[Federal Register Volume 63, Number 107 (Thursday, June 4, 1998)]
[Proposed Rules]
[Pages 30446-30449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14773]


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LEGAL SERVICES CORPORATION

45 CFR Part 1623


Suspension Procedures

AGENCY: Legal Services Corporation.

ACTION: Proposed rule.

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SUMMARY: This proposed rule substantially revises the Legal Services 
Corporation's rule on procedures for the suspension of financial 
assistance to recipients to implement changes in the law governing how 
the Corporation deals with post-award grant disputes.

DATES: Comments should be received on or before August 3, 1998.

ADDRESSES: Comments should be submitted to the Office of the General 
Counsel, Legal Services Corporation, 750 First St. NE., 11th Floor, 
Washington, DC 20002-4250.

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

SUPPLEMENTARY INFORMATION: The Operations and Regulations Committee 
(Committee) of the Legal Services Corporation's (LSC) Board of 
Directors (Board) met on April 5, 1998, in Phoenix, Arizona, to 
consider proposed revisions to the Corporation's rule on procedures for 
suspending funding to LSC recipients. The Committee made several 
changes to the draft rule and adopted this proposed rule for 
publication in the Federal Register for public comment. This proposed 
rule is intended to implement major changes in the law governing how 
the Corporation deals with post-award grant disputes.
    Prior to 1996, LSC recipients could not be denied refunding, nor 
could their funding be suspended or their grants terminated, unless the 
Corporation complied with sections 1007(a)(9) and 1011 of the LSC Act, 
42 U.S.C. 2996 et seq., as amended. For suspensions, the Corporation 
could not suspend financial assistance unless the recipient had been 
provided reasonable notice and an opportunity to show cause why the 
action should not be taken. For terminations and denials of refunding,

[[Page 30447]]

the Corporation was required to provide the opportunity for a ``timely, 
full and fair hearing'' before an independent hearing examiner.
    In 1996, the Corporation implemented a system of competition for 
grants that ended a recipient's right to yearly refunding. Under the 
competition system, grants are now awarded for specific terms, and, at 
the end of a grant term, a recipient has no right to refunding and must 
reapply as a competitive applicant for a new grant.
    The FY 1998 appropriations act made additional changes to the law 
affecting LSC recipients' rights to continued funding. See Pub. L. 105-
119, 111 Stat. 2440 (1997). Section 501(b) of the appropriations act 
provides that a recipient's hearing rights under sections 1007(a)(9) 
and 1011 are no longer applicable to the provision, denial, suspension, 
or termination of financial assistance to recipients. This proposed 
rule implements this new law as it applies to suspensions. This 
proposed rule would also remove 45 CFR part 1625 from the Code of 
Federal Regulations as no longer consistent with applicable law.
    Another proposed rule, also in this publication of the Federal 
Register, deals with the new law as it applies to terminations and 
denials of refunding. See Proposed rule 45 CFR part 1606, which would 
revise the Corporations's policies and procedures for terminations and 
proposes to add provisions dealing with debarments and recompetition.
    The change in the law regarding suspensions does not mean that 
grant recipients have no hearing rights before their funds are 
suspended. Constitutional due process generally requires that a 
discretionary grant recipient is entitled to ``some type of notice'' 
and ``some type of hearing'' before its grant funding can be suspended 
or terminated during the grant period. Stein, Administrative Law at 
Sec. 53.05(4). However, the new law emphasizes a congressional intent 
to strengthen the ability of the Corporation to ensure that recipients 
are in full compliance with the LSC Act and regulations. See H. Rep. 
No. 207, 105th. Cong., 1st Sess. 140 (1997). Accordingly, under this 
proposed rule, the hearing procedures for suspensions have been 
streamlined. The changes emphasize the seriousness with which the 
Corporation takes its obligation to ensure that recipients comply with 
the terms of their grants and provide quality legal assistance but, at 
the same time, recipients are provided notice and a fair opportunity to 
be heard before any suspension action is taken.

Section-by-Section Analysis

Section 1623.1  Purpose

    This section is revised to clarify the purpose of a suspension, as 
opposed to other sanctions the Corporation might choose to apply to a 
recipient. A suspension is one of several actions that may be taken by 
the Corporation in a post-award grant dispute to ensure the compliance 
of LSC recipients with the terms of their LSC grants. A suspension is 
generally used by Federal agencies as a temporary withdrawal of a 
grantee's authority to obligate or receive grant funds, pending 
corrective action by the grantee or a decision by the agency to 
terminate the grant. Stein J., Administrative Law at Sec. 53.02(3). 
Suspensions are intended to be used in emergency situations which 
require prompt action and thus are normally not subject to full 
administrative appeals. Id. For example, the Corporation might choose 
to suspend when quick action is necessary to safeguard against a loss 
of LSC funds or the Corporation believes that prompt action will bring 
about corrective action and prevent the likely recurrence of 
violations.

Section 1623.2  Definition

    The definition of suspension is revised to clarify the nature of a 
suspension and the differences between a suspension and a termination. 
The proposed definition states that a suspension withholds funding to a 
recipient until the end of the suspension period. This means that when 
the Corporation suspends funding after a hearing under this part, it 
may only withhold the funds until the end of the suspension period as 
provided in Sec. 1623.4(e) and (f). After the suspension period, the 
Corporation returns the funds to the recipient, and either begins 
termination proceedings or determines that the recipient is taking 
adequate steps to cure the problem. By contrast, a termination is a 
permanent taking of a recipient's financial assistance. When the 
Corporation terminates funding, in whole or in part, the funds are not 
returned to the recipient, even if the problems are cured at a later 
date.

Section 1623.3  Grounds for Suspension

    Paragraph (a) of this section sets out the grounds for most 
suspensions. The underlying reason for a suspension is a substantial 
violation by the recipient of the terms of its LSC grant. A decision to 
suspend, rather than terminate, funding will usually be made when the 
Corporation has reason to believe that prompt action is necessary to 
safeguard LSC funds, effect an immediate cure for the problem at issue, 
or prevent further substantive harm.
    A provision setting out new proposed criteria for determining 
whether there has been a ``substantial violation'' is included in this 
section in paragraph (b). The current rules on suspension, termination 
and denial of refunding include two different undefined standards. 
Terminations or suspensions are undertaken for substantial violations 
and denial of refunding for significant violations. Because there has 
been some confusion over the years about the scope of the meaning of 
the two standards, the Committee included this paragraph in the rule to 
provide better guidance to recipients on what constitutes a violation 
sufficient to constitute grounds for a suspension action.
    The proposed criteria include the consideration of whether the 
violation is intentional, the importance of the restriction or 
requirement violated, and whether the violation is of a serious nature 
rather than merely technical or minor. The Corporation would also 
consider whether the immediate problem is part of a history of 
violations by the recipient. These criteria would permit the 
Corporation to take action, for example, for a single serious 
violation.
    The fourth criterion permits the Corporation to consider whether 
the violation was intentional. Although the Committee included this 
criterion in the proposed rule, it requests public comment on other 
standards that might be more appropriate: for example, whether the 
recipient ``knowingly and willfully'' committed the violation.
    Paragraph (c) implements section 509 of the Corporation's 1996 
appropriations act, which has been incorporated by the Corporation's FY 
1998 appropriations act. Section 509 requires recipients to complete 
audits which are consistent with the guidance promulgated by the Office 
of Inspector General. In addition, it authorizes the Corporation, after 
receiving a recommendation from the OIG, to suspend funding to a 
recipient who fails to have an acceptable audit and allows the 
Corporation to continue the suspension until the recipient has 
completed an acceptable audit. An audit is acceptable when it is deemed 
to be acceptable by the OIG. This generally means that the audit is 
prepared according to the OIG audit guidances, which consist of the LSC 
Audit Guide for Recipients and Auditors and any relevant bulletins 
issued by the OIG. Pursuant to this provision, the OIG determines 
whether an audit is acceptable and makes a recommendation to the 
Corporation to suspend. The Corporation then may

[[Page 30448]]

suspend and the suspension will be ended when the OIG determines that 
the audit is acceptable.

Section 1623.4  Suspension Procedures

    The suspension procedures in this section are substantially the 
same as in the current rule, but are set out in a new structure for 
clarity. However, several changes have been made.
    First, references to the employee who ordered a suspension are 
replaced by a reference to the Corporation. Second, this section 
deletes the provision in Sec. 1623.3(c) of the current rule that 
requires the Corporation, except for unusual circumstances, to give the 
recipient an opportunity to take effective corrective action before 
suspending funding. Instead, paragraph (a)(3) provides the Corporation 
the flexibility needed in extraordinary circumstances addressed by 
suspensions to suspend funding before corrective action has taken 
place. However, the Corporation must identify any corrective action the 
recipient can undertake to avoid or end the suspension in the proposed 
determination.
    Paragraph (a) of this section authorizes the Corporation to issue a 
written proposed determination to suspend funding to the recipient. The 
use of ``proposed'' before ``determination'' is intended to clarify 
that the Corporation has not made a prejudgment but rather has reason 
to believe that grounds exist for a suspension. The recipient then has 
the burden to show cause why the suspension should not take place. The 
Committee seeks comments on whether the language in the rule adequately 
describes this intent.
    The proposed determination is required to state the grounds for the 
action, identify the relevant facts and documents underlying the 
determination, specify any corrective action the recipient may take, 
and advise the recipient of its right to submit written materials in 
response to the proposed determination and to request an informal 
hearing with the Corporation. Paragraph (c) requires the Corporation to 
consider all materials and oral evidence presented under this section 
and, if the Corporation thereafter determines that grounds for a 
suspension exist, the Corporation may issue a written final 
determination to suspend and shall provide that determination to the 
recipient.
    Paragraph (e) permits the Corporation to rescind or modify the 
terms of the final determination to suspend and, after providing 
written notice to the recipient, reinstate the suspension without any 
additional proceedings under this part. Paragraph (e) also states that, 
except for suspensions for the failure of a recipient to complete an 
audit consistent with the guidance promulgated by the Office of 
Inspector General, a suspension shall not exceed 30 days, unless there 
is agreement between the recipient and the Corporation to extend the 
suspension for up to 60 days. This reflects the presumption that a 
suspension of too long a duration would likely endanger a recipient's 
ability to function. A suspension is intended to be used for 
extraordinary circumstances when prompt intervention is likely to bring 
about immediate corrective action. At some point, the Corporation 
should either end the suspension because the problem is solved and is 
unlikely to reoccur, or because the recipient is seriously attempting 
to come into compliance; or initiate a termination process under part 
1606.
    Paragraph (f) implements section 509 of Public Law 104-134, which 
requires that suspensions for failure to have an acceptable audit 
should last until the recipient has completed an acceptable audit.

Section 1623.5  Time Extension and Waiver

    This section provides that extensions of time may be provided for 
good cause, except for the time limits in Sec. 1623.4(e). It also 
permits any other provision of this part to be waived or modified by 
agreement of the recipient and the Corporation for good cause.

Section 1623.6  Interim Funding

    Generally, this section is the same as in the current rule. It 
requires the Corporation to continue funding the recipient at the 
current level during suspension proceedings. This is necessary to 
prevent an injustice if the proceedings reveal that a suspension is not 
in order and to ensure the continued availability of legal services to 
the poor in the recipient's service area. Paragraph (b) provides that a 
failure of the Corporation to meet a time requirement does not preclude 
the Corporation from suspending a recipient's grant or contract with 
the Corporation. See Brock v. Pierce County, 476 U.S. 253 (1986).

List of Subjects in 45 CFR Part 1623

    Administrative practice and procedures, legal services.

    For reasons set forth in the preamble, LSC proposes to revise 45 
CFR part 1623 to read as follows:

PART 1623--SUSPENSION PROCEDURES

Sec.
1623.1  Purpose.
1623.2  Definition.
1623.3  Grounds for suspension.
1623.4  Suspension procedures.
1623.5  Time extensions and waiver.
1623.6  Interim funding.

    Authority: 42 U.S.C. 2996e (b)(1); Pub. L. 104-134, 110 Stat. 
1321, sec. 509; Pub. L. 105-119, 111 Stat. 2440, sec. 501(b).


Sec. 1623.1  Purpose.

    The purpose of this rule is to:
    (a) Ensure that the Corporation is able to take prompt action when 
necessary to safeguard LSC funds or to ensure the compliance of a 
recipient with applicable provisions of law, or a rule, regulation, 
guideline or instruction issued by the Corporation, or the terms and 
conditions of a recipient's grant or contract with the Corporation; and
    (b) Provide procedures for prompt review that will ensure informed 
deliberation by the Corporation when it has made a proposed 
determination that financial assistance to a recipient should be 
suspended.


Sec. 1623.2  Definition.

    For the purposes of this part, suspension means an action taken 
during the term of the recipient's current grant or contract with the 
Corporation that withholds financial assistance to a recipient, in 
whole or in part, until the end of the suspension period pending 
corrective action by the recipient or a decision by the Corporation to 
initiate termination proceedings.


Sec. 1623.3  Grounds for suspension.

    (a) Financial assistance provided to a recipient may be suspended 
when the Corporation determines that there has been a substantial 
violation by the recipient of an applicable provision of law, or a 
rule, regulation, guideline or instruction issued by the Corporation, 
or a term or condition of the recipient's current grant or contract 
with the Corporation; and the Corporation has reason to believe that 
prompt action is necessary to:
    (1) Safeguard LSC funds; or
    (2) Ensure immediate corrective action necessary to bring a 
recipient into compliance with an applicable provision of law, or a 
rule, regulation, guideline or instruction issued by the Corporation, 
or the terms and conditions of the recipient's grant or contract with 
the Corporation.
    (b) A determination of whether there has been a substantial 
violation for the purposes of paragraph (a) of this section

[[Page 30449]]

will be based on consideration of the following criteria:
    (1) The importance and number of restrictions or requirements 
violated;
    (2) The seriousness of the violation;
    (3) The extent to which the violation is part of a pattern; and
    (4) Whether the violation was intentional.
    (c) Financial assistance provided to a recipient may also be 
suspended by the Corporation pursuant to a recommendation by the Office 
of Inspector General when the recipient has failed to have an 
acceptable audit in accordance with the guidance promulgated by the 
Corporation's Office of Inspector General.


Sec. 1623.4  Suspension procedures.

    (a) When the Corporation has made a proposed determination, based 
on the grounds set out in Sec. 1623.3, that financial assistance to a 
recipient should be suspended, the Corporation shall serve a written 
proposed determination on the recipient. The proposed determination 
shall:
    (1) State the grounds and effective date for the proposed 
suspension;
    (2) Identify, with reasonable specificity, any facts or documents 
relied upon as justification for the suspension;
    (3) Specify what, if any, corrective action the recipient can take 
to avoid or end the suspension;
    (4) Advise the recipient that it may request, within 5 days of 
receipt of the proposed determination, an informal meeting with the 
Corporation at which it may attempt to show that the proposed 
suspension should not be imposed; and
    (5) Advise the recipient that, within 10 days of its receipt of the 
proposed determination and without regard to whether it requests an 
informal meeting, it may submit written materials in opposition to the 
proposed suspension.
    (b) If the recipient requests an informal meeting with the 
Corporation, the Corporation shall designate the time and place for the 
meeting. The meeting shall occur within 5 days after the recipient's 
request is received.
    (c) The Corporation shall consider any written materials submitted 
by the recipient in opposition to the proposed suspension and any oral 
presentation or written materials submitted by the recipient at an 
informal meeting. If, after considering such materials, the Corporation 
determines that the recipient has failed to show that the suspension 
should not become effective, the Corporation may issue a written final 
determination to suspend financial assistance to the recipient in whole 
or in part and under such terms and conditions the Corporation deems 
appropriate and necessary.
    (d) The final determination shall be promptly transmitted to the 
recipient in a manner that verifies receipt of the determination by the 
recipient, and the suspension shall become effective when the final 
determination is received by the recipient or on such later date as is 
specified therein.
    (e) The Corporation may at any time rescind or modify the terms of 
the final determination to suspend and, on written notice to the 
recipient, may reinstate the suspension without further proceedings 
under this part. Except as provided in paragraph (f) of this section, 
the total time of a suspension shall not exceed 30 days, unless the 
Corporation and the recipient agree to a continuation of the suspension 
for up to a total of 60 days without further proceedings under this 
part.
    (f) When the suspension is based on the grounds in Sec. 1623.3(c), 
a recipient's funds may be suspended until an acceptable audit is 
completed.


Sec. 1623.5  Time extensions and waiver.

    (a) Except for the time limits in Sec. 1623.4(e), any period of 
time provided in this part may be extended by the Corporation for good 
cause. Requests for extensions of time shall be considered in light of 
the overall objective that the procedures prescribed by this part 
ordinarily shall be concluded within 30 days of the service of the 
proposed determination.
    (b) Any other provision of this part may be waived or modified by 
agreement of the recipient and the Corporation for good cause.


Sec. 1623.6  Interim funding.

    (a) Pending the completion of suspension proceedings under this 
part, the Corporation shall provide the recipient with the level of 
financial assistance provided for under its current grant or contract 
with the Corporation.
    (b) Failure by the Corporation to meet a time requirement of this 
part shall not preclude the Corporation from suspending a recipient's 
grant or contract with the Corporation.

    Dated: May 29, 1998.
Victor M. Fortuno,
General Counsel.
[FR Doc. 98-14773 Filed 6-3-98; 8:45 am]
BILLING CODE 7050-01-P