[Federal Register Volume 64, Number 35 (Tuesday, February 23, 1999)]
[Proposed Rules]
[Pages 8733-8735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-4410]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 64, No. 35 / Tuesday, February 23, 1999 /
Proposed Rules
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DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 274
RIN 0584-AC71
Food Stamp Program: Electronic Benefits Transfer Benefit (EBT)
Statement on Auditing Standards 70 (SAS 70) Audit Requirements
AGENCY: Food and Nutrition Service, USDA.
ACTION: Proposed rule.
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SUMMARY: The Food and Nutrition Service (FNS) proposes to revise Food
Stamp Program (FSP) regulations about approval of Electronic Benefits
Transfer (EBT) systems and how States arrange for those systems to be
audited. States with EBT systems delivering FSP benefits would be
required to obtain an annual audit of their FSP EBT system. States
could direct their EBT system contractor to have audits done, contract
separately for the audits, or have competent state personnel conduct
them. The audits would be a new requirement recommended by the United
States Department of Agriculture (USDA) Office of the Inspector General
(OIG). EBT audits must comply with the American Institute of Certified
Public Accountants (AICPA) Statement on Auditing Standards No. 70,
Reports on the Processing of Transactions by Service Organizations (SAS
70). Audits would also follow EBT review guidelines developed by the
USDA OIG to the extent the guidelines refer to FSP benefits.
DATES: Comments must be received on or before May 24, 1999 to be
assured of consideration.
ADDRESSES: Submit comments in writing to Jeffrey N. Cohen, Chief,
Electronic Benefit Transfer Branch, Benefit Redemption Division, Food
and Nutrition Service, USDA, 3101 Park Center Drive, Alexandria,
Virginia 22302. Comments may also be datafaxed to Mr. Cohen at (703)
605-0232 or they may be sent via e-mail to [email protected].
Comments will be open for public inspection at the office of the Food
and Nutrition Service during regular business hours (8:30 a.m. to 5
p.m., Monday through Friday) at 3101 Park Center Drive, Room 718,
Alexandria, Virginia 22302.
FOR FURTHER INFORMATION CONTACT: Questions regarding this proposed
rulemaking should be addressed to Mr. Cohen as above or by telephone at
(703) 305-2517.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be not significant for purposes of
Executive Order 12866 and therefore has not been reviewed by the Office
of Management and Budget.
Public Law 104-4
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.
L. 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, the
Food and Nutrition Service generally must prepare a written statement,
including a cost-benefit analysis, for proposed and final rules with
``Federal mandates'' that may result in expenditures to State, local or
tribal governments, in the aggregate, or to the private sector, of $100
million or more in any one year. When such a statement is needed for a
rule, Section 205 of the UMRA generally requires the Food and Nutrition
Service to identify and consider a reasonable number of regulatory
alternatives and adopt the least costly, more cost-effective or least
burdensome alternative that achieves the objectives of the rule.
This rule contains no Federal mandates (under the regulatory
provisions of Title II of UMRA) for State, local and tribal governments
or the private sector of $100 million or more in any one year. Thus
this rule is not subject to the requirements of sections 202 and 205 of
the UMRA.
Executive Order 12372
The Food Stamp Program is listed in the Catalog of Federal Domestic
Assistance under No. 10.551. For the reasons set forth in the final
rule in 7 CFR 3015, Subpart V and related Notice (48 FR 29115), this
Program is excluded from the scope of Executive Order 12372 which
requires intergovernmental consultation with State and local officials.
Regulatory Flexibility Act
This rule has been reviewed with regard to the requirements of the
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley R.
Watkins, the Under Secretary for Food, Nutrition and Consumer Service,
has certified that this proposed rule will not have a significant
economic impact on a substantial number of small entities. State
agencies and their EBT contractors will be the most affected to the
extent that they administer the Program.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. This rule is intended to have preemptive effect with
respect to any State or local laws, regulations or policies which
conflict with its provisions or which would otherwise impede its full
implementation. This rule is not intended to have retroactive effect.
Prior to any judicial challenge to the provisions of this rule or the
application of its provisions, all applicable administrative procedures
must be exhausted.
Paperwork Reduction Act
This rule does not contain additional reporting or recordkeeping
requirements other than those already approved by the Office of
Management and Budget (OMB) under the Paperwork Reduction Act of 1995.
Those reporting and recordkeeping requirements are assigned OMB control
number 0584-0083.
Background
Electronic Benefits Transfer (EBT) Systems and Financial Statements
All States must change from paper coupon systems to EBT systems for
the issuance of Food Stamp Program (FSP) benefits by October 1, 2002.
Currently, thirty-seven States have implemented EBT systems and more
than 50 percent of FSP benefits are issued through those systems. State
agencies contract individually for EBT systems. Some States work
together in groups to solicit and select an EBT contractor; however,
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each State signs its own contract with the winning bidder.
For the FSP, EBT systems move money from Federal accounts held in
the name of each State to accounts at banks and other financial
institutions held by food retailers. Each food retailer must first be
authorized by the Food and Nutrition Service (FNS) to accept food stamp
benefits. Currently, about $1.3 billion in food stamp benefits are paid
to food retailers for recipient purchases each month. Over half of that
amount, about $700,000,000, is now being moved by EBT systems each
month.
States usually contract for EBT systems that deliver the benefits
of several programs, not just food stamp benefits. Data from EBT
systems are reported to State and Federal financial systems and used in
financial statements of many agencies. State EBT systems report food
stamp data to FNS financial systems which in turn provide data used in
the annual FNS financial statements. Annual audits of EBT systems would
ensure that EBT systems are secure and that data used in financial
systems and statements is correct. Annual audits would provide
government auditors of state and federal agencies financial statements
with an independent assessment of EBT data.
Statement on Auditing Standards 70
The American Institute of Certified Public Accountants (AICPA)
produces standards for accounting which are generally accepted by
government and business. This rule requires EBT audits to follow the
Statement on Auditing Standards No. 70, Reports on the Processing of
Transactions by Service Organizations (SAS 70). SAS 70 is available
from AICPA located at 1211 Avenue of the Americas, New York, NY, 10036-
8775, phone (212) 596-6200 or at 1455 Pennsylvania Avenue, Washington,
DC, 20004-1081, phone (202) 737-6600.
EBT Review Guidelines
The United States Department of Agriculture's Office of the
Inspector General (USDA's OIG) is the lead agency for EBT issues for
the President's Council on Integrity and Efficiency (PCIE). The PCIE
was created by Executive Order 12805, May 11, 1992, to identify
weaknesses and to promote efficiency in Federal programs. USDA's OIG,
with the help of a PCIE work group, drafted guidelines to assist
auditors of EBT systems. The guidelines are titled ``Review Guidelines
for Service Organizations Providing EBT Services for Government
Programs'' (EBT guidelines). The PCIE work group included Federal,
State, and public accounting representatives. Comments were obtained
from the Office of Management and Budget, the Government Accounting
Office, and from the AICPA.
The guidelines are being revised now. They will be available by
March 1, 1999. We propose to require States to use the final guidelines
in auditing FSP EBT systems to the extent the guidelines refer to FSP.
The draft EBT guidelines are available from FNS or USDA's OIG. The
final guidelines will be also be available on the FNS website at http:/
/www.usda.gov/fcs/stamps/ebt.htm.
Efficient Audits
EBT companies often have EBT contracts with several states for the
delivery of many program benefits. This rule is based on the idea that
one annual audit at each company, covering all the States and all
programs handled by that company, is most efficient. The review
guidelines anticipate that kind of audit. Individual States would meet
FNS' requirement for an annual SAS 70 audit if their EBT system
contractor has been audited as part of a SAS 70 audit which covered all
the States and programs handled by that contractor. FNS encourages
States to complete audits this way to save costs.
Costs of EBT Audits
The way the State arranges for the audits is not being addressed in
this proposed rule. States may contract directly with auditing
companies, they may require their EBT contractor to arrange for audits,
competent State staff may conduct the audits, and there may be other
possibilities. Therefore, the way the State is billed for costs will
vary. Costs could be directly billed by an auditing firm, or contained
in a monthly case fee charged by their EBT contractor, or charged
separately by their EBT contractor. If a single audit is done for
several States and programs as anticipated by the EBT review
guidelines, the costs must be appropriately allocated to each State and
each program covered by the audit.
FNS will reimburse States for 50 percent of their costs related to
the FSP audit work. The only limit on reimbursement from the FSP for
EBT costs is the already existing limit of cost neutrality in the food
stamp regulations at 7 CFR 274.12(c)(3).
Whose Work Must Be Audited
SAS 70 audits review ``service organizations'' that perform
transactions which affect the financial statements of ``user
organizations.'' In the FSP EBT environment, EBT contractors are the
service organizations and States are the user organizations. States
usually have a contract with one company, called the EBT primary
contractor. The primary contractor often has many subcontractors to do
some of the work for the EBT contract. Some or all of the contractors
and subcontractors may be reviewed as part of the audit. This will
depend on which contractors or subcontractors perform the functions
required to be reviewed by the SAS 70 or the EBT review guidelines.
States sometimes do EBT work themselves instead of hiring a
contractor. For example, one State is acting as EBT primary contractor
and handling all subcontracts. Another State is producing and
distributing EBT cards. Only the work of contractors would be covered
by this rule and the SAS 70 audit requirements. State work would be
exempt from this proposed SAS 70 audit requirement. State work would,
however, be subject to review by FNS or audit by USDA's OIG.
EBT Management Reports Requirements
Regulations at 7 CFR 274.12(j)(2) require States to obtain reports
from and about their EBT systems. This rule adds an annual SAS 70 audit
report using the EBT review guidelines as a required report in the
section. States would be required to provide the EBT SAS 70 audit
report to USDA's OIG auditors or to FNS within 30 days of a written
request.
Additional Audits or Reviews
USDA's OIG and FNS reserve the right to conduct other audits or
reviews of EBT if they find that is needed.
Implementation
The Department is proposing that this rule should be effective
during the first Federal Fiscal Year that begins after the date of
publication of the final rule.
List of Subjects in 7 CFR Part 274
Administrative procedures and practices, Food Stamps, Grant
programs-social programs, Reporting and recordkeeping requirements.
Accordingly, for the reasons set forth in the preamble, 7 CFR part
274 is proposed to be amended as follows:
PART 274--ISSUANCE AND USE OF COUPONS
1. The authority citation for 7 CFR part 274 continues to read as
follows:
Authority: 7 U.S.C. 2011-2032.
2. In Sec. 274.12:
a. Revise the heading of paragraph (j); and
b. Add new paragraph (j)(5).
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The revision and addition read as follows:
Sec. 274.12 Electronic Benefit Transfer Issuance System approval
standards.
* * * * *
(j) Reconciliation, Management Reporting, and Audits. * * *
(5) Audits. (i) The state agency must obtain an annual audit of
their EBT system contractors regarding the issuance, redemption, and
settlement of Food Stamp Program benefits. The audit must comply with
American Institute of Certified Public Accountants (AICPA) Statement on
Auditing Standards No. 70 (SAS 70). The audit must also follow the EBT
review guidelines developed by the United States Department of
Agriculture (USDA), Office of the Inspector General to the extent the
guidelines refer to food stamp benefits. EBT work done by the State
does not have to be audited in this manner but may be subject to audits
by USDA's Office of the Inspector General or to reviews done by the
Food and Nutrition Service.
(ii) The state agency must retain a copy of the SAS 70 report. If
the Food and Nutrition Service or the USDA Office of Inspector General
asks for the SAS 70 audit report in writing it must be provided within
thirty days of the receipt of the written request.
(iii) The Food and Nutrition Service and the USDA Office of
Inspector General reserve the right to conduct other reviews or audits
of the State's Food Stamp Program EBT system or parts of the EBT
system.
* * * * *
Dated: February 16, 1999.
Samuel Chambers, Jr.,
Administrator, Food and Nutrition Service.
[FR Doc. 99-4410 Filed 2-22-99; 8:45 am]
BILLING CODE 3410-30-U