[Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
[Rules and Regulations]
[Pages 64646-64649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31252]


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LEGAL SERVICES CORPORATION

45 CFR Part 1623


Suspension Procedures

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: This final 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 
certain actions used by the Corporation to deal with post-award grant 
disputes.

DATES: This rule is effective on December 23, 1998.

FOR FURTHER INFORMATION CONTACT: Suzanne Glasow, 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 a proposed rule that was 
published in the Federal Register for public comment at 63 FR 30446 
(June 4, 1998). On September 11, 1998, during public hearings in 
Chicago, Illinois, the Committee considered public comments on the 
proposed rule. After making additional revisions to the rule, the 
Committee recommended that the Board adopt the rule as final, which the 
Board did on September 12, 1998.
    This final rule is intended to implement major changes in the law 
governing certain actions used by the Corporation to deal 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, 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 rule 
implements this new law as it applies to suspensions. Another final 
rule, also in this publication of the Federal Register, deals with the 
new law as it applies to terminations and denials of refunding. See 
final rule 45 CFR part 1606, which would revise the Corporation's 
policies and procedures for terminations and adds 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 
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, to 
provide recipients with notice and a fair opportunity to be heard 
before any suspension action is taken.
    The Corporation received three comments on the proposed rule. The 
commenters generally agreed that the proposed rule represented an 
appropriate implementation of statutory requirements, but made 
recommendations for clarifications or revisions for policy changes. An 
analysis of comments and recommendations for changes to the proposed 
rule is provided below.

Section-by-Section Analysis

Section 1623.1  Purpose

    This section is revised from the prior rule 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 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

[[Page 64647]]

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. No changes have been made from the 
proposed version of this section.

Section 1623.2  Definition

    The definition of suspension is revised from the prior rule to 
clarify the nature of a suspension and the differences between a 
suspension and a termination. The proposed definition stated that a 
suspension withholds funding to a recipient until the end of the 
suspension period. This was intended to clarify 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 must return the funds to the recipient, and either begin 
termination proceedings or determine that the recipient is taking 
adequate steps to cure the problem.
    One comment suggested that the temporary nature of a withholding 
under a suspension should be expressly stated in the rule. The Board 
agreed and added a provision in Sec. 1623.6 stating that funds withheld 
under a suspension must be returned to the recipient at the end of the 
suspension period.
    A definition of knowing and willful has been added to clarify one 
of the criteria included to determine whether there has been a 
substantial violation for the purposes of Sec. 1623.3(b)(5). Knowing 
and willful means that the recipient had actual knowledge of the fact 
that its action or failure to take a required action constituted a 
violation and despite such knowledge, undertook or failed to undertake 
the action. For an in-depth discussion of the meaning of knowing and 
willful, see the discussion of the term in the final rule, 45 CFR part 
1606, also published in this volume of the Federal Register.

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 or effect an immediate cure of the violation at 
issue.
    A provision setting out the criteria for determining whether there 
has been a substantial violation is included in this section in 
paragraph (b). The prior rules on suspension, termination and denial of 
refunding included two different undefined standards. Terminations or 
suspensions were 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, this rule includes criteria intended to provide guidance to 
recipients on what constitutes a substantial violation. Sec. 1623.3(b).
    Comments on the criteria in the proposed rule mirrored those for 
the same standard in proposed rule, Part 1606, and the Board made the 
same revisions to the criteria for this rule as those made for Part 
1606. Part 1606 is also published as a final rule in this volume of the 
Federal Register and recipients should refer to the preamble to Part 
1606 for interpretive guidance on the criteria.
    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 audit acceptable to the OIG. This generally means that the 
audit is prepared according to OIG audit guidances, which consist of 
the LSC Audit Guide for Recipients and Auditors and any relevant 
bulletins issued by the OIG.
    One comment noted that the Corporation has discretion whether to 
suspend funding when it receives a recommendation from the OIG and 
urged the Corporation to clarify in the final rule that the Corporation 
would suspend funding only under extraordinary circumstances. The Board 
did not agree. Whether or not a recipient's audit meets the 
requirements of the OIG audit guidance is a determination made by the 
OIG. Whether to suspend based on the OIG recommendation is a 
determination made by LSC management. Although management has 
discretion in taking action, it should exercise this discretion on a 
case-by-case basis and generally give deference to the OIG decision. 
Requiring the Corporation to use an ``extraordinary circumstances'' 
standard in all cases would be inconsistent with the scheme set out in 
Section 509 of the Corporation's appropriations act which provides the 
OIG with specific authority to determine whether an audit is acceptable 
and which envisions management following up on a finding made by the 
OIG. The Corporation always has enforcement discretion to determine 
whether it is financially or administratively advisable to take action 
against a recipient. The Corporation should not limit its ability to 
take action when it is advisable to suspend funding.
    The comment also encouraged revising the rule to indicate the 
criteria that would be used by the OIG to determine whether an audit 
meets OIG guidances. Based on comments from the OIG, the Board did not 
revise the rule. According to the OIG, the criteria by which an audit 
is judged are contained in the audit guidance issued by the OIG, which 
are the Audit Guide for Recipients and Auditors (which includes the 
requirements of government auditing standards and OMB Circular A-133) 
and audit bulletins. Both recipients and their auditors should be well 
aware of these documents, which set out the requirements for an audit 
and the responsibilities of recipients and auditors with respect to the 
audit.
    One comment suggested that the preamble to the rule should indicate 
that the Corporation would consider only a suspension in part when a 
suspension in whole would leave the recipient with insufficient funds 
to remain in operation, thereby interrupting client services and 
interfering with the professional obligations of attorneys employed by 
the recipient. The Board decided not to obligate the Corporation to 
such an exact policy. It is clearly a responsibility long recognized by 
the Corporation to ensure continued legal assistance in each service 
area. Both the competition rule and the termination rule include 
provisions providing the Corporation funding discretion to address this 
need and the Corporation's decisions regarding suspension will be 
guided by this concern.

Section 1623.4  Suspension Procedures

    The suspension procedures in this section are substantially the 
same as in the prior rule, but are set out in a new structure for 
clarity, and with two

[[Page 64648]]

substantive changes. First, references to the employee who orders a 
suspension are replaced by a reference to the Corporation. Second, the 
section deletes the provision in Sec. 1623.3(c) of the prior rule that 
required 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 preliminary determination to suspend funding to the recipient. 
The recipient then has the burden to show cause why the suspension 
should not take place.
    The preliminary 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 preliminary 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 final written 
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 continue service to its clients. A suspension is intended to 
be used for extraordinary circumstances when prompt intervention is 
likely to bring about immediate corrective action. The Corporation, 
therefore, should act quickly to determine that the problem is solved 
and is unlikely to reoccur, the appropriate corrective action has been 
taken, 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.
    Paragraph (b) from Sec. 1606.6 in the proposed rule has been moved 
to this section and is designated as paragraph (c). This paragraph 
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).

Section 1623.6  Interim Funding

    Generally, this section is the same as in the prior 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.

List of Subjects in 45 CFR Part 1623

    Administrative practice and procedures, Legal services.
    For reasons set forth in the preamble, LSC revises 45 CFR part 1623 
to read as follows:

PART 1623--SUSPENSION PROCEDURES

Sec.
1623.1  Purpose.
1623.2  Definitions.
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  Definitions.

    For the purposes of this part:
    (a) Knowing and willful means that the recipient had actual 
knowledge of the fact that its action or lack thereof constituted a 
violation and despite such knowledge, undertook or failed to undertake 
the action.
    (b) Recipient means any grantee or contractor receiving legal 
assistance from the Corporation under section 1006(a)(1)(A) of the LSC 
Act.
    (c) 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 will be 
based on consideration of the following criteria:
    (1) The number of restrictions or requirements violated;
    (2) Whether the violation represents an instance of noncompliance 
with a substantive statutory or regulatory

[[Page 64649]]

restriction or requirement, rather than an instance of noncompliance 
with a non-substantive technical or procedural requirement;
    (3) The extent to which the violation is part of a pattern of 
noncompliance with LSC requirements or restrictions;
    (4) The extent to which the recipient failed to take action to cure 
the violation when it became aware of the violation; and
    (5) Whether the violation was knowing and wilfull.
    (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.
    (c) 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.


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) Funds withheld pursuant to a suspension shall be returned to 
the recipient at the end of the suspension period.
    Dated November 18, 1998.
Victor M. Fortuno,
General Counsel.
[FR Doc. 98-31252 Filed 11-20-98; 8:45 am]
BILLING CODE 7050-01-P