[Federal Register Volume 61, Number 63 (Monday, April 1, 1996)]
[Rules and Regulations]
[Pages 14261-14264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7822]



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LEGAL SERVICES CORPORATION
45 CFR Part 1635


Timekeeping Requirement

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: This rule requires all recipients of Legal Services 
Corporation (``LSC'' or ``Corporation'') funds to account for the time 
spent on all cases, matters, and supporting activities by their 
attorneys and paralegals, whether funded by the Corporation or by other 
sources.

EFFECTIVE DATE: May 1, 1996.

FOR FURTHER INFORMATION CONTACT: Victor M. Fortuno, General Counsel, 
Legal Services Corporation, 750 First Street NE., 11th Floor, 
Washington, D.C. 20002-4250. (202) 336-8800.

SUPPLEMENTARY INFORMATION: On June 25, 1995, in order to improve the 
accountability of recipients for their funds (both Corporation and all 
other funds), and in response to concerns expressed by members of 
Congress in proposed reauthorization legislation, proposed 
appropriations legislation, and in congressional hearings, the LSC 
Board of Directors (``Board'') adopted a resolution requiring 
Corporation staff to prepare a regulation specifying a time and 
recordkeeping system for implementation by LSC recipients. On September 
8, 1995, the Board's Operations and Regulations Committee 
(``Committee'') held public hearings on proposed 45 CFR part 1635. 
After adopting several changes to the proposed rule, the Committee 
voted to publish the proposed rule in the Federal Register for notice 
and comment.
    The proposed rule was published in the Federal Register on 
September 21, 1995 (60 FR 48956). Six comments were submitted during 
the allotted time and three arrived after the deadline, but all nine 
were fully considered. The Committee met on December 17, 1995, to 
consider the written and oral comments to the proposed rule. Based on 
the comments, the Committee revised the proposed rule. On December 18, 
1995, the Board voted to adopt the rule as recommended by the Committee 
and directed publication of the rule in the Federal Register as a final 
rule.
    This rule requires recipients to account for the time spent on all 
cases, matters, and supporting activities by their attorneys and 
paralegals. These requirements apply whether the case, matter, or 
supporting activity is funded by the Corporation or by other sources, 
as provided in H.R. 2076, the appropriations bill which included funds 
for LSC for fiscal year (``FY'') 1996. (H.R. 2076 was passed by 
Congress but vetoed by the President; however, the Corporation 
anticipates passage of legislation containing substantially similar 
language in the near future.) Such timekeeping is not now required 
under 45 CFR Part 1630, Costs Standards and Procedures.
    Several comments objected to the proposed rule as time-consuming, 
costly and burdensome. The Corporation is mindful of the costs which 
this regulation will impose on its recipients. Nevertheless, despite 
the possibility that implementation of this rule will reduce a 
recipient's LSC-funded capacity for

[[Page 14262]]
client services, the Corporation has concluded that timekeeping by 
attorneys and paralegals will materially improve recipients' 
accountability for their funds. Stated simply, the potential benefits 
of timekeeping to recipients outweigh the costs. These benefits include 
improved supervisory information, better cost estimation in bidding for 
other funds, enhanced control of priority implementation by local 
boards of directors, and more informative reports to the Corporation, 
other grantors, and the public. Congress has apparently reached a 
similar conclusion, since a timekeeping requirement is included in 
Sec. 504(10) of the House bill (H.R. 2076), Sec. 14(a)(10)(A) of the 
Senate version, and Sec. 504(a)(10)(A) of the House-Senate Conference 
version.
    The remainder of this commentary provides a section-by-section 
analysis of the rule, discusses the major issues raised by comments, 
and notes the changes made in the regulation.

Section 1635.1  Purpose

    The purpose of this rule is to ensure recipient accountability for 
the use of funds. Although not included as a stated purpose, the 
Corporation notes that, as some recipients that currently have 
timekeeping systems in place have found, timekeeping may be a useful 
management tool as well.

Section 1635.2  Definitions

    This section now defines ``case,'' ``matter,'' and ``supporting 
activity'' as the functions of a program for which time records are 
required to be kept. Several comments criticized the definitions in the 
proposed rule as vague, confusing or incomplete, and sought more 
examples for guidance. The definitions have been substantially changed 
to address these concerns.
    Section 504(a)(10)(A) would have required that records of time be 
maintained on ``each case or matter.'' One comment pointed out that the 
proposed rule failed to indicate where to record time spent on 
important elements of program services, such as training, intake, staff 
development, the preparation of desk manuals, and continuing legal 
education. This final rule assigns such actions to the term ``matter.'' 
As a result, the categories now closely parallel the terms used in new 
accounting standards which every recipient of LSC funding is required 
to follow. These new standards for the financial statements of not-for-
profit organizations such as legal services programs require that 
annual financial statements report expenses by their functional 
classifications, divided into two major classes of expenses for 
``program services'' and ``supporting activities.'' Financial 
Accounting Standards Board, Statement of Financial Accounting Standards 
No. 117, para. 26 (June 1993) [hereafter referred to as ``SFAS 117'']. 
``Program services'' are defined as actions ``that result in goods and 
services being distributed to beneficiaries, customers, or members that 
fulfill the purposes or mission for which the organization exists.'' 
SFAS 117 at para. 27. ``Supporting activities'' are defined as ``all 
activities of a not-for-profit organization other than program 
services. Generally, they include management and general, fundraising, 
and membership-development activities.'' SFAS 117 at para. 28. The 
revised definitions in the regulation adopt the accounting separation 
of ``program services'' from ``supporting activities.''
    Within the program services category, separate definitions are 
provided for a ``case'' and a ``matter.'' The definition of ``matter'' 
includes both direct program services such as community legal education 
and also the types of actions which must be performed in order to 
provide direct program services in an effective and efficient manner. 
Time spent in training, the preparation of desk manuals, and similar 
undertakings is necessary and reasonable to accomplish a recipient's 
program service priorities, but it is often not directly allocable to a 
particular case or matter. Instead, the costs incurred in such uses of 
time are gathered together in an indirect cost pool and then allocated 
among the relevant program services and fund sources pursuant to 45 CFR 
part 1630 and generally accepted accounting principles. The Corporation 
has attempted to clearly delineate the actions which will fall into 
each category; however, if in unresolvable doubt as to the category in 
which a particular action belongs, the recipient should classify that 
action as a ``matter.''
    Actions that are administrative in nature would be included in the 
supporting activities category. Actions such as board meetings, staff 
breaks, general staff meetings, researching and implementing 
timekeeping systems, and staff evaluations would be included in the 
supporting activities subcategory of ``management and general.''

Section 1635.3  Timekeeping Requirement

    This section sets out the timekeeping requirement. The rule sets 
out the minimum requirements for a timekeeping system and is not 
intended to prevent recipients from implementing a system designed to 
collect additional information the recipient will find useful for 
program purposes.
    The timekeeping rule is intended to require all recipients to 
account for the time spent by their attorneys and paralegals on all 
cases, matters, and supporting activities, whether the time is funded 
by the Corporation or by other sources. Such timekeeping records must 
be created contemporaneously. This means that, in most cases, records 
should be created no later than the end of the day. The records also 
must account for time in increments not greater than one-quarter of an 
hour, comprising all of the efforts of the attorneys and paralegals for 
which compensation is paid. In response to a question raised in the 
comments, it is noted that, although the rule contains a not less than 
one-quarter hour requirement, true blocks of time may be accumulated 
(for example, where 30 minutes is spent on one activity, the time 
record may reflect the 30-minute increment). Because the Corporation 
believes time records will be more useful to the Corporation and to the 
recipient if certain data are included, the content of the time records 
has been specified in more detail to ensure that each case has a 
specific and unique client name or case number, and that time spent by 
lawyers and paralegals on matters or supporting activities is 
identified separately from time spent on cases.
    In addition, to avoid misunderstanding, the rule now explicitly 
requires that, for time spent after a time record system is 
implemented, the system must be able to aggregate, on request, time 
data in the legal problem categories that the Corporation uses for its 
Case Service Reports. This will ensure that recipients will be able to 
demonstrate their time by type of case and will assist them in 
estimating future resource commitments. Recipients will be able to meet 
this requirement, for example, by entering the legal problem category 
on each time record for a case or by aggregating the data of all cases 
of the same type through coding of each client name or case number.
    Because the rule as proposed contained only an effective date and 
did not address the question of precisely when a timekeeping system 
must be implemented, the rule has been modified to add a specific time 
period by which a timekeeping system must be put in place. Recipients 
must implement a system in accordance with the rule no later than 30 
days after the rule's effective date, or within 30 days

[[Page 14263]]
of the effective date of a grant or contract, whichever is later.
    The timekeeping requirement, with its reference to 45 CFR part 
1630, was read by some commentators as creating a new requirement that 
all cost allocations for part 1630 purposes be calculated directly from 
time records kept pursuant to this rule. This is not correct. Part 1630 
requires that costs be allocated to cost objectives (such as grants, 
projects, services or other actions) in accordance with the benefits 
received by those cost objectives. Time records may well provide the 
basis for allocating costs among cost objectives. Under both part 1630 
and generally accepted accounting principles, however, in appropriate 
situations other bases remain acceptable as well, such as number of 
cases, number of employees, or total direct costs. A more extended 
discussion of allocation bases can be found in the Supplementary 
Information for part 1630 as a final rule, published on August 13, 1986 
(51 FR 29078-29079).
    Some confusion also arose from the statement in the Supplementary 
Information to the proposed rule that recipients must account for 100 
percent of attorney and paralegal time spent in the course of their 
employment, even if the time is spent outside normal business hours. 
The statement that recipients must account for 100 percent of attorney 
and paralegal time is not intended to suggest that the number of hours 
attorneys and paralegals work should exceed the number of hours in a 
normal business day or week. It is assumed that attorneys and 
paralegals work the number of hours necessary to perform their job 
duties competently and professionally. Pursuant to the rule, time 
records are designed to document all (100 percent) the efforts of 
attorneys and paralegals for which they are compensated by a recipient, 
regardless of whether such compensated work is performed before, 
during, or after a recipient's normal business hours. Moreover, since 
the purpose of the rule is to ensure accountability for the use of 
recipients' funds, it is not intended to require attorneys and 
paralegals to account for any time period for which they are not being 
compensated by a recipient for work performed on behalf of the 
recipient.

Section 1635.4  Administrative Provisions

    The proposed rule included language advising recipients that the 
records should be maintained in a manner consistent with the attorney-
client privilege and all applicable rules of professional 
responsibility. Since all actions of recipients must be consistent with 
the attorney-client privilege and rules of professional responsibility, 
upon reflection, the Corporation has determined that inclusion of 
specific language in the rule is not necessary. In implementing the 
timekeeping requirement, recipients should remain aware of the access 
provision and mindful of ethical precepts governing client 
confidentiality.
    The House-Senate Conference version of H.R. 2076 directed that time 
records be accessible to the Corporation (Sec. 509(d)) and to any 
Federal department or agency auditing or monitoring the activities of 
the Corporation or of a recipient and any independent auditors or 
monitors receiving Federal funds to conduct such auditing or monitoring 
(Sec. 504(a)(10)(C)). The Conference version also directed that the 
Corporation not disclose time records it obtains except to a law 
enforcement official or to a bar association official conducting a 
disciplinary investigation (Sec. 509(e)). One comment suggested that 
the regulation should contain very similar provisions. Because the 
final statutory definition of those who will be entitled to access to 
time records either directly from the recipient or from the Corporation 
is still uncertain, the regulation simply provides notice that there 
are organizations and individuals who may have such access under 
statutes. On the other hand, with regard to release of such time 
records as the Corporation may obtain, the Board decided that it would 
adopt the terms of the Conference version of H.R. 2076 and included 
them in the final rule without waiting for enactment of the final 
appropriations law.

List of Subjects in 45 CFR Part 1635

    Legal services, Reporting and recordkeeping requirements.

    For reasons set forth in the preamble, LSC amends 45 CFR chapter 
XVI by adding part 1635 as follows:

PART 1635--TIMEKEEPING REQUIREMENT

Sec.
1635.1  Purpose.
1635.2  Definitions.
1635.3  Timekeeping Requirement.
1635.4  Administrative Provisions.

    Authority: 42 U.S.C. Secs. 2996e(b)(1)(A), 2996g(a), 2996g(b), 
2996g(e).


Sec. 1635.1  Purpose.

    This Part is intended to improve accountability for the use of all 
funds of a recipient by:
    (a) Assuring that allocations of expenditures of Corporation funds 
pursuant to 45 CFR part 1630 are supported by accurate and 
contemporaneous records of the cases, matters, and supporting 
activities for which the funds have been expended;
    (b) Enhancing the ability of the recipient to determine the cost of 
specific functions; and
    (c) Increasing the information available to the Corporation for 
assuring recipient compliance with Federal law and Corporation rules 
and regulations.


Sec. 1635.2  Definitions.

    As used in this part--
    (a) A ``case'' is a form of program service in which an attorney or 
paralegal of a recipient provides legal services to one or more 
specific clients, including, without limitation, providing 
representation in litigation, administrative proceedings, and 
negotiations, and such actions as advice, providing brief services and 
transactional assistance, and assistance with individual PAI cases.
    (b) A ``matter'' is an action which contributes to the overall 
delivery of program services but does not involve direct legal advice 
to or legal representation of one or more specific clients. Examples of 
matters include both direct services, such as community education 
presentations, operating pro se clinics, providing information about 
the availability of legal assistance, and developing written materials 
explaining legal rights and responsibilities; and indirect services, 
such as training, continuing legal education, general supervision of 
program services, preparing and disseminating desk manuals, PAI 
recruitment, intake when no case is undertaken, and tracking 
substantive law developments.
    (c) A ``supporting activity'' is any action that is not a case or 
matter, including management and general, and fundraising.


Sec. 1635.3  Timekeeping Requirement.

    (a) All expenditures of funds for recipient actions are, by 
definition, for cases, matters, or supporting activities. The 
allocation of all expenditures must be carried out in accordance with 
45 CFR part 1630.
    (b) Time spent by attorneys and paralegals must be documented by 
time records which record the amount of time spent on each case, 
matter, or supporting activity.
    (1) Time records must be created contemporaneously and account for 
time in increments not greater than one-quarter of an hour which 
comprise all of the efforts of the attorneys and paralegals for which 
compensation is paid.

[[Page 14264]]

    (2) Each record of time spent must contain: for a case, a unique 
client name or case number; for matters or supporting activities, an 
identification of the category of action on which the time was spent.
    (c) The timekeeping system must be implemented within 30 days of 
the effective date of this regulation or within 30 days of the 
effective date of a grant or contract, whichever is later.
    (d) The timekeeping system must be able to aggregate time record 
information from the time of implementation on both closed and pending 
cases by legal problem type.


Sec. 1635.4  Administrative Provisions.

    Time records required by this section shall be available for 
examination by auditors and representatives of the Corporation, and by 
any other person or entity statutorily entitled to access to such 
records. The Corporation shall not disclose any time record except to a 
Federal, State or local law enforcement official or to an official of 
an appropriate bar association for the purpose of enabling such bar 
association official to conduct an investigation of an alleged 
violation of the rules of professional conduct.

    Dated: March 26, 1996.
Victor M. Fortuno,
General Counsel.
[FR Doc. 96-7822 Filed 3-29-96; 8:45 am]
BILLING CODE 7050-01-P