[Federal Register Volume 61, Number 176 (Tuesday, September 10, 1996)]
[Proposed Rules]
[Pages 47680-47690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22883]


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DEPARTMENT OF AGRICULTURE
Food and Consumer Service

7 CFR Parts 271 and 275

[Amdt No. 373]
RIN 0584-AB38


Food Stamp Program: 1995 Quality Control Technical Amendments

AGENCY: Food and Consumer Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Food and Consumer Service is proposing technical changes 
to the Food Stamp Program's Quality Control System which will reduce 
the workload on State agencies and improve the efficiency of the 
quality control system.

DATES: Comments must be received by November 12, 1996, in order to be 
assured of consideration.

ADDRESSES: Please address all comments to John H. Knaus, Branch Chief, 
Quality Control Branch, Program Accountability Division, Food Stamp 
Program, Food and Consumer Service, USDA, 3101 Park Center Drive, 
Alexandria, Virginia 22302. All written comments will be open to public 
inspection during regular business hours (8:30 a.m. to 5 p.m., Monday 
through Friday) at Room 904, 3101 Park Center Drive, Alexandria, 
Virginia.

FOR FURTHER INFORMATION CONTACT: John H. Knaus, at the above address, 
or by telephone at (703) 305-2472.

SUPPLEMENTARY INFORMATION:

Executive Order 12866.

    This proposed rule has been determined to be significant and was 
reviewed by the Office of Management and Budget under Executive Order 
12866. It has been determined that the following cost-benefits would 
result from adoption of the provisions of this rule:
    1. State agency sample size. The provision reducing the minimum 
sample size for active and negative case reviews will benefit those 
State agencies who will be required to review fewer cases. These are 
States choosing the ``smaller range'' in their sample plans with 
current minimum active or negative case sample sizes above the minimum 
sample size. In Fiscal Year 1992, before the waiver was available, 
States reviewed nearly 52,000 active and over 30,000 negative cases. 
Assuming a 15 percent reduction in cases, under this provision, States 
will be required to review nearly 8,000 fewer active cases and about 
4,500 fewer negative cases. Assuming that each active case review costs 
$180 and each negative case review costs $40 (taken from studies of 
active and negative case reviews and adjusted to account for wage 
inflation), total potential savings for States and FCS combined is an 
estimated $1.6 million. Savings for States are estimated at $800,000.
    2. Home visits. It is estimated that minimal savings in quality 
control expenditures will result from this provision as it is expected 
that State agencies will channel the resources into other aspects of 
quality control operations.
    3. Error dollar tolerance level. The provision to modify the 
tolerance level from $5.00 to $10.00 for excluding small errors will 
benefit those State agencies which qualify for enhanced funding. Based 
on Fiscal Year 1995 data, State agencies would qualify for an 
additional $562,811.
    The Department has examined the impact on potential State agency 
liability calculations from the combined effect of changing the error 
dollar tolerance level and the case completion standard. Data from two 
fiscal years has been analyzed to determine how these changes would 
effect liability amounts. The data shows that in one year the potential 
liability would have been higher, and in another year it would have 
been lower. In both situations the amount of the change was under one 
million dollars.
    It is not anticipated that any other provisions of this rule will 
have any significant impact on the costs or benefits to either the 
State agencies or FCS.

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 part 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.

[[Page 47681]]

Executive Order 12778.

    This proposed rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Effective Date'' section of this preamble. 
Prior to any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted. 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-quality control liabilities) or Part 283 (for rules related to 
quality control 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 also been reviewed in relation 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

Agency Information Collection Activities: Proposed Collection; Comment 
Request; FCS-380, Integrated Quality Control Review Worksheet

    In accordance with the Paperwork Reduction Act of 1995, this notice 
invites the general public and other public agencies to comment on the 
proposal to extend approval for information collection used on form 
FCS-380, the Integrated Quality Control Review Worksheet. The 
provisions of this rule do not impact on the approved information 
collection burden.
    Written comments must be submitted on or before November 12, 1996.
    Send comments and requests for copies of this information 
collection to: John H. Knaus, Chief, Quality Control Branch, Program 
Accountability Division, Food and Consumer Service, U.S. Department of 
Agriculture, Room 904, 3101 Park Center Drive, Alexandria, VA 22302.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (b) the accuracy of the agency's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (d) ways 
to minimize the burden of the collection of information on those who 
are to respond, including through the use of automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology.
    All responses to this notice will be summarized and included in the 
request for OMB approval. All comments will also become a matter of 
public record.
    For further information contact: John H. Knaus, (703) 305-2474.
    Title: Integrated Quality Control Review Worksheet.
    OMB Number: 0584-0074.
    Form Number: FCS-380.
    Expiration Date: 03/31/97.
    Type of Request: Extension of a currently approved information 
collection.
    Abstract: Quality Control monitors and reduces the rate of error in 
determining basic eligibility and benefit levels for the Food Stamp 
Program. The form FCS-380 serves as the source document from which 
other reports are compiled by State officials to be sent to the federal 
office in Washington, DC.
    Affected Public: Individuals or households; State or local 
governments.
    Estimated Number of Respondents: 61,840.
    Estimated Time per Response: 9 Hours.
    Estimated Total Annual Burden: 558,019 Hours.

Background

    Since 1988, the Food and Consumer Service (``FCS'') has published a 
number of proposed and final rules, all of which implemented changes in 
the Food Stamp Act of 1977, as amended, 7 U.S.C. 2011, et seq., (the 
``Act''). These changes, required by the Hunger Prevention Act of 1988, 
Pub. L. 100-435 (the ``HPA'') and/or the Mickey Leland Childhood Hunger 
Relief Act of 1993, Chapter 3, Title XIII of the Omnibus Budget 
Reconciliation Act of 1993, Pub. L. 103-66 (the ``Leland Act'') 
affected the way FCS calculates liabilities and enhanced funding, and 
the way State agencies may appeal those liabilities.
    During this time, certain operational issues have arisen in quality 
control (``QC''). This action proposes to resolve these issues. FCS' 
intentions are to reduce the workload on both the State agencies and on 
itself and to arrive at final review findings, error rates, 
liabilities, and enhanced funding amounts more efficiently. The 
proposed changes would: (1) Clarify the process for conducting a 
quality control review of negative cases and add suspended cases, which 
are cases that are certified for the Food Stamp Program (``Program'') 
but do not receive benefits, to the sample universe of negative cases; 
(2) permit State agencies to reduce their sample sizes; (3) clarify the 
minimum size of the Federal subsample; (4) clarify State sampling 
procedures; (5) change the formulas for calculating Federal subsample 
sizes; (6) increase the current tolerance level for excluding small 
errors; (7) modify the current requirement that requires that most 
quality control interviews be conducted in the recipient's home; (8) 
adjust the standard for the completion of quality control reviews from 
the current standard of 100 percent to a 98 percent completion 
requirement; and (9) clarify the circumstances under which the Federal 
findings of subsampled reviews will be changed.

Negative Case Reviews

    This action proposes to clarify issues surrounding the review of 
negative cases and to expand the universe of cases to be reviewed. 
These proposals are the culmination of an FCS look at the quality 
control review process for negative cases, including an examination of 
that process in response to Congress' request contained in the HPA, 7 
U.S.C. 2025(d). As a result of that request, FCS entered into a 
research contract with Abt Associates to develop and pilot test 
alternative approaches to measuring the extent of nonpayments to 
eligible households. In addition, prior to the study conducted by Abt 
Associates, the General Accounting Office (GAO) was asked by the 
Chairman, Subcommittee on Domestic Marketing, Consumer Relations, and 
Nutrition, House Committee on Agriculture, to review the accuracy of 
State reported error rates for improper denials and terminations. As a 
result of its review, GAO made three recommendations: (1) That FCS 
annually review a sample of each State's quality control reviews of 
denials or terminations and adjust States' reported denial or 
termination error rates accordingly; (2) that FCS examine alternatives 
to encourage States

[[Page 47682]]

to reduce improper denial or termination error rates, including seeking 
authority to hold States financially liable for their improper denials 
or terminations; (3) that FCS monitor States' quality control review 
practices to ensure that the appropriate cases are reviewed and the 
required number of reviews are completed on time. Based on the results 
of the study, FCS determined to strengthen monitoring of the negative 
action review process, renew emphasis on corrective action to reduce 
improper negative actions, and hold States accountable within existing 
statutory and regulatory authorities.
    With this background information in mind, FCS determined that 
certain changes to the regulations governing negative case reviews are 
warranted.

1. Federal Monitoring of State Agency Error Rates for Negative Case 
Reviews

    FCS is proposing to clarify the requirements and procedures for 
Federal monitoring of the negative case reviews conducted by State 
agencies. Currently under regulations at 7 CFR 275.3(c) FCS is required 
to validate a State agency's negative case error rate only when the 
State agency's payment and underissuance rate appear to entitle it to 
enhanced funding and its reported negative case error rate is less than 
the national weighted mean negative case error rate for the prior 
fiscal year.
    The regulation at 7 CFR 275.3(c) only provides the minimum level at 
which case review and validation are required. In practice, as 
circumstances warranted, review activity has been expanded. For 
example, review activities were expanded in response to the GAO audit. 
In addition, regional offices periodically review the quality of State 
agencies' negative case review processes. Unlike the results of the 
validation reviews, the results of these periodic reviews are not used 
to determine eligibility for enhanced funding, but rather to ensure the 
accuracy of States' procedures in conducting reviews. FCS is proposing 
changes to clarify that FCS retains its authority to conduct these 
periodic reviews, independent of the minimum validation activity 
required by regulation. The proposal is to require validation when 
both: (1) A State agency's reported negative case error rate is below 
or within two percentage points above the national weighted mean 
negative case error rate for the prior fiscal year; and (2) its payment 
error rate appears to entitle it to enhanced funding. It is anticipated 
that this increased validation activity will have a minimal impact on a 
State agency's workload. It will increase the number of cases reviewed 
by some FCS Regional offices. The proposed regulation clarifies that 
FCS may review a portion or all of a State agency's cases as FCS deems 
appropriate.

2. Inclusion of Suspended Cases in the Negative Sample Universe

    The quality control system has two sampling universes: the active 
case universe and the negative case universe. The universe for active 
cases includes households which have been certified eligible for food 
stamp benefits and which have received benefits for the sample month. 
The negative case universe includes households whose applications for 
food stamp benefits were denied or whose certification for 
participation in the Program has been terminated.
    In certain cases, State agencies are allowed or required to suspend 
a food stamp household instead of denying its application or 
terminating its participation in the Program. Suspended households are 
certified for the Program, but do not receive any benefits. Households 
under monthly reporting systems may be suspended for one month rather 
than terminated if they become temporarily ineligible due to a periodic 
increase in recurring income, such as receipt of a fifth weekly 
paycheck during a month (7 CFR 273.21(n)(1)). Non-categorically 
eligible households of three or more persons which are eligible but 
entitled to zero benefits because of excess income may be certified and 
suspended rather than denied, and categorically eligible households who 
are entitled to zero benefits due to excess income must be suspended, 
since they cannot be denied under the provisions of the Act 7 U.S.C. 
2014(a) and regulations (7 CFR 273.10(e)(2)(iii)(B); 7 CFR 
273.2(j)(2)(vii)(F); 7 CFR 273.2(j)(4)(iii)(C)).
    Under current regulations, suspended cases are excluded from both 
the active and negative case universes of the Program quality control 
system. FCS believes that these cases should be reviewed because of the 
potential for underissuances, and that it is more logical to review 
these cases with denied and terminated cases (negative cases) rather 
than with cases that received benefits (active cases). With this rule, 
FCS is proposing to include suspended cases in the negative case 
universe.

3. Use of the Action Date To Determine the Month in Which Negative 
Cases Are Included in the Sample Universe; Clarification of Meaning of 
``Break in Participation'' for Suspended and Terminated Cases

    In order to have an accurate measure of the correctness of negative 
actions, consistency in application of quality control procedures is 
necessary. FCS is concerned that problems State agencies have 
experienced in constructing the sample frame for negative cases may 
have resulted in failure to include certain cases in the negative 
sample universe. For example, in some cases when a household is denied 
and subsequently reapplies and is certified, the initial denial or 
denials have not been considered to be subject to review as negative 
actions. FCS is also concerned that there be consistency in the 
procedures used to determine whether an action to suspend or terminate 
a household has actually resulted in a suspension or termination.
    Current regulations include a negative case in the sample universe 
for the month for which the denial or termination is effective. The 
regulations exclude from the negative universe any negative actions 
which were taken against a household which did not result in the 
household actually being denied or terminated. Sampling problems occur 
if States cannot sample the months for which the action is effective. 
This occurs because the actions themselves may occur after, during, or 
before the month for which the action is effective. FCS proposes to 
allow State agencies to sample the action date rather than the 
effective date to make sampling easier.
    As a result of our review of these issues, FCS is proposing to 
revise the regulations to include denied, suspended, and terminated 
cases in the negative case universe in the month in which the action to 
deny, suspend, or terminate food stamp benefits was taken, and clarify 
that an action to terminate or suspend a household has actually 
resulted in a suspension or termination if the household experiences a 
break in participation in the program as a result of deliberate State 
agency action. The intent of these changes is to allow State agencies 
to construct consistent and reliable sampling plans for negative 
actions, and to ensure that negative actions which have the result of 
denying benefits to clients are subject to review, even if the actions 
are subsequently reversed, unless the reversal occurs under specified 
conditions and within specified timeframes.

[[Page 47683]]

    FCS will allow State agencies to specify in their sampling plans 
the date on which the negative action would be considered to have taken 
place, and which would be considered the review date. Depending on the 
characteristics of individual State systems, this could be the date on 
which the eligibility worker makes the decision to suspend, deny, or 
terminate the case, the date on which the decision is entered into the 
data processing system, the date of the notice to the client, or the 
date the negative action becomes effective. A State may choose to use 
different dates as the date of the action for denials and suspensions/
terminations. For example, it may choose to sample denials based on the 
date of the eligibility worker's decision, but sample suspensions and 
terminations based on the date the action goes into effect, to avoid 
sampling cases which are not subject to review because the negative 
action was never implemented. FCS' concern is not with the particular 
date which the State agency considers to be the action date, but rather 
the identification of a specific date associated with each negative 
action which can be applied consistently across all negative cases of a 
given type, and which will allow the State agency to ensure that all 
negative actions which are subject to review are included in the 
negative sample frame. Thus, if the State agency elects to use a date 
other than the decision date to construct its sample frame for negative 
cases, it is possible that the review date for these cases may fall 
outside the sample month. Negative cases shall not be dropped from the 
sample frame because the review date falls outside the sample month.

4. FCS Will Not Establish a Dollar Loss Rate for Negative Cases

    One aspect of negative case reviews that was of interest to 
Congress was the establishment of a dollar loss rate. During its study, 
Abt Associates looked at the possibility of developing a reliable 
dollar loss figure. In its recommendations, Abt stated a partial 
measure of loss could be determined by the frequency and amount of 
benefits restored to improperly denied or terminated households. While 
FCS recognizes the possibility of establishing a partial measure, it 
does not believe that an effort to obtain such limited information is 
warranted in light of the increased workload and reporting burdens that 
would fall to the State agencies. In addition, FCS does not believe 
that the use of restored benefit information translates directly to a 
dollar loss figure for these cases. We have not proposed the 
establishment of a dollar loss rate in this rulemaking.

State Agency Minimum Sample Sizes for Active and Negative Case 
Reviews

    FCS now requires each State agency to choose one of two ranges for 
calculating its minimum sample size for active case reviews. One is a 
range of 300 to 2400 reviews per year. The other, the ``smaller 
range'', is a range of 300 to 1200 reviews per year. The exact size of 
each State agency's minimum sample size for each range is determined by 
formulas that base sample size on the size of State Program caseloads 
(7 CFR 275.11(b)(1)).
    If a State agency wants to choose the ``smaller range'' it must 
include in its sampling plan a statement that it ``will not use the 
size of the sample chosen as a basis for challenging the resulting 
error rates'' (currently at 7 CFR 275.11(a)(2)(iv)). If a State agency 
does not include that statement in its sampling plan, it must calculate 
its minimum sample size for active case reviews using the 300 to 2400 
review range.
    The regulations now offer State agencies only one range for 
determining minimum sample size for negative case reviews. That is a 
range of 150 to 800 reviews (7 CFR 275.11(b)(2)).
    There are no maximum sample sizes; a State agency may select and 
review any number of cases above its minimum.
    FCS has granted waivers of the regulations on minimum sample sizes 
for active case reviews, in order to improve the efficiency of the 
quality control system without significantly affecting the reliability 
of quality control information. In order to make these temporary 
reductions permanent and to determine the appropriate conditions for 
these reductions, FCS is proposing to include the terms of these 
waivers in the Food Stamp Program regulations. FCS is also proposing to 
offer State agencies a choice of ranges to use in determining minimum 
sample sizes for negative case reviews that is similar to the choice of 
ranges for determining minimum sample sizes for active case reviews.
    FCS is proposing to reduce the size of the ``smaller range'' for 
minimum sample sizes for active case reviews. The proposed range would 
be 300 to 1020 reviews, a 15 percent reduction at the top from the 
current range.
    In order to use the minimum sample size calculated from the 300 to 
1020 case range, a State agency would still have to include in its 
sampling plan the statement from current 7 CFR 275.11(a)(2)(iv) quoted 
above. The purpose of the statement, as described in the February 17, 
1984 preamble to the rule that established the requirement for the 
statement, was to serve as ``a means of assuring that State agencies 
consider what degree of reliability they need.'' (49 FR 6295).
    There would be no other conditions on a State agency's use of the 
revised ``smaller range''. It would be up to the State agency to 
determine the most effective use of available resources.
    FCS is not proposing to reduce the lower bound of the minimum 
sample size ranges for active case reviews. For those State agencies 
whose sample size is at the lower bound of the ranges, a reduction in 
sample size would mean a reduction in reliability of quality control 
information which would be unacceptable to FCS.
    FCS is likewise also proposing the creation of a ``smaller range'' 
for minimum sample sizes for negative case reviews. The ``smaller 
range'', representing a 15 percent reduction at the top from current 
requirements, would be 150 to 680 reviews per year. The current 
required range of 150 to 800 reviews per year would be retained as the 
larger range for minimum sample sizes for negative case reviews.
    If a State agency chose to use the ``smaller range'' to calculate 
its minimum sample size for negative case reviews, it would be required 
to include in its sampling plan the statement in proposed new 
Sec. 275.11(a)(2)(iv) that it ``will not use the size of the sample 
chosen as a basis for challenging the resulting error rates.'' If a 
State agency did not include that statement, it would be required to 
calculate its minimum sample size for negative case reviews according 
to the larger range. As with active case reviews, the ranges would 
define minimum sample sizes; State agencies could always select more.
    FCS is not proposing to reduce the lower bound of the minimum 
sample size ranges for negative case reviews. For those State agencies 
whose sample size is at the lower bound of the ranges, a reduction in 
sample size would mean a reduction in reliability of quality control 
information which would be unacceptable to FCS.

Federal Sample Sizes

    On November 27, 1991, FCS published a final rule entitled 
``Miscellaneous Quality Control Provisions of the Hunger Prevention Act 
of 1988'' (56 FR 60045). This rule permits FCS to select and to review 
samples smaller than those indicated by the tables if the State agency 
fails to complete its required sample.
    FCS is proposing to change the headings to the tables which set out 
the

[[Page 47684]]

formulas for calculation of the Federal subsample size. These tables 
appear at 7 CFR 275.3(c)(1)(i) and 7 CFR 275.2(c)(3)(i) in current 
regulations; they appear in paragraphs 275.3(c)(1)(i)(A) and (B) and 
275.3(c)(3)(i) in the proposed rule. The phrase ``Federal subsample 
target'' would appear, rather than the current phrase ``Federal annual 
sample size''. This change would not permit FCS to select and to review 
a smaller subsample for any reason other than a State agency's failure 
to complete the minimum number of reviews in its required sample size.

State Sampling Procedures

    FCS is proposing four sets of technical clarifications to the 
sampling regulations so that the regulations will match the way State 
agencies design and implement their sampling plans.

1. Selection of One-Twelfth of the Sample Each Month

    Current regulations require State agencies to explain the basis of 
each month's sample if it is ``other than one twelfth of the active and 
negative sample sizes.'' Some State agencies have expressed concern 
that the regulations require that the agency select exactly one-twelfth 
of its sample in each month. This was never FCS' intent. It is 
inevitable that caseloads will fluctuate, and that the number of 
sampled households will rise and fall slightly each month. FCS' concern 
is not with these variations, but rather with the accuracy and 
integrity of the error rate estimate generated from the quality control 
samples. FCS has reviewed this provision in conjunction with the other 
regulatory provisions governing State sampling plans, and has 
determined that provisions requiring that sampling procedures conform 
to the standard principles of probability sampling and that state 
samples produce estimates with an acceptable, mandated level of 
reliability are sufficient to ensure that deviations, minor or 
otherwise, from equal monthly sample sizes will not jeopardize the 
validity nor the precision of those error rate estimates. Therefore, in 
Sec. 275.11, FCS proposes to delete paragraph (a)(2)(iii) and renumber 
paragraph (a)(2)(iv) as (a)(2)(iii). We are also making technical 
corrections to regulatory references appearing in Sec. 275.11(b)(1)(ii) 
and (b)(1)(iii). Each of these paragraphs currently contains an 
erroneous reference to Sec. 275.11(a)(2)(viii), which should be to 
current Sec. 275.11(a)(2)(iv). Since paragraph Sec. 275.11(a)(2)(iv) 
will now be renumbered, the reference will be corrected to refer to 
(a)(2)(iii).

2. Sampling Plans Must Conform to Accepted Statistical Theory

    FCS is proposing to amend the regulations at 7 CFR 275.11(a)(3) to 
require that all sample designs conform to commonly acceptable 
statistical theory and application.

3. Basis for Final Sample Size

    A State agency must calculate its required sample sizes at least 
twice for each review period. The first calculation occurs before the 
review period begins, when the State agency anticipates what its 
average monthly caseload will be. The second calculation occurs after 
the review period ends, when the State agency knows exactly what its 
average monthly caseload was. FCS is proposing to delete the word 
``anticipated'' from paragraph 275.11(b)(1)(iv) and current (b)(2)(ii) 
(revised (b)(2)(iv)), to clarify that the final sample size depends 
upon the State agency's actual average monthly caseload.
    Current regulations at 7 CFR 275.11(b)(3) provide that FCS will not 
penalize a State agency if its caseload increases by less than 20 
percent from the estimated caseload number that the State agency used 
to determine the size of its sample. FCS is proposing to clarify that 
this estimated caseload number is the one initially used to determine 
the sample size. Sample sizes will be found to be adequate if at least 
the minimum required sample size for the estimated caseload is chosen, 
and the actual caseload is no larger than 120% of the estimated 
caseload.

4. Number of Households Subject to Review is the Basis for the Sample 
Size

    Currently, the tables that describe the State agency's required 
sample sizes use the phrase ``average monthly active households'' and 
``average monthly negative households''. However, the actual practice 
is to use the ``average monthly reviewable caseload'' as the basis for 
calculating minimum sample sizes for both active and negative case 
reviews. Therefore, FCS is proposing to clarify the wording in the 
headings in the tables in proposed 7 CFR 275.3(c)(1)(i) (A) and (B), 
and in current 7 CFR 275.3 (c)(3)(i), 7 CFR 275.11 (b)(1) (ii) and 
(iii), and proposed 7 CFR 275.11 (b)(2) (i) and (ii). Please see FNS 
Handbook 311, section 3121.

Federal Subsample Size Formulas

    For both active and negative case reviews, FCS reviews a subsample 
of the State agency's completed reviews. The minimum Federal subsample 
sizes are determined by formulas that are based on the number of 
reviews that a State agency has completed. For example, if a State 
agency completed 1000 active case reviews, FCS would select a minimum 
subsample of 344 active case reviews. The range of the minimum 
subsample size for active case reviews is 150 to 400. The range of the 
minimum subsample size for negative case reviews is 75 to 160.
    Because FCS is proposing a change in the number of cases that a 
State agency is required to complete, use of the current formulas for 
calculating subsample sizes would result in a decrease in the size of 
the minimum Federal subsample for a State agency that chooses the 
``smaller ranges'' which FCS has proposed. However, FCS does not intend 
to reduce the size of the Federal subsample. Without a regulatory 
change, the formula for determining FCS' minimum subsample sizes would 
not accurately indicate the number of reviews that FCS would actually 
select for the subsample.
    So that the public is aware of FCS' actual minimum subsample sizes, 
FCS is proposing revised formulas for the minimum active and negative 
Federal subsamples. These proposed formulas, when applied to the new 
proposed ``smaller ranges'' for State samples, would yield the current 
ranges for the Federal subsample. Under FCS' proposal, Federal 
reviewers could still select and review more cases than the minimum 
subsample.

Error Dollar Tolerance Level

    Current regulations at 7 CFR 275.12(f)(2), first published August 
3, 1979 (44 FR 45887) provide that only overissuances or underissuances 
to eligible households in an amount greater than $5.00 shall be coded 
and reported in completing the quality control review of a sampled 
case. In the proposed regulations published April 10, 1979 (44 FR 
21517) the Department cited as one of the primary reasons for the 
proposed $5.00 tolerance the intention to ``obviate the need to expend 
funds to correct minor variations between the reviewer's and the 
eligibility worker's allotment figures.'' Since its inception 15 years 
ago the $5.00 tolerance figure has not been adjusted to take into 
account either increases in the Thrifty Food Plan, upon which food 
stamp allotments are based, or inflation in general. The Department has 
determined that because of the inflation to food stamp allotments which 
has occurred over the past 15 years an adjustment must be made to the 
tolerance level figure, in order to insure that minor variations 
between the reviewer's and eligibility worker's allotment figures 
continue to be

[[Page 47685]]

excluded from the error determination process.
    The Department proposes to raise the $5.00 tolerance level to 
$10.00, in order to compensate for the inflation which has occurred 
since the $5.00 tolerance was first established. Only those 
overissuances to eligible households, or underissuances to eligible 
households which exceeded the $10.00 tolerance figure would be reported 
and coded in the completion of quality control reviews. Based on an 
analysis of Fiscal Year 1993 quality control case review figures, an 
increase of the tolerance level to $10.00 would have the overall effect 
of decreasing the quality control National Average Payment Error Rate 
by .17 percent, and an increase in total liability amounts of $650,000. 
The slight increase in total liability amounts is due to the fact that 
liability figures are based, in part, on the percentage that an 
individual State agency's Payment Error Rate exceeds the National 
Average Payment Error Rate.

Home Visit Requirement

    Current regulations at 7 CFR 275.12(c)(1), first published August 
3, 1979, (44 FR 45895) specify that a face-to-face, personal interview, 
between the quality control reviewer and a responsible member of the 
household under review, is a required component of all active quality 
control reviews conducted. The regulations specify that most of these 
personal interviews shall take place in the participant's home, what is 
commonly referred to as a ``home visit''. The Department believes that 
the need for the personal interview to take place in the participant's 
home is no longer as great as it was when these provisions were first 
implemented. This is due, in part, to the greater variety of 
information sources, including computer data bases, which have been 
developed over the years to aid the reviewer in verifying the 
circumstances of the food stamp household under quality control review.
    The Department is proposing to amend the requirement for personal 
interviews to simply require a face-to-face personal interview. It is 
expected that the personal interview would take place at an appropriate 
State agency certification office, in the participant's home, or at a 
mutually agreed upon alternative location. The State agency would 
determine the best location for the interview to take place, but would 
be subject to the same provisions as those regarding certification 
interviews at 7 CFR 273.2(e)(2). These regulations provide that an 
office interview shall be waived under certain hardship conditions (for 
example, if all household members are disabled or elderly). Under such 
hardship conditions the quality control reviewer would conduct the 
personal interview either with an authorized representative (if one has 
been appointed by the household) or conduct the personal interview in 
the participant's home.

Conducting Quality Control Reviews Against Federal Regulations

    Current regulations at 7 CFR 275.3(c) for Federal validation 
reviews, published February 4, 1987 (52 FR 3402) and 7 CFR 275.10(a) 
for quality control reviews conducted by the State agencies, published 
February 17, 1984, (49 FR 6294) specify that all active and negative 
quality control reviews shall be conducted by ``reviewing against the 
Food Stamp Act and the regulations, taking into account any FNS-
authorized waivers to deviate from specific regulatory provisions.'' 
This provision was made because the Department no longer had authority 
to require approval of State agency manuals prior to their use. It was 
the intent of the Department to eliminate the use of the State agency 
manuals in the quality control review process. In the preamble to the 
February 17, 1984, final rulemaking it is stated that although the 
Department no longer had the authority to require approval of manuals 
prior to their use, the rule did not prohibit their use for quality 
control review purposes. The Department expected that most State 
agencies would continue to use their manuals as the basis for quality 
control reviews. Commenters pointed out that this would result in 
Federal quality control reviewers finding errors in manuals before 
State agencies were otherwise notified of them, and that these errors 
would affect the regressed error rates. The commenters objected to this 
use of quality control reviews and requested that State agencies be 
given time to correct manuals before an error is counted. These 
comments were not adopted because the Department believed that if State 
agencies were not liable for certification errors resulting from manual 
materials from the date those materials were in effect, there would 
have been less of an incentive to implement regulations on time and in 
conformance with the regulations.
    The Department believes that changes over the years in other areas 
of the regulations, including the provisions at 7 CFR 275.12(d)(2)(vii) 
published November 23, 1990, (55 FR 48831) which provide a variance 
exclusion for the timely implementation of new regulations, provide the 
incentive to the State agencies to implement regulatory changes in a 
timely manner. Therefore, the Department is considering amending 
regulations in order to provide a variance exclusion for any erroneous 
payments which result from the State agency having followed State 
agency policies or directives, provided that these policies or 
directives were provided to FCS prior to implementation and FCS had not 
notified the State agency that these policies were contrary to Federal 
law or regulations. This would not encompass situations where a State 
agency might knowingly violate Federal law or regulations. This 
variance exclusion could include changes in the computer programming of 
any State agency automated certification system. Providing a variance 
exclusion in this area, whether cited by State agency or Federal 
quality control reviewers, would have the effect of holding the State 
agency harmless from any errors resulting from inaccurate instructions 
appearing in State manuals. At the same time, maintaining the current 
practice of conducting quality control reviews against the Food Stamp 
Act and regulations would assist the State agencies and FCS in 
identifying, for corrective action, any erroneous instructions 
contained in State agency manuals, policies, or directives.
    The Department wishes to solicit comments from all interested 
parties on the appropriateness and potential consequences such a 
variance exclusion would have on the administration of the Program.

Quality Control Review Case Completion Standard

    Current regulations at 7 CFR 275.23(e)(7)(iii), first published 
February 17, 1984 (49 FR 6292) provide that an adjustment be made to a 
State agency's regressed error rates any time that the State agency 
fails to complete 100 percent of its required sample size by assigning 
two standard errors of the estimated error rates added to the regressed 
error rates, to those cases not completed. (This was ``two standard 
deviations'' in prior regulations and has been changed to use the 
correct terminology for the adjustment that is done. Standard deviation 
refers to the true error rate, while the standard error refers to the 
estimate of the error rate.) Prior to the publication of the February 
17, 1984 rule the completion standard had been 95 percent. It was the 
belief of the Department that the 100 percent completion standard was 
the only standard which would minimize any bias which incomplete cases 
could cause. In addition, because of changes which reduced the types of 
cases which would be considered incomplete, it was

[[Page 47686]]

believed that many State agencies would complete such a high percentage 
of their minimum sample size that the impact from the 100 percent 
completion standard would be minimal. However, experience has shown 
that there remain categories of cases which State agencies are unable 
to complete despite all efforts to do so on the part of the quality 
control reviewers. These cases include those in which the household 
under review refuses to cooperate with the quality control reviewer 
despite repeated attempts on the part of the State agency, including 
disqualification of the household from the Food Stamp Program, to gain 
the household's cooperation. An additional category is cases in which 
the reviewer is unable to verify the actual circumstances of the 
household for the time period under review, despite repeated attempts 
to do so.
    The Department proposes to amend the current requirement that a 
State agency complete 100 percent of its minimum required sample size. 
The new standard for State agency completion will be 98 percent of its 
minimum required sample size. In the event that a State agency fails to 
complete 98 percent of its minimum required sample size, error rates 
would be adjusted using the current regulatory formula which is based 
on a 100 percent completion requirement.

Changing Federal Case Findings and Disposition

    In active reviews, a finding is the determination of the accuracy 
of the State agency's authorized allotment for the household for the 
sample month. If the allotment was erroneous, the finding includes the 
amount of the error. In negative reviews, a finding is the 
determination of the validity of the State agency's decision to deny or 
terminate participation in the Food Stamp Program. For both active and 
negative reviews the disposition is the determination of whether the 
circumstances of the review meet the standards to be considered 
completed, not completed, or not subject to review.
    Current regulations, FNS Handbook 315, and current administrative 
practices describe the following as a typical (although not mandatory) 
way to handle a subsampled case that the Federal reviewer has 
completed. (1) FCS informs the State agency of the Federal findings and 
disposition for the case. This is done within seven days of the 
completion of the Federal review. (2) The State agency requests 
arbitration if it disagrees with some aspect of the FCS findings or 
disposition of the review. Under current regulations the State agency 
has 28 days to request arbitration. (3) During the same 28 day period 
the State agency may request that FCS reconsider the Federal findings 
or disposition in the case. (4) If FCS changes the Federal findings or 
disposition during the 28 day period because of the reconsideration, 
the new Federal findings/disposition are transmitted to the State 
agency, and a new 28 day period to request arbitration is provided for.
    There are circumstances under which FCS will currently change 
Federal findings/disposition after the 28 day deadline for requesting 
arbitration. Generally the reason for any changes are to arrive at 
correct Federal findings.
    The Department is proposing to codify into regulations the policies 
and practices which dictate when, and under what circumstances, FCS 
will change the Federal findings or disposition for a specific case. 
The Department has two goals in this proposal. First, the Department 
wishes to clarify the circumstances under which FCS will change Federal 
findings/disposition in order to promote clear, consistent application 
of its policies. The second goal in proposing these changes is to 
ensure the accurate determination of the error rates for all State 
agencies. The proposed changes are as follows:

1. Informal Resolution

    FCS would change the Federal findings or disposition if, as a 
result of the informal resolution process, both the State agency and 
FCS agreed on a new finding or disposition. The informal resolution 
process should begin in the period prior to the 28 day deadline which a 
State agency has for requesting arbitration. The informal resolution 
process may also take place after the 28 day deadline, but prior to any 
formal decision by an arbitrator, provided that the State agency has 
timely requested arbitration of the case. It should be noted that the 
28 day timeframe specified in this proposal is based on current 
regulations which provide State agencies with 28 days to request 
arbitration. Program changes mandated by the Leland Act regarding the 
timeframes for completing all review work and resolving all differences 
in review findings may require a modification of the timeframes for 
State agencies to request arbitration. If such a modification of the 
timeframes for requesting arbitration is made, it will be necessary in 
the final rule to adjust the timeframes for informal resolution.

2. Ruling by an Arbitrator

    FCS would change the Federal findings or disposition whenever an 
arbitrator's decision requires that a change be made.

3. Implementation of a Regulation, Law, or Waiver

    Whenever a change in Federal findings or dispositions is the only 
way to implement a change in regulations, an amendment to the Food 
Stamp Act, or retroactive provisions to a waiver, FCS would make the 
change.

4. Correct any Application of Incorrect Written Policy

    Current regulations at 7 CFR 275.12(d)(2)(viii) exclude ``any 
variance resulting from incorrect written policy that a State agency 
acts on that is provided by a Departmental employee authorized to issue 
Food Stamp Program policy and that the State agency correctly 
applies.'' The regulations go on to describe written policy as that in 
regulations, notices, handbooks, category three and four policy 
memoranda, and regional policy memoranda. The exclusion of these 
variances is required by section 16(c)(3)(B) of the Food Stamp Act (7 
U.S.C. 2025).
    The Department would change a Federal finding/disposition whenever 
it became aware that a variance which had been cited was the result of 
correct State application of an incorrect written policy provided by a 
Departmental employee authorized to issue FSP policy. It is likely that 
the State agency and FCS will not become aware of the problem until 
well after the State agency's deadline for requesting arbitration. This 
is because almost all parties involved, State agency quality control 
and certification policy staff, as well as FCS's regional office staff, 
will think that the written policy that they are following is correct. 
Therefore, in order to ensure that the State agency is not harmed by 
the Department's incorrect policy, the Department is proposing that the 
variance exclusion at 7 CFR 275.12(d)(2)(viii) may be made in the 
Federal findings at any time that the problem is discovered.
    FCS would not make a change based upon new factual information. The 
Department is taking this position for three reasons. First, it is the 
responsibility of the State agency to obtain all necessary information 
at the time the State quality control reviewer conducts the review. 
Even if the Federal reviewer obtains conflicting information, the State 
reviewer has two more opportunities to resolve

[[Page 47687]]

conflicting information- when the State agency requests regional 
arbitration, and again if the dispute moves to national arbitration.
    Second, if the household's circumstances were not reasonably 
certain at the time of the State agency's review, the case should have 
been disposed of as not completed. It does not seem likely that 
reasonably verified information would be contradicted at a later time.
    Third, the Department recognizes the need for final closure at some 
point in the resolution process. Section 13951 of the Leland Act 
specifies that ``no 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 believes that without 
providing some limits on the resolution process this mandated deadline 
cannot be achieved.

5. Conflict in a Federal Finding/Disposition

    If, for any reason, the Federal findings or disposition in the 
Integrated Quality Control System's (IQCS) data base conflicted with 
the finding letter which had been transmitted to the State agency, FCS 
would ensure the IQCS data base was correct. If the IQCS coding was 
incorrect, it would be corrected. If the finding letter was incorrect, 
it would be corrected. Either way, FCS would transmit a new finding 
letter to the State agency explaining what had occurred. There would be 
a new finding letter because the State agency would be entitled to know 
that a change in official error rates would be taking place.
    If, in any of the five circumstances which have been specified, FCS 
were to make changes to the findings and dispositions of a case these 
changes would be made regardless of the effect on the amount of error 
in the case. A State agency would be notified of the change and 
entitled to arbitration of the new Federal findings or disposition, 
with one exception. If FCS changed the Federal findings or disposition 
to comply with the decision of a national arbitrator, the State agency 
would have no further right to arbitration. This is because the 
national arbitrator's decisions are final, with two exceptions. The 
first would be to implement a change in law or regulations. The other 
would be if FCS learned that it had not properly implemented the 
decision of the arbitrator.

Miscellaneous Technical Correction

    FCS is taking advantage of the publication of this proposed rule to 
eliminate redundant regulatory language at 7 CFR 275.12(g)(2). Six of 
the 10 subparagraphs in this paragraph, which lists active cases which 
are eliminated from the sample universe during the review process, also 
appear at 7 CFR 275.11(f)(1). Therefore, FCS is proposing to (1) revise 
paragraph 275.12(g)(2) to reference Sec. 275.11(f); (2) remove 
subparagraphs 275.12(g)(2) (i) through (iv), (vi) and (viii), and (3) 
renumber the remaining subparagraphs in 275.12(g)(2). These revisions 
parallel the proposed revisions to Sec. 275.13(e), which lists negative 
cases which are eliminated from the sample universe during the review 
process. In addition, FCS is taking advantage of the publication of 
this proposed rule to eliminate obsolete regulatory language at 7 CFR 
275.23(e)(5)(i). Section 13951(c)(4) of the Leland Act provides that 
Administrative Law Judges, in considering a State agency's appeal of 
quality control liability consider all grounds for denying the claim, 
including the contention of a State agency that the claim should be 
waived, in whole or in part, for good cause. This provision was 
included in a final rulemaking published July 6, 1994 (59 FR 34553), 
and supersedes the regulatory language contained in 7 CFR 
275.23(e)(5)(i) dealing with good cause requests and the timing of the 
issuance of billings. The Department is also proposing to move, without 
change, the regulatory language in 7 CFR 275.23(e)(5)(i) dealing with 
the methods of claim collection employed by FCS to 7 CFR 275.23(e)(8). 
With the removal of the language dealing with billings from 7 CFR 
275.23(e)(5)(i), paragraph (e)(8) becomes the proper location for the 
provisions regarding the methods of bill collection to be employed by 
FCS.

Implementation

    FCS proposes all provisions would be effective with the 1998 fiscal 
year, which begins with the October, 1997 sample month.

List of Subjects

7 CFR Part 271

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

7 CFR Part 275

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

    For the reasons set out in the preamble, parts 271 and 275 of 
Chapter II of Title 7 Code of Federal Regulations are proposed to be 
amended as follows:

PART 271--GENERAL INFORMATION AND DEFINITIONS

    1. The authority citation for Part 271 continues to read as 
follows:

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

    2. In Sec. 271.2, the definitions of ``Error'', ``Negative case'', 
``Negative case error rate'', ``Quality control review'', and ``Review 
date'' are revised to read as follows:


Sec. 271.2  Definitions.

* * * * *
    Error for active cases results when a determination is made by a 
quality control reviewer that a household which received food coupons 
during the sample month is ineligible or received an incorrect 
allotment. Thus, errors in active cases involve dollar loss to either 
the participant or the government. For negative cases, an ``error'' 
means that the reviewer determines that the decision to deny, suspend, 
or terminate a household was incorrect.
* * * * *
    Negative case means a household whose application for food stamp 
benefits was denied or whose food stamp benefits were suspended or 
terminated by an action in the sample month.
    Negative case error rate means an estimate of the proportion of 
denied, suspended, or terminated cases where the household was 
incorrectly denied, suspended, or terminated. This estimate will be 
expressed as a percentage of completed negative quality control reviews 
excluding all results from cases processed by SSA personnel or 
participating in a demonstration project identified by FCS as having 
certification rules that are significantly different from standard 
requirements.
* * * * *
    Quality control review means a review of a statistically valid 
sample of active and negative cases to determine the extent to which 
households are receiving the food stamp allotments to which they are 
entitled, and to determine the extent to which decisions to deny, 
suspend, or terminate cases are correct.
* * * * *
    Review date for quality control active cases means a day within the 
sample month, either the first day of the calendar or fiscal month or 
the day the household was certified, whichever is later. The ``review 
date'' for negative cases is the date of the agency's decision to deny, 
suspend, or terminate program benefits. For no case is the ``review

[[Page 47688]]

date'' the day the quality control review is conducted.
* * * * *

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 introductory text of paragraph (c) is amended by revising 
the third sentence and adding a new sentence between the third and 
fourth sentences;
    b. paragraph (c)(1)(i) introductory text is revised, and the table 
following the introductory text is removed;
    c. paragraphs (c)(1)(i)(A), (c)(1)(i)(B), and (c)(1)(i)(C) are 
redesignated as paragraphs (c)(1)(i)(C), (c)(1)(i)(D), and 
(c)(1)(i)(E), respectively, and new paragraphs (c)(1)(i)(A) and 
(c)(1)(i)(B) are added;
    d. newly redesignated paragraph (c)(1)(i)(C) is amended by removing 
the words ``n is the'' and adding in their place the words ``n' is 
the'';
    e. paragraph (c)(3)(i) introductory text is revised, and the table 
following the introductory text is revised;
    f. paragraph (c)(3)(i)(A), introductory text, is amended by 
removing the words ``n is the'' and adding in their place the words 
``n' is the'';
    g. paragraph (c)(3)(ii) is amended by adding the word ``, 
suspend,'' between the words ``deny'' and ``or'';
    h. a new paragraph (c)(6) is added.
    The revisions and additions read as follows:


Sec. 275.3  Federal monitoring.

* * * * *
    (c) Validation of State Agency Error Rates. * * * FCS must validate 
the State agency's negative case error rate, as described in 
Sec. 275.23(d), when the State agency's payment error rate for an 
annual review period appears to entitle it to an increased share of 
Federal administrative funding for that period as outlined in 
Sec. 277.4(b)(2) of this chapter, and its reported negative case error 
rate for that period is less than two percentage points above the 
national weighted mean negative case error rate for the prior fiscal 
year. However, this requirement will not preclude the federal review of 
any negative case for other reasons as determined appropriate by FCS. * 
* *
    (1) Payment error rate. * * *
    (i) FCS will select a subsample of a State agency's completed 
active cases, as follows:
    (A) For State agencies that determine their active sample sizes in 
accordance with Sec. 275.11(b)(1)(ii), the Federal review sample for 
completed active cases is determined as follows:

------------------------------------------------------------------------
                                              Federal subsample target  
  Average monthly reviewable caseload (N)               (n')            
------------------------------------------------------------------------
31,489 and over...........................  n'=400.                     
10,001 to 31,488..........................  n'=.011634 N+33.66.         
10,000 and under..........................  n'=150.                     
------------------------------------------------------------------------

    (B) For State agencies that determine their active sample sizes in 
accordance with Sec. 275.11(b)(1)(iii), the Federal review sample for 
completed active cases is determined as follows:

------------------------------------------------------------------------
                                              Federal subsample target  
  Average monthly reviewable caseload (N)               (n')            
------------------------------------------------------------------------
60,000 and over...........................  n'=400.                     
10,001 to 59,999..........................  n'=.005 N+100.              
10,000 and under..........................  n'=150.                     
------------------------------------------------------------------------

* * * * *
    (3) Negative case error rate. * * *
    FCS will select a subsample of a State agency's completed negative 
cases, as follows:

------------------------------------------------------------------------
    Average monthly reviewable negative       Federal subsample target  
               caseload (N)                             (n')            
------------------------------------------------------------------------
5,000 and over............................  n'=160.                     
501 to 4,999..............................  n'=.0188 N+65.7.            
Under 500.................................  n'=75.                      
------------------------------------------------------------------------

* * * * *
    (6) Changing Federal Findings. Once FCS has notified a State agency 
of a Federal finding, FCS shall change that Federal finding only 
according to the following procedures:
    (i) FCS shall change a Federal finding only if:
    (A) FCS informally resolves with a State agency the differences 
between the State agency and Federal findings, and both parties agree 
on a single Federal finding. The informal resolution process should 
begin prior to the deadline for the State agency to request arbitration 
of a case, and may continue after the arbitration deadline, provided 
that arbitration of the case has been timely requested by the State 
agency; or
    (B) An arbitrator's decision necessitates a change; or
    (C) A change is the only way to implement a regulation or an 
amendment to the Food Stamp Act; or
    (D) The change is solely attributable to the variance exclusion for 
incorrect written policy, as described at Sec. 275.12(d)(2)(viii).
    (ii) FCS shall notify the State agency that the Federal finding has 
changed.
    (iii) The State agency shall be entitled to arbitration in 
accordance with paragraph (c)(4) of this section. However, if FCS 
changed the Federal finding or disposition based on a national 
arbitrator's decision, the State agency shall not be entitled to 
further arbitration.
    (iv) If FCS enters a Federal finding into the data base at the 
National Computer Center but notifies the State agency of a different 
Federal finding for the same case, FCS shall ensure the IQCS data base 
contains the correct finding, notify the State agency of the 
discrepancy in the IQCS data base and the finding letter, and inform 
the State agency that it is entitled to arbitration in accordance with 
paragraph (c)(4) of this section.
* * * * *


Sec. 275.10  [Amended]

    5. In Sec. 275.10(a):
    a. the second sentence is amended by adding the word ``, 
suspended,'' between the words ``denied'' and ``or'';
    b. the fifth sentence is amended by adding the word ``, suspend,'' 
between the words ``deny'' and ``or''.
    6. In Sec. 275.11:
    a. paragraph (a)(2)(iii) is removed, paragraph (a)(2)(iv) is 
redesignated as (a)(2)(iii) and a new paragraph (a)(2)(iv) is added;
    b. paragraph (a)(3) is revised;
    c. in paragraph (b)(1)(ii), the table is revised, and the text is 
amended by removing the reference to ``(a)(2)(viii)'' and adding in its 
place the reference to ``(a)(2)(iii)'';
    d. in paragraph (b)(1)(iii), the table is revised, and the text is 
amended by removing the reference to ``(a)(2)(viii)'' and adding in its 
place the reference to ``(a)(2)(iii)'';
    e. in paragraph (b)(1)(iv) the third sentence is amended by 
removing the word ``anticipated'';
    f. paragraph (b)(2) is revised;
    g. paragraph (b)(3) is revised;
    h. the last sentence in paragraph (c)(1) is amended by adding the 
word ``, suspension,'' between the words ``denial'' and ``or'';
    i. paragraph (e)(2) is revised;
    j. the introductory text of paragraph (f)(2) is revised;
    k. paragraph (f)(2)(iv) is revised and paragraphs (f)(2)(v) through 
(f)(2)(ix) are added.
    The additions and revisions read as follows:


Sec. 275.11  Sampling.

    (a) Sampling plan. * * *
    (2) Criteria. * * *
    (iv) If the State agency has chosen a negative sample size as 
specified in paragraph (b)(2)(ii) of this section, include a statement 
that, whether or not the sample size is increased to reflect an

[[Page 47689]]

increase in negative actions as discussed in paragraph (b)(3) of this 
section, the State agency will not use the size of the sample chosen as 
a basis for challenging the resulting error rates.
    (3) Design. FCS generally recommends a systematic sample design for 
both active and negative samples because of its relative ease to 
administer, its validity, and because it yields a sample proportional 
to variations in the caseload over the course of the annual review 
period. (To obtain a systematic sample, a State agency would select 
every kth case after a random start between 1 and k. The value of k is 
dependent upon the estimated size of the universe and the sample size.) 
A State agency may, however, develop an alternative sampling design 
better suited for its particular situation. Whatever the design, it 
must conform to commonly acceptable statistical theory and application 
(see paragraph (b)(4) of this section).
* * * * *
    (b) Sample size. * * *
    (1) Active cases. * * *
    (ii) * * *

------------------------------------------------------------------------
                                             Minimum annual sample size 
  Average monthly reviewable caseload (N)                (n)            
------------------------------------------------------------------------
60,000 and over...........................  n=2400.                     
10,000 to 59,999..........................  n=300+[0.042 (N-10,000)].   
Under 10,000..............................  n=300.                      
------------------------------------------------------------------------

    (iii) * * *

------------------------------------------------------------------------
                                             Minimum annual sample size 
  Average monthly reviewable caseload (N)                (n)            
------------------------------------------------------------------------
60,000 and over...........................  n=1020.                     
12,942 to 59,999..........................  n=300+[0.0153(N-12,941)].   
Under 12,942..............................  n=300.                      
------------------------------------------------------------------------

* * * * *
    (2) Negative cases.
    (i) Unless a State agency chooses to select and review a number of 
active cases determined by the formulas provided in paragraph 
(b)(2)(ii) of this section and has included in its sampling plan the 
reliability certification required by paragraph (a)(2)(iv) of this 
section, the minimum number of negative cases to be selected and 
reviewed by a State agency during each annual review period shall be 
determined as follows:

------------------------------------------------------------------------
    Average monthly reviewable negative      Minimum annual sample size 
               caseload (N)                              (n)            
------------------------------------------------------------------------
5,000 and over............................  n=800.                      
500 to 4,999..............................  n=150+[0.144 (N-500)].      
Under 500.................................  n=150.                      
------------------------------------------------------------------------

    (ii) A State agency which includes in its sampling plan the 
statement required by paragraph (a)(2)(iv) of this section may 
determine the minimum number of negative cases to be selected and 
reviewed during each annual review period as follows:

------------------------------------------------------------------------
    Average monthly reviewable negative      Minimum annual sample size 
               caseload (N)                              (n)            
------------------------------------------------------------------------
5,000 and over............................  n=680.                      
684 to 4,999..............................  n=150+[0.1224 (N-683)].     
Under 684.................................  n=150.                      
------------------------------------------------------------------------

    (iii) In the above formulas, n is the required negative sample 
size. This is the minimum number of negative cases subject to review 
which must be selected each review period.
    (iv) In the above formulas, N is the average monthly number of 
negative cases which are subject to quality control review (i.e., 
households which are part of the negative universe defined in paragraph 
(e)(2) of this section) during the annual review period.
    (3) Unanticipated changes. Since the average monthly caseloads 
(both active and negative) must be estimated at the beginning of each 
annual review period, unanticipated changes can result in the need for 
adjustments to the sample size. FCS shall not penalize a State agency 
that does not adjust its sample size if the actual caseload during a 
review period is less than 20 percent larger than the estimated 
caseload initially used to determine sample size. If the actual 
caseload is more than 20 percent larger than the estimated caseload, 
the larger sample size appropriate for the actual caseload will be used 
in computing the sample completion rate.
* * * * *
    (e) Sample frame. *  *  *
    (2) Negative cases. The frame for negative cases shall list:
    (i) all households whose applications for food stamps benefits were 
denied by an action in the sample month except those excluded from the 
universe in paragraph (f)(2) of this section. If a household is subject 
to more than one denial action in a single sample month, each action 
shall be listed separately in the sample frame; and
    (ii) all households whose food stamp benefits were suspended or 
terminated by an action in the sample month except those excluded from 
the universe in paragraph (f)(2) of this section.
* * * * *
    (f) Sample universe. * * *
    (2) Negative cases. The universe for negative cases shall include 
all households whose applications for food stamps were denied or whose 
food stamp benefits were suspended or terminated by an action in the 
sample month except for the following:
* * * * *
    (iv) A household which is under active investigation for 
Intentional Program Violation;
    (v) A household which was denied, but subsequently certified within 
the normal 30 day processing standard, using the same application form;
    (vi) A household which was suspended or terminated but the 
suspension or termination did not result in a break in participation 
that is the result of deliberate State agency action. There would be no 
break in participation if the household is authorized to receive its 
full allotment in the month for which the suspension or termination was 
effective other than continuation of benefits pending a fair hearing. 
Pro rated benefits are not considered to be a full allotment;
    (vii) A household which has been sent a notice of pending status 
but which was not actually denied participation;
    (viii) A household which was terminated for failure to file a 
complete monthly report by the extended filing date, but reinstated 
when it subsequently filed the complete report before the end of the 
issuance month.
    (ix) Other households excluded from the negative case universe 
during the review process as identified in Sec. 275.13(e).
* * * * *
    7. In Sec. 275.12:
    a. paragraph (c)(1) introductory text is revised;
    b. the first sentence of paragraph (f)(2) is amended by removing 
the reference to ``$5.00'' and adding in its place a reference to 
``$10.00'';
    c. paragraph (g)(2) introductory text is revised.
    The revisions and additions read as follows:


Sec. 275.12  Review of active cases.

* * * * *
    (c) Field investigation. * * *
    (1) Personal interviews. Personal interviews shall be conducted in 
a manner that respects the rights, privacy, and dignity of the 
participants. Prior to conducting the personal interview, the reviewer 
shall notify the household that it has been selected, as part of an

[[Page 47690]]

ongoing review process, for review by quality control, and that a 
personal face-to-face interview will be conducted in the future. The 
method of notifying the household and the specificity of the 
notification shall be determined by the State agency, in accordance 
with applicable State and Federal laws. The personal interview may take 
place at an appropriate State agency certification office, at the 
participant's home, or at a mutually agreed upon alternative location. 
The State agency shall determine the best location for the interview to 
take place, but would be subject to the same provisions as those 
regarding certification interviews at 7 CFR 273.2(e)(2). These 
regulations provide that an office interview shall be waived under 
certain hardship conditions. Under such hardship conditions the quality 
control reviewer shall either conduct the personal interview with the 
participant's authorized representative, if one has been appointed by 
the household, or with the participant in the participant's home. 
Except in Alaska, when an exception to the field investigation is made 
in accordance with this section, the interview with the participant may 
not be conducted by phone. During the personal interview with the 
participant, the reviewer shall:
* * * * *
    (g) Disposition of case reviews. * * *
    (2) Cases not subject to review. Active cases which are not subject 
to review, if they have not been eliminated in the sampling process, 
shall be eliminated in the review process. In addition to cases listed 
in 275.11(f)(1), these shall include:
* * * * *
    8. In Sec. 275.13:
    a. paragraph (a) is revised;
    b. the first sentence of paragraph (b) is revised;
    c. the third sentence of paragraph (b) is amended to add the word 
``, suspension,'' between the words ``denial'' and ``or'';
    d. the first sentence of paragraph (c)(1) is amended by adding the 
word ``, suspended,'' between the words ``denied'' and ``or'';
    e. the second sentence of paragraph (c)(1) is amended by adding the 
word ``, suspend,'' between the words ``deny'' and ``or'';
    f. the first sentence of paragraph (c)(2) is amended by adding the 
word ``, suspended,'' between the words ``denied'' and ``or'';
    g. paragraph (e)(1) is amended by adding a heading to the 
paragraph;
    h. paragraph (e)(2) is revised;
    i. the first sentence of paragraph (f) is amended by adding the 
words ``suspended or'' between the words ``been'' and ``terminated''.
    The addition and revisions read as follows:


Sec. 275.13  Review of negative cases.

    (a) General. A sample of households whose applications for food 
stamps benefits were denied or whose food stamp benefits were suspended 
or terminated by an action in the sample month shall be selected for 
quality control review. These negative cases shall be reviewed to 
determine whether the State agency's decision to deny, suspend, or 
terminate the household, as of the review date, was correct. For 
negative cases, the review date shall be the date of the agency's 
decision to deny, suspend, or terminate program benefits. The review of 
negative cases shall include a household case record review; an error 
analysis; and the reporting of review findings, including procedural 
problems with the action regardless of the validity of the decision to 
deny, suspend or terminate.
    (b) Household case record review. The reviewer shall examine the 
household case record and verify through documentation in it whether 
the reason given for the denial, suspension, or termination is correct 
or whether the denial, suspension, or termination is correct for any 
other reason documented in the casefile. * * *
* * * * *
    (e) Disposition of case review. * * *
    (1) Cases reported as not complete. * * *
    (2) Cases not subject to review. Negative cases which are not 
subject to review, if they have not been eliminated in the sampling 
process, shall be eliminated in the review process. In addition to 
cases listed in Sec. 275.11(f)(2), these shall include:
    (i) A household which was dropped as a result of a correction for 
oversampling;
    (ii) A household which was listed incorrectly in the negative 
frame.
* * * * *
    9. In Sec. 275.23:
    a. paragraph (c)(4) is amended by adding the word ``, suspension,'' 
between the words ``denial'' and ``or'';
    b. paragraph (e)(5)(i) is amended by removing everything but the 
first sentence;
    c. the introductory text of paragraph (e)(7)(iii) is amended by 
removing the word ``all'' and adding in its place the words ``98 
percent''.
    d. paragraph (e)(8) is revised.
    The revision reads as follows:


Sec. 275.23  Determination of State agency program performance.

* * * * *
    (e) State agencies' liabilities for payment error rates. * * *
    (8) FCS Timeframes. FCS shall notify State agencies of their 
payment error rates and payment error rate liabilities, if any, within 
nine months following the end of each fiscal year reporting period to 
which they pertain. FCS shall initiate collection action on each claim 
for such liabilities before the end of the fiscal year reporting period 
in which the claim arose unless an appeal relating to the claim is 
pending. Such appeals include arbitration cases, requests for good 
cause waivers, and administrative and judicial appeals pursuant to 
Section 14 of the Food Stamp Act. While the amount of a State's 
liability may be recovered through offsets to their letter of credit as 
identified in Sec. 277.16(c), FCS shall also have the option of billing 
a State directly or using other claims collection mechanisms authorized 
under the Federal Claims Collection Act, depending upon the amount of 
the State's liability. FCS is not bound by the timeframes referenced in 
this subparagraph in cases where a State fails to submit QC data 
expeditiously to FCS and FCS determines that, as a result, it is unable 
to calculate a State's payment error rate and payment error rate 
liability within the prescribed timeframe.
* * * * *
    Dated: August 28, 1996.
Ellen Haas,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 96-22883 Filed 9-9-96; 8:45 am]
BILLING CODE 3410-30-P