cent of the cases sampled for QC review. Failure to complete 100 per 
cent of the sampled cases results in FCS adjusting a State agency's 
regressed error rate (see regulations at 7 CFR 275.23(e)(7)(iii)). 
Actual experience since the implementation of these regulations has 
shown that FCS Regional Offices are rarely able to gain the cooperation 
of a household which has refused to cooperate with the State agency, so 
that the results of this effort fail to justify the staff time and 
resources dedicated to it. These efforts have also had a negative 
impact on the efficiency of the State agency review process in some 
instances. Occasionally a household will misinform the FCS Regional 
Office that it is willing to cooperate with a State agency QC reviewer. 
When the State agency reviewer attempts to contact the household and 
complete the review the household again refuses to cooperate. The case 
must remain incomplete, and additional State agency staff time and 
resources have been expended in the process.
    Section 13951 of the Leland Act amends the Food Stamp Act by 
specifying that ``not later than 180 days after the end of the fiscal 
year, the case review and all arbitrations of State- Federal difference 
cases shall be completed.'' The Department has concluded that this 
mandated deadline cannot be achieved without maximizing the efficiency 
of the QC process at both the State agency and Federal review levels. 
Because efforts on the part of FCS Regional Offices to assist State 
agencies in completing refusal-to-cooperate cases have proven to be 
ineffective the Department is proposing to amend regulations so that an 
FCS Regional Office will only assist a State agency in attempting to 
complete refusal-to-cooperate cases at the specific request of the 
State agency. This will allow the State agency, which is in the best 
position to evaluate the probability of success, to determine whether 
or not additional efforts should be made to complete reviews in which 
the household has refused to cooperate.

Arbitration--Sec. 275.3(c)(4)

    Current regulations at 7 CFR 275.3(c)(4), published January 21, 
1988 (53 FR 1603), and June 5, 1989 (54 FR 23950) contain the QC 
procedures for arbitrating differences in review findings between State 
agencies and FCS. Under current procedures a State agency which 
disagrees with the FCS review findings for an individual case has a 
maximum of 28 calendar days after receipt of the Federal findings to 
request reevaluation of the Federal findings by a Regional arbitrator. 
The Regional arbitrator has 30 days from the date of such a request to 
determine the correctness of the Federal findings or to notify the 
State agency of the status of the arbitration case. A State agency 
which disagrees with a Regional arbitrator's review findings for an 
individual case has a maximum of 28 calendar days after receipt of the 
Regional arbitrator's decision to request a reevaluation of the 
Regional arbitrator's decision by a National arbitrator. The National 
arbitrator has no established time limit for rendering decisions on the 
correctness of the Regional arbitrator's findings. As these timeframes 
would indicate, arbitration is a process which can routinely take as 
many as 86 days to reach the level of national arbitration. This 
estimate does not include possible delays when a Regional arbitrator 
requests additional information from a State agency. Nor does this 
figure contain any time estimate for the completion of the National 
arbitrator's evaluation, which can vary greatly depending on 
priorities, the workload of the National arbitrator, and the complexity 
of the case under review. Section 13951 of the Leland Act amends the 
Food Stamp Act by specifying that ``not later than 180 days after the 
end of the fiscal year [March 29th, or March 28th in leap years], the 
case review and all arbitrations of State-Federal difference cases 
shall be completed.'' Granting that the current arbitration process 
(not including the National arbitrator's evaluation) can routinely take 
86 calendar days, it would be necessary for the arbitration process to 
begin earlier than January 2nd following the end of the fiscal year in 
order to insure meeting the March 29th deadline. Current regulations at 
7 CFR 275.21(b)(2) provide State agencies with 95 days from the end of 
a sample month to complete all case reviews. This means that for the 
last sample month of the review period (September) the State agencies 
final deadline for disposing of all cases for the fiscal year is 
January 5th. The Department has concluded that the deadlines mandated 
by the Leland Act for the completion of arbitration for a fiscal year 
cannot be achieved without a restructuring of the current arbitration 
system.
    The Department proposes to replace the current two-tier arbitration 
process with a one-tier arbitration system. State agencies would submit 
requests for arbitration to their appropriate FCS Regional offices 
within 10 days of receipt of the Federal QC findings for a case. The 
Department considers 10 days to be sufficient for a State agency to 
submit requests for arbitration because the State agency has already 
completed its review of households' circumstances before the Federal 
review was conducted. In preparing its cases for arbitration the State 
agency is simply identifying the specific case issue(s) in dispute 
between the State agency and FCS, and then ensuring that all 
verification, documentation, or other material supporting its findings 
are included in its submittal(s). The FCS Regional office QC staff may 
also submit to the arbitrator(s) a response to the State agency's 
request either agreeing with the State agency or explaining why the 
State agency's position is incorrect. The arbitrator(s) would be 
allowed a maximum of 35 calendar days from the date a request is 
received to render a decision regarding the accuracy of the Federal QC 
findings and disposition in a case. Prudence dictates that with the 
modification of the arbitration system to a single level of review, the 
reviewing official should be allowed the longest possible timeframe to 
render decisions.
    The Department is proposing a number of other changes to the 
arbitration process to maximize the efficiency and accuracy of the 
system. The proposed regulations would limit requests for arbitration 
to those cases where the State agency's findings or disposition, as 
transmitted to the National Computer Center's (NCC) Integrated Quality 
Control System (IQCS), differ from the Federal findings or disposition 
transmitted to NCC. These cases are commonly referred to as ``disagree 
cases''. Under the proposed system State agencies will not be permitted 
to arbitrate cases where the [[Page 32618]] State agency's and Federal 
findings or disposition are the same. The purpose of the arbitration 
system is solely to resolve disagreements between the State agency's 
and Federal findings or disposition. State agencies have sometimes used 
the arbitration process as a way of registering disagreement with FCS 
policy on an issue. In these cases, the State agency agrees that the 
findings were correct, but it does not approve of the current Federal 
policy. The Department maintains that it is important to dedicate the 
limited resources and staff to those cases where there is a difference 
between the State agency's and FCS regional office's findings or 
disposition of an individual case, rather than those cases where all 
parties agree.
    As a further expedient to maximizing the efficiency of the 
arbitration system, the Department is proposing that State agencies be 
required to submit specific documents and to ensure that their 
arbitration requests are complete, legible, and understandable. Over 
the past several fiscal years, requests for arbitration have frequently 
failed to provide arbitrators with the information needed to render 
decisions efficiently and accurately without time consuming requests 
for additional information or clarification. Common problems have 
included: illegible documents, blank photocopied pages, income 
calculations that cannot be duplicated, missing information regarding 
waivers in effect at the time of the review, and lack of documentation 
regarding the reporting and budgeting systems applicable to the case. 
When arbitrators confront these problems, they often must recontact 
State agencies and Regional offices for clarification. This process has 
become both time-consuming and confusing. As a solution to this 
problem, the Department proposes to require a standardized set of 
documents to accompany each State agency request. The Department 
proposes that the following items be required: (1) The request for 
arbitration and basic case information, which would include State, 
sample month and year, review number, review date, reporting and 
budgeting procedure, food stamp procedures for budgeting grants from 
the Aid to Families with Dependent Children Program, certification 
period, and calendar or fiscal month system; (2) Information about the 
certification action under dispute, which would include initial 
certification or recertification, legible certification work papers, 
legible State agency quality control work papers, and legible regional 
office quality control work papers; and (3) Information about the State 
agency's specific issues, which would include the element under 
dispute, regulatory citations, handbook citations, policy memoranda, 
legislative implementation dates, applicable waivers, and verification 
of facts. Each arbitration request would also include a checklist 
identifying the required items and indicating whether they were 
included with the request. The Department is particularly interested in 
soliciting comments about the need for such a checklist, the items that 
should appear on the checklist, and any alternatives that might be 
suggested to enhance the efficiency of arbitration.
    If a State agency submitted an incomplete request for arbitration 
the arbitrator would render a decision based strictly on the merits of 
the available information. This does not mean that in instances where 
the State agency submits an incomplete request, and the FCS Regional 
office submits a response, the arbitrator(s) would automatically decide 
in favor of the Federal position because of the incomplete State agency 
request. Nor would this apply in the reverse situation. If a State 
agency's request for arbitration is complete but the FCS Regional 
office does not submit a response, the arbitrator(s) would not 
automatically decide in favor of the State agency's position because 
the Regional office had not submitted a response. The arbitrator(s) 
would make an independent judgement of the request, based upon whatever 
information the State agency and Regional office had provided. The 
proposed procedure would not permit a State agency to submit a partial 
request for arbitration and then supply supporting documentation over a 
ten day period.
    In order to ensure that the QC process meets the legislated 
timeframes the Department is proposing that arbitration be limited to 
those cases where the State agency's findings and disposition were 
transmitted to the National Computer Center's (NCC) Integrated Quality 
Control System (IQCS) in a timely manner. The timeframes for the 
transmission of case findings to NCC is discussed in the paragraph 
entitled ``Quality control review reports--Sec. 275.21''. The 
Department maintains that State agency reviews which are not completed 
and transmitted into the IQCS in a timely manner delay the selection 
and completion of FCS's Federal QC subsample reviews, and jeopardize 
the system's ability to meet the deadlines mandated by the Leland Act 
for the completion of all case review and arbitration activity. The 
Department proposes to restrict arbitration to those case reviews which 
have met the timeframes for transmittal to NCC to ensure that the QC 
process is completed in time to meet the mandated deadline of 180 
calendar days after the end of the fiscal year. This restriction would 
not apply to one exceptional class of case reviews transmitted into the 
IQCS in an untimely manner. This class would be cases originally 
disposed of (in a timely manner) as incomplete due to refusal to 
cooperate on the part of the food stamp household. If the household 
later agrees to cooperate with QC and the review is completed and 
retransmitted to IQCS on a date after the original deadline for 
completing the case, but prior to the final deadline for disposing of 
all cases for the review period (December 29th under these proposed 
rules) the State agency would retain the right to request arbitration 
of the review findings of the completed case (assuming that the 
completed case is selected for FCS review, and the Federal review 
findings/disposition disagree with the State agency's findings/
disposition). The Department is soliciting comments on additional 
categories of case reviews which should be excluded from the timeframe 
restrictions for arbitration.
Quality Control Review Reports--Sec. 275.21

    Current regulations at 7 CFR 275.21(b), published February 17, 1984 
(49 FR 6292), specify the timeframes for State agencies to dispose of 
and report the findings of cases selected for QC review. Under current 
procedures a State agency has 75 calendar days from the end of a sample 
month to dispose of 90 percent of the cases selected for review in that 
month; 100 percent of the cases must be disposed of within 95 days of 
the end of the sample month. As discussed in the section dealing with 
the arbitration process, this means that for the last sample month of 
the review period (September) the State agencies final deadline for 
disposing of all cases for the fiscal year is currently January 5th. 
The Department is proposing an arbitration system which will provide 
State agencies the opportunity to submit a request for arbitration of a 
case, to be received by the appropriate FCS regional office within 10 
days from the date of receipt of the Federal findings, and 35 days for 
the arbitrator(s) to render a decision on a case. Thus, arbitration 
will be a process which could routinely take up to 45 days to complete. 
This is the minimum timeframe which the Department has deemed necessary 
to ensure an arbitration process which will render accurate 
determinations. Section 13951 of the Leland Act amends the Food 
[[Page 32619]] Stamp Act of 1977 by specifying that ``not later than 
180 days after the end of the fiscal year [March 29th, or March 28th in 
leap years], the case review and all arbitrations of State-Federal 
difference cases shall be completed.'' Since the Department has 
concluded that the arbitration process requires a minimum of 45 
calendar days to ensure accurate decisions being rendered, it would be 
necessary for the arbitration process to begin no later than February 
12th following the end of the fiscal year in order to insure meeting 
the March 29th deadline. With the current State agency deadline for 
final case disposition of January 5th, this would leave FCS a total of 
38 days to select the final Federal subsample of cases (approximately 
1,580 cases, based on one month, or one twelfth, of the Fiscal Year 
1991 Federal sample size of 18,982), accumulate the State agency and 
local office records necessary for the completion of the Federal 
reviews, complete the Federal review, and transmit the Federal review 
findings to the appropriate State agencies. The Department concludes 
that the deadlines mandated by the Leland Act for case completion (both 
State agency and Federal reviews) and arbitration cannot be achieved 
without restructuring the current timeframes for case completion.
    The Department proposes to modify the deadline for State agencies 
to dispose of QC cases and transmit review findings to NCC's IQCS, by 
requiring that 100 percent of the cases selected for review be disposed 
of within 90 calendar days of the end of the sample month for which the 
cases were selected for review. State agencies would continue to be 
required to dispose of 90 percent of selected cases within 75 calendar 
days of the end of the sample month for which the cases were selected 
for review, as provided for in current regulations at 7 CFR 
275.21(b)(2). Such a timeframe will result in a final annual deadline 
for the completion of State agency reviews of December 29th. This will 
provide FCS with approximately 45 days to complete the Federal case 
review process and transmit final Federal review findings to the State 
agencies. While the Department recognizes that the proposed timeframes 
for case completion may require dedication of additional resources by 
both State agencies and FCS, only a modification of the case completion 
timeframes and adherence to them, in conjunction with the redesign of 
the arbitration process, will allow sufficient time to meet the 
mandated deadlines contained in the Leland Act. Because of the 
importance which accepted statistical practices places on the 
completion of the maximum possible number of cases sampled for QC 
review, the Department is proposing to restate, in this section of the 
regulations, instructions currently contained in 7 CFR 275.12(g),

Disposition of Case Reviews

    These instructions specify that without FCS approval a State agency 
shall not dispose of a case as not completed based solely on the fact 
that the State agency was unable to complete the case in time to meet 
the timeframes for the disposal of case reviews.
    The Department is also proposing a conforming change to regulations 
at 7 CFR 273.2(d)(2), Cooperation with QC Reviewer. This section of the 
regulations, published February 17, 1984 (49 FR 6292), currently 
specifies that food stamp households which refuse to cooperate with a 
quality control reviewer shall be determined ineligible to participate 
in the Food Stamp Program until 95 days after the end of the annual QC 
review period, or until the household cooperates with the QC reviewer 
(whichever is earlier). This 95 day timeframe was established to 
correspond to the 95 day timeframe which the State agency has to 
dispose of QC reviews. Just as QC has a final deadline for the disposal 
of all reviews for an annual review period of 95 days after the end of 
the review period, a household which refuses to cooperate with QC is 
determined ineligible to participate in the Program until 95 days after 
the end of the annual review period. The Department is proposing to 
change the period of household ineligibility from 95 to 90 days after 
the end of the annual review period, in order to correspond to the 
proposed change to the State agencies timeframes for the disposition of 
QC reviews. The Department is proposing an additional conforming change 
to regulations at 7 CFR 273.2(f)(1)(ix). This section of the 
regulations, published February 4, 1987 (52 FR 3402), deals with the 
requirement that State agencies verify all factors of eligibility for 
households which have been terminated for refusal to cooperate with 
quality control. A reference is made in this section to the period of 
ineligibility lasting until the 95 day after the end of the annual 
review period. The Department is proposing to change the reference from 
95 to 90 days after the end of the annual review period, in order to 
correspond to the proposed change to the State agencies timeframes for 
the disposition of QC reviews.
Variances Excluded From Error Analysis--Sec. 275.12(d)(2)

    Prior to the Leland Act, section 16(c)(3) of the Food Stamp Act 
specified that any errors resulting from the application of new 
regulations promulgated under the Act during the first 60 days (or 90 
days at the discretion of the Secretary) from the required 
implementation date of such regulations shall be excluded from the 
payment error rate. Section 13951 of the Leland Act amends the Act by 
changing the timeframe for excluding these errors from 60 (or 90) days, 
to 120 days. In response to this change the Department is proposing a 
regulatory change at 7 CFR 275.12(d)(2)(vii) to reflect the new 
timeframe for excluding variances resulting from the promulgation of 
new regulations.

State Agencies' Liabilities for Payment Error--Fiscal Year 1986 and 
Beyond--Sec. 275.23(e)(4)

    Current regulations at 7 CFR 275.23(e)(4), published November 27, 
1991 (56 FR 60045), specify a payment error rate tolerance level for 
any fiscal year to be one percentage point added to the lowest national 
performance measure announced up to and including that fiscal year. A 
State agency which exceeds this tolerance level is subject to a 
liability claim equivalent to the difference between the State agency's 
payment error rate and the tolerance level, multiplied by the total 
value of the allotments issued in the fiscal year by the State agency. 
Section 13951 of the Leland Act establishes a new system of payment 
error rate goals and consequences. The payment error rate tolerance 
level, beginning in Fiscal Year 1992 and applying to Fiscal Year 1992 
and all subsequent fiscal years, is the national performance measure 
for the fiscal year. The national performance measure continues to be 
defined as the sum of the products of each State agency's payment error 
rate times that State agency's proportion of the total value of 
national allotments issued for the fiscal year using the most recent 
issuance data available at the time the State agency is notified of its 
payment error rate. A State agency which exceeds this tolerance level 
is now subject to a liability claim equivalent to the total value of 
the allotments issued in the fiscal year by the State agency, 
multiplied by a factor which is the lesser of (1) the ratio of the 
amount by which the payment error rate of the State agency for the 
fiscal year exceeds the national performance measure for the fiscal 
year, to the national performance measure for the fiscal year, 
[[Page 32620]] or (2) one. This figure is then multiplied by the amount 
by which the payment error rate of the State agency for the fiscal year 
exceeds the national performance measure for the fiscal year.
    The Department is proposing changes to regulations at 7 CFR 
275.23(e) to revise current subparagraph (4) to reflect the fact that 
the sanction system mandated by the Hunger Prevention Act of 1988 (Pub. 
L. 100-435, enacted September 19, 1988) (the ``Hunger Prevention Act'') 
now applies only to Fiscal Years 1986 through 1991. A new paragraph 
will be added to reflect the sanction system mandated by the Leland Act 
for Fiscal Year 1992, and all subsequent fiscal years. In addition, the 
Department proposes to continue the current policy under which, once 
announced, the national performance measure for a fiscal year will not 
be subject to change. The Leland Act mandates that within 30 days of 
the completion of the case review and arbitration process for a fiscal 
year (which itself must be completed within 180 days of the end of the 
fiscal year) the Department shall determine final error rates, the 
national performance measure, and the amounts of liability claims 
against State agencies [emphasis added]. The Department concludes that 
the intent of the Leland Act is that once individual State agency error 
rates, and the national performance measure are announced, they are 
final, and that adjustments to these figures cannot be considered.

Good Cause--Sec. 275.23(e)(6)

    The Food Stamp Act of 1977, as amended by the Hunger Prevention 
Act, allows relief from all or a part of a Quality Control liability as 
established under Sec. 275.23(e)(4) when a State agency can demonstrate 
that a part or all of an excessive error rate was due to an unusual 
event which had an uncontrollable impact on the State agency's payment 
error rate. The legislative history for current regulations governing 
good cause provides that ``The purpose of good cause under the new 
system is to allow the Secretary the discretion to provide relief when 
a State with otherwise effective administration has faced an unusual 
event with a large uncontrollable impact on errors.'' (House Report 
100-828, part 1, page 34).
    Although the Leland Act transfers the authority to grant good cause 
relief from the Secretary of Agriculture to the Department's 
Administrative Law Judges (ALJs), the intent as to what constitutes 
good cause has not changed. Congress' intent was made clear in the 
legislative history accompanying the Leland Act which states, ``It is 
the Committee's intent that the new national performance measure will 
provide relief for those factors that are not unique to any one state 
agency, such as the effects of recession or program changes. However, 
the Committee recognizes that there will be unusual events with an 
uncontrollable impact on errors which affect state agencies with 
otherwise effective program administration (emphasis added). The 
Committee expects that these individual state situations (emphasis 
added) will be addressed through the good cause waiver procedures. The 
Committee also expects that the Secretary's determination on states' 
good cause waiver requests will be based on good cause criteria, and 
not on such factors as budget considerations.'' (House Report 103-111, 
pg.12). Other than the provision that the determination to waive all or 
part of a Quality Control liability will be made by an ALJ, this intent 
was adopted by the Conference Substitute. (Statement of Managers). The 
language of these reports reaffirms Departmental policy as established 
under the provisions of the Hunger Prevention Act.
    The Department concludes, therefore, that good cause relief is 
intended to ensure that a State agency which otherwise effectively 
administers the Food Stamp Program is not held liable for that portion 
of an excessive error rate caused by an unusual event which has an 
uncontrollable impact on a State agency's payment error rate.
    The Leland Act provides good cause consideration for the following 
unusual events: (A) a natural disaster or civil disorder that adversely 
affects Food Stamp Program operations; (B) a strike by employees of a 
State agency who are necessary for the determination of eligibility and 
processing of case changes under the Food Stamp Program; (C) a 
significant growth in food stamp caseload in a State prior to or during 
a fiscal year, such as a 15 percent growth in caseload; (D) a change in 
the Food Stamp Program or other Federal or State program that has a 
substantial adverse impact on the management of the Food Stamp Program 
of a State; and (E) a significant circumstance beyond the control of 
the State agency.
    This proposed rulemaking adopts the unusual events which qualify 
for consideration under good cause relief. As noted above, the 
legislative history makes clear that good cause relief based on the 
impact of unusual events is limited to individual state situations, and 
that allowances for those situations that are not unique to any one 
state are made via the national performance measure.
    The effects of recession and program changes are specifically 
identified in the legislative history as factors that are not 
considered unique to any one state. Program changes have therefore been 
designated both as an unusual situation for which good cause relief 
will be considered and as a condition that is not unique to one state. 
From this report language, the Department concludes Congress' intent 
was that the five situations are considered ``unusual events'', 
appropriate for good cause relief, only if they exceed a national norm.
    The preamble to current regulations published September 28, 1992, 
(57 FR 44482) discusses further those situations that will not be 
considered for good cause relief.
    Current regulations at Sec. 275.23(e)(6)(i) describe the criteria 
and methodology under which FCS will grant good cause waivers. While 
the Secretary or the Secretary's designee will no longer be making the 
final determination in good cause appeals, FCS retains the authority to 
establish criteria under which good cause is evaluated. The Department 
wishes to make it clear that current criteria and methodology, with 
modifications, will serve as guidelines for both FCS and the ALJ to 
assess, evaluate and respond to claims by the State agency for a good 
cause waiver of liability in conjunction with the appeals process. As 
under current regulations, an alternate methodology will continue to be 
used for certain events when a State agency provides insufficient 
information to demonstrate using factual analysis that the unusual 
event had an uncontrollable impact on the error rate. However, the 
Department is proposing modifications to these alternate methodologies. 
While current procedures take into account the duration of an unusual 
event, they do not measure the degree of impact that the unusual event 
has on Program operations. As a result, a Federally-declared disaster, 
for example, is treated the same regardless of size of the counties 
affected or amount of issuances for those counties. The Department is 
proposing an alternate methodology that will take into account both the 
duration of the unusual event and the magnitude or intensity of the 
unusual event. The alternate methodologies have also been modified to 
include specific procedures for calculating waiver amounts to ensure 
equity and consistency in these determinations. The following is a 
summary of the modifications to the alternate methodologies: 
[[Page 32621]] 

Disasters/Civil Disorders and Strikes

     Duration will be measured by the number of months the event had an 
adverse impact on program operations. Intensity of these unusual events 
will be a proportional measurement of the issuances for the counties 
affected to the State's total issuance. The amount of the waiver of 
liability will be determined using the following linear equation: Ia/Ib 
 x  [M/12 or Mp/18]  x  L where; Ia is the issuance for the first full 
month immediately preceding the unusual event for the county affected; 
Ib is the State's total issuance for the first full month immediately 
preceding the unusual event; M/12 is 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.
    For example, a tornado hits County A on 5/15, and the County is 
declared a Federal disaster area. Program operations in this county 
were adversely impacted for 3 months. In addition, a significant number 
of program staff from County B were diverted for 1 month to handle the 
crises in County A. Issuance figures for the month of April were: 
2,000,000 (A); 1,900,000 (B); 38,500,000 (Statewide). The liability for 
the fiscal yr. was $3,300,000. The above formula is applied as follows: 
County A--[2,000,000/38,500,000]  x  3/12  x  3,300,000 OR; .05195  x  
.25  x  3,300,000 = $42,858 credit to the liability. County B--
[1,900,000/38,500,000]  x  1/12  x  3,300,000 OR; .04935  x  .08333  x  
3,300,000 = $13,571 credit to the liability. Total credit to the 
liability is $56,429 ($42,858 + $13,571). This results in a revised 
liability for the State agency of $3,243,571 ($3,300,000--$56,429).
Significant Growth in Food Stamp Caseload

    Duration and intensity will be measured by the degree to which 
caseload growth, statewide, exceeds 15 percent during the 12 month 
period from April of the prior fiscal year through March of the subject 
fiscal year, and by the degree to which a State's error rate exceeds 
the national performance measure. The amount of waiver of liability 
will be determined using a ratio of the percentage of caseload increase 
from a 12 month base period to the percentage the State's error rate 
exceeds the national performance measure.
    This proportional measurement is based on procedures similar to the 
``sliding scale'' used for the determination of liability amounts, and 
incorporates a floating national average which accounts for those 
factors that are common to all States. Using the error rate in this 
calculation allows greater consideration for a State agency that 
effectively manages caseload growth. As a result, a State agency with 
an error rate barely exceeding the national performance measure and an 
18 percent increase in caseload growth will receive a proportionally 
larger waiver amount than a State agency with the same percentage of 
caseload growth but with an error rate greatly exceeding the national 
performance measure.
    Under this alternate methodology, requisite caseload growth will be 
determined statewide rather than by individual counties. The Department 
recognizes that an individual county, because of its size, may drive 
the error rate for the State as a whole. The State agency may still use 
the impact of caseload growth in individual counties on the State's 
error rate to pursue good cause relief under the primary criterion. 
With the improvements in automated systems for data analysis, State 
agencies should have little difficulty in demonstrating the impact on 
the error rate when the impact is significant. The Department has 
designed the alternate methodology for use when the impact of an 
unusual event on the error rate is more difficult to isolate and 
distinguish.
    Caseload growth occurring in the last half of the subject fiscal 
year will not be considered under the alternate methodology. The 
Department believes caseload growth occurring in the six month period 
prior to the subject fiscal year and in the beginning of the subject 
fiscal year will have a greater potential for disrupting Program 
operations as more months will be affected than will caseload growth 
occurring at the end of the fiscal year. For example, an increase in 
caseload growth prior to the subject fiscal year will have an impact on 
the error rate for the entire 12 months while caseload growth in the 
last month of the fiscal year will have an impact for only 1 month. If 
the State agency can demonstrate the effects of caseload growth in the 
last half of the subject fiscal year, it may do so under primary 
criterion.
    The Department is proposing to modify the alternate methodology by 
using an average of 12 months as the base period from which caseload 
growth is measured rather than the 1 month base period that is 
currently used. An average of 12 months takes into account normal 
fluctuations in growth occurring over a period of time, and provides a 
more accurate indication of actual growth than does 1 month.
    These methodologies are described in full in the regulatory section 
of this proposed rule.
    In the application of the criteria and methodology, the mere 
existence of an unusual event specified under good cause relief is not, 
by itself, sufficient to establish a determination of good cause. 
Congressional intent is explicit in stating that a determination of 
good cause is contingent upon the following 3 conditions:
    (1) An unusual event must occur. As previously stated, good cause 
relief is only appropriate for events affecting individual State 
agencies and exceeding a national norm. The national performance 
measure which floats from year to year provides relief for those 
factors that are common to all States. Certain events may be common to 
all States but have a significantly different impact on State agencies 
for a variety of reasons. For example, while all State agencies are 
required to implement new regulations, an individual State agency may 
be disproportionately affected by the program change due to the State's 
caseload demographics. New regulations affecting Native American 
households on reservations, for instance, would have an extensive 
impact on State agencies with a large population of such food stamp 
households. In these situations, the State agency needs to demonstrate 
the disproportionate effect caused by the unusual event. Good cause 
relief will be considered to the extent the unusual event has an 
uncontrollable impact on a State's error rate beyond the relief that is 
already provided through the national performance measure.
    (2) The event must have an uncontrollable impact on errors. For 
example, during the middle of a review period, several counties within 
a state are declared Federal disaster areas due to massive flooding. 
This disaster occurs shortly after the expiration of the variance 
exclusion period for a new regulation which the State agency 
implemented timely but incorrectly. Subsequent to the disaster, there 
is a significant increase in the error rate. Data analysis show that 
the increase in the error rate was attributable to the State's 
incorrect implementation of the regulation. Even though there was a 
Federally declared disaster, a good cause determination is not 
appropriate, in this example, because the increase in the error rate 
resulted from a factor that was not associated with the unusual event. 
Good cause relief will be considered only for that portion of the 
[[Page 32622]] error rate/liability attributal to the unusual event.
    (3) The event must affect a State agency with otherwise effective 
Program administration. Under current regulations, otherwise effective 
administration is measured and evaluated by the State's error rate 
together with any other available error rate data immediately before 
and after the unusual event, and by determining the impact of the 
unusual event on the error rate. With this proposed rulemaking, the 
Department is modifying this measurement to take into consideration the 
degree to which the error rate exceeds the national performance 
measure.

FCS Timeframes--Sec. 275.23(e)(8)

    Prior to the Leland Act, section 16(c)(5) of the Food Stamp Act 
specified that the Secretary must make the determinations regarding any 
possible incentive payments or claims, and notify the State agencies of 
these determinations, within nine months following the end of each 
fiscal year. Section 16(c)(6) specified that at the same time that the 
State agencies are informed of their error rates and possible incentive 
payments or claims, that the Secretary shall announce the national 
performance measure (the sum of the products of each State agency's 
error rate times that State agency's proportion of the total value of 
national allotments issued for a fiscal year).
    Section 13951 of the Leland Act amends the Food Stamp Act by 
specifying that: ``not later than 180 days after the end of the fiscal 
year, the case review and all arbitrations of State- Federal difference 
cases shall be completed. Not later than 30 days thereafter, the 
Secretary shall determine final error rates, the national average 
payment error rate, and the amounts of payment claimed against State 
agencies; and notify State agencies of the payment claims.'' In 
response to this change the Department is proposing a regulatory change 
at 7 CFR 275.23(e)(8) to reflect the new timeframes for the completion 
of the QC review process for a fiscal year.

Interest Charges--Sec. 275.23(e)(9)

    Prior to the Leland Act, section 13(a)(1) of the Food Stamp Act 
specified that interest charges on any unpaid portion of a liability 
claim would accrue from the date of the decision on an administrative 
appeal of the claim, or from the day two years after the date the bill 
for the claim was received by the State agency, whichever was earlier. 
Section 13951 of the Leland Act amends the Food Stamp Act by changing 
the timeframe for the accruing of interest charges from two years to 
one year. The Food Stamp Act now specifies that interest on any unpaid 
portion of the claim shall accrue from the date of the decision on the 
administrative appeal, or from the day 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. In response to this change the 
Department is proposing a regulatory change at 7 CFR 275.23(e)(9) to 
reflect the new timeframe of one year.
    In addition, the Department is taking the opportunity to make a 
technical correction to the language in this paragraph of the 
regulations. The current regulations specify that interest will accrue 
from the date that a State agency receives the bill for the liability 
claim unless the State agency appeals the claim ``under Sec. 276.7 of 
the regulations''. Since regulations at 7 CFR 275.23(e)(9) regarding 
interest charges were published (November 27, 1991) (56 FR 60045) the 
administrative appeals process for liability claims has been modified 
to provide for appeal to a Departmental Administrative Law Judge. The 
procedures for appeal of claims to a Departmental Administrative Law 
Judge are contained in 7 CFR Part 283 of the regulations. The 
Department proposes to change the reference to the appeal process 
contained in 7 CFR 275.23(e)(9) from ``under Sec. 276.7 of the 
regulations'' to ``under Part 283 of the regulations''.

Miscellaneous Technical Corrections

    The Department is proposing to take advantage of the opportunity 
presented with the publication of this rule to effect technical 
corrections to regulatory references appearing in Part 275 of the 
regulations. In a number of paragraphs in Part 275 other paragraphs or 
sections of the regulations are cited as a reference for the reader. 
Over the years many of these references have become inaccurate due to 
revisions and renumbering of various sections of the regulations. The 
Department is taking this opportunity to correct references appearing 
in the following paragraphs: 275.3(c), 275.11(g), 275.23(d)(1)(iii), 
275.23(e)(1), 275.23(e)(7)(i)(D), 275.23(e)(7)(ii), 
275.23(e)(7)(iii)(A), 275.23(e)(7)(iii)(B), and 275.23(e)(10)(iii).

Dates

    Section 13971 of the Leland Act sets implementation dates for the 
various provisions of the law addressed in this proposed rule. The 
provisions of section 13951 that amended sections 13(a)(1), 14(a), and 
16(c) of the Act are effective on October 1, 1991, with the exception 
of the provision regarding exclusion of variances resulting from the 
application of new regulations. The provision regarding the exclusion 
of variances resulting from the application of new regulations is 
effective on October 1, 1992.

List of Subjects

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 275

    Administrative practice and procedure, Food stamps, Reporting, and 
recordkeeping requirements.

    For the reasons set out in the preamble, Parts 273 and 275 of 
Chapter II of Title 7 Code of Federal Regulations are proposed to be 
amended as follows:

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    1. The authority citation for Part 273 continues to read as 
follows:

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


Sec. 273.2  [Amended]

    2. In Sec. 273.2:
    a. the third sentence of paragraph (d)(2) is amended by removing 
the words ``after 95 days'' and adding the words ``after 90 days'' in 
their place;
    b. the first sentence of paragraph (f)(1)(ix) is amended by 
removing the words ``after 95 days'' and adding the words ``after 90 
days'' in their place.

PART 275--PERFORMANCE REPORTING SYSTEM

    3. The authority citation for Part 275 continues to read as 
follows:

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

    4. In Sec. 275.3:
    a. the last sentence of the introductory text of paragraph (c) is 
amended by removing the reference to ``275.23(e)(6)'' and adding in its 
place a reference to ``275.23(e)(8)'';
    b. paragraph (c)(1)(iii) is revised;
    c. paragraph (c)(4) is revised.
    The revisions read as follows:


Sec. 275.3  Federal monitoring.

* * * * *
    (c) Validation of State Agency Error Rates. * * *
    (1) Payment error rate. * * *
    (iii) Upon the request of a State agency, the appropriate FCS 
Regional Office will assist the State agency in 
[[Page 32623]] completing active cases reported as not completed due to 
household refusal to cooperate.
* * * * *
    (4) Arbitration. (i) Whenever the State agency disagrees with the 
FCS 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 FCS Arbitrator, subject to the following limitations.
    (A) The State agency may only request arbitration when the State 
agency's and FCS 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.
    (C) The State agency shall only be eligible to request arbitration 
of the Federal findings or disposition of an individual case if that 
case was disposed of and the findings reported in accordance with the 
timeframes specified in Sec. 275.21(b)(2). An exception shall be made 
for cases which fail to meet the timeframes specified in 
Sec. 275.21(b)(2) if the cases were originally disposed of by the State 
agency, in a timely manner, as incomplete due to refusal-to-cooperate 
on the part of the household. If the household later agrees to 
cooperate with the Quality Control reviewer, and the case is 
retransmitted into IQCS as completed, then the secondary disposition/
findings shall not be subject to the timeliness of disposition 
restriction.
    (ii) The FCS Arbitrator(s) shall be an individual or individuals 
who are not directly involved in the validation effort.
    (iii) The State agency shall submit a request for arbitration, to 
be received by the appropriate FCS regional office within 10 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.
    (iv) When the State agency requests arbitration, it shall submit 
all required documentation to the appropriate FCS regional office 
addressed to the attention of the FCS Arbitrator. The FCS regional 
office QC staff may submit a response to the State agency's request to 
the FCS Arbitrator.
    (A) A complete request is one that contains all of the information 
that FCS requires. The following items shall be required:
    (1) The request for arbitration and basic case information, which 
would include State, sample month and year, review number, review date, 
reporting and budgeting procedure, food stamp procedures for budgeting 
grants from the Aid to Families with Dependent Children Program, 
certification period, and calendar or fiscal month system.
    (2) Information about the certification action under dispute, which 
would include initial certification or recertification, legible 
certification work papers, legible State agency quality control work 
papers, and legible regional office quality control work papers.
    (3) Information about the State agency's specific issues, which 
would include the element under dispute, regulatory citations, handbook 
citations, policy memoranda, legislative implementation dates, 
applicable waivers, and verification of facts.
    (B) If the State agency's request is not complete the arbitrator 
shall make a decision based solely on the available documents.
    (v) The FCS Arbitrator shall have 35 calendar days from the date of 
receipt of a State agency's request for arbitration to review the case 
and make a decision.
* * * * *


Sec. 275.11  [Amended]

    5. In Sec. 275.11:
    a. the third sentence of paragraph (g) is amended by removing the 
reference to ``275.25(e)(6)'' and adding in its place a reference to 
``275.23(e)(8)'';
    b. the fourth sentence of paragraph (g) is amended by removing the 
reference to ``275.25(c)'' and adding in its place a reference to 
``275.23(c)''.
    6. In Sec. 275.12:
    a. the introductory text of paragraph (d)(2)(vii) is revised;
    b. paragraph (d)(2)(vii)(A) is revised;
    c. paragraph (d)(2)(vii)(D) is revised.
    The revisions read as follows:


Sec. 275.12  Review of active cases.
* * * * *
    (d) Variance identification. * * *
    (2) Variances excluded from error analysis. * * *
    (vii) Subject to the limitations provided in paragraphs 
(d)(2)(vii)(A) through (d)(2)(vii)(F) of this section any variance 
resulting from application of a new Program regulation or implementing 
memorandum (if one is sent to advise State agencies of a change in 
Federal law, in lieu of regulations) during the first 120 days from the 
required implementation date.
    (A) When a regulation allows a State agency an option to implement 
prior to the required implementation date, the date on which the State 
agency chooses to implement may, at the option of the State, be 
considered to be the required implementation date for purposes of this 
provision. The exclusion period would be adjusted to begin with this 
date and end on the 120th day that follows. States choosing to 
implement prior to the required implementation date must notify the 
appropriate FCS 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.
* * * * *
    (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.
* * * * *
    7. In Sec. 275.21:
    a. paragraph (b)(2) is revised;
    b. the first sentence of paragraph (b)(4) is amended by removing 
the words ``pending 95 days'' and adding the words ``pending 90 days'' 
in their place.
    The revision reads as follows:


Sec. 275.21  Quality control review reports.

* * * * *
    (b) Individual cases. * * *
    (2) The State agency shall dispose of and report the findings of 90 
percent of all cases selected in a given sample month so that they are 
received by FCS within 75 days of the end of the sample month. All 
cases selected in a sample month shall be disposed of and the findings 
reported so that they are received by FCS within 90 days of the end of 
the sample month. Without FCS 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 these timeframes.
* * * * *
    8. In Sec. 275.23:
    a. the last sentence of paragraph (d)(1)(iii) is amended by 
removing the reference to ``(e)(6)(iii)'' and adding in its place a 
reference to ``(e)(8)(iii)'';
    b. paragraph (e)(1) is amended by removing the reference to 
``paragraph [[Page 32624]] (e)(6)'' and adding in its place a reference 
to ``paragraph (e)(8)'';
    c. the heading of paragraph (e)(4) is amended by removing the words 
``Fiscal Year 1986 and Beyond'' and adding the words ``Fiscal Years 
1986 through Fiscal Year 1991'' in their place;
    d. the first sentence of paragraph (e)(4)(i) is amended by removing 
the words ``For Fiscal Year 1986 and subsequent years'' and adding the 
words ``For Fiscal Year 1986 through Fiscal Year 1991'' in their place;
    e. paragraphs (e)(5), (e)(6), (e)(7), (e)(8), (e)(9), and (e)(10) 
are redesignated as paragraphs (e)(6), (e)(7), (e)(8), (e)(9), (e)(10), 
and (e)(11), respectively, and a new paragraph (e)(5) is added;
    f. the newly redesignated paragraph (e)(7) is revised;
    g. the first sentence of newly redesignated paragraph (e)(8)(i)(D) 
is amended by removing the reference to ``paragraph (e)(7)(iii)'' and 
adding in its place a reference to ``paragraph (e)(8)(iii)'';
    h. the last sentence of newly redesignated paragraph (e)(8)(ii) is 
amended by removing the words ``procedure of Sec.  276.7'' and adding 
the words ``procedures of Part 283'' in their place;
    i. the first sentence of newly redesignated paragraph 
(e)(8)(iii)(A) is amended by removing the reference to ``paragraph 
(e)(7)(i)(C)'' and adding in its place a reference to ``paragraph 
(e)(8)(i)(C)'';
    j. the first sentence of newly redesignated paragraph 
(e)(8)(iii)(B) is amended by removing the reference to ``paragraph 
(e)(7)(i)(C)'' and adding in its place a reference to ``paragraph 
(e)(8)(i)(C)'';
    k. the first three sentences in newly redesignated paragraph (e)(9) 
are revised;
    l. in newly redesignated paragraph (e)(10)(i) the first sentence is 
amended by removing the reference to ``275.23(e)(4)'' and adding in its 
place a reference to ``275.23(e)(5)''. The second sentence is amended 
by removing the reference to ``276.7'' and adding in its place a 
reference to ``Part 283''. The fourth sentence is amended by removing 
the words ``2 years'' and adding the words ``one year'' in their place.
    m. the last sentence of newly redesignated paragraph (e)(11)(iii) 
is amended by removing the reference to ``(e)(10)(vi)'' and adding in 
its place a reference to ``(e)(11)(vi)''.
    The revisions and additions read as follows:


Sec. 275.23  Determination of State agency program performance.

* * * * *
    (e) State agencies' liabilities for payment error rates. * * *
    (5) State agencies' liabilities for payment error--Fiscal Year 1992 
and beyond. Each State agency that fails to achieve its payment error 
rate goal during a fiscal year shall be liable as specified in the 
following paragraphs.
    (i) For Fiscal Year 1992 and subsequent years, FCS shall announce a 
national performance measure within 30 days following the completion of 
the case review and the arbitration processes for the fiscal year. The 
national performance measure is the sum of the products of each State 
agency's payment error rates times that State agency's proportion of 
the total value of national allotments issued for the fiscal year using 
the most recent issuance data available at the time the State agency is 
notified of its payment error rate. Once announced, the national 
performance measure for a given fiscal year will not be subject to 
change.
    (ii) For any fiscal year in which a State agency's payment error 
rate exceeds the national performance measure for the fiscal year, the 
State agency shall pay or have its share of administrative funding 
reduced by an amount equal to the product of:
    (A) the value of all allotments issued by the State agency in the 
fiscal year; multiplied by
    (B) the lesser of--
    (1) the ratio of the amount by which the payment error rate of the 
State agency for the fiscal year exceeds the national performance 
measure for the fiscal year, to the national performance measure for 
the fiscal year, or
    (2) one; multiplied by
    (C) the amount by which the payment error rate of the State agency 
for the fiscal year exceeds the national performance measure for the 
fiscal year.
* * * * *
    (7) Good cause--(i) Events. When a State agency with otherwise 
effective administration exceeds the tolerance level for payment errors 
as described in this section, the State agency may seek relief from 
liability claims that would otherwise be levied under this section on 
the basis that the State agency had good cause for not achieving the 
payment error rate tolerance. State agencies desiring such relief must 
file an appeal with the Department's Administrative Law Judge (ALJ) in 
accordance with the procedures established under Part 283 of this 
chapter. The 5 unusual events described below are considered to have a 
potential for disrupting program operations and increasing error rates 
to an extent that relief from a resulting liability or increased 
liability is appropriate. The occurrence of an event(s) does not 
automatically result in a determination of good cause for an error rate 
in excess of the national performance measure. The State agency must 
demonstrate that the event had an adverse and uncontrollable impact on 
program operations during the relevant period, and the event caused an 
uncontrollable increase in the error rate. Good cause relief will only 
be considered for that portion of the error rate/liability attributal 
to the unusual event. The following are unusual events which State 
agencies may use as a basis for requesting good cause relief and 
specific information that must be submitted to justify such requests 
for relief:
    (A) Natural disasters such as those under the authority of the 
Stafford Act of 1988 (Pub. L. 100-707), which amended the Disaster 
Relief Act of 1974 (Pub. L. 93-288) or civil disorders that adversely 
affect program operations.
    (1) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (i) The nature of the disaster(s) (e.g. a tornado, hurricane, 
earthquake, flood, etc.) or civil disorder(s)) and evidence that the 
President has declared a disaster;
    (ii) The date(s) of the occurrence;
    (iii) The date(s) after the occurrence when program operations were 
affected;
    (iv) The geographic extent of the occurrence (i.e. the county or 
counties where the disaster occurred);
    (v) The proportion of the food stamp caseload whose management was 
affected;
    (vi) The reason(s) why the State agency was unable to control the 
effects of the disaster on program administration and errors;
    (vii) The Identification and explanation of the uncontrollable 
nature of errors caused by the event (types of errors, geographic 
location of the errors, time period during which the errors occurred, 
etc.).
    (viii) The percentage of the payment error rate that resulted from 
the occurrence and how this figure was derived; and
    (ix) The degree to which the payment error rate exceeded the 
national performance measure in the subject fiscal year.
    (2) The following criteria and methodology will be used to assess, 
evaluate and respond to claims by the State agency for a good cause 
waiver of liability in conjunction with the appeals process, and to 
determine that portion of the error rate/liability attributable to the 
uncontrollable effects of a disaster or [[Page 32625]] civil disorder: 
Geographical impact of the disaster; State efforts to control impact on 
program operations; the proportion of food stamp caseload affected; 
and/or the duration of the disaster and its impact on program 
operations. Adjustments for these factors may result in a waiver of 
all, part, or none of the error rate liabilities for the applicable 
period. As appropriate, the waiver amount will be adjusted to reflect 
States' otherwise effective administration of the program based upon 
the degree to which the error rate exceeds the national performance 
measure. For example, a reduction in the amount may be made when a 
State agency's recent error rate history indicates that even absent the 
events described, the State agency would have exceeded the national 
performance measure in the review period. 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 FCS for a 
natural disaster and already excluded from the error rate calculations 
under Sec. 275.12(g)(2)(vi). ``Counties affected'' will include 
counties where the disaster/civil disorder occurred, and any other 
county that the State agency can demonstrate had program operations 
adversely impacted due to the event (such as a county that diverted 
significant numbers of food stamp certification or administrative 
staff). The amount of the waiver of liability will be determined using 
the following linear equation: Ia/Ib  x  [M/12 or Mp/18]  x  L where: 
Ia is the issuance for the first full month immediately preceding the 
unusual event for the county affected; Ib is the State's total issuance 
for the first full month immediately preceding the unusual event; M/12 
is number of months in the subject fiscal year that the unusual event 
had an adverse impact on program operations; Mp/18 is the number of 
months in the last half (April through September) of the prior fiscal 
year that the unusual event had an adverse impact on program 
operations; L is the total amount of the liability for the fiscal year. 
Mathematically this formula could result in a waiver of more than 100% 
of the liability, however, no more than 100% of a State's liability 
will be waived for any one fiscal year. Under this approach, unless the 
State agency can demonstrate a direct uncontrollable impact on the 
error rate, the effects of disasters or civil disorders that ended 
prior to the second half of the prior fiscal year will not be 
considered.
    (B) Strikes by state agency staff necessary to determine Food Stamp 
Program eligibility and process case changes.
    (1) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (i) Which workers (i.e. eligibility workers, clerks, data input 
staff, etc.) and how many (number and percentage of total staff) were 
on strike or refused to cross picket lines;
    (ii) The date(s) and nature of the strike (i.e. the issues 
surrounding the strike);
    (iii) The date(s) after the occurrence when program operations were 
affected;
    (iv) The geographic extent of the strike (i.e. the county or 
counties where the strike occurred);
    (v) The proportion of the food stamp caseload whose management was 
affected;
    (vi) The reason(s) why the State agency was unable to control the 
effects of the strike on program administration and errors;
    (vii) Identification and explanation of the uncontrollable nature 
of errors caused by the event (types of errors, geographic location of 
the errors, time period during which the errors occurred, etc.);
    (viii) The percentage of the payment error rate that resulted from 
the strike and how this figure was derived; and
    (ix) The degree to which the payment error rate exceeded the 
national performance measure in the subject fiscal year.
    (2) The following criteria shall be used to assess, evaluate and 
respond to claims by the State agency for a good cause waiver of 
liability in conjunction with the appeals process, and to determine 
that portion of the error rate/liability attributable to the 
uncontrollable effects of the strike: Geographical impact of the 
strike; State efforts to control impact on program operations; the 
proportion of food stamp caseload affected; and/or the duration of the 
strike and its impact on program operations. Adjustments for these 
factors may result in a waiver of all, part, or none of the error rate 
liabilities for the applicable period. For example, the amount of the 
waiver might be reduced for a strike that was limited to a small area 
of the State. As appropriate, the waiver amount will be adjusted to 
reflect States' otherwise effective administration of the program based 
upon the degree to which the error rate exceeded the national 
performance measure. If a State agency has provided insufficient 
information to determine a waiver amount for the uncontrollable effects 
of a strike using factual analysis, a waiver amount shall be evaluated 
by using the formula described in paragraph (e)(7)(i)(A) of this 
section. Under this approach, unless the State agency can demonstrate a 
direct uncontrollable impact on the error rate, the effects of strikes 
that ended prior to the second half of the prior fiscal year will not 
be considered.
    (C) A significant growth in food stamp caseload in a State prior to 
or during a fiscal year, such as a 15 percent growth in caseload. 
Caseload growth which historically increases during certain periods of 
the year will not be considered unusual or beyond the State agency's 
control.
    (1) When submitting a request for good cause relief based on this 
example, the State agency shall provide the following information:
    (i) The amount of growth (both actual and percentage);
    (ii) The time the growth occurred (what month(s)/year);
    (iii) The date(s) after the occurrence when program operations were 
affected;
    (iv) The geographic extent of the caseload growth (i.e. Statewide 
or in which particular counties);
    (v) The impact of caseload growth;
    (vi) The reason(s) why the State agency was unable to control the 
effects of caseload growth on program administration and errors;
    (vii) The percentage of the payment error rate that resulted from 
the caseload growth and how this figure was derived; and
    (viii) The degree to which the error rate exceeded the national 
performance measure in the subject fiscal year.
    (2) The following criteria and methodology shall be used to assess, 
evaluate and respond to claims by the State agency for a good cause 
waiver of liability in conjunction with the appeals process, and to 
determine that portion of the error rate/liability attributable to the 
uncontrollable effects of unusual caseload growth: Geographical impact 
of the caseload growth; State efforts to control impact on program 
operations; the proportion of food stamp caseload 
[[Page 32626]] affected; and/or the duration of the caseload growth and 
its impact on program operations. Adjustments for these factors may 
result in a waiver of all, part, or none of the error rate liabilities 
for the applicable period. As appropriate, the waiver amount will be 
adjusted to reflect States' otherwise effective administration of the 
program based upon the degree to which the error rate exceeded the 
national performance measure. For example, a reduction in the amount 
may be made when a state agency's recent error rate history indicates 
that even absent the events described, the State agency would have 
exceeded the national performance measure in the review period. Under 
this approach, unless the State agency can demonstrate a direct 
uncontrollable impact on the error rate, the effects of caseload growth 
that ended prior to the second half of the prior fiscal year will not 
be considered. 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: first, determine 
the average number of households certified to participate statewide in 
the Food Stamp Program for the base period consisting of the twelve 
consecutive months ending with March of the prior fiscal year; second, 
determine the percentage of increase in caseload growth from the base 
period (step 1) using the average number of households certified to 
participate statewide in the Food Stamp Program for the twelve month 
period beginning with April of the prior fiscal year and ending with 
March of the current fiscal year; third, determine the percentage the 
error rate for the subject fiscal year as calculated under paragraph 
(e)(5)(i) of this section exceeds the national performance measure 
determined in accordance with paragraph (e)(5)(i) of this section; 
fourth, 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 
finally, 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. Under this methodology, caseload growth of less than 15% 
and/or occurring in the last half of the subject fiscal year will not 
be considered. Mathematically this formula could result in a waiver of 
more than 100% of the liability, however, no more than 100% of a 
State's liability will be waived for any one fiscal year.
    (D) A change in the food stamp program or other Federal or State 
program that has a substantial adverse impact on the management of the 
food stamp program of a State. Requests for relief from errors caused 
by the uncontrollable effects of unusual program changes other than 
those variances already excluded by Sec. 275.12(d)(2)(vii) will be 
considered to the extent the program change is not common to all 
States.
    (1) When submitting a request for good cause relief based on 
unusual changes in the Food Stamp or other Federal or State programs, 
the State agency shall provide the following information:
    (i) The type of change(s) that occurred;
    (ii) When the change(s) occurred;
    (iii) The nature of the adverse effect of the changes on program 
operations and the State agency's efforts to mitigate these effects;
    (iv) Reason(s) the State agency was unable to adequately handle the 
change(s);
    (v) Identification and explanation of the uncontrollable errors 
caused by the changes (types of errors, geographic location of the 
errors, time period during which the errors occurred, etc.);
    (vi) The percentage of the payment error rate that resulted from 
the adverse impact of the change(s) and how this figure was derived; 
and
    (vii) The degree to which the payment error rate exceeded the 
national performance measure in the subject fiscal year.
    (2) The following criteria will be used to assess, evaluate and 
respond to claims by the State agency for a good cause waiver of 
liability in conjunction with the appeals process, and to determine 
that portion of the error rate/liability attributable to the 
uncontrollable effects of unusual changes in the Food Stamp Program or 
other Federal and State programs: Geographical impact of the unusual 
changes in the Food Stamp Program or other Federal and State programs; 
State efforts to control impact on program operations; the proportion 
of food stamp caseload affected; and/or the duration of the unusual 
changes in the Food Stamp Program or other Federal and State programs 
and the impact on program operations. Adjustments for these factors may 
result in a waiver of all, part, or none of the error rate liabilities 
for the applicable period. As appropriate, the waiver amount will be 
adjusted to reflect States' otherwise effective administration of the 
program based upon the degree to which the error rate exceeded the 
national performance measure.
    (E) A significant circumstance beyond the control of the State 
agency. Requests for relief from errors caused by the uncontrollable 
effect of the significant circumstance other than those specifically 
set forth in this paragraph will be considered to the extent that the 
circumstance is not common to all States, such as a fire in a 
certification office.
    (1) When submitting a request for good cause relief based on 
significant circumstances, the State agency shall provide the following 
information:
    (i) The significant circumstances that the State agency believes 
uncontrollably and adversely affected the payment error rate for the 
fiscal year in question;
    (ii) Why the State agency had no control over the significant 
circumstances;
    (iii) How the significant circumstances had an uncontrollable and 
adverse impact on the State agency's error rate;
    (iv) Where the significant circumstances existed (i.e. Statewide or 
in particular counties);
    (v) When the significant circumstances existed (provide specific 
dates whenever possible);
    (vi) The proportion of the food stamp caseload whose management was 
affected;
    (vii) Identification and explanation of the uncontrollable errors 
caused by the event (types of errors, geographic location of the 
errors, time period during which the errors occurred, etc.);
    (viii) The percentage of the payment error rate that was caused by 
the significant circumstances and how this figure was derived; and
    (ix) The degree to which the payment error rate exceeded the 
national performance measure in the subject fiscal year.
    (2) The following criteria shall be used to assess, evaluate and 
respond to claims by the State agency for a good cause waiver of 
liability in conjunction with the appeals process, and to determine 
that portion of the error rate/liability attributable to the 
uncontrollable effects of a significant circumstance beyond the control 
of the State agency, other than those set forth in paragraph 
(e)(7)(i)(E) of this section: Geographical impact of the significant 
circumstances; State efforts to control impact on program operations; 
the proportion of food stamp caseload affected; and/or the duration of 
the significant circumstances and the impact on program operations. 
Adjustments for these factors may result [[Page 32627]] in a waiver of 
all, part, or none of the error rate liabilities for the applicable 
period. As appropriate, the waiver amount will be adjusted to reflect 
States' otherwise effective administration of the program based upon 
the degree to which the error rate exceeded the national performance 
measure.
    (ii) Adjustments. When good cause is found under the criteria in 
paragraphs (e)(7)(i)(A) through (e)(7)(i)(E) of this section, the 
waiver amount may be adjusted to reflect States' otherwise effective 
administration of the program based upon the degree to which the error 
rate exceeds the national performance measure.
    (iii) Evidence. When submitting a request to the ALJ for good cause 
relief, the State agency shall include such data and documentation as 
is necessary to support and verify the information submitted in 
accordance with the requirements of paragraph (e)(7) of this section so 
as to fully explain how a particular significant circumstance(s) 
uncontrollably affected its payment error rate.
    (iv) Finality. The initial decision of the ALJ concerning good 
cause shall constitute the final determination for purposes of judicial 
review without further proceedings as established under the provisions 
of Sec. 283.17 and Sec. 283.20 of this chapter.
* * * * *
    (9) FCS Timeframes. FCS shall determine, and announce the national 
average payment error rate for a fiscal year within 30 days following 
the completion of the case review process and all arbitrations of State 
agency-FCS difference cases for that fiscal year, and at the same time 
FCS shall notify all State agencies of their individual payment error 
rates and payment error rate liabilities, if any. The case review 
process and the arbitration of all difference cases shall be completed 
not later than 180 days after the end of fiscal year. FCS shall 
initiate collection action on each claim for such liabilities before 
the end of the fiscal year following the end of the fiscal year 
reporting period in which the claim arose unless an administrative 
appeal relating to the claim is pending. * * *
* * * * *
    Dated: June 16, 1995.
Ellen Haas,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 95-15460 Filed 6-22-95; 8:45 am]
BILLING CODE 3410-30-U