[Federal Register Volume 64, Number 136 (Friday, July 16, 1999)]
[Rules and Regulations]
[Pages 38287-38297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18164]



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  Federal Register / Vol. 64, No. 136 / Friday, July 16, 1999 / Rules 
and Regulations  

[[Page 38287]]


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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 271 through 285

[Amdt. No. 373]
RIN 0584-AB38


Food Stamp Program: 1995 Quality Control Technical Amendments

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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SUMMARY: On September 10, 1996, the Department of Agriculture published 
proposed technical changes to the Food Stamp Program's quality control 
system which were intended to reduce the workload on State agencies and 
improve the efficiency of the quality control system. This final rule 
addresses significant comments received in response to the regulatory 
changes proposed in the proposed rule and finalizes regulatory changes 
to the Food Stamp Program's quality control system in the following 
areas: negative case reviews, State agency minimum sample sizes for 
active and negative case reviews, state sampling procedures, Federal 
subsample size formulas, error dollar tolerance level, home visits, 
case completion standards, and miscellaneous technical corrections.

DATES: Effective Dates: 7 CFR 275.23(e)(6)(iii) is effective on July 
16, 1999. All remaining provisions are effective on October 1, 1999.
    Implementation Dates: 7 CFR 275.23(e)(6)(iii) is to be implemented 
on July 16, 1999. The following provisions are to be implemented on 
October 1, 2000, with the start of the Fiscal Year 2001 quality control 
review period: 7 CFR 271.2; 7 CFR 275.3(c)(3)(ii); 7 CFR 275.10(a); 7 
CFR 275.11(c)(1); 275.11(e)(2); 7 CFR 275.11(f)(2); 7 CFR 275.13(a); 
275.13(b); 275.13(c)(1); 275.13(c)(2); 7 CFR 275.13(f) and 
275.23(c)(4). All remaining provisions are to be implemented October 1, 
1999, with the start of the Fiscal Year 2000 quality control review 
period.

FOR FURTHER INFORMATION CONTACT: Retha Oliver, Chief, Quality Control 
Branch, Program Accountability Division, Food Stamp Program, Food and 
Nutrition Service, USDA, 3101 Park Center Drive, Room 904, Alexandria, 
Virginia 22302, (703) 305-2474.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget (OMB) under Executive Order 12866. 
It has been determined that the following cost-benefits would result 
from adoption of the provisions of this rule:
    1. State agency sample size. The provision reducing the minimum 
sample size for active and negative case reviews will benefit those 
State agencies opting to use the ``smaller range'' in their sample 
plans when their minimum active or negative case sample sizes are 
currently above the new minimum sample sizes. In Fiscal Year (FY) 1992, 
before the waiver to reduce current minimum sample sizes was available, 
State agencies reviewed nearly 52,000 active and over 30,000 negative 
cases. Assuming a 15 percentage reduction in cases, under this change 
to the regulatory provision, State agencies will be required to review 
nearly 8,000 fewer active cases and about 4,500 fewer negative cases. 
Estimating that each active case review costs $180 and each negative 
case review costs $40, combined potential savings for State agencies 
and Food and Nutrition Service (FNS) is an estimated $1.6 million. 
Savings for State agencies are estimated at $800,000.
    2. Home visits. It is estimated that minimal savings in quality 
control (QC) expenditures will result from this provision, as it is 
expected that State agencies will channel the resources into other 
aspects of quality control operations.
    3. Error dollar tolerance level. The provision to modify the error 
dollar tolerance level from $5.00 to $25.00 will benefit those State 
agencies which qualify for enhanced funding. Based on FY 1997 data, it 
is estimated that State agencies could qualify for an additional $7.5 
million in enhanced funding with this modification.
    The Department has examined the impact on potential State agency 
liability calculations from the effect of changing the error dollar 
tolerance level. Data from FY 1997 has been analyzed to determine how 
the $25 tolerance could effect liability amounts. The data shows that 
in 1997 the estimated liability would increase by $3.9 million if there 
are no other changes made to the QC system.
    It is not anticipated that any other provisions of this rule will 
have any significant impact on the costs or benefits to either the 
State agencies or FNS.

Executive Order 12372

    The Food Stamp Program (FSP) is listed in the Catalog of Federal 
Domestic Assistance under No. 10.551. For the reasons set forth in the 
final rule at 7 CFR Part 3015, Subpart V and related Notice (48 FR 
29115, June 24, 1983), this Program is excluded from the scope of 
Executive Order 12372 which requires intergovernmental consultation 
with State and local officials.

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 
unless so specified in the Effective Date section of this preamble. 
Prior to any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted. In the FSP the administrative procedures are as 
follows: (1) For program benefit recipients--State administrative 
procedures issued pursuant to 7 U.S.C. 2020(e)(10) and 7 CFR 273.15; 
(2) for State agencies--administrative procedures issued pursuant to 7 
U.S.C. 2023 set out at 7 CFR 276.7 (for rules related to non-QC 
liabilities) or Part 283 (for rules related to QC liabilities); (3) for 
program retailers and wholesalers--administrative procedures issued 
pursuant to 7 U.S.C. 2023 set out at 7 CFR 278.8.

[[Page 38288]]

Regulatory Flexibility Act

    This action has also been reviewed in relation to the requirements 
of the Regulatory Flexibility Act of 1980 (5 U.S.C. Sec. 601 through 
612). Samuel Chambers, Administrator of the Food and Nutrition Service, 
has certified that this rule does not have a significant economic 
impact on a substantial number of small entities. The requirements will 
affect State and local agencies that administer the FSP.

Paperwork Reduction Act

    This rule contains information collection requirements subject to 
approval by OMB under the Paperwork Reduction Act of 1995. In the 
proposed rule (61 FR 47680), FNS solicited comment from the general 
public and other public agencies on a related information collection, 
form FNS 380, the QC Review Worksheet (OMB Number 0584-0074). The 
proposed rule did not change the reporting and recordkeeping burden for 
0584-0074. However, OMB's approval for the burden, contained in 0584-
0074, was scheduled to expire. The comment period for 0584-0074 closed 
November 12, 1996. No comments were received. OMB approved the burden 
of 558,019 hours through November 30, 1999.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 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, FNS 
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 FNS to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, the more 
cost-effective or the least burdensome alternative that achieves the 
objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, and tribal 
governments or the private sector of $100 million or more in any one 
year. This rule is not subject to the requirements of sections 202 and 
205 of the UMRA.

Civil Rights Impact Analysis

    In accordance with USDA Regulation 4300-4, ``Civil Rights Impact 
Analysis'', Samuel Chambers, Administrator of the Food and Nutrition 
Service, has determined that this rule does not in any way limit or 
deny participation in benefits, conferences, or training opportunities 
or employment benefits on the basis of an individual or group's race, 
color, national origin, sex, religion, age, disability, or political 
beliefs. This rule makes discretionary technical changes to the Food 
Stamp Program (FSP) quality control process. FSP applicants and 
participants are selected randomly for a QC review.

Background

    On September 10, 1996, the Department of Agriculture's (the 
``Department'') Food and Nutrition Service (FNS) proposed regulations 
(61 FR 47680) to amend the food stamp QC system in order to reduce the 
workload on State agencies and enhance the efficiency of the system. A 
full explanation of the rationale and purpose of these regulatory 
changes was provided in the preamble of the proposed rulemaking. The 
Department received comment letters from twenty-one organizations. The 
preamble of this final rule addresses significant issues raised by 
those comments. It is recommended that the reader reference the 
proposed rulemaking, as well as this final rulemaking for a more 
complete understanding of the regulatory changes that the Department is 
implementing.

Negative Case Reviews

    The proposed rule clarified issues surrounding the review of 
negative cases and expanded the universe of cases to be reviewed. These 
clarifications were the culmination of FNS' examination of the QC 
review process for negative cases, which included, in part the results 
of research undertaken by Abt Associates on behalf of FNS to develop 
and pilot test alternative approaches to measuring the extent of 
nonpayments to eligible households. The proposed clarifications also 
took into consideration recommendations made by the General Accounting 
Office on the accuracy of State reported error rates.
    Sixteen organizations commented on the proposed regulatory changes 
to clarify issues surrounding the review of negative cases and the 
expansion of the universe of cases to be reviewed.
1. Federal Monitoring of State Agency Error Rates for Negative Case 
Reviews
    The Department clarifies in this final rule the requirements and 
procedures for Federal monitoring of the negative case reviews 
conducted by State agencies. Regulations at 7 CFR 275.3(c) are revised 
to clarify that FNS has the authority to review negative cases as 
determined appropriate. Section 275.3(c) also is modified to indicate 
that negative cases would require validation when the State agency's 
payment error rate appears to entitle the State agency to enhanced 
funding and when the negative error rate is less than two percentage 
points above the national weighted mean negative case error rate for 
the prior period.
    The Department received twelve comments on these clarifications. 
Three comments supported the proposed clarifications. Four were neutral 
or commented that the clarifications would have no impact on their 
States. Five comments opposed the clarifications. Of the opposition 
comments, one objected to any increase in Federal review beyond the 
current minimum level. Another was concerned about an anticipated 
increase in workload for QC staff. A third comment questioned the 
greater scrutiny that negative cases receive for States potentially 
eligible for enhanced funding. Two comments opposed the revisions on 
the basis that Federal validation of negative cases should be required 
for all States to ensure the accuracy of the negative error rate.
    In response to these concerns, it should be noted that the proposed 
changes do not increase Federal authority for review activities beyond 
what can be or has been done under current practice or is permitted 
under current statutory and regulatory authority. State and Federal 
agencies have always had the option to expand their reviews beyond the 
guidelines in the regulations to the extent necessary to assure the 
validity of error rates. Given that these revisions do not extend 
authority for Federal reviews, FNS does not anticipate a significant 
increase in Federal review activity as a result of this clarification. 
Any increase in Federal review activity should have a minimal impact on 
a State agency's QC staff since Federal reviewers conduct this 
activity.
    Validation of the negative error rate for States potentially 
eligible for enhanced funding is not only justified but has the 
potential to benefit State agencies. State agencies achieving a certain 
level of accuracy in their negative cases could be entitled to receive 
additional funds.
    The Department determined that Federal validation of negative cases 
for all States, as recommended in two comments, is not necessary at 
this time.

[[Page 38289]]

However, if such validations are determined to be prudent in the 
future, FNS has the authority to conduct them.
    The changes to this section will be adopted as proposed, effective 
October 1, 1999, for the FY 2000 QC review period.
2. Inclusion of Suspended Cases in the Negative Sample Universe
    The Department proposed to include suspended cases in the negative 
case universe and sample frame. There were twelve comments on this 
proposal. Four favored the change, four were neutral (although three of 
the four raised concerns about having adequate lead time for 
implementation should the proposal be adopted), and four opposed the 
proposal. Comments that objected to the inclusion of suspended cases 
said reviewing these cases is not cost effective, implementing this 
change would be difficult or time consuming (generally because of 
computer changes), or including suspended cases in the negative 
universe could increase the negative error rate.
    The Department must ensure that all households served by the FSP 
are handled in accordance with federal law and regulations. The 
Department has determined that an examination of suspended cases 
through the QC review process is an efficient way to determine whether 
these cases are dealt with properly. Inclusion of suspended cases in 
the negative universe would not increase subsample sizes, and therefore 
would not adversely impact on the workload of QC reviewers. There is no 
data to indicate whether suspended cases are more or less error prone 
than other classes of cases in the negative case universe. Since the 
number of suspended cases is thought to be relatively small, these 
cases should have only a negligible impact on the negative error rate. 
Thus, the Department has concluded that the review of suspended cases 
as a negative case will not significantly impact the negative error 
rate.
    In the matter of implementing this change, there is a general 
Federal effort to avoid computer changes, other than Y2K improvements, 
until March 2000. Since adding suspended cases to the negative frame 
requires a computer change, suspended cases will not be included in the 
negative frame until October 1, 2000, for the first full QC review 
period after March 2000. No State agency can include suspensions in the 
negative frame until that date. The delay in implementing this change 
should address State concerns about having enough notice to make the 
necessary computer changes.
    This final rule includes suspended cases in the negative sample 
effective for the FY 2001 review period, which begins October 1,2000.
3. Use of the Action Date To Determine the Month in Which Negative 
Cases are Included in the Sample Universe; and Clarification of the 
Meaning of ``Break in Participation'' for Suspended and Terminated 
Cases
    The Department proposed to allow State agencies to sample by the 
action date rather than the effective date to make sampling easier. In 
addition, the Department proposed to revise the regulations to include 
denied, suspended, and terminated cases in the negative case universe 
in the month in which the action to deny, suspend, or terminate food 
stamp benefits was taken. The Department also clarifies that an action 
to terminate or suspend a household has actually resulted in a 
suspension or termination if the household experiences a break in 
participation in the program as a result of deliberate State agency 
action. The intent of these changes is to allow State agencies to 
construct consistent and reliable sampling plans for negative actions, 
and to ensure that negative actions which have the result of denying 
benefits to clients are subject to review. These cases are subject to 
review even if the actions are subsequently reversed, unless their 
reversal comes under specified conditions (e.g. the State reverses 
itself without a new application by the client) and within specified 
time frames (e.g. before the effective date of the termination or 
suspension action).
    There were eight comments on these modifications. None were opposed 
to the change or clarification. Two comments recommended that the 
options discussed in the preamble to the proposed rule be included in 
the regulatory language. The Department agrees that the regulatory 
language should be revised to include the guidance discussed in the 
preamble. Therefore, the Department revised the definitions of 
``negative case'' and ``review date'' at Sec. 271.2, added language at 
Sec. 275.11(e)(2)(i) and (ii) concerning negative cases in the sample 
frame, and added clarifying language in the general section at 
Sec. 275.13(a).
    In this final rule the Department is also further clarifying the 
definition of ``review date'' at Sec. 271.2. The first sentence in this 
definition will read as follows: ``Review date for quality control 
active cases means a day within the sample month, either the first day 
of the calendar or fiscal month or the day a certification action was 
taken to authorize the allotment, whichever is later.'' The 
clarification is in bold print. The meaning of the term ``review date'' 
is not affected by this clarification.
    As mentioned under (2) above, there is a general Federal effort to 
avoid computer changes other than Y2K improvements until March 2000. 
The revisions discussed in the paragraphs above include references to 
suspended cases. Since suspended cases cannot be added to the negative 
sample frame until October 1, 2000, for the Fiscal Year 2001 quality 
control review period, these changes will be implemented October 1, 
2000.
4. FNS Will Not Establish a Dollar Loss Rate for Negative Cases
    One aspect of negative case reviews that was of interest to 
Congress was the establishment of a dollar loss rate. For reasons 
specified in the preamble to the proposed rule, the Department decided 
not to pursue this option. All four comments on this decision supported 
not establishing a dollar loss rate for negative cases.

State Agency Minimum Sample Sizes for Active and Negative Case Reviews

    FNS has previously granted waivers of the regulations on the 
minimum sample sizes for active case reviews to improve the efficiency 
of the QC system without impairing the reliability of QC information. 
The Department proposed: (1) To include the terms of these waivers in 
the FSP regulations; (2) to offer State agencies a choice of ranges to 
use in determining minimum sample sizes for negative case reviews that 
is similar to the choice of ranges for determining minimum sample sizes 
for active case reviews; and (3) to reduce the size of the ``smaller 
range'' for minimum sample sizes for active case reviews.
    The proposed range for the minimum sample size for active cases is 
300 to 1020 reviews, a 15 percent reduction from the top of the current 
range. To use the minimum sample size, a State agency would be required 
to include in its sampling plan the statement from current 
Sec. 275.11(a)(2)(iv) that it ``will not use the size of the sample 
chosen as a basis for challenging the resulting error rate.'' The 
purpose of the statement, as described in the February 17, 1984, 
preamble to the rule that established the requirement for the 
statement, was to serve as ``a means of assuring that State agencies 
consider what degree of reliability they need.'' (49 FR 6295). There 
are no other conditions on a State agency's use of the revised smaller 
range. State agencies may elect to review more cases than the minimum 
sample defined in

[[Page 38290]]

regulations. State agencies may also continue to use the current 
smaller range of 300 to 1200 reviews per year.
    FNS also proposed the creation of a ``smaller range'' for the 
minimum sample size for negative case reviews. The ``smaller range'', 
representing a 15 percent reduction from the highest end of current 
requirements, would be 150 to 680 reviews per year.
    The current required range of 150 to 800 reviews per year would be 
retained as the larger range for minimum sample sizes for negative case 
reviews. If a State agency chose to use the ``smaller range'' to 
calculate its minimum sample size for negative case reviews, it would 
also be required to include in its sampling plan the statement that it 
``will not use the size of the sample chosen as a basis for challenging 
the resulting error rates.'' If a State agency did not include that 
statement, it would be required to calculate its minimum sample size 
for negative case reviews according to the larger range. As with active 
cases, there would be no other conditions on a State agency's use of 
the revised smaller range. Also, as with active cases the ranges define 
minimum sample sizes, State agencies may select more.
    The Department received ten comments on the proposed changes to 
State sampling requirements. All ten supported the changes. One 
comment, while favoring the changes, stipulated that the statement that 
the State agency would not use the size of the sample chosen as the 
basis for challenging the resulting error rates should apply only to 
challenges directly attributable to the reduced sample size and not 
other statistical issues. The Department did not intend that this 
statement preclude States from making other statistical challenges to 
the error rate, only those that can be attributed to use of the smaller 
sample size.
    In addition to the above, one comment identified an incorrect 
reference to active cases in proposed regulatory language at 
Sec. 275.11(b)(2)(i). The Department corrected this error in the final 
rule.
    The proposed revisions to State sample sizes are adopted in the 
final rule, to be implemented October 1, 1999, for the FY 2000 QC 
review period.

Federal Sample Sizes

    The Department proposed to change the headings to the tables which 
set out the formulas for calculation of the Federal subsample size. 
These tables appear at Sec. 275.3(c)(1)(i) and Sec. 275.3(c)(3)(i) in 
current regulations; they appear in paragraphs 275.3(c)(1)(i)(A) and 
(B) and 275.3(c)(3)(i) in the proposed rule. The phrase ``Federal 
subsample target'' would appear, rather than the current phrase 
``Federal annual sample size.'' This change would not permit FNS to 
select a smaller subsample for any reason other than a State agency's 
failure to complete the minimum number of reviews in its required 
sample size. There were no significant comments on this change. It is 
adopted in the final rule, effective October 1, 1999, the start of the 
FY 2000 review period.

State Sampling Procedures

    The Department proposed four sets of technical clarifications to 
the sampling regulations so that the regulations will match the way 
State agencies design and implement their sampling plans.
1. Selection of One-twelfth of the Sample Each Month
    The Department determined that provisions requiring that sampling 
procedures conform to the standard principles of probability sampling 
and that state samples produce estimates with an acceptable, mandated 
level of reliability are sufficient to ensure that deviations, minor or 
otherwise, from equal monthly sample sizes will not jeopardize the 
validity nor the precision of those error rate estimates. Therefore, in 
Sec. 275.11, the Department proposed to delete paragraph (a)(2)(iii) 
and renumber paragraph (a)(2)(iv) as (a)(2)(iii). The Department also 
proposed technical corrections to regulatory references appearing in 
Sec. 275.11(b)(1)(ii) and (b)(1)(iii). There were no significant 
comments on these proposed changes so they are adopted as proposed in 
the final rule, effective for the FY 2000 QC review period, which 
begins October 1, 1999.
2. Sampling Plans Must Conform to Accepted Statistical Theory
    The Department proposed to amend the regulations at 
Sec. 275.11(a)(3) to require that all sample designs conform to 
commonly acceptable statistical theory and application. There were no 
significant comments on these proposed changes so they are adopted as 
proposed in the final rule, effective for the FY 2000 QC review period, 
which begins October 1, 1999.
3. Basis for Final Sample Size
    Current regulations at Sec. 275.11(b)(3) provide that FNS will not 
penalize a State agency if its caseload increases by less than 20 
percent from the estimated caseload number that the State agency used 
to determine the size of its sample. The Department proposed to clarify 
that this estimated caseload number was the one initially used to 
determine the sample size. Sample sizes will be found to be adequate if 
at least the minimum required sample size for the estimated caseload is 
chosen, and the actual caseload is no larger than 120% of the estimated 
caseload. There were no significant comments on this proposed change so 
it is adopted as proposed in the final rule, effective for the FY 2000 
QC review period, which begins October 1, 1999.
4. Number of Households Subject to Review Is the Basis for the Sample 
Size
    The Department proposed to clarify the wording in the headings in 
the tables in proposed Sec. 275.3(c)(1)(i)(A) and (B), and in current 
Sec. 275.3(c)(3)(i), Sec. 275.11 (b)(1)(ii) and (iii), and proposed 
Sec. 275.11(b)(2)(i) and (ii). There were no significant comments on 
these proposed changes so the changes are adopted as proposed in the 
final rule, effective for the FY 2000 QC review period, which begins 
October 1, 1999.

Federal Subsample Size Formulas

    Because the Department proposed a change in the State sampling 
size, use of the current formulas for calculating subsample sizes would 
result in a decrease in the size of the minimum Federal subsample for a 
State agency that chooses the proposed ``smaller ranges.'' However, the 
Department does not intend to reduce the Federal subsample. Without a 
regulatory change, the formula for determining FNS' minimum subsample 
sizes would not accurately indicate the number of reviews that FNS 
would actually select for the subsample.
    The Department proposed revised formulas for the minimum active and 
negative Federal subsamples. These proposed formulas, when applied to 
the new proposed ``smaller ranges'' for State samples, would yield the 
current ranges for the Federal subsample. Federal reviewers could still 
select and review more cases than the minimum subsample.
    The Department received four comments on this provision. Two 
favored the change, one was neutral and one opposed the change. The 
opposition was based on a concern about FNS having the authority to 
review more cases than the minimum subsample. However, the authority to 
review active or negative cases to the extent necessary is an existing 
authority and was not introduced or increased by the proposed 
modifications to regulatory language in this rule.
    The proposed changes to the formulas are adopted in the final rule, 
to be

[[Page 38291]]

implemented October 1, 1999, effective for the FY 2000 QC review 
period.

Error Dollar Tolerance Level

    The Department proposed to raise the tolerance for excluding small 
dollar errors at Sec. 275.12(f)(2) from $5.00 to $10.00 to address 
State agency concerns about inflation and the increases in the Thrifty 
Food Plan. Only those overissuances to eligible households or 
underissuances to eligible households which exceeded the $10.00 
tolerance figure would be reported and coded in the completion of QC 
reviews.
    Eighteen organizations commented on this proposed regulatory 
change. All eighteen comments supported an increase in the tolerance 
level. Four comments recommended that the tolerance level be increased 
further, two recommended a $25 tolerance, one recommended a $20 
tolerance and another recommended a higher tolerance without specifying 
a figure. State reasons given for a higher tolerance included a need to 
account for inflation more fully and that the focus of administration 
should be on larger error amounts.
    Since the Department's original proposal of a $10 tolerance, 
circumstances have changed. The strength of the economy, the success of 
welfare reform in moving families from welfare to work and restrictions 
on eligibility for many legal immigrants and unemployed childless 
adults have led to a decrease in Food Stamp Program participation. For 
many people, Food Stamps can make the difference between living in 
poverty and moving beyond it. It is imperative to the success of 
welfare reform, and more fundamentally the nutritional well-being of 
eligible persons, that the Program serves eligible low-income families, 
particularly the working poor. However, since the income and deductions 
for working poor families tend to be volatile, these households are 
more error prone and their participation could increase error rates of 
States trying hardest to serve them. The Department believes that 
increasing the tolerance to $25 will support State efforts to serve 
eligible needy families by reducing State concerns about increased 
error rates attributable to the participation of working poor families. 
In view of State comments and the above, the QC tolerance will be 
increased to $25.
    In the final rule, a $25 tolerance will be implemented by all State 
agencies on October 1, 1999, effective for the FY 2000 QC review 
period.

Home Visit Requirement

    The Department proposed to amend the regulatory requirement for the 
face-to-face interview to take place at the client's home in most 
instances. The proposed revision would simply require a face-to-face 
interview. There were 19 comments on this proposal.
    The Department considers face-to-face interviews an essential 
component to ensure the accuracy of certification decisions. There was 
no change or intent to change the requirement that a face-to-face 
interview be conducted, only a revision of the location of the face-to-
face interview. However, the Department received nine comments that 
proposed alternatives to the face-to-face interview. Suggested 
alternatives included phone interviews, questionnaires or elimination 
of face-to-face interviews for some categories of cases. None of these 
alternatives are considered acceptable.
    Seventeen of the nineteen comments on the proposed change favored 
the flexibility to conduct interviews at a location other than the 
client's home. Two opposed the change. Opposition was based on concerns 
about the impact of this change on the accuracy of error rates. In view 
of better monitoring of household circumstances through data bases, the 
Department no longer considers an interview at the client's home a 
necessity in all cases to ensure the accuracy of the review. However, 
interviews with clients at their homes is still the preferred practice 
and the Department encourages State reviewers to continue to interview 
clients at their homes when practical. One comment stated that using 
authorized representatives as information sources for households, as 
allowed by this provision, is not always a good practice since they 
often just transact authorization to participate cards or coupons for 
households. FNS expects that these individuals would be used as a 
primary source of information on households only if they can 
demonstrate sufficient knowledge about the household's situation in 
order to answer questions on the household's behalf. Indiscriminate use 
of these individuals as information sources would not be an acceptable 
practice.
    The changes to regulations are adopted in the final rule as 
proposed and are to be implemented effective October 1, 1999, effective 
for the FY 2000 QC review period.

Conducting QC Reviews Against Federal Regulations

    The Department solicited comments from all interested parties on 
the appropriateness and potential consequences of a variance exclusion 
for erroneous payments which result from the State agency having 
followed State agency policies or directives under certain conditions. 
There were 17 comments on this proposal. Fifteen favored the change, 
one was noncommittal and one opposed it. Despite their general support 
of this proposal, five of the 15 comments favoring the proposal raised 
concerns. Three questioned how this provision would be implemented. 
Three other comments raised issues concerning what should be excluded 
from error, whether all State agencies would be alerted to identified 
differences in other State agencies, or whether other current practices 
would be maintained. Another comment objected to the proposal, 
indicating that a variance exclusion was appropriate when something new 
is being implemented but not when errors are made after the 
implementation period. In light of the issues raised, FNS has decided 
not to pursue this proposal.

QC Review Case Completion Standard

    The Department proposed to amend the current requirement that a 
State agency complete 100 percent of its minimum required sample size. 
The new standard for State agency completion will be 98 percent of its 
minimum required sample size. In the event that a State agency fails to 
complete 98 percent of its minimum required sample size, error rates 
would be adjusted using the current regulatory formula which is based 
on a 100 percent completion requirement.
    All 15 comments the Department received on this change supported a 
reduction of the completion rate standard. Five recommended that the 
standard be lowered to 95 percent. One recommended that the standard be 
based on the annual national average instead of a flat percentage.
    FNS has modified QC review procedures over the years so that cases 
can be completed if sufficient effort is put into conducting the 
review. A 98 percent completion rate, permitting a two percent 
flexibility, is a reasonable reduction from the current 100 percent 
standard. In order to preserve the integrity of the system, the highest 
accuracy of error rates must be maintained. The Department does not 
support a further reduction in the completion standard as proposed by 
these comments.
    The 98 percent completion standard will be adopted in the final 
rule effective October 1, 1999 for the start of the FY 2000 QC review 
period.

[[Page 38292]]

Changing Federal Case Findings and Disposition

    The Department proposed to codify into regulations the policies and 
practices which dictate when and under what circumstances FNS will 
change the Federal findings or disposition for a specific case. Ten 
organizations commented on this proposal.
    There were three comments on the issue of whether FNS should codify 
the circumstances under which Federal findings or case dispositions 
would be changed. One comment supported codification, another supported 
codification but did not agree with some of the proposed practices. 
Another comment objected to the codification of this information in 
regulations on the basis that more restrictive limitations will be 
applied in those instances in which circumstances do not easily fall 
into one of the five categories in the proposed regulation. The 
Department agrees that codification probably would make it more 
difficult for FNS to change Federal findings or dispositions for cases 
when their circumstances do not fit in the five categories defined in 
regulations. Therefore, the Department has decided against codifying in 
regulations the circumstances in which Federal decisions or case 
dispositions will be changed.
    The comments received on the five proposed policies and practices 
for changing Federal findings or disposition of cases are discussed 
below.
1. Informal Resolution
    FNS proposed to change the Federal finding or disposition if, as a 
result of the informal resolution process, both the State agency and 
FNS agreed on a new finding or disposition. The Department received 
seven comments on the informal resolution process. There were no 
comments that objected to this practice. Two offered general support of 
the process while five relayed concerns about a reduction of time 
frames for informal resolution as a result of the Mickey Leland 
Childhood Hunger Relief Act of 1993, (``Leland Act''), Chapter 3, Title 
XIII of the Omnibus Reconciliation Act of 1993, Public Law 103-66.
    Due to changes mandated by the Leland Act, FNS shortened the period 
of time State agencies have to request arbitration from 28 days to 20 
days in the rule entitled FSP: QC Provisions of the Leland Act 
(``Leland Rule'') (62 FR 29652) published June 2, 1997.
    It should be noted that the Department is required to implement 
changes that enable it to meet requirements set by law, such as the 
deadlines set by the Leland Act. Shortening timeframes for informal 
resolution was necessary to ensure that the timeframes in the Leland 
Act could be met. The preamble to the Leland Rule discusses these 
timeframes in more detail. Please refer to that publication for further 
discussion.
2. Ruling by an Arbitrator
    FNS proposed to change the Federal finding or disposition whenever 
an arbitrator's decision requires that a change be made.
    There was one comment on this provision. This comment was concerned 
that the arbitrator is an employee of FNS and made two proposals to 
address the concern. According to this comment, arbitrator decisions 
should be reviewed by the Secretary on request of the State agency and 
the arbitrator should be independent of FNS. Arbitration is the final 
decision of the process. As such, once the arbitrator has made a 
decision, that decision is final, with two exceptions. The first would 
be to implement a change in law or regulations. The other would be if 
FNS learned that it had not properly implemented the decision of the 
arbitrator. FNS has explored the option of having an arbitrator 
independent of the agency. However, given the importance of these 
decisions and the tight time periods for making decisions, the 
arbitrator needs to be familiar with statutory requirements, 
Departmental decisions and policies. After making inquiries with other 
organizations/offices about taking over this function, FNS concluded 
that outsourcing was not plausible, primarily due to the lack of 
technical expertise and anticipated delays in decision-making.
    The Final Leland Rule changed the arbitration process from a two-
tiered system to a one-tiered system. This change was driven primarily 
by reductions in timeframes for completing cases as required by the 
Leland Act.
3. Implementation of a Regulation, Law, or Waiver
    FNS proposed to change Federal findings or dispositions to 
implement a change in regulations, an amendment to the Food Stamp Act, 
or retroactive provisions to a waiver.
    Two comments questioned the intent of implementing a regulation or 
amendment through changing case findings or dispositions. FNS 
anticipates that this action will rarely be necessary. To date this 
circumstance has happened only once, when Congress mandated that a 
change be implemented retroactively. This action did not negatively 
impact State agencies. FNS must implement changes required by Law.
4. Correct any Application of Incorrect Written Policy
    The Department would change Federal findings or disposition of a 
case whenever it became aware that an error was the result of correct 
State application of an incorrect written policy provided by a 
Departmental employee authorized to issue FSP policy. It is likely that 
the State agency and FNS will not become aware of the problem until 
well after the State agency's deadline for requesting arbitration. 
Therefore, in order to ensure that the State agency is not harmed by 
any potential incorrect policy, the Department proposed that the 
variance exclusion at Sec. 275.12(d)(2)(viii) may be made in the 
Federal findings at any time that such a problem is discovered.
    There was one comment on the discussion of this provision in the 
preamble to the proposed rule. While the comment did not object to the 
variance exclusion, it did object to FNS not allowing new factual 
information to be considered in the final disposition of the case. The 
comment characterized FNS' reasons for taking this position as 
administrative and stated that those concerns should not outweigh the 
system's primary mission of establishing an accurate error rate.
    The Department is opposed to making changes based on new 
``factual'' information for three reasons. First, State agencies are 
responsible for obtaining all necessary information at the time the 
State QC reviewer conducts the review.
    Second, if the household's circumstances were not reasonably 
certain at the time of the State agency's review, the case should have 
been disposed of as ``not completed.'' It does not seem likely that 
reasonably verified information would be contradicted at a later time.
    Third, the Department recognizes the need for final closure in the 
resolution process. Section 13951 of the Leland Act specifies that ``no 
later than 180 days after the end of the fiscal year, the case review 
and arbitration of State-Federal difference cases shall be completed.'' 
The Department believes that without providing some limit on the 
resolution process this mandated deadline can not be achieved. For 
example, if FNS permitted new ``factual'' information to be presented 
after the case was under review for arbitration, FNS would be obligated 
to investigate and confirm or repudiate the new ``facts'' even if these 
facts were questionable and unlikely to have a

[[Page 38293]]

bearing on the outcome of the case. This would delay resolution of the 
case and ultimately the determination of the national average error 
rate. The Department maintains that resolution of the ``facts'' of a 
case in question should be accomplished prior to it's submission as a 
completed case.
5. Conflict in a Federal Finding/Disposition
    If, for any reason, the Federal findings or disposition in the Food 
Stamp Quality Control System (FSQCS) conflicted with the finding letter 
transmitted to the State agency, FNS would ensure the FSQCS was 
correct. If the FSQCS coding was incorrect, it would be corrected. If 
the finding letter was incorrect, it would be corrected. Either way, 
FNS would transmit a new finding letter to the State agency explaining 
what had occurred. There were no comments on this provision.
    If, in any of the five circumstances specified above, FNS were to 
make changes to the finding and disposition of a case, these changes 
would be made as proposed regardless of the effect on the amount of 
error in the case. A State agency would be notified of the change and 
entitled to arbitration of the new Federal finding or disposition, with 
one exception. If FNS changed the Federal findings or disposition to 
comply with the decision of the arbitrator, the State agency would have 
no further right to arbitration. This is because the arbitrator's 
decisions are final, with two exceptions. The first would be to 
implement a change in law or regulations. The other would be if FNS 
learned that it had not properly implemented the decision of the 
arbitrator.
    As discussed above, the Department has decided against codifying in 
regulations the policies and practices which dictate when and under 
what circumstances FNS will change Federal findings or the disposition 
of a specific case. Therefore, the policies and practices discussed 
above are not detailed in the final rule.

Miscellaneous Technical Corrections

    The Department received no significant comments regarding the 
proposal to effect technical corrections to various paragraphs 
appearing in Part 275 of the regulations. These modifications are 
retained in this final rule. The Department has adopted all of the 
proposed technical changes in this final rule. The modifications will 
become effective and are to be implemented October 1, 1999, effective 
for the FY 2000 QC review period which begins with the October 1999 
sample month. Since publication of the proposed rule, the Department 
published a final rule on June 2, 1997, the previously referenced 
Leland Rule, which modified regulatory language at Sec. 275.23(e)(9).
    In the final rule the Department is making a technical revision to 
regulations at Sec. 275.23(e)(6)(iii) to restore language that provides 
State agencies protection against double billings for the same dollar 
losses under both the QC liability system and the negligence provisions 
at Sec. 276.3. This language was inadvertently deleted from this 
provision by the final rule entitled ``Food Stamp Program: Hunger 
Prevention Act of 1988 and Mickey Leland Childhood Hunger Relief Act; 
Rules of Practice; Administrative Law Judges,'' published July 6, 1994. 
This change will be effective upon publication of the final rule.

Implementation

    The provision at Sec. 275.23(e)(6)(iii) is effective and to be 
implemented on July 16, 1999. The following provisions are effective on 
October 1, 1999 and are to be implemented on October 1, 2000, with the 
start of the Fiscal Year 2001 quality control review period: 
Sec. 271.2; Sec. 275.3(c)(3)(ii); Sec. 275.10(a); Sec. 275.11(c)(1); 
Sec. 275.11(e)(2); Sec. 275.11(f)(2); Sec. 275.13(a); Sec. 275.13(b); 
Sec. 275.13(c)(1); Sec. 275.13(c)(2); Sec. 275.13(f)(2) and 
Sec. 275.23(c)(4). The remaining provisions of this rule are effective 
and are to be implemented October 1, 1999, with the start of the Fiscal 
Year 2000 quality control review period, which begins with the October 
1999 sample month.

List of Subjects

7 CFR Part 271

    Administrative practice and procedure, Food stamps, Grant programs-
social programs.

7 CFR Part 272

    Alaska, Civil rights, Food stamps, Grant programs-social programs, 
Reporting and recordkeeping requirements.

7 CFR Part 275

    Administrative practice and procedure, Food stamps, Reporting, and 
recordkeeping requirements.

    For the reasons set out in the preamble, Parts 271 through 285 of 
Chapter II of Title 7 Code of Federal Regulations are amended as 
follows:
    1. The authority citation for Parts 271 through 285 is revised to 
read as follows:

    Authority: 7 U.S.C. 2011-2036.

PART 271--GENERAL INFORMATION AND DEFINITIONS

    2. In Sec. 271.2, the definitions of ``Error'', ``Negative case'', 
``Negative case error rate'', ``Quality control review'', and ``Review 
date'' are revised to read as follows:


Sec. 271.2  Definitions.

* * * * *
    Error for active cases results when a determination is made by a 
quality control reviewer that a household which received food stamp 
benefits during the sample month is ineligible or received an incorrect 
allotment. Thus, errors in active cases involve dollar loss to either 
the participant or the government. For negative cases, an ``error'' 
means that the reviewer determines that the decision to deny, suspend, 
or terminate a household was incorrect.
* * * * *
    Negative case means a household whose application for food stamp 
benefits was denied or whose food stamp benefits were suspended or 
terminated by an action in the sample month or by an action effective 
for the sample month.
    Negative case error rate means an estimate of the proportion of 
denied, suspended, or terminated cases where the household was 
incorrectly denied, suspended, or terminated. This estimate will be 
expressed as a percentage of completed negative quality control reviews 
excluding all results from cases processed by SSA personnel or 
participating in a demonstration project identified by FNS as having 
certification rules that are significantly different from standard 
requirements.
* * * * *
    Quality control review means a review of a statistically valid 
sample of active and negative cases to determine the extent to which 
households are receiving the food stamp allotments to which they are 
entitled, and to determine the extent to which decisions to deny, 
suspend, or terminate cases are correct.
* * * * *
    Review date for quality control active cases means a day within the 
sample month, either the first day of the calendar or fiscal month or 
the day a certification action was taken to authorize the allotment, 
whichever is later. The ``review date'' for negative cases, depending 
on the characteristics of individual State systems, could be the date 
on which the eligibility worker makes the decision to suspend, deny, or 
terminate the case, the date on which the decision is entered into the 
computer system, the date of the notice

[[Page 38294]]

to the client or the date the negative action becomes effective. For no 
case is the ``review date'' the day the quality control review is 
conducted.
* * * * *

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    3. In Sec. 272.1, a new paragraph (g)(155) is added in numerical 
order to read as follows:


Sec. 272.1  General terms and conditions.

* * * * *
    (g) Implementation. * * *
    (155) Amendment No. 373. The provision at Sec. 275.23(e)(5)(iii) is 
effective and is to be implemented on July 16, 1999. The following 
provisions are effective on October 1, 1999 and are to be implemented 
on October 1, 2000, with the start of the Fiscal Year 2001 quality 
control review period: Sec. 271.2; Sec. 275.3(c)(3)(ii); 
Sec. 275.10(a); Sec. 275.11(c)(1); Sec. 275.11(e)(2); 
Sec. 275.11(f)(2); Sec. 275.13(a); Sec. 275.13(b); Sec. 275.13(c)(1); 
Sec. 275.13(c)(2); Sec. 275.13(f)(2) and Sec. 275.23(c)(4). The 
remaining provisions of this rule are effective and are to be 
implemented October 1, 1999, with the start of the Fiscal Year 2000 
quality control review period, which begins with the October 1999 
sample month.

PART 275--PERFORMANCE REPORTING SYSTEM

    4. In Sec. 275.3:
    a. the introductory text of paragraph (c) is amended by revising 
the third sentence and adding a new sentence between the third and 
fourth sentences;
    b. paragraph (c)(1)(i) introductory text is revised, and the table 
following the introductory text is removed;
    c. paragraphs (c)(1)(i)(A), (c)(1)(i)(B), and (c)(1)(i)(C) are 
redesignated as paragraphs (c)(1)(i)(C), (c)(1)(i)(D), and 
(c)(1)(i)(E), respectively, and new paragraphs (c)(1)(i)(A) and 
(c)(1)(i)(B) are added;
    d. newly redesignated paragraph (c)(1)(i)(C) introductory text is 
amended by removing the words ``n is the'' and adding in their place 
the words ``n' is the'';
    e. paragraph (c)(3)(i) introductory text, and the table following 
the introductory text, are revised;
    f. paragraph (c)(3)(i)(A) introductory text is amended by removing 
the words ``n is the'' and adding in their place the words ``n' is 
the'';
    g. paragraph (c)(3)(ii) is amended by adding the word ``, 
suspend,'' between the words ``deny'' and ``or''.
    The revisions and additions read as follows:


Sec. 275.3  Federal monitoring.

* * * * *
    (c) Validation of State Agency error rates. * * * FNS must validate 
the State agency's negative case error rate, as described in 
Sec. 275.23(d), when the State agency's payment error rate for an 
annual review period appears to entitle it to an increased share of 
Federal administrative funding for that period as outlined in 
Sec. 277.4(b)(2) of this chapter, and its reported negative case error 
rate for that period is less than two percentage points above the 
national weighted mean negative case error rate for the prior fiscal 
year. However, this requirement will not preclude the Federal review of 
any negative case for other reasons as determined appropriate by FNS. * 
* *
    (1) Payment error rate. * * *
    (i) FNS will select a subsample of a State agency's completed 
active cases, as follows:
    (A) For State agencies that determine their active sample sizes in 
accordance with Sec. 275.11(b)(1)(ii), the Federal review sample for 
completed active cases is determined as follows:

----------------------------------------------------------------------------------------------------------------
    Average monthly reviewable caseload (N)                       Federal subsample target (n')
----------------------------------------------------------------------------------------------------------------
31,489 and over................................  n'=400
10,001 to 31,488...............................  n'=.011634 N+33.66
10,000 and under...............................  n'=150
----------------------------------------------------------------------------------------------------------------

    (B) For State agencies that determine their active sample sizes in 
accordance with Sec. 275.11(b)(1)(iii), the Federal review sample for 
completed active cases is determined as follows:

----------------------------------------------------------------------------------------------------------------
    Average monthly reviewable caseload (N)                       Federal subsample target (n')
----------------------------------------------------------------------------------------------------------------
60,000 and over................................  n'=400
10,001 to 59,999...............................  n'=.005 N+100
10,000 and under...............................  n'=150
----------------------------------------------------------------------------------------------------------------

* * * * *
    (3) Negative case error rate. * * *
    (i) FNS will select a subsample of a State agency's completed 
negative cases, as follows:

----------------------------------------------------------------------------------------------------------------
  Average monthly reviewable negative caseload
                      (N)                                         Federal subsample target (n')
----------------------------------------------------------------------------------------------------------------
5,000 and over.................................  n'=160
501 to 4,999...................................  n'=.0188 N+65.7
Under 500......................................  n'=75
----------------------------------------------------------------------------------------------------------------

* * * * *


[Sec. 275.10  Amended]

    5. In Sec. 275.10(a):
    a. the second sentence is amended by adding the word ``, 
suspended,'' between the words ``denied'' and ``or'';
    b. the fifth sentence is amended by adding the word ``, suspend,'' 
between the words ``deny'' and ``or''.
    6. In Sec. 275.11:
    a. paragraph (a)(2)(iii) is removed, paragraph (a)(2)(iv) is 
redesignated as paragraph (a)(2)(iii) and a new paragraph (a)(2)(iv) is 
added;
    b. paragraph (a)(3) is revised;
    c. paragraph (b)(1)(ii) is amended by removing the reference to 
``(a)(2)(viii)'' and adding in its place the reference to 
``(a)(2)(iii)'' and by revising the table;
    d. paragraph (b)(1)(iii) is amended by removing the reference to 
``(a)(2)(viii)'', and adding in its place the reference to 
``(a)(2)(iii)'', and by revising the table;

[[Page 38295]]

    e. paragraph (b)(1)(iv) is amended by removing the word 
``anticipated'' in the third sentence;
    f. paragraph (b)(2) is revised;
    g. paragraph (b)(3) is revised;
    h. the last sentence in paragraph (c)(1) is amended by adding the 
word ``, suspension,'' between the words ``denial'' and ``or'';
    i. paragraph (e)(2) is revised;
    j. the introductory text of paragraph (f)(2) is revised;
    k. paragraph (f)(2)(iv) is revised and paragraphs (f)(2)(v) through 
(f)(2)(ix) are added.
    The additions and revisions read as follows:


Sec. 275.11  Sampling.

    (a) Sampling plan. * * *
    (2) Criteria. * * *
    (iv) If the State agency has chosen a negative sample size as 
specified in paragraph (b)(2)(ii) of this section, include a statement 
that, whether or not the sample size is increased to reflect an 
increase in negative actions as discussed in paragraph (b)(3) of this 
section, the State agency will not use the size of the sample chosen as 
a basis for challenging the resulting error rates.
    (3) Design. FNS generally recommends a systematic sample design for 
both active and negative samples because of its relative ease to 
administer, its validity, and because it yields a sample proportional 
to variations in the caseload over the course of the annual review 
period. (To obtain a systematic sample, a State agency would select 
every kth case after a random start between 1 and k. The value of k is 
dependent upon the estimated size of the universe and the sample size.) 
A State agency may, however, develop an alternative sampling design 
better suited for its particular situation. Whatever the design, it 
must conform to commonly acceptable statistical theory and application 
(see paragraph (b)(4) of this section).
* * * * *
    (b) Sample size. * * *
    (1) Active cases. * * *
    (ii) * * *

----------------------------------------------------------------------------------------------------------------
    Average monthly reviewable caseload (N)                       Minimum annual sample size (n)
----------------------------------------------------------------------------------------------------------------
60,000 and over................................  n=2400
10,000 to 59,999...............................  n=300+[0.042(N-10,000)]
Under 10,000...................................  n=300
----------------------------------------------------------------------------------------------------------------

    (iii) * * *

----------------------------------------------------------------------------------------------------------------
    Average monthly reviewable caseload (N)                       Minimum annual sample size (n)
----------------------------------------------------------------------------------------------------------------
60,000 and over................................  n=1020
12,942 to 59,999...............................  n=300+[0.0153(N-12,941)]
Under 12,942...................................  n=300
----------------------------------------------------------------------------------------------------------------

* * * * *
    (2) Negative cases.
    (i) Unless a State agency chooses to select and review a number of 
negative cases determined by the formulas provided in paragraph 
(b)(2)(ii) of this section and has included in its sampling plan the 
reliability certification required by paragraph (a)(2)(iv) of this 
section, the minimum number of negative cases to be selected and 
reviewed by a State agency during each annual review period shall be 
determined as follows:

----------------------------------------------------------------------------------------------------------------
  Average monthly reviewable negative caseload
                      (N)                                         Minimum annual sample size (n)
----------------------------------------------------------------------------------------------------------------
5,000 and over.................................  n=800
500 to 4,999...................................  n=150+[0.144(N-500 )]
Under 500......................................  n=150
----------------------------------------------------------------------------------------------------------------

    (ii) A State agency which includes in its sampling plan the 
statement required by paragraph (a)(2)(iv) of this section may 
determine the minimum number of negative cases to be selected and 
reviewed during each annual review period as follows:

----------------------------------------------------------------------------------------------------------------
  Average monthly reviewable negative caseload
                      (N)                                         Minimum annual sample size (n)
----------------------------------------------------------------------------------------------------------------
5,000 and over.................................  n=680
684 to 4,999...................................  n=150+[ 0.1224(N-683 )]
Under 684......................................  n=150
----------------------------------------------------------------------------------------------------------------

    (iii) In the formulas in this paragraph (b)(2), n is the required 
negative sample size. This is the minimum number of negative cases 
subject to review which must be selected each review period.
    (iv) In the formulas in this paragraph (b)(2), N is the average 
monthly number of negative cases which are subject to quality control 
review (i.e., households which are part of the negative universe 
defined in paragraph (e)(2) of this section) during the annual review 
period.
    (3) Unanticipated changes. Since the average monthly caseloads 
(both active and negative) must be estimated at the beginning of each 
annual review period, unanticipated changes can result in the need for 
adjustments to the sample size. FNS shall not penalize a State agency 
that does not adjust its sample size if the actual caseload during a 
review period is less than 20 percent larger than the estimated 
caseload initially used to determine sample size. If the actual 
caseload is more than 20 percent larger than the estimated caseload, 
the larger

[[Page 38296]]

sample size appropriate for the actual caseload will be used in 
computing the sample completion rate.
* * * * *
    (e) Sample frame. * * *
    (2) Negative cases. The frame for negative cases shall list:
    (i) All households whose applications for food stamp benefits were 
denied by an action in the sample month or effective for the sample 
month except those excluded from the universe in paragraph (f)(2) of 
this section. If a household is subject to more than one denial action 
in a single sample month, each action shall be listed separately in the 
sample frame; and
    (ii) All households whose food stamp benefits were suspended or 
terminated by an action in the sample month or effective for the sample 
month except those excluded from the universe in paragraph (f)(2) of 
this section.
* * * * *
    (f) Sample universe. * * *
    (2) Negative cases. The universe for negative cases shall include 
all households whose applications for food stamps were denied or whose 
food stamp benefits were suspended or terminated by an action in the 
sample month or effective for the sample month except for the 
following:
* * * * *
    (iv) A household which is under active investigation for 
Intentional Program Violation;
    (v) A household which was denied, but subsequently certified within 
the normal 30 day processing standard, using the same application form;
    (vi) A household which was suspended or terminated but the 
suspension or termination did not result in a break in participation 
that is the result of deliberate State agency action. There would be no 
break in participation if the household is authorized to receive its 
full allotment in the month for which the suspension or termination was 
effective other than continuation of benefits pending a fair hearing. 
Pro rated benefits are not considered to be a full allotment;
    (vii) A household which has been sent a notice of pending status 
but which was not actually denied participation;
    (viii) A household which was terminated for failure to file a 
complete monthly report by the extended filing date, but reinstated 
when it subsequently filed the complete report before the end of the 
issuance month;
    (ix) Other households excluded from the negative case universe 
during the review process as identified in Sec. 275.13(e).
* * * * *
    7. In Sec. 275.12:
    a. paragraph (c)(1) introductory text is revised;
    b. the first sentence of paragraph (f)(2) is amended by removing 
the reference to ``$5.00'' and adding in its place a reference to 
``$25.00'';
    c. paragraph (g)(2) introductory text is revised.
    The revisions and additions read as follows:


Sec. 275.12  Review of active cases.

* * * * *
    (c) Field investigation. * * *
    (1) Personal interviews. Personal interviews shall be conducted in 
a manner that respects the rights, privacy, and dignity of the 
participants. Prior to conducting the personal interview, the reviewer 
shall notify the household that it has been selected, as part of an 
ongoing review process, for review by quality control, and that a 
personal face-to-face interview will be conducted in the future. The 
method of notifying the household and the specificity of the 
notification shall be determined by the State agency, in accordance 
with applicable State and Federal laws. The personal interview may take 
place at the participant's home, at an appropriate State agency 
certification office, or at a mutually agreed upon alternative 
location. The State agency shall determine the best location for the 
interview to take place, but would be subject to the same provisions as 
those regarding certification interviews at Sec. 273.2(e)(2) of this 
chapter. Those regulations provide that an office interview must be 
waived under certain hardship conditions. Under such hardship 
conditions the quality control reviewer shall either conduct the 
personal interview with the participant's authorized representative, if 
one has been appointed by the household, or with the participant in the 
participant's home. Except in Alaska, when an exception to the field 
investigation is made in accordance with this section, the interview 
with the participant may not be conducted by phone. During the personal 
interview with the participant, the reviewer shall:
* * * * *
    (g) Disposition of case reviews. * * *
    (2) Cases not subject to review. Active cases which are not subject 
to review, if they have not been eliminated in the sampling process, 
shall be eliminated in the review process. In addition to cases listed 
in Sec. 275.11(f)(1), these shall include:
* * * * *
    8. In Sec. 275.13:
    a. paragraph (a) is revised;
    b. the first sentence of paragraph (b) is revised;
    c. the third sentence of paragraph (b) is amended to add the word 
``, suspension,'' between the words ``denial'' and ``or'';
    d. the first sentence of paragraph (c)(1) is amended by adding the 
word 
``, suspended,'' between the words ``denied'' and ``or'';
    e. the second sentence of paragraph (c)(1) is amended by adding the 
word ``, suspend,'' between the words ``deny'' and ``or'';
    f. the first sentence of paragraph (c)(2) is amended by adding the 
word ``, suspended,'' between the words ``denied'' and ``or'';
    g. paragraph (e)(1) is amended by adding a heading to the 
paragraph;
    h. paragraph (e)(2) is revised;
    i. the first sentence of paragraph (f) is amended by adding the 
words ``suspended or'' between the words ``been'' and ``terminated''.
    The addition and revisions read as follows:


Sec. 275.13  Review of negative cases.

    (a) General. A sample of households whose applications for food 
stamp benefits were denied or whose food stamp benefits were suspended 
or terminated by an action in the sample month or effective for the 
sample month shall be selected for quality control review. These 
negative cases shall be reviewed to determine whether the State 
agency's decision to deny, suspend, or terminate the household, as of 
the review date, was correct. Depending on the characteristics of 
individual State systems, the review date for negative cases could be 
the date of the agency's decision to deny, suspend, or terminate 
program benefits, the date on which the decision is entered into the 
computer system, the date of the notice to the client, or the date the 
negative action becomes effective. However, State agencies must 
consistently apply the same definition for review date to all sample 
cases of the same classification. The review of negative cases shall 
include a household case record review; an error analysis; and the 
reporting of review findings, including procedural problems with the 
action regardless of the validity of the decision to deny, suspend or 
terminate.
    (b) Household case record review. The reviewer shall examine the 
household case record and verify through documentation in it whether 
the reason given for the denial, suspension, or termination is correct 
or whether the denial, suspension, or termination is

[[Page 38297]]

correct for any other reason documented in the casefile. * * *
* * * * *
    (e) Disposition of case review. * * *
    (1) Cases reported as not complete. * * *
    (2) Cases not subject to review. Negative cases which are not 
subject to review, if they have not been eliminated in the sampling 
process, shall be eliminated in the review process. In addition to 
cases listed in Sec. 275.11(f)(2), these shall include:
    (i) A household which was dropped as a result of a correction for 
oversampling;
    (ii) A household which was listed incorrectly in the negative 
frame.
* * * * *
    9. In Sec. 275.23:
    a. paragraph (c)(4) is amended by adding the word ``, suspension,'' 
between the words ``denial'' and ``or'';
    b. paragraph (e)(6)(i) is amended by removing everything but the 
first sentence;
    c. paragraph (e)(6)(iii) is revised.
    d. the introductory text of paragraph (e)(8)(iii) is amended by 
removing the word ``all'' and adding in its place the words ``98 
percent''.
    e. paragraph (e)(9) is revised.
    The revisions read as follows:


Sec. 275.23  Determination of State agency program performance.

* * * * *
    (e) State agencies' liabilities for payment error rates. * * *
    (6) * * *
    (iii) Whenever a State is assessed for an excessive payment error 
rate, the State shall have the right to request an appeal in accordance 
with procedures set forth in part 283 of this chapter. While FNS may 
determine a State to be liable for dollar loss under the provisions of 
this section and the negligence provisions of Sec. 276.3 of this 
chapter for the same period of time, FNS shall not bill a State for the 
same dollar loss under both provisions. If FNS finds a State liable for 
dollar loss under both the QC liability system and the negligence 
provisions, FNS shall adjust the billings to ensure that two claims are 
not made against the State for the same dollar loss.
* * * * *
    (9) FNS Timeframes. FNS shall determine and announce the national 
average payment error rate for the fiscal year within 30 days following 
the completion of the case review process and all arbitrations of State 
agency-Federal difference cases for that fiscal year, and at the same 
time FNS shall notify all State agencies of their individual payment 
error rates and payment error rate liabilities, if any. The case review 
process and the arbitration of all difference cases shall be completed 
not later than 180 days after the end of the fiscal year. FNS shall 
initiate collection action on each claim for such liabilities before 
the end of the fiscal year following the reporting period in which the 
claim arose unless an administrative appeal relating to the claim is 
pending. Such appeals include requests for good cause waivers and 
administrative and judicial appeals pursuant to Section 14 of the Food 
Stamp Act. While the amount of a State's liability may be recovered 
through offsets to their letter of credit as identified in 
Sec. 277.16(c) of this chapter, FNS shall also have the option of 
billing a State directly or using other claims collection mechanisms 
authorized under the Federal Claims Collection Act, depending upon the 
amount of the State's liability. FNS is not bound by the timeframes 
referenced in this subparagraph in cases where a State fails to submit 
QC data expeditiously to FNS and FNS determines that, as a result, it 
is unable to calculate a State's payment error rate and payment error 
rate liability within the prescribed timeframe.
* * * * *
    Dated: July 12, 1999.
Shirley R. Watkins,
Under Secretary for Food, Nutrition and Consumer Services.
[FR Doc. 99-18164 Filed 7-15-99; 8:45 am]
BILLING CODE 3410-30-U