[Federal Register Volume 62, Number 250 (Wednesday, December 31, 1997)]
[Rules and Regulations]
[Pages 68219-68228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-34120]


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LEGAL SERVICES CORPORATION

45 CFR Part 1630


Cost Standards and Procedures

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: This final rule sets forth cost standards and procedures 
applicable to Legal Services Corporation (``LSC'' or ``Corporation'') 
grants and contracts. This rule contains substantial revisions which 
bring the Corporation's cost standards and procedures into conformance 
with applicable provisions of the Inspector General Act, the 
Corporation's appropriations action, and relevant Office of Management 
and Budget (``OMB'') Circulars.

DATES: This rule is effective January 30, 1998.

FOR FURTHER INFORMATION CONTACT: Office of the General Counsel, (202) 
336-8817.

SUPPLEMENTARY INFORMATION:

Background

    On July 13, 1997, the Corporation's Operations and Regulations 
Committee (``Committee'') held public hearings in Los Angeles, 
California, on draft revisions to the Corporation's rule on cost 
standards and procedures and adopted a proposed rule that was published 
for public notice and comment on August 29, 1997 (62 FR 45778). The 
Corporation subsequently received five written comments on the proposed 
revisions.
    On November 14, 1997, during public hearings in Washington, DC, the 
Committee considered comments on the proposed revisions. After making 
additional revisions to the rule, the Committee recommended that the 
Corporation's Board of Directors (``Board'') adopt the rule as final, 
which the Board did on November 15, 1997.
    Revisions were necessary to bring the rule into conformance with 
Sec. 509 of Pub. L. 104-134, 110 Stat. 1321; the Inspector General Act 
(``IG Act''), 5 U.S.C. App. 3, as amended; the Audit for LSC Recipients 
and Auditors (``Audit Guide''); OMB Circular A-50, Audit Followup 
(September 29, 1982); OMB Circular A-110, Uniform Administrative 
Requirements for Grants and Agreements with Institutions of Higher 
Education, Hospitals, and other Non-Profit Organizations (November 19, 
1993); OMB Circular A-122, Cost Principles for Non-Profit Organizations 
(May 8, 1997); and OMB Circular A-133, Audits of States, Local 
Governments, and Non-Profit Organizations (June 24, 1997).

[[Page 68220]]

    Because the LSC Act specifies that the Corporation is not a Federal 
agency, OMB Circulars are generally not binding on the Corporation, 
unless Congress has specified elsewhere in the law that the Corporation 
must adhere to a specific Circular, as is the case in Sec. 509(k) of 
Pub. L. 104-134, which requires the Corporation to develop audit 
follow-up procedures which meet, at a minimum, the requirements of OMB 
Circular A-50. As a matter of discretion, however, the Corporation has 
adopted relevant provisions from OMB Circulars which are applicable to 
Federally funded non-profit organizations. For example, Sec. I-2 of the 
Corporation's Audit Guide requires recipients and their auditors to 
adhere to OMB Circular A-133. This rule draws on that Circular, as well 
as Circulars A-110 and A-122, which contain cost standards and 
procedures applicable to non-profit organizations which receive Federal 
funds.

Scope and Effective Date

    The requirements of this rule apply to all costs charged against 
Corporation grants or contracts on or after the rule's effective date. 
The requirements of this rule also apply to certain income derived from 
Corporation grants and contracts. This rule generally does not apply to 
funding obtained from sources other than the Corporation, except as 
provided by Sec. 1630.11. The review and appeal process of Sec. 1630.7 
applies to questioned cost proceedings initiated by the Corporation on 
or after the effective date of this rule.
    A section-by-section analysis of the rule follows.

Section-by-Section Analysis

Section 1630.2--Definitions

    Paragraph (a) defines an allowed cost as a questioned cost which 
the Corporation has determined to be eligible for payment with LSC 
funds. This definition applies only to costs which either the 
Corporation or an authorized auditor has questioned during the course 
of an audit or investigation. Costs are generally allowable provided 
that they meet the nine criteria of $1630.3(a).
    Paragraph (b) defines corrective action as action taken by a 
recipient that: (1) Corrects identified deficiencies; (2) produces 
recommended improvements; or (3) demonstrates that audit or other 
findings are invalid or do not warrant further action. This definition 
comes from Sec. 105 of OMB Circular A-133, which is applicable to LSC 
recipients through Sec. I-2 of the LSC Audit Guide.
    One comment noted that the third part of the rule's definition was 
inconsistent with the customary usage of the term by Corporation 
recipients, which have not traditionally thought of corrective action 
as encompassing expression of disagreement with an auditor's finding. 
The third part of the definition comes from Secs. 105 and 315(c) of OMB 
Circular A-133, which specify that a corrective action plan is the 
place to express disagreement with an audit finding. Thus, within OMB 
parlance, the expression of disagreement is ``corrective action.'' To 
maintain consistency with the OMB definition, the Board decided to 
retain the third part of the rule's definition of corrective action.
    One comment noted a significant difference between the OMB 
definition and the definition in this rule: while the rule's definition 
refers to ``audit or other'' findings, the OMB definition refers only 
to ``audit'' findings. The Corporation included ``other'' findings in 
its definition of corrective action in order to extend the scope of the 
definition to non-audit findings, such as findings from complaint 
investigations by Corporation management. For this reason, the Board 
has retained the reference to ``other'' findings in the rule's 
definition of corrective action.
    Paragraph (c) defines derivative income as income resulting from 
certain Corporation-funded activities. This definition is adapted from 
the definition of ``program income'' which appears in Sec. 2(x) of OMB 
Circular A-110. The term ``derivative income'' does not include income 
from publication activities, because these activities are subject to an 
exception under Sec. 24(h) of OMB Circular A-110, which provides that 
recipients have no obligation to the Federal Government with respect to 
income earned from license fees and royalties from copyrighted 
materials.
    One comment suggested that the Corporation should clarify whether 
funding obtained from other sources as a result of fundraising efforts 
conducted with LSC funds is LSC derivative income. It is not. The 
rule's definition of derivative income does not reach grants, 
contracts, or contributions from non-LSC sources.
    Paragraph (d) defines disallowed cost as a questioned cost that the 
Corporation has determined may not be charged to LSC funds. This 
definition comes from Sec. 5(f)(3) of the IG Act.
    Paragraph (e) defines final action as the completion of all 
corrective actions which the Corporation, in a management decision, has 
concluded are necessary to address findings and recommendations in an 
audit or other report. This definition comes from Sec. 5(f)(6) of the 
IG Act. The second sentence of the definition states that, if the 
Corporation determines that no corrective action is necessary, final 
action occurs when the Corporation issues its management decision. One 
comment recommended deletion of this second sentence because the rule 
did not apply that portion of the definition. In order to maintain 
consistency with the definition in the IG Act, the Board chose not to 
revise the rule's definition of final action. Instead, the Board 
revised Sec. 1630.7(d) to add clarification that, in the event that 
corrective action is unnecessary, final action occurs with the issuance 
of a management decision.
    Paragraph (f) defines management decision as the evaluation by 
Corporation management of the findings and recommendations in an audit 
or other report, and the issuance of a final, written decision by 
Corporation management, including a description of the corrective 
action which Corporation management considers necessary to respond to 
the findings and recommendations. This definition comes from Sec. 
5(f)(5) of the IG Act. A similar definition appears in Sec. 105 of OMB 
Circular A-133.
    Two comments sought clarification about the scope of the rule's 
definitions of final action and management decision. While the IG Act's 
definitions of management decision and final action refer only to 
``audit'' reports, the definitions in the rule refer to ``audit and 
other'' reports. As explained above in the discussion of the definition 
of corrective action, the Corporation has included ``other'' findings 
in the rule's definitions in order to extend the scope of the 
definitions to non-audit findings, such as those resulting from 
complaint investigations by Corporation management.
    Paragraph (g) defines questioned cost as a cost charged to 
Corporation funds which the Corporation or an authorized auditor has 
questioned because of: (1) A violation of applicable law; (2) a lack of 
adequate supporting documentation; or (3) an appearance that the cost 
is unnecessary or unreasonable. This definition comes from Sec. 5(f)(1) 
of the IG Act. A similar definition appears in Sec. 105 of OMB Circular 
A-133.
    The definition of questioned cost recognizes that other persons and 
entities, in addition to Corporation management, such as the Office of 
Inspector General (``OIG''), the General Accounting Office (``GAO''), 
independent public accountants, and other duly authorized auditors and 
audit organizations have authority to question costs incurred by 
Corporation recipients. However, this definition does not extend such 
authority to

[[Page 68221]]

persons or entities which are not duly authorized by applicable law to 
audit or investigate Corporation recipients.
    Paragraph (h) defines recipient for the purposes of this part only. 
This definition reaches grantees receiving Corporation funds pursuant 
to either Sec. 1006(a)(1) or Sec. 1006(a)(3) of the LSC Act, in 
contrast to the definition of recipient appearing at 45 CFR 
Sec. 1600.1, which defines recipients only as those entities receiving 
Corporation funds pursuant to Sec. 1006(a)(1)(A) of the Act.

Section 1630.3--Standards Governing Allowability of Costs Under 
Corporation Grants or Contracts

Paragraph (a)--Criteria for Allowability
    Paragraph (a) of this section sets out nine criteria which 
determine whether costs are allowable under Corporation grants or 
contracts. These criteria generally conform to section A, paragraph 2, 
of Attachment A to OMB Circular A-122. Section 1630.5(b) contains a 
tenth, prior approval criterion which applies to a small number of 
specific costs. These two sections apply only to Corporation funds and 
income derived from Corporation-funded activities.
    Subparagraph (a)(1) requires that costs be actually incurred in the 
performance of the grant or contract. This requirement is consistent 
with the accrual method of accounting, which is required by generally 
accepted accounting principles. Costs incurred just prior to the onset 
of a Corporation grant or contract, or just after the cessation of 
Corporation funding, are allowable with the prior approval of the 
Corporation as required by Sec. 1630.5(b)(1). This is a change from the 
prior rule, which did not allow costs incurred prior to, or after the 
cessation of, Corporation funding.
    Subparagraph (a)(2) requires that costs be reasonable and necessary 
to the performance of a Corporation grant or contract. The concept of 
reasonableness applies both to the amount of the cost and to the nature 
of the activity that the cost represents. Paragraph (b) of the rule 
describes in greater detail four considerations which enter into a 
determination of whether a cost is reasonable and necessary.
    Subparagraph (a)(3) requires that costs be allocable to a 
Corporation grant or contract. Paragraph (c) describes in detail the 
considerations which govern the allocability of costs.
    Subparagraph (a)(4) requires that costs be in compliance with the 
LSC Act, applicable appropriations law, Corporation rules, regulations, 
guidelines, and instructions, the Accounting Guide for LSC Recipients, 
the terms and conditions of the grant or contract, and other applicable 
law. The cost of an activity prohibited or restricted by such law is 
not allowable under this rule and may result in a questioned or 
disallowed cost.
    Subparagraph (a)(5) requires that recipients account for costs 
through the consistent application of established accounting policies 
and procedures. The Accounting Guide for LSC Recipients sets forth 
applicable principles, guidelines, and criteria for recipients' 
accounting systems.
    Subparagraph (a)(6) requires that recipients account for costs 
consistently over time. This provision does not prevent recipients from 
modifying their cost allocation methods. However, recipients doing so 
should document the reasons for modification, especially if such 
modification results in the shifting of a particular type of cost from 
one funding source to another.
    Subparagraph (a)(7) requires that recipients allocate costs in 
accordance with generally accepted accounting principles. The 
Accounting Guide for LSC Recipients contains guidance on accounting 
principles applicable to Corporation recipients.
    Subparagraph (a)(8) requires that recipients not use Corporation 
funds to meet the cost matching requirements of other Federal funding 
sources, unless another Federal funding source has indicated in writing 
that recipients may do so. In at least one instance, another Federal 
funding source has done so. In 1980, the Department of Health and Human 
Services issued a Policy Announcement stating that recipients could use 
Corporation funds to meet the matching requirement of Title III funding 
for legal services.
    Subparagraph (a)(9) requires that recipients document costs charged 
to Corporation funds in business records which are available during 
normal business hours to the Corporation and other persons or entities, 
such as the GAO, which are duly authorized by applicable law to conduct 
audits or investigations of Corporation recipients.
Paragraph (b)--Reasonableness
    Paragraph (b) applies a four-part prudent person test to the 
determination of whether a cost is reasonable. The language of this 
provision comes from section A, paragraph 3, of Attachment A to OMB 
Circular A-122.
    One comment noted that, because the language of subparagraph (b)(3) 
of the proposed rule referred to ``persons concerned,'' the prudent 
person test could be read to hold recipients liable for the actions of 
employees acting outside of their agency, even where recipients may 
have taken all reasonable steps to prevent the actions from occurring. 
Because this is not the Corporation's intent, the Board modified 
subparagraph (b)(3) to refer to ``the recipient'' instead of ``persons 
concerned.''
    In general, when applying the prudent person test to determine 
whether a cost is reasonable, the Corporation will look at both the 
cost itself and the process by which the recipient decided to incur the 
cost. Generally, a cost is reasonable in nature and amount if it is 
comparable to similar costs incurred by other legal services programs 
in similar circumstances. Indicia of a prudent process include, but are 
not limited to, the solicitation of quotes from prospective vendors, 
documentation of the acquisition process, and board approval of 
unusually large costs.
    If, for any reason, uncertainty exists as to the reasonableness of 
a cost, recipients may seek an advance understanding from the 
Corporation pursuant to Sec. 1630.5(a). A request for an advance 
understanding should describe in reasonable detail the nature and 
amount of the cost. Provided that the actual costs does not vary 
significantly in nature or amount for the description in the request, 
an advance understanding ensures that the Corporation will not disallow 
the cost later on the grounds that it was unreasonable.
Paragraph (c)--Allocability
    Paragraph (c) sets forth considerations which govern the 
allocability of costs charged to Corporation grants and contracts. In 
short, a cost is allocable to a grant or contract to the extent that it 
``benefits'' the grant or contract. The language of this section comes 
from section A, paragraph 4, of Attachment A to OMB Circular A-122.
    Some costs benefit a single grant, such as the salary cost of a 
Title III attorney who exclusively represents elder clients. Other 
costs benefit several different grants, such as the rental cost of an 
office which serves clients under LSC, IOLTA, and Title III grants. In 
the former instance, a recipient should allocate all of the Title III 
attorney's salary cost to the Title III grant. In the latter instance, 
a recipient should allocate a share of the office's rental costs to the 
LSC, IOLTA, and Title III grants, provided that each of those funding 
sources permit this type of cost.
    This paragraph no longer contains a provision from the prior rule 
which prohibited the shifting of costs to avoid funding deficiencies or 
restrictions on

[[Page 68222]]

the uses of funds. The Board specifically sought comment on the 
deletion of this provision in the preamble to the proposed rule. The 
Corporation received no comments opposing the deletion.
    The Board approved deletion of this provision, because 
Sec. 1630.3(a)(4) already prevents recipients from charging the costs 
of restricted activities to LSC funds. Although the result of deleting 
this provision is to permit the shifting of otherwise allowable costs 
to Corporation funds, the Corporation encourages recipients to budget 
and allocate costs carefully so as to avoid accumulating deficits in 
their non-LSC funds which would necessitate year-end transfers of LSC 
funds to eliminate the deficits.
Paragraphs (d) and (e)--Direct and Indirect Costs
    The salary of a Title III attorney who exclusively serves elder 
clients is a typical example of a direct cost as described by paragraph 
(d). Generally, recipients should treat the salaries and wages of 
attorneys and paralegals as direct costs. The rental cost of office 
space which is used to serve clients under two or more different grants 
is a typical example of an indirect cost as described by paragraph (e). 
The language of these two sections comes from sections B and C of 
Attachment A to OMB Circular A-122.
Paragraph (d)--Keeping of Personnel Activity Reports
    Several comments observed that a reference to ``time records'' in 
paragraph (d) of the proposed rule could be read to require recipients 
to base their allocations of staff salaries and wages on timekeeping 
records kept pursuant to 45 CFR part 1635, the Corporation's 
timekeeping rule. This would require a significant number of recipients 
to modify their timekeeping systems, because many recipients do not 
include funding source information in the timekeeping records which 
they keep pursuant to 45 CFR part 1635.
    The Corporation does not intend to impose such a requirement. The 
preamble to 45 CFR part 1635 clearly states that, while timekeeping 
records are one possible basis for cost allocations, the Corporation 
did not intend to require recipients to calculate cost allocations 
directly from timekeeping records kept pursuant to 45 CFR part 1635. 
(61 FR 14263, Apr. 1, 1996.) For this reason, the Board revised 
paragraph (d) to refer to ``personnel activity reports'' instead of 
``time records.''
    Accordingly, paragraph (d) requires that recipients keep personnel 
activity reports to support salaries and wages which are allocated as 
direct costs. Paragraph 6(1)(2) of Attachment B to OMB Circular A-122 
provides detailed guidance about the keeping of such reports. These 
reports should: (1) Be prepared at least monthly; (2) contain a 
reasonable, after-the-fact estimate of the distribution of activity of 
each compensated employee whose time is charged directly to a grant; 
and (3) be signed by either the employee or a supervisor having first-
hand knowledge of the employee activity. The keeping of these records 
also satisfies the ``labor-distribution'' recordkeeping requirement of 
Sec. 3-5.5(a) of the Accounting Guide for LSG Recipients.
Paragraph (f)--Allocation of Indirect Costs
    Pursuant to paragraph (f) of this section, the allocation of 
indirect costs should be accomplished through an established cost 
allocation method. Because nearly all current recipients perform the 
single function of delivering legal services to low-income clients, 
paragraph (f) sets forth a simplified allocation method for allocating 
indirect costs among funding sources. The language of this paragraph 
comes from section D of Attachment A to OMB Circular A-122.
    Generally, recipients should use an indirect cost allocation method 
which distributes costs equitably among all funding sources. Possible 
bases for allocating indirect costs include, but are not limited to, 
total direct costs, direct salaries and wages, attorney hours, numbers 
of cases, and numbers of employees.
Paragraph (g)--Exception for Certain Indirect Costs
    Two comments noted that some funding sources do not permit the 
charging of certain indirect costs. Paragraph (g) creates an exception 
to accommodate this situation. If a recipient cannot allocate an 
indirect cost to one or more funding sources, the recipient should 
distribute the cost equitably among the funding sources which do permit 
the charging of the cost.
    In the case of audit costs under Sec. 509(c) of Public Law 104-134, 
for example, recipients should distribute their audit costs on a pro 
rata basis among funding sources which do permit the charging of such 
costs. This allocation method satisfies the requirements of Sec. 
509(c).
Paragraph (h)--Applicable Credits
    Paragraph (h) defines and explains how to allocate applicable 
credits. Applicable credits are receipts or reductions of expenditures 
which operate to offset or reduce expenses.
Paragraph (i)--Guidance
    Because the LSC Act specifies that the Corporation is not a Federal 
agency, OMB Circulars are generally not binding on the Corporation or 
on recipients of its funds. However, the Corporation has relied on 
three relevant OMB Circulars in the development of these cost standards 
and procedures.
    In particular, OMB Circulars A-110, A-122, and A-133 contain 
publicly noticed and commented standards which are applied throughout 
the Federal government to nonprofit organizations which receive Federal 
funds. In the event that questions arise about the allowability of 
costs under this part, the Corporation will look to these Circulars for 
guidance, to the extent that they are not inconsistent with law 
applicable to the Corporation and its recipients, including the 
Corporation's rules, regulations, and guidelines.

Section 1630.4--Burden of Proof

    This section provides that the recipient has the burden of proving 
that costs charged to Corporation funds meet the requirements of 
Secs. 1630.3 and 1630.5 of this part. When a recipient engages in an 
activity which is permissible only with non-LSC funds, the recipient 
also has the burden of showing that such costs are properly charged to 
non-LSC funds.
    To meet this requirement, recipients must maintain accounting 
systems which are sufficient to demonstrate the allocation of costs to 
various funding sources, as required by this part and Secs. 2-4.1 and 
3-5 of the Accounting Guide for LSC Recipients. However, neither this 
rule nor the Accounting Guide requires recipients to maintain separate 
bank accounts for the purposes of segregating funds received from 
different funding sources.

Section 1630.5--Costs Requiring Corporation Prior Approval

    Paragraph (a) of this section permits recipients to obtain an 
advance understanding from the Corporation prior to incurring costs 
that are exceptional in nature or amount. The language of this 
paragraph comes from section A, paragraph 6, of Attachment A to OMB 
Circular A-122.
    An advance understanding as to the reasonableness or allocability 
of an exceptional cost guards against the possibility that the cost 
might come into question during a subsequent audit. The Corporation 
encourages recipients to

[[Page 68223]]

seek advance understandings prior to incurring costs which might be 
perceived later by an auditor as being other than ordinary and 
necessary to the operation of a legal services program.
    Paragraph (b) of this section lists specific costs which recipients 
may not charge to Corporation funds without the Corporation's written 
prior approval. Because this paragraph applies to costs charged to LSC 
funds only, recipients charging the entire amount of such costs to non-
LSC funds do not need to seek the Corporation's prior approval. Where 
recipients charge part of the cost to LSC funds and part of the cost to 
non-LSC funds, Corporation prior approval is necessary when the amount 
charged to LSC funds exceeds one of the threshold amounts in this 
paragraph. In the case of purchases of real property, Corporation prior 
approval is necessary when a recipient expends any amount of LSC funds 
to acquire real property.
    Subparagraph (b)(1) requires recipients to obtain prior approval 
before charging certain pre-award and post-cessation-of-funding costs 
to Corporation funds. Two comments noted that the wording of this 
subparagraph, as it appeared in the proposed rule, could be read to 
apply to expenditures of LSC fund balances carried over by continuing 
recipients pursuant to 45 CFR part 1628. Because this was not the 
Corporation's intent, the Board approved a revision to this 
subparagraph, so that it now refers to ``pre-award costs and costs 
incurred after the cessation of funding.''
    Pursuant to paragraph 34 of Attachment B to OMB Circular A-122, and 
with the Corporation's prior approval, pre-award costs may be charged 
to a Corporation grant if they are: (1) Incurred pursuant to the 
negotiation of and in anticipation of, the grant; (2) necessary to the 
performance of the grant; and (3) otherwise allowable during the actual 
term of the grant. Such costs include, but are not limited to, the 
hiring of staff and the acquisition of office space and equipment 
necessary to the performance of the grant.
    With the prior approval of the Corporation, recipients may use some 
or all of their LSC funds remaining at the time of cessation of funding 
to fulfill their professional responsibilities to clients by closing 
out cases or by transferring them to other providers. In the rare event 
that termination of funding occurs during the term of a grant, 
paragraph 48 of Attachment B to OMB Circular A-122 provides detailed 
guidance on the allowability of costs incurred during the termination 
process.
    The $10,000 threshold of subparagraph (b)(2) applies to individual 
items of personal property only. Corporation prior approval is no 
longer necessary for purchases and leases of individual items costing 
less than this amount, even if a purchase or lease of several related 
items with individual costs below $10,000 has a combined cost which 
exceeds the threshold amount. However, the costs of acquiring such 
items must still meet the criteria of Sec. 1630.3 of this part, 
including the requirement that such costs be reasonable and necessary 
to the performance of the grant or contract.
    The use of Corporation funds to purchase real property, whether to 
pay part or all of an initial down payment or to pay part or all of the 
principal or interest payments on debt secured to finance the purchase, 
requires Corporation prior approval. Capital expenditures to improve 
real property also require Corporation prior approval, if the amount of 
LSC funds going toward such an expenditure exceeds $10,000. Leases of 
real property do not require Corporation prior approval.
    Paragraph (b) no longer requires prior approval of consultant 
contracts. However, recipients should be prepared to justify the costs 
of such contracts should they come into question during a subsequent 
audit or investigation. Subparagraph 35(b) of Attachment B to OMB 
Circular A-122 list several factors which govern the allowability of 
the costs of retaining consultants. These include: (1) The nature and 
scope of the service; (2) the necessity of contracting for the service; 
(3) the recipient's ability to perform the service itself; (4) the 
qualifications of the consultants; (5) and the adequacy of the contract 
agreement. In the event that there is likely to be any question about 
the reasonableness or allocability of a consultant contract, recipients 
may seek an advance understanding from the Corporation as provided by 
Sec. 1630.5(a).
    The elimination of the prior approval requirement for consultant 
contracts does not affect or supersedes 45 CFR part 1627, which governs 
subgrants of LSC funds. As provided by part 1627, contracts using LSC 
funds to perform programmatic activities are subgrants which require 
Corporation prior approval, except that contracts for private attorney 
involvement in amounts not greater than $25,000 do not require prior 
approval.

Section 1630.6--Timetable and Basis for Granting Prior Approval

    Paragraph (a) requires the Corporation to grant prior approval of a 
cost when a recipient provides sufficient written information to 
demonstrate that the cost would be allowable under the provisions of 
this part. When denying a request for prior approval, the Corporation 
must explain in writing why the cost would not be allowable.
    Paragraph (b) provides a timetable for obtaining prior approval. If 
the Corporation fails to act within the timetable in this paragraph, it 
may not assert the absence of prior approval as a basis for disallowing 
a cost. However, to be allowable, the cost must nonetheless meet the 
nine criteria of Sec. 1630.3(a).

Section 1630.7--Review of Questioned Costs and Appeal of Disallowed 
Costs

    Paragraph (a) recognizes the statutory authority of the 
Corporation's OIG, the GAO, and authorizes independent auditors to 
question costs incurred by recipients. Section 509(k) of Public Law 
104-134 requires Corporation management to develop procedures for, and 
to follow up on, significant audit findings reported to the 
Corporation. This section of the rule addresses that requirement, as it 
applies to findings of questioned costs.
    If, after reviewing a questioned cost, the Corporation determines 
that there is a reasonable basis for disallowing the cost, paragraph 
(b) requires the Corporation to provide the recipient with written 
notice of its intent to disallow the cost. Paragraph (b) also 
establishes a five-year time limitation on the Corporation's ability to 
disallow costs.
    When approving the proposed rule for public notice and comment, the 
Board adopted a three-year limitation on the Corporation's ability to 
disallow costs. One comment supported this shorter time period, on the 
grounds that it was long enough to permit the Corporation to review 
costs questioned during routine annual audits of recipients.
    Both Corporation management and the OIG recommended that the Board 
adopt a five-year time period, on the grounds that a three-year time 
period might be too short to enable the Corporation to fulfill its 
statutory responsibility to follow up on questioned costs which might 
arise during the course of a GAO or OIG audit, or during a complaint 
investigation by Corporation management. Such an audit or investigation 
might occur at the end of the three-year period, and the time 
limitation in the proposed rule would prevent the Corporation from 
following up on a questioned cost finding. The Board agreed and revised 
paragraph (b) to provide for a five-year time limitation.
    Paragraph (c) provides a 30-day time period during which recipients 
may

[[Page 68224]]

provide a written response to the Corporation with evidence and 
argument as to why the Corporation should not disallow part or all of a 
questioned cost. This paragraph guarantees that recipients will have at 
least one full opportunity to respond to a finding of a questioned cost 
which the Corporation has sought to disallow.
    Paragraph (d) requires the Corporation to issue a management 
decision, as defined by Sec. 1630.2(f), within 60 days of receiving a 
recipient's response to a notice of intent to disallow a questioned 
cost. If the Corporation's management decision disallows the cost, the 
recipient may appeal the disallowance as provided by paragraph (e), 
provided that the amount of the disallowed cost exceeds $2,500.
    One comment urged the Board to eliminate the $2,500 appeal 
threshold, so that recipients could appeal all disallowed costs, no 
matter what the amount. In contrast, the Corporation's OIG recommended 
that the Board institute a higher threshold. Among other reasons, the 
OIG cited as a basis for this recommendation the likelihood that the 
cost of an appeal, in many instances, would exceed the amount of the 
disallowed cost itself.
    After considering the Corporation's recent experience, which has 
involved an average of one appeal per year, the Board decided to retain 
the $2,500 threshold as an appropriate balancing of the Corporation's 
and recipients' interests in the equitable and efficient resolution of 
disagreements about disallowed costs.

Section 1630.8--Recovery of Disallowed Costs and Other Corrective 
Action

    Paragraphs (a) and (b) require the Corporation to recover 
disallowed costs and ensure that recipients take necessary corrective 
action to prevent the recurrence of circumstances giving rise to 
questioned costs. Final action with respect to a disallowed costs 
occurs when the Corporation has recovered the disallowed cost and the 
recipient has concluded all necessary corrective action specified in 
the Corporation's management decision.
    The proposed rule included a provision which allowed the 
Corporation to recover, in connection with a disallowed cost, income 
which a recipient may have derived from the activity which resulted in 
the disallowed cost. One comment urged the deletion of this provision 
on the grounds that it was unnecessary and without legal basis.
    Because the Corporation's experience shows that disallowed costs 
rarely result in derivative income, and because relevant OMB Circulars 
and other applicable law do not provide for its recovery, the Board 
agreed to delete language providing for the recovery of derivative 
income from this section. The Board also deleted corresponding 
references to derivative income from Secs. 1630.7(b) and 1630.11(b).

Section 1630.9--Other Remedies; Effect on Other Parts

    Paragraph (a) requires Corporation management to refer instances of 
serious financial mismanagement, fraud, and defalcation of funds to the 
Corporation's OIG. In such instances, the Corporation may also initiate 
proceedings to suspend or terminate a recipient's funding. Paragraph 
(b) clarifies that the disallowance of a cost does not constitute a 
permanent reduction in a recipient's funding level.

Section 1630.10--Applicability to Subgrants

    This section provides that recipients and subrecipients shall each 
be responsible for questioned costs incurred by subrecipients. In the 
event that a cost incurred by a subrecipient comes into question, both 
the recipient and the subrecipient will have access to the review and 
appeal procedures of Sec. 1630.7.

Section 16530.11--Applicability to Non-LSC Funds

    Paragraphs (a) and (b) provide that, in the event that a recipient 
expends non-LSC funds to pay for an activity for which non-LSC funds 
may not be expended pursuant to either Sec. 1010(c) of the LSC Act or 
Sec. 504 of Public Law 104-134, the Corporation may recover from the 
recipient's LSC funds an amount not to exceed the amount of non-LSC 
funds which the recipient expended on the prohibited activity. The 
activities for which recipients may not expend non-LSC funds are 
defined at 45 CFR Secs. 1610.2 (a) and (b).
    The provisions of this section do not apply to non-LSC funds spent 
on activities which are not subject to LSC restrictions on non-LSC 
funds. Thus, this section does not enable the Corporation to recover 
the costs of activities which are prohibited by or inconsistent with 
restrictions imposed by other funding sources. For example, if a 
recipient uses Title III funds to represent a client who does not meet 
Title III eligibility requirements, this section does not enable the 
Corporation to seek to recover the costs of representing that client.

Section 1630.12--Applicability to Derivative Income

    Paragraph (a) requires proportional allocation of income derived 
from LSC-funded activities. Thus, for example, if a recipient has 
charged one-half of the cost of purchasing a photocopier to LSC funds 
and one-half of the cost to non-LSC funds, and the recipient uses the 
photocopier to provide photocopying services to another non-profit 
organization for a fee, then one-half of the income from the fee is LSC 
derivative income which should be allocated to the LSC fund. The 
remainder of the income is non-LSC derivative income which should be 
allocated to non-LSC funds. This allocation method is similar to that 
required by 45 CFR Sec. 1642.5(a), which provides for the allocation of 
attorney fee awards.
    Paragraph (b) specifies that LSC derivative income is subject to 
the requirements of this part, including the requirement that 
expenditures of such funds be in compliance with the restrictions of 
the LSC Act, regulations, and other applicable law. One comment sought 
a revision to this section clarifying that only that proportion of 
derivative income which is allocable to the LSC fund is subject to this 
subparagraph. The Board adopted the suggested revision, and the final 
rule reflects this clarification.

List of Subjects in 45 CFR Part 1630

    Accounting, Government contracts, Grant programs-law, Hearing and 
appeal procedures, Legal services, Questioned costs.

    For the reasons set forth in the preamble, the Corporation revises 
45 CFR part 1630 to read as follows:

PART 1630--COST STANDARDS AND PROCEDURES

Sec.
1630.1  Purpose.
1630.2  Definitions.
1630.3  Standards governing allowability of costs under Corporation 
grants or contracts.
1630.4  Burden of proof.
1630.5  Costs requiring Corporation prior approval.
1530.6  Timetable and basis for granting prior approval.
1630.7  Review of questioned costs and appeal of disallowed costs.
1630.8  Recovery of disallowed costs and other corrective action.
1630.9  Other remedies; effect on other parts.
1630.10  Applicability to subgrants.
1630.11  Applicability to non-LSC funds.
1630.12  Applicability to derivative income.
1630.13  Time.


[[Page 68225]]


    Authority: 5 U.S.C. App. 3, 42 U.S.C. 2996e, 2996f, 2996g, 
2996h(c)(1), and 2996i(c); Pub. L. 105-11, 111 Stat. 2440; Pub. L. 
104-134, 110 Stat. 3009.


Sec. 1630.1  Purpose.

    This part is intended to provide uniform standards for allowability 
of costs and to provide a comprehensive, fair, timely, and flexible 
process for the resolution of questioned costs.


Sec. 1630.2  Definitions.

    (a) Allowed costs means a questioned cost that the Corporation, in 
a management decision, has determined to be eligible for payment from a 
recipient's Corporation funds.
    (b) Corrective action means action taken by a recipient that:
    (1) Corrects identified deficiencies;
    (2) Produces recommended improvements; or
    (3) Demonstrates that audit or other findings are either invalid or 
do not warrant recipient action.
    (c) Derivative income means income earned by a recipient from 
Corporation-supported activities during the term of a Corporation grant 
or contract, and includes, but is not limited to, income from fees for 
services (including attorney fee awards and reimbursed costs), sales 
and rentals of real or personal property, and interest earned on 
Corporation grant or contract advances.
    (d) Disallowed cost means a questioned cost that the Corporation, 
in a management decision, has determined should not be charged to a 
recipient's Corporation funds.
    (e) Final action means the completion of all actions that 
Corporation management, in a management decision, has concluded are 
necessary with respect to the findings and recommendations in a an 
audit or other report. In the event that Corporation management 
concludes no corrective action is necessary, final action occurs when a 
management decision has been made.
    (f) Management decisions means the evaluation by Corporation 
management of findings and recommendations in an audit or other report 
and the recipient's response to the report, and the issuance of a 
final, written decision by management concerning its response to such 
findings and recommendations, including any corrective actions which 
Corporation management has concluded are necessary to address the 
findings and recommendations.
    (g) Questioned cost means a cost that a recipient has charged to 
Corporation funds which Corporation management, the Office of Inspector 
General, the General Accounting Office, or an independent auditor or 
other audit organization authorized to conduct an audit of a recipient 
has questioned because of an audit or other finding that:
    (1) There may have been a violation of a provision of a law, 
regulation, contract, grant, or other agreement or document governing 
the use of Corporation funds;
    (2) The cost is not supported by adequate documentation; or
    (3) The cost incurred appears unnecessary or unreasonable and does 
not reflect the actions a prudent person would take in the 
circumstances.
    (h) Recipient as used in this part means any grantee or contractor 
receiving funds from the Corporation under sections 1006(a)(1) or 
1006(a)(3) of the Act.


Sec. 1630.3  Standards governing allowability of costs under 
Corporation grants or contracts.

    (a) General criteria. Expenditures by a recipient are allowable 
under the recipient's grant or contract only if the recipient can 
demonstrate that the cost was:
    (1) Actually incurred in the performance of the grant or contract 
and the recipient was liable for payment;
    (2) Reasonable and necessary for the performance of the grant or 
contract as approved by the Corporation;
    (3) Allocable to the grant or contract;
    (4) In compliance with the Act, applicable appropriations law, 
Corporation rules, regulations, guidelines, and instructions, the 
Accounting Guide for LSC Recipients, the terms and conditions of the 
grant or contract, and other applicable law;
    (5) Consistent with accounting policies and procedures that apply 
uniformly to both Corporation-financed and other activities of the 
recipient;
    (6) Accorded consistent treatment over time;
    (7) Determined in accordance with generally accepted accounting 
principles;
    (8) Not included as a cost or used to meet cost sharing or matching 
requirements of any other federally financed program, unless the agency 
whose funds are being matched determines in writing that Corporation 
funds may be used for federal matching purposes; and
    (9) Adequately and contemporaneously documented in business records 
accessible during normal business hours to Corporation management, the 
Office of Inspector General, the General Accounting Office, and 
independent auditors or other audit organizations authorized to conduct 
audits of recipients.
    (b) Reasonable costs. A cost is reasonable if, in its nature or 
amount, it does not exceed that which would be incurred by a prudent 
person under the same or similar circumstances prevailing at the time 
the decision was made to incur the cost. If a questioned cost is 
disallowed solely on the ground that it is excessive, only the amount 
that is larger than reasonable shall be disallowed. In determining the 
reasonableness of a given cost, consideration shall be given to:
    (1) Whether the cost is of a type generally recognized as ordinary 
and necessary for the operation of the recipient or the performance of 
the grant or contract;
    (2) The restraints or requirements imposed by such factors as 
generally accepted sound business practices, arms-length bargaining, 
Federal and State laws and regulations, and the terms and conditions of 
the grant or contract;
    (3) Whether the recipient acted with prudence under the 
circumstances, considering its responsibilities to its clients and 
employees, the public at large, the Corporation, and the Federal 
government; and
    (4) Significant deviations from the established practices of the 
recipient which may unjustifiably increase the grant or contract costs.
    (c) Allocable costs. A cost is allocable to a particular cost 
objective, such as a grant, project, service, or other activity, in 
accordance with the relative benefits received. Costs may be allocated 
to Corporation funds either as direct or indirect costs according to 
the provisions of this section. A cost is allocable to a Corporation 
grant or contract if it is treated consistently with other costs 
incurred for the same purpose in like circumstance and if it:
    (1) Is incurred specifically for the grant or contract;
    (2) Benefits both the grant or contract and other work and can be 
distributed in reasonable proportion to the benefits received; or
    (3) Is necessary to the overall operation of the recipient, 
although a direct relationship to any particular cost objective cannot 
be shown.
    (d) Direct costs. Direct costs are those that can be identified 
specifically with a particular final cost objective, i.e., a particular 
grant award, project, service, or other direct activity of an 
organization. Costs identified specifically with grant awards are 
direct costs of the awards and are to be assigned directly thereto. 
Direct costs include, but are not limited to, the salaries and wages of 
recipient staff who are working on cases or matters that are

[[Page 68226]]

identified with specific grants or contracts. Salary and wages charged 
directly to Corporation grants and contracts must be supported by 
personnel activity reports.
    (e) Indirect costs. Indirect costs are those that have been 
incurred for common or joint objectives and cannot be readily 
identified with a particular final cost objective. Any direct cost of a 
minor amount may be treated as an indirect cost for reasons of 
practicality where the accounting treatment for such cost is 
consistently applied to all final cost objectives. Indirect costs 
include, but are not limited to, the costs of operating and maintaining 
facilities, and the costs of general program administration, such as 
the salaries and wages of program staff whose time is not directly 
attributable to a particular grant or contract. Such staff may include, 
but are not limited to, executive officers and personnel, accounting, 
secretarial and clerical staff.
    (f) Allocation of indirect costs. Where a recipient has only one 
major function, i.e., the delivery of legal services to low-income 
clients, allocation of indirect costs may be by a simplified allocation 
method, whereby total allowable indirect costs (net of applicable 
credits) are divided by an equitable distribution base and distributed 
to individual grant awards accordingly. The distribution base may be 
total direct costs, direct salaries and wages, attorney hours, numbers 
of cases, numbers of employees, or another base which results in an 
equitable distribution of indirect costs among funding sources.
    (g) Exception for certain indirect costs. Some funding sources may 
refuse to allow the allocation of certain indirect costs to an award. 
In such instances, a recipient may allocate a proportional share of 
another funding source's share of an indirect cost to Corporation 
funds, provided that the activity associated with the indirect cost is 
permissible under the LSC Act and regulations.
    (h) Applicable credits. Applicable credits are those receipts or 
reductions of expenditures which operate to offset or reduce expense 
items that are allocable to grant awards as direct or indirect costs. 
Applicable credits include, but are not limited to, purchase discounts, 
rebates or allowances, recoveries or indemnities on losses, insurance 
refunds, and adjustments of overpayments or erroneous charges. To the 
extent that such credits relate to allowable costs, they shall be 
credited as a cost reduction or cash refund in the same fund to which 
the related costs are charged.
    (i) Guidance. The Circulars of the Office of Management and Budget 
shall provide guidance for all allowable cost questions arising under 
this part when relevant policies or criteria therein are not 
inconsistent with the provisions of the Act, applicable appropriations 
law, this part, the Accounting Guide for LSC Recipients, Corporation 
rules, regulations, guidelines, instructions, and other applicable law.


Sec. 1630.4  Burden of proof.

    The recipient shall have the burden of proof under this part.


Sec. 1630.5   Costs requiring Corporation prior approval.

    (a) Advance understandings. Under any given grant award, the 
reasonableness and allocability of certain cost items may be difficult 
to determine. In order to avoid subsequent disallowance or dispute 
based on unreasonableness or nonallocability, recipients may seek a 
written understanding from the Corporation in advance of incurring 
special or unusual costs. If a recipient elects not to seek an advance 
understanding from the Corporation, the absence of an advance 
understanding on any element of a cost does not affect the 
reasonableness or allocability of the cost.
    (b) Prior approvals. Without prior written approval of the 
Corporation, no cost attributable to any of the following may be 
charged to Corporation funds:
    (1) Pre-award costs and costs incurred after the cessation of 
funding;
    (2) Purchases and leases of equipment, furniture, or other 
personal, non-expendable property, if the current purchase price of any 
individual item of property exceeds $10,000;
    (3) Purchases of real property; and
    (4) Capital expenditures exceeding $10,000 to improve real 
property.
    (c) Duration. The Corporation's approval or advance understanding 
shall be valid for one year, or for a greater period of time which the 
Corporation may specify in its approval or understanding.


Sec. 1630.6   Timetable and basis for granting prior approval.

    (a) The Corporation shall grant prior approval of a cost if the 
recipient has provided sufficient written information to demonstrate 
that the cost would be consistent with the standards and policies of 
this part. If the Corporation denies a request for approval, it shall 
provide to the recipient a written explanation of the grounds for 
denying the request.
    (b) Except as provided in paragraphs (c) and (d) of this section, 
the Corporation may not assert the absence of prior approval as a basis 
for disallowing a questioned cost, if the Corporation has not responded 
to a written request for approval within sixty (60) days of receiving 
the request.
    (c) If additional information is necessary to enable the 
Corporation to respond to a request for prior approval, the Corporation 
may make a written request for additional information within forty-five 
(45) days of receiving the request for approval.
    (d) If the Corporation has made a written request for additional 
information about a cost as provided by paragraph (c) of this section, 
and if the Corporation has not responded within thirty (30) days of 
receiving in writing all additional, requested information, the 
Corporation may not assert the absence of prior approval as a basis for 
disallowing the cost.


Sec. 1630.7   Review of questioned costs and appeal of disallowed 
costs.

    (a) When the Office of Inspector General, the General Accounting 
Office, or an independent auditor or other audit organization 
authorized to conduct an audit of a recipient has identified and 
referred a questioned cost to the Corporation, Corporation management 
shall review the findings of the Office of Inspector General, General 
Accounting Office, or independent auditor or other authorized audit 
organization, as well as the recipient's written response to the 
findings, in order to determine accurately the amount of the questioned 
cost, the factual circumstances giving rise to the cost, and the legal 
basis for disallowing the cost. Corporation management may also 
identify questioned costs in the course of its oversight of recipients.
    (b) If Corporation management determines that there is a basis for 
disallowing a questioned cost, and if not more than five years have 
elapsed since the recipient incurred the cost, Corporation management 
shall provide to the recipient written notice of its intent to disallow 
the cost. The written notice shall state the amount of the cost and the 
factual and legal basis for disallowing it.
    (c) Within thirty (30) days of receiving written notice of the 
Corporation's intent to disallow the questioned cost, the recipient may 
respond with written evidence and argument to show that the cost was 
allowable, or that the Corporation, for equitable, practical, or other 
reasons, should not recover all or part of the amount, or that the 
recovery should be made in installments. If the recipient does not 
respond to the Corporation's written notice,

[[Page 68227]]

Corporation management shall issue a management decision on the basis 
of information available to it.
    (d) Within sixty (60) days of receiving the recipient's written 
response to the notice of intent to disallow the questioned cost, 
Corporation management shall issue a management decision stating 
whether or not the cost has been disallowed, the reasons for the 
decision, and the method of appeal as provided in this section.
    (1) If Corporation management has determined that the questioned 
cost should be allowed, and that no corrective action by the recipient 
is necessary, final action with respect to the questioned cost occurs 
at the time when the Corporation issues the management decision.
    (2) If Corporation management has determined that the questioned 
cost should be disallowed, the management decision shall also describe 
the expected recipient action to repay the cost, including the method 
and schedule for collection of the amount of the cost. The management 
decision may also require the recipient to make financial adjustments 
or take other corrective action to prevent a recurrence of the 
circumstances giving rise to the disallowed cost.
    (e) If the amount of a disallowed cost exceeds $2,500, the 
recipient may appeal in writing to the Corporation President within 
thirty (30) days of receiving the Corporation's management decision to 
disallow the cost. The written appeal should state in detail the 
reasons why the Corporation should not disallow part or all of the 
questioned cost. If the amount of a disallowed cost does not exceed 
$2,500, or if the recipient elects not to appeal the disallowance of a 
cost in excess of $2,500, the Corporation's management decision shall 
be final.
    (f) Within thirty (30) days of receipt of the recipient's appeal of 
a disallowed cost in excess of $2,500, the President shall either 
adopt, modify, or reverse the Corporation's management decision to 
disallow the cost. If the President has had prior involvement in the 
consideration of the disallowed cost, the President shall designate 
another senior Corporation employee who has not had prior involvement 
to review the recipient's appeal. The President shall also have 
discretion, in circumstances where the President has not had prior 
involvement in the disallowed cost, to designate another senior 
Corporation employee to review the recipient's appeal, provided that 
the senior Corporation employee has not had prior involvement in the 
disallowed cost.
    (g) The decision of the President or designee shall be final and 
shall be based on the written record, consisting of the Corporation's 
notice of intent to disallow the questioned cost, the recipient's 
response, the management decision, the recipient's written appeal, any 
additional response or analysis provided to the President or designee 
by Corporation staff, and the relevant findings, if any, of the Office 
of Inspector General, General Accounting Office, or other authorized 
auditor or audit organization. Upon request, the Corporation shall 
provide a copy of the written record to the recipient.


Sec. 1630.8  Recovery of disallowed costs and other corrective action.

    (a) The Corporation shall recover any disallowed costs from the 
recipient within the time limits and conditions set forth in the 
Corporation's management decision. Recovery of the disallowed costs may 
be in the form of a reduction in the amount of future grant checks or 
in the form of direct payment from the recipient to the Corporation.
    (b) The Corporation shall ensure that a recipient which has 
incurred a disallowed cost takes any additional, necessary corrective 
action within the time limits and conditions set forth in the 
Corporation's management decision. The recipient shall have taken final 
action when the recipient has repaid all disallowed costs and has taken 
all corrective action which the Corporation has stated in its 
management decision is necessary to prevent the recurrence of 
circumstances giving rise to a questioned cost.
    (c) In the event of an appeal of the Corporation's management 
decision, the decision of the President or designee shall supersede the 
Corporation's management decision, and the recipient shall repay any 
disallowed costs and take necessary corrective action according to the 
terms and conditions of the decision of the President or designee.


Sec. 1630.9  Other remedies; effect on other parts.

    (a) In cases of serious financial mismanagement, fraud, or 
defalcation of funds, the Corporation shall refer the matter to the 
Office of Inspector General, and may take appropriate action pursuant 
to parts 1606, 1623, 1625, and 1640 of this chapter.
    (b) The recovery of a disallowed cost according to the procedures 
of this part does not constitute a permanent reduction in the 
annualized funding level of the recipient, nor does it constitute a 
termination of financial assistance under part 1606, a suspension of 
funding under part 1623, or a denial of refunding under part 1625.


Sec. 1630.10  Applicability to subgrants.

    When disallowed costs arise from expenditures incurred under a 
subgrant of Corporation funds, the recipient and the subrecipient will 
be jointly and severally responsible for the actions of the 
subrecipient, as provided by 45 CFR part 1627, and will be subject to 
all remedies available under this part. Both the recipient and the 
subrecipient shall have access to the review and appeal procedures of 
this part.


Sec. 1630.11  Applicability to non-LSC funds.

    (a) No costs attributable to a purpose prohibited by the LSC Act, 
as defined by 45 CFR 1610.2(a), may be charged to private funds, except 
for tribal funds used for the specific purposes for which they were 
provided. No cost attributable to an activity prohibited by or 
inconsistent with section 504, as defined by 45 CFR 1610.2(b), may be 
charged to non-LSC funds, except for tribal funds used for the specific 
purposes for which they were provided.
    (b) According to the review and appeal procedures of 45 CFR 1630.7, 
the Corporation may recover from a recipient's Corporation funds an 
amount not to exceed the amount improperly charged to non-LSC funds.


Sec. 1630.12  Applicability to derivative income.

    (a) Derivative income resulting from an activity supported in whole 
or in part with funds provided by the Corporation shall be allocated to 
the fund in which the recipient's LSC grant is recorded in the same 
proportion that the amount of Corporation funds expended bears to the 
total amount expended by the recipient to support the activity.
    (b) Derivative income which is allocated to the LSC fund an 
accordance with paragraph (a) of this section is subject to the 
requirements of this part, including the requirement of 45 CFR 
1630.3(a)(4) that expenditures of such funds be in compliance with the 
Act, applicable appropriations law, Corporation rules, regulations, 
guidelines, and instructions, the Accounting Guide for LSC recipients, 
the terms and conditions of the grant or contract, and other applicable 
law.


Sec. 1630.13  Time.

    (a) Computation. Time limits specified in this part shall be 
computed in accordance with Rules 6(a) and 6(e) of the Federal Rules of 
Civil Procedure.
    (b) Extensions. The Corporation may, on a recipient's written 
request for good

[[Page 68228]]

cause, grant an extension of time and shall so notify the recipient in 
writing.

    Dated: December 24, 1997.
Victor M. Fortuno,
General Counsel.
[FR Doc. 97-34120 Filed 12-30-97; 8:45 am]
BILLING CODE 7050-01-M