[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]
-----------------------------------------------------------------------
LEGAL SERVICES CORPORATION
45 CFR Part 1623
Suspension Procedures
AGENCY: Legal Services Corporation.
ACTION: Final rule.
-----------------------------------------------------------------------
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