[Federal Register Volume 65, Number 101 (Wednesday, May 24, 2000)]
[Rules and Regulations]
[Pages 33433-33441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13005]



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  Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Rules 
and Regulations  

[[Page 33433]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272, 274 and 277

[Amdt. No. 385]
RIN 0584-AB66


Food Stamp Program: Payment of Certain Administrative Costs of 
State Agencies

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule amends Food Stamp Program Regulations to 
implement a reduction of the Federal reimbursement rate for fraud 
control, automatic data processing development and Systematic Alien 
Verification for Entitlements costs incurred by State agencies in 
administering the Food Stamp Program. These changes are mandated by the 
Mickey Leland Childhood Hunger Relief Act of 1993. In addition, this 
rule limits the period that a State agency may retroactively claim 
Federal funding of administrative costs for Food Stamp Program 
activities and allows the incremental costs of certifying Temporary 
Assistance for Needy Families households for food stamps to be charged 
to the Food Stamp Program for Federal reimbursement purposes.

DATES: This rule is effective June 23, 2000, except that 7 CFR 
277.11(d) is effective October 1, 2000.

FOR FURTHER INFORMATION CONTACT: Barbara Hallman, Chief, State 
Administration Branch, Program Accountability Division, Food and 
Nutrition Service (FNS), USDA, 3101 Park Center Drive, Room 905, 
Alexandria, Virginia, 22302, (703) 305-2383.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget under Executive Order 12866.

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under 10.551. For the reasons set forth in the final rule 
and related notice to 7 CFR 3015, subpart V (48 FR 29115), 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 ``Dates'' 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 Food Stamp Program 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.

Regulatory Flexibility Act

    This action has been reviewed with regard to the requirements of 
the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley R. 
Watkins, Under Secretary of the Food, Nutrition and Consumer Services, 
has certified that this rule does not have a significant economic 
impact on a substantial number of small entities. This rule will affect 
the State and local agencies which administer the Food Stamp Program, 
by modifying the recordkeeping and reporting requirements applicable to 
them, and modifying the rates of Federal funding reimbursement for 
certain Food Stamp Program activities.

Executive Order 13132/Federalism Summary Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. FNS 
has considered the impact on State agencies. This rule deals with 
reimbursements of State agency costs and codifies a cut in the 
reimbursement rate that was effective April 1, 1994, by law. This rule 
is intended to have preemptive effect with respect to any State law 
which conflicts with its provisions or which would otherwise impede its 
full implementation. FNS is not aware of any case where any of these 
provisions would in fact preempt State law and no comments were made to 
that effect.

Prior Consultation With State Officials

    Prior to drafting this final rule, we received input from State 
agencies at various times. Since the Food Stamp Program is a State 
administered, federally funded program, our regional offices are having 
informal and formal discussions with State and local officials on an 
ongoing basis regarding funding and implementation issues. This 
arrangement allows State agencies to provide feedback that form the 
bases for many discretionary decisions in this and other Food Stamp 
Program rules. In addition, we send representatives to regional, 
national, and professional conferences to discuss our issues and 
receive feedback on funding issues, fraud control, and State 
information systems. Lastly, the comments on the proposed rule from 
State and local officials were carefully considered in the drafting of 
this final rule.

Nature of Concerns and the Need To Issue This Rule

    States were concerned that the cut in the funding rate would put a 
burden on State funding for the Food Stamp Program and may result in 
reduced State effort to combat fraud and upgrade State information 
systems. Concern was also raised that the cutback in the funding rate 
while States would need to continue to submit a fraud control plan 
would represent an unfunded mandate.

[[Page 33434]]

Finally, there was concern regarding the proposed deadline for filing 
retroactive claims for reimbursement.
    While the cutback in the funding rate in 1994 had an impact on 
State agencies, the reduced reimbursement rate is mandated by law and 
does not involve Department discretion. The rule is necessary to codify 
the cut in the reimbursement rate. The deadline on retroactive claims 
is necessary to direct State and Federal resources toward the present 
operation of the program.

Extent to Which We Meet These Concerns

    With the increase in recipient claim collections since FY 1994, 
States are receiving additional funds through the retention of a part 
of those increased collections. In response to State concerns, FNS did 
eliminate the requirement for a fraud control plan based on State 
comments in this rule but will consider what information, if any, 
should be required as part of a separate overall revision to State Plan 
requirements. That will be done outside this rule. We clarified the 
wording regarding the deadline and the process for submitting prior 
year claims to FNS.
    While FNS did not seek State agency comment in advance regarding 
the change in payment systems and the change in reporting form (from 
the SF-270, Request for Advance or Reimbursement, to the SF-269, 
Financial Status Report) for prior year administrative cost reporting, 
FNS does believe the change benefits States because it streamlines the 
payment process. States benefit because the electronic form SF-269 
minimizes rekeying data in the event of a revised report and reduces 
the processing time to make funds available to the State. Faster 
payment processing benefits States.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the Food 
and Nutrition Service is submitting for Office of Management and Budget 
(OMB) approval the proposed information collection resulting from 
implementing the provisions contained in this rule. The proposed 
information collection is for a change in use of the SF-269.
    The reporting requirements relating to the FCS-366A, Budget 
Projection, are approved under OMB No. 0584-0083. The reporting 
requirements relating to the use of the Standard Form (SF)-269, 
Financial Status Report, and the SF-269A, Financial Status Report 
Addendum, are approved under OMB No. 0348-0039. The reporting 
requirements for the SF-270, Request for Advance or Reimbursement, are 
approved under OMB No. 0348-0004.
    Comments on this information collection must be received by July 
24, 2000 to be assured of consideration.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the performance of the functions of the 
agency, including whether the information will have practical utility; 
(b) the accuracy of the agency's estimate of the burden of the proposed 
collection of information including the validity of the methodology and 
assumptions used; (c) ways to enhance the quality, utility and clarity 
of the information to be collected; and (d) ways to minimize the burden 
of collection of information on those who are to respond, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological collection techniques or other forms of information 
technology.
    Comments may be sent to: Manish Desai, Desk Officer, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
725 17th Street NW., Washington, DC 20503.
    Send requests for additional information or copies of this 
information collection to: Barbara Hallman, Chief, State Administration 
Branch, Program Accountability Division, Food and Nutrition Service, 
U.S. Department of Agriculture, 3101 Park Center Drive, Alexandria, VA 
22302 or call (703) 305-2383.
    Title: Uniform Administrative Requirements for Grants and 
Cooperative Agreements--7 CFR Parts 3016 and 3019.
    OMB Number: 0348-0039.
    Expiration Date: Three years from date of approval.
    Type of Request: Revision of a currently approved collection.
    Abstract: Section 16(a) of the Food Stamp Act of 1977 (7 U.S.C. 
2011 et. seq.) authorizes the Secretary to pay each State agency an 
amount equal to 50 percent of all allowable administrative costs 
involved in each State agency's operation of the Food Stamp Program. 
State agencies draw the funds for administrative costs from the United 
States Treasury through a Letter of Credit. Under corresponding Food 
Stamp Program regulations at 7 CFR 277.11(c) State agencies are 
required to use the standard Financial Status Report (Form SF-269) on a 
quarterly basis to report program administrative costs to FNS and to 
support the claims made for Federal funding. Final reports are due 
December 30 for the preceding Federal fiscal year which runs from 
October 1 through September 30 or 90 days after termination of Federal 
financial support.
    Beginning in FY 1998, State agencies were required to use the SF-
269, rather than the SF-270, to revise prior year expenditure reports. 
The SF-269 is used with a Letter of Credit payment system. Prior to FY 
1996, under FNS' previous payment system, the Letter of Credit closed 
after the end of the fiscal year. In FY 1996 FNS changed to the 
Department of Treasury's new payment system, Automated Standard 
Application for Payments (ASAP), which kept the Letter of Credit system 
open after the end of the fiscal year. As a result, the SF-269 could 
continue to be used after close-out in the event it was necessary for a 
State to revise a prior year's report.
    The use of the SF-269 and the ASAP for prior years is much more 
efficient both for States and FNS. With the electronic SF-269 reporting 
and new payment system, States get their reimbursement faster. The SF-
270 process is a manual process that is not tied into State electronic 
reporting to FNS. Therefore, FNS believes it would require more State 
resources to complete the SF-270 form compared to electronic SF-269 
reporting. The SF-270 process would also require more FNS resources to 
process the request.
    These changes were done at the time without public comment. The use 
of the Letter of Credit system as the payment system when there is a 
continuing relationship with the State agency and the use of the SF-269 
by State agencies as the reporting form for such systems are required 
respectively by 7 CFR 3015.102 and 3015.82. In accordance with 7 CFR 
3015.1(b), Part 3015 provisions take precedence over any individual 
agency regulations which may be inconsistent with Part 3015 unless the 
inconsistency is based on a statutory provision or an exception has 
been obtained. Because these changes were in accordance with 7 CFR 
3015, which takes precedence over agency rules, and because these 
procedures have been in effect since FY 1998, the Department believes 
requesting public comment on the procedural change to use the SF-269 
for prior year costs that is being codified in this final rule would 
cause unnecessary delay which is contrary to the public interest. 
However, the Department is interested in comments regarding the change 
in the burden estimate for the SF-269 due to its continued use as 
necessary after fiscal year close-out.
    The Financial Status Report Addendum (SF-269A) is used by State 
agencies to report on a quarterly basis

[[Page 33435]]

outlays of program cash-out benefits where FNS has approved the 
issuance of checks in lieu of food coupons. Final reports are due 
December 30 for the preceding Federal fiscal year.
    Beginning June 1995, State agencies were allowed to submit the SF-
269 and SF-269A data electronically to the national database files 
stored in FNS' Food Stamp Program Integrated Information system in lieu 
of a paper report. The voluntary changeover from paper to electronic 
reporting of SF-269 and SF-269A data by States was done as part of FNS' 
State Cooperative Data Exchange (SCDEX) Project. This project is being 
expanded each year as more FNS forms are transformed to electronic 
formats for State data entry. As of January 2000, 47 State agencies 
submit the SF-269 (and SF-269A if appropriate) data electronically and 
6 State agencies continue to submit paper reports.
    For FY 1995 and prior fiscal years, the SF-270 continues to be used 
until the funding fiscal year has been canceled because the Letter of 
Credit is no longer open for those years. OMB requires the use of the 
Form SF-270 when a State agency wants to adjust the program's financial 
status when the Letter of Credit is not used. The Department 
regulations at 7 CFR 3015.84(b) implemented this mandatory use of the 
SF-270. The SF-269 is authorized under 7 CFR 3015.82(a) and 7 CFR 
277.11.
    Section 277.11(d) of this final rule contains a deadline for filing 
claims for Federal reimbursement. Thus, State agencies will no longer 
be able to claim reimbursement for Fiscal Years 1998 and before 
effective October 1, 2000.
    Section 277.11(d) of this final rule contains an information 
collection and reporting requirement. It requires the State agency to 
use a reporting form specified by FNS to request retroactive funding. 
With the time limit on filing claims, this form will be the SF-269.
    Respondents: State agencies that administer the Food Stamp Program.
    Number of Respondents: 53.
    Estimated Number of Responses per Respondent:
    Form SF-269: 53 State agencies five times a year for current year 
(required) and three times a year for prior years (estimated based on 
an as-needed basis).
    Form SF-269A: 12 State agencies five times a year.
    Estimate of Burden:  
    Form SF-269: The 53 State agencies submit Form SF-269 for the 
current year at an estimate of 16.8 hours per respondent, or 4,452 
hours. The 53 State agencies submit revised SF-269 (for prior years) 
three times annually at an estimate of 1 hour per respondent for an 
additional 159 hours annually. The use of the electronic SF-269 in FNS 
information system will minimize the amount of information to be 
rekeyed by States for a revised SF-269 since States only need to rekey 
information that has changed. Because the additional 159 hour burden 
had not been previously approved by OMB, this represents an increase of 
159 hours.
    Form SF-269A: Approximately 12 State agencies submit Form SF-269A 
at an estimate of 1 hour per respondent or 60 total hours.
    Estimated Total Annual Burden on Respondents: FNS use of the SF-
269, SF-269A, and SF-270 was previously approved under OMB No. 0505-
0008; however, this package was eliminated. The SF-269 and SF-269A are 
approved under OMB No. 0348-0039. The SF-270 is approved under OMB No. 
0348-0004. Consequently, we are requesting approval of the burden 
increase for FNS use of the SF-269 form. The revised annual reporting 
and recordkeeping burden for the Food Stamp Program for this form is 
estimated to be 4,671 hours. This estimate represents an increase of 
159 hours from the previously approved burden of 4,512 hours.
    The remaining provisions of this rule do not contain reporting or 
recordkeeping requirements subject to approval by OMB.

Unfunded Mandates Reform Act

    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 
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 the FNS 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 the UMRA) for State, local, and tribal 
governments or the private sector. Thus today's rule is not subject to 
the requirements of sections 202 and 205 of the UMRA.

Background

    Section 13961 of the Mickey Leland Childhood Hunger Relief Act of 
1993 (Leland Act) (Pub. L. 103-66, 107 Stat. 679), signed on August 10, 
1993, amended Section 16 of the Food Stamp Act (Act) (7 U.S.C. 2025) to 
reduce the Federal reimbursement rate for fraud control from 75 percent 
to 50 percent, the rate for automatic data processing (ADP) development 
from 75 or 63 percent to 50 percent, and the rate for Systematic Alien 
Verification for Entitlements (SAVE) costs from 100 percent to 50 
percent. The change in rates was effective by law April 1, 1994.
    In October and November 1993, the Food and Nutrition Service (FNS) 
regional offices briefed State agencies administering the Food Stamp 
Program (FSP) on how to implement the new Federal funding rates for 
reporting and payment purposes effective April 1, 1994. The prompt 
implementation was necessary to comply with the Leland Act's mandate to 
reduce the Department's share of State agency administrative costs to 
the mandated rate as of April 1, 1994, and to minimize the need for 
revised reporting by State agencies related to budget projections for 
FY 1994 and actual cost reporting on or after April 1, 1994. Beginning 
April 1, 1994, State agencies began drawing down Federal funds for 
expenditures based on the new funding rate for these activities. 
Effective with the SF-269 Financial Status Report for the third quarter 
Fiscal Year 1994, State agencies began reporting costs using the new 
funding rate for these activities.
    On November 22, 1994, the Department published in the Federal 
Register (59 FR 60079) a proposed rule which proposed changes in the 
Federal reimbursement rates for certain activities as required by the 
Leland Act and a limit on retroactive claiming of Federal funding for 
State administrative costs. Five comment letters were received which 
addressed provisions of the proposed rule. FNS has given careful 
consideration to all comments received. The major concerns of the 
commenters are discussed below.

Elimination of Enhanced Funding for Fraud Control

    The proposed rule reduced the Federal reimbursement rate for fraud 
control activity from 75 percent to 50 percent in accordance with 
Section 13961 of the Leland Act, which amended Section 16 of the Act. 
In the FSP regulations, Federal reimbursement is also referred to as 
Federal Financial Participation (FFP). The new FFP rate was effective 
by law April 1, 1994.

[[Page 33436]]

    FNS received 4 comments on this part of the proposed rule, all from 
State agencies. All commenters objected to the cutback in the FFP rate 
for fraud control activity.
    One commenter stated that fraud control activity was an important 
activity that more than paid for itself in FSP (Federal) savings and 
that the reduction in the Federal reimbursement rate will result in a 
reduced level of effort. The commenter pointed out that the 
unprecedented growth in the FSP demonstrates the need for increased 
fraud control activities, but that some States lack adequate staff to 
address the need for fraud control programs. Another commenter stated 
that activities like front-end investigations to catch fraudulent 
applicants before the benefits go out the door, prosecutions of 
violators, and claim recovery work are costly and time consuming 
activities that were feasible for States to perform due to the enhanced 
Federal funding. Reinstating the 75 percent FFP rate would help States 
combat food stamp fraud and would recognize the extra effort that is 
required to ensure that benefits go only to the truly needy. Another 
commenter stated that the drop in the funding rate was a step backwards 
in efforts to combat fraud and that it puts a burden on State funding.
    The reduction in the Federal reimbursement rate for fraud control 
activity is mandated by the Leland Act and does not involve 
Departmental discretion. Because the reimbursement rate is mandated by 
law, the final regulation retains the new funding rate as specified in 
the proposed rule.
    The reduction in the Federal reimbursement rate for fraud control 
reflects a shift in emphasis from up-front funding to performance-based 
funding through the retention of claims collections. State agencies 
currently retain 35 percent of claims collected for intentional program 
violations and 20 percent of inadvertent household error claim 
collections. The Federal Tax Refund Offset Program provides an 
additional fiscal incentive for anti-fraud activity by making available 
to State agencies a new cost-effective means of claims collection. The 
Department encourages State agencies to use this new tool to boost 
claims collection and create additional State funding through increased 
retentions. The increase in retentions would replace some of the lost 
Federal administrative funding, and could be used to do front-end 
investigations.
    With the elimination of enhanced fraud funding, the detailed 
requirements for funding investigations has been removed and Section 
277.15 has been removed and reserved. However, the requirement to 
conduct investigations of alleged intentional FSP violations in 
Sec. 273.16, and to operate fraud detection units in all project areas 
of 5,000 or more participating households in Sec. 272.4(h) remain in 
effect.
    In the proposed rule, specific reference to prosecution activity of 
intentional program violations as being an allowable cost would be 
eliminated because the regular 50 percent funding rate would apply to 
food stamp prosecutions, thereby eliminating the need for the 
reference. However, since the proposed rule was published, a revised 
OMB Circular A-87 has been issued. The revised circular provides that 
prosecution activities are an unallowable cost unless treated as a 
direct cost to a specific program when authorized by program 
regulations. Section 16(a) of the Act authorizes payment of FSP 
prosecution costs. Consequently, the final rule includes additional 
specific wording in Appendix A of 7 CFR part 277 that reflects that 
prosecution of FSP intentional program violations is an allowable cost 
of FSP administration. This wording is intended to continue the current 
practice of classifying such costs as allowable, and ensures that 
program regulations continue to reflect this, consistent with the 
requirements of the revised OMB Circular A-87. However, the provision 
on prosecutions will now be found in Appendix A of 7 CFR Part 277, 
along with other general cost principles applicable to State agencies 
administering the FSP.
    The proposed rule retained the requirement for a fraud control plan 
in 7 CFR 272.2 and 277.15 but changed the timing of the submission of 
the plan. Two State agencies commented on this provision. One pointed 
out that the fraud control plan was originally required as part of the 
request for enhanced funding and that to require the plan without 
providing the enhanced funding was akin to placing an unfunded mandate 
on the States. The commenter stated that States are struggling to 
control costs and reduce budgets where possible and that removing the 
fraud control plan requirement would be helpful. The other commenter 
indicated that the fraud control plan was for Federal benefit, not for 
State benefit.
    As a result of these comments, the Department is dropping its 
proposal to continue to require a fraud control plan although the 
availability of 75 percent funding no longer exists. The previous 
requirement for a fraud control plan in conjunction with 75 percent 
funding assisted FNS in ensuring that the enhanced funding was used for 
appropriate fraud control activities. FNS proposed maintaining the 
fraud control plan because of the importance of fraud detection and 
prevention to FSP management. However, based on comments, FNS has 
decided to defer consideration on the amount of information States 
should routinely provide FNS regarding State anti-fraud activity. FNS 
is currently revising all regulations governing the State Plan of 
Operation and will consider what, if any, specific information States 
should provide on organization structures, staffing, activities, and 
budget for fraud control as part of the overall revisions to 
regulations governing the State Plan of Operations. Therefore, this 
rule drops the requirement for a fraud control plan. Accordingly, the 
final rule revises 7 CFR 272.2 to eliminate the reference to a fraud 
control plan.

ADP Development

    The proposed rule proposed to eliminate enhanced funding for 
automated data processing (ADP) development by reducing the funding 
rate for system development from either 75 or 63 percent to 50 percent 
in accordance with the Leland Act. We received one comment on this 
section.
    The commenter stated that States are burdened when required to 
update their current ADP systems due to Federal rule changes or to 
develop an electronic benefit transfer (EBT) system. The commenter 
suggested that enhanced funding should be available for a particular 
window period so States can update their automated systems.
    The reduction in the Federal reimbursement rate for ADP development 
is mandated in the Leland Act and does not involve Departmental 
discretion. Because the reimbursement rate is mandated by law, this 
final rule retains the new funding rate as proposed.
    The proposed rule also proposed to eliminate section 274.12(k)(3) 
which states that enhanced funding for coupon issuance activities 
occurring on Indian Reservations and enhanced funding for the 
development of EBT systems would both be accommodated within the 
issuance cap for EBT systems. However, only enhanced funding for the 
development of EBT and other automated systems under 7 CFR 277.18 is 
eliminated. Enhanced funding for coupon issuance activities on Indian 
Reservations remains available under Section 16(a) of the Food Stamp 
Act and 7 CFR 281.9, and thus such enhanced funding for coupon issuance 
costs shall continue to be accommodated within

[[Page 33437]]

the EBT issuance cap. In this final rule the Department is retaining a 
portion of the provision in Sec. 274.12(k)(3) (redesignated as 
Sec. 274.12(k)(2)). The portion that is being retained is the current 
wording that enhanced funding for coupon issuance activities that a 
State agency incurs on Indian Reservations shall still be accommodated 
within the EBT issuance cap. Only the reference in the current 7 CFR 
274.12(k)(3) to enhanced funding for the development of EBT systems is 
being removed.
    Prior to the elimination of enhanced funding there were different 
cost thresholds for prior FNS approval for systems funded with enhanced 
funding than for systems funded with regular 50 percent funding. The 
proposed rule proposed to apply the cost thresholds that were 
applicable to the regular funding requirements to all ADP systems. 
Thus, the proposed rule eliminated references to enhanced funding but 
retained in the proposed regulatory text the dollar thresholds under 
standard funding that were in effect at that time. After the 
publication of the proposed rule on which this rulemaking is based, the 
Department published on July 31, 1995, another proposed rule proposing 
increases in the cost thresholds upon which prior Federal approval is 
required for Federal financial participation in State ADP equipment 
acquisition. The final rule raising the cost thresholds for ADP systems 
was published June 28, 1996. Because the new cost thresholds are now in 
effect, the final rule drops the proposed text citing the old cost 
thresholds, thus retaining the current higher cost thresholds. The 
Department is modifying the proposed text for Sec. 277.18(e)(1), which 
deletes the reference to enhanced funding, to reflect the new $5 
million cost threshold for the submittal of an APD Update. The 
references to the standard funding rate are retained where necessary in 
the final text.
    In the final rule the Department is also making a technical 
correction to Appendix A, paragraph b(1), which was inadvertently 
omitted from the proposed rule, to remove the reference to 63 percent 
ADP development funding in that paragraph.

SAVE

    The Department proposed eliminating enhanced funding for the 
Systematic Alien Verification for Entitlements (SAVE) Program by 
dropping the funding rate for SAVE activity from 100 percent to 50 
percent funding in accordance with the Leland Act. We received no 
comments on this section. Because the reimbursement rate is mandated by 
law, the final rule retains the new funding rate as previously 
proposed.

Delaying the Effective Date

    The proposed rule announced the Department's proposed policy for 
reviewing and approving requests to delay the April 1, 1994 effective 
date for the elimination of enhanced funding for certain States which 
qualified for such an extension under the criteria provided in section 
13971 of the Leland Act. For a full discussion of this issue, the 
reader is referred to the proposed rule.
    As the proposed rule noted, FNS had advised States in October/
November 1993 of the criteria for a delay of the effective date and the 
procedure for requesting such a delay if States believed they 
qualified. To allow adequate time for review, States were to submit 
their requests by December 31, 1993, but FNS indicated it would 
consider requests filed after that date. The proposed rule noted that 
it was the Department's intent that State agencies submit their 
requests for a delay of the effective date early, and not wait for the 
completion of the rulemaking process. Four State agencies received 
approval of a delay in March 1994. They were Arkansas, Texas, Montana, 
and North Dakota.
    One State agency submitted a comment requesting a delay of the 
April 1, 1994 effective date, but did not submit a formal request 
demonstrating that it met the criteria for such a delay. The Department 
emphasizes that States were required to apply, and to demonstrate that 
they met the criteria in order to be granted a delay. The Department 
has no authority to grant a delay of the effective date except under 
the specific circumstances specified in the Leland Act as described in 
the proposed rule.
    The Department notes that the elimination of enhanced funding was 
effective April 1, 1994 for all but the four approved States. The four 
approved States received enhanced funding through June 30, 1995, based 
on their legislative calendars. All States were notified by letter and 
by the proposed rule of the opportunity to apply for a delay. Further, 
the April 1, 1994 effective date has well passed. Therefore, the 
Department believes that the issue of granting delays is now moot and 
need not be addressed in regulatory text.

Enhanced Funding for Low Payment Error Rates

    As stated in the proposed rule, with the reduction in the funding 
rate to 50 percent for fraud control, ADP development, and SAVE, these 
three activities now become eligible along with other costs funded at 
the 50 percent rate for the increased Federal reimbursement rate of up 
to 60 percent if the State agency achieves a low payment error rate as 
specified in Sec. 277.4 and 275.23. The incentive funding for a low 
error rate is provided after the end of the Federal fiscal year.
    Two State agencies commented on this policy. One was in favor of 
this policy as it rewards State agencies that achieve a low payment 
error rate. The other State agency pointed out that fraudulent 
applications make it difficult for State agencies to attain a low 
payment error rate. By denying enhanced funding to States with a 
demonstrated need for additional support, the State agency believed 
that such action will ensure that States with a disproportionate share 
of fraudulent applications will never attain a low payment error rate 
to qualify for enhanced funding. The State agency believed that moving 
the reimbursement rate back to 75 percent, rather than incentive 
funding for a low payment error rate, would assist States in combating 
food stamp fraud and help to ensure that benefits only go to the truly 
needy.
    The reduction in the funding rate for fraud control is mandated by 
the Leland Act and the payment of enhanced incentive funding for a low 
payment error rate is mandated in Section 16(c) of the Act. Neither 
involves Departmental discretion. The enhanced funding is available as 
an incentive to encourage States to achieve a low payment error rate 
and is paid after the end of the fiscal year as a reward. The 
Department has no authority to pay either enhanced fraud funding or the 
incentive funding for a low payment error rate to States that have not 
attained a low payment error rate in order to help them to do so. 
Accordingly, the proposed regulatory text is adopted as final.

Deadline for Filing Claims for Retroactive Funding

    The proposed rule provided that, subject to the availability of 
funds, FNS would reimburse State agencies for an allowable expenditure 
only if the State agency files a claim with FNS for that expenditure 
within two years after the calendar quarter in which the State agency 
obligated the funds.
    One State agency pointed out that a similar Department of Health 
and Human Services (DHHS) limitation was instituted as a result of 
legislation enacted by Congress. The State agency

[[Page 33438]]

recommended that the Department seek an amendment to the Act.
    Section 4(c) of the Act allows the Department to promulgate 
administrative rules that are necessary or appropriate for the 
effective administration of the FSP. As the proposed rule noted, in 
Fiscal Years (FYs) 1991 through 1993, FNS had received requests from 
State agencies for retroactive funding going back to FY 1981 even 
though the Federal record retention requirement for State agencies is 3 
years. While the Department recognizes that State laws may require 
retention of records that exceed Federal requirements, the Department 
believes it is not efficient administration for State agencies to 
manage, store, and retain financial records well past the 3 years 
required by Federal regulations and in particular to be actively 
reviewing stale financial records more than 3 years old. This is 
especially the case because FNS pays 50 percent of State administrative 
costs. The intended effect of the proposed limitation on claiming costs 
is to direct State agency and Federal resources toward the present 
operation of the program. The Department believes State agencies have a 
responsibility to properly claim Federal funding on a timely basis.
    The commenter noted that the deadline in the proposed rule was 
calculated based on the quarter in which the State agency obligated the 
funds, and suggested using another baseline such as date of payment, 
which is used by DHHS.
    In the final rule the Department has based the deadline calculation 
on the quarter in which the cost was incurred by the State or local 
agency, whichever first incurred the cost. It is at that point that the 
cost should have been reported on the SF-269, Financial Status Report, 
for that report period.
    One commenter suggested that the definition of the term ``audit 
exception'' which was provided in the preamble of the proposed rule be 
included in the regulatory text. The commenter noted that the deadline 
does not apply to an audit exception and suggested that the rule 
clarify what would happen if an audit were performed by non-Department 
Federal auditors or State or private auditors. The commenter also asked 
whether any procedures will be established to permit the State to 
provide such audits to Department audit staff in order to gain approval 
to claim additional costs.
    In the final rule, the Department has included a definition of the 
term ``audit exception'' in Sec. 277.11(d)(5)(ii) of the regulatory 
text. It has also clarified in the same paragraph that the term 
``audit'' includes Federal and State-initiated audits. This includes 
audits performed by Department auditors, non-Department Federal 
auditors, State auditors, or private auditors as long as the audit 
complies with Department audit requirements in 7 CFR 277.17 and 7 CFR 
part 3015. It also specifies that the audit must have been started 
within 3 years of the date of submission of the final SF-269 report of 
the relevant fiscal year to which it applies. Once the audit is 
resolved, any claim for retroactive Federal funding arising from such 
an audit should be submitted promptly to FNS with a copy of the 
relevant audit findings. This procedure will supplement but not replace 
any other Federal reporting requirements to the cognizant agency for 
audits in Sec. 277.17 and 7 CFR part 3015. Finally, the final rule 
makes minor modifications to the proposed wording in Sec. 277.11(d)(4) 
to improve clarity. The change has no substantive effect.
    At the time of the proposed rule and in accordance with 7 CFR 277.4 
and 7 CFR 3015.82, State agencies used the SF-269, Financial Status 
Report, to report costs during the fiscal year as well as final 
obligations and expenditures in a final (or closeout) SF-269 due 
December 30 following the fiscal year. At that time, the Letter of 
Credit, which was the payment method, was closed for that fiscal year. 
After that, as the proposed rule noted, the SF-270 would be used to 
request funds for prior year expenditures. Thus, the proposed rule 
would have required that States use the Form SF-270, Request for 
Advance or Reimbursement, to request payment for prior year 
expenditures. OMB requires the use of the SF-270 when a State agency 
wants to adjust the program's financial status when the Letter of 
Credit is not used. However, reporting forms follow payment systems and 
subsequently FNS' payment system was changed.
    7 CFR 3015.102 provides that Letters of Credit are to be used to 
pay Department recipients (i.e., State agencies) when all the following 
conditions exist:
    (i) There is or will be a continuing relationship between the 
recipient and the USDA awarding agency for at least a 12 month period 
and the total amount of advances to be received within that period from 
the awarding agency is $120,000 or more per year.
    (ii) The recipient has established or demonstrated to the USDA 
awarding agency the willingness and ability to establish procedures 
that will minimize the time elapsing between the transfer of funds from 
the Treasury and their disbursement by the recipient.
    (iii) The recipient's financial management system meets the 
standards for fund control and accountability prescribed in 7 CFR 3015 
subpart H.
    After the proposed rule was issued, FNS in 1996 started using the 
Department of Treasury's ASAP payment system as a funding mechanism. 
This grantee-initiated payment system, which also uses the Letter of 
Credit as the payment vehicle, has allowed FNS to continue to pay by 
Letter of Credit well after the end of the fiscal year. It allowed FNS 
to streamline its payment process. In addition, the extension of the 
Letter of Credit system for prior years has allowed FNS to continue to 
use the SF-269 for prior year expenditures.
    As a result of this payment system change, in February 1997 FNS 
issued revised procedures for post-close-out payments and adjustments 
in Agency Financial Management System procedure number 678 (AFMS-678). 
Under those procedures, starting in FY 1998, rather than use the SF-
270, State agencies were to revise their ``final'' or close-out SF-
269's to report the outlay of funds for prior FYs 1997 and 1996. State 
agencies may request funds for newly identified prior year expenses on 
a revised SF-269 for that year not more than quarterly. This change in 
the Letter of Credit system is gradually being phased in year by year. 
However, for FY 1995 and prior years, the SF-270 continues to be used 
until the funding fiscal year has been canceled because the Letter of 
Credit is no longer open for those years.
    The change in reporting forms coupled with the use of the new 
system, ASAP, for prior years is significantly more efficient. The SF-
270 process is a manual process that is not tied into State electronic 
reporting. Thus, it would have required more State resources to 
complete the paper SF-270 compared to the electronic SF-269. The 
continued use of the SF-269 after close-out will allow States to 
continue to use the stored electronic SF-269 form (and its data) to 
revise their SF-269 reports for prior years through FNS' State 
Cooperative Data Exchange (SCDEX) with minimal rekeying. Only data that 
has changed would need to be rekeyed for a revised report. Because the 
SF-269 data can be transmitted electronically to FNS, the use of the 
electronic form by States will reduce the processing time to make the 
funds available to the State agency. Finally, it means State agencies 
do not need to switch reporting forms after the end of the fiscal year 
but may continue to use the SF-269.
    The Department notes that under 7 CFR 3015.1(b), Part 3015 
supersedes

[[Page 33439]]

and takes precedence over any individual agency regulations to the 
extent such regulations are inconsistent with the Department 
regulation. The proposed use of the SF-270 when the Letter of Credit 
system is operating would be inconsistent with Part 3015. Because Part 
3015 is an existing Department rule which governs and takes precedence 
over the proposed agency rule, the agency's final rule is being changed 
to comply with the Department rule. Further, this change has been in 
effect since FY 1998 and affects only 53 State agencies. The Department 
believes seeking public comment on the continued use of the SF-269, 
which is based on a provision of the existing Department rule, would 
cause unnecessary delay which is contrary to the public interest.
    As a result of these procedural changes and to conform to current 
practice, FNS has revised Section 277.11 in the final rule to drop the 
reference to the SF-270 and in its place to specify that States use the 
form specified by FNS to report prior year expenditures. This more 
general wording gives necessary flexibility to an area that may be 
subject to change over time as payment systems and electronic reporting 
procedures evolve.
    In addition, because of the continued use of the SF-269 after the 
final or closeout SF-269 (which is due December 30 immediately 
following the fiscal year), it was necessary to add text to the 
regulatory language to make it clear that the audit must have been 
started within 3 years of the ``final'' (or closeout) SF-269 (which is 
due December 30 immediately following the end of the Federal fiscal 
year) to get reimbursement. A revision of the ``final'' SF-269 after 
the final or closeout SF-269 would not start a new 3-year audit clock.

AFDC/Food Stamp Certification Costs

    The Department proposed to amend the current regulations to 
correspond to current practice which allows food stamp certification 
costs for Aid to Families with Dependent Children (AFDC) cases to be 
charged to the FSP. As the proposed rule noted, the current practice of 
charging the incremental cost of certifying AFDC households for food 
stamps to the FSP has been in effect since October 1, 1983, and is 
based on a 1983 Memorandum of Understanding between the Department and 
DHHS. Thus, the FSP is only picking up the incremental costs related to 
the certifying AFDC households for FSP benefits. The incremental cost 
is the cost for certification questions which are FSP specific. One 
State agency commented on this provision, agreeing with the change in 
wording to reflect current practice. The final rule retains the 
proposed wording as it reflects current practice.
    However, since the proposed rule was issued, the Personal 
Responsibility and Work Opportunity Reconciliation Act (Pub.L. 104-193) 
replaced the AFDC program with a Temporary Assistance for Needy 
Families (TANF) block grant. This change is effective July 1, 1997, or 
sooner if a State agency's request is approved earlier by DHHS. This 
change does not materially affect the charging of the incremental costs 
from that proposed in the proposed rule. The final rule retains the 
proposed wording except for changing the reference from AFDC to TANF in 
the final rule.

Effective Date

    The provisions in Sec. 277.11(d) regarding time limits for State 
agencies to file claims to amend a prior expenditure report to request 
retroactive funding for costs previously incurred are effective October 
1, 2000.
    Pursuant to Section 13971 of the Leland Act, the reduction in FFP 
rates mandated by Section 13961 of the Leland Act was effective on 
April 1, 1994, except for those State agencies for which the Department 
has granted in writing a delay of the April 1, 1994 effective date.
    The conforming amendments to FSP regulations in Secs. 272.1, 272.2, 
272.11, 274.12, 277.4, 277.9, 277.15, 277.18, 277.19, and Appendix A to 
Part 277 will be effective June 23, 2000.

List of Subjects

7 CFR Part 272

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

7 CFR Part 274

    Administrative practice and procedure, Food stamps, Fraud, Grant 
Programs--social programs, Reporting and recordkeeping requirements.

7 CFR Part 277

    Food stamps, Government procedure, Grant programs--social programs, 
Investigations, Records, Reporting and recordkeeping requirements.

    Accordingly, 7 CFR parts 272, 274 and 277 are amended as follows:
    1. The authority citation for Parts 272, 274 and 277 continues to 
read as follows:

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

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    2. In Sec. 272.1, a new paragraph (g)(159) is added in numerical 
order to read as follows:


Sec. 272.1  General terms and conditions.

* * * * *
    (g) * * *
    (159) Amendment (385). The provisions in Sec. 277.11(d) regarding 
time limits for State agencies to file claims to amend a prior 
expenditure report to request retroactive funding for costs previously 
incurred are effective October 1, 2000. The conforming amendments to 
Food Stamp Program regulations in Secs. 272.1(g), 272.2(c)(3), 
272.11(d) and (e), 274.12(k), 277.4(b) and (g), 277.9(b), 277.18(b), 
(d), (e), (g) and (p)(5), and Appendix A to Part 277 and the removal of 
Secs. 277.15 and 277.19 are effective June 23, 2000.

    3. In Sec. 272.2, paragraph (c)(3) is revised to read as follows:


Sec. 272.2  Plan of operation.

* * * * *
    (c) * * *
    (3) Additional attachments. Attached for informational purposes 
(not subject to approval as part of the plan submission procedures) to 
the Program Activity Statement and submitted as required in paragraph 
(e)(3) of this section shall be the agreements between the State agency 
and the United States Postal Service for coupon issuance, and between 
the State agency and the Social Security Administration for 
supplemental income/food stamp joint application processing and for 
routine user status.
* * * * *


Sec. 272.11  [Amended]

    4. In Sec. 272.11:
    a. Paragraph (d)(1)(iii) is amended by removing the reference to 
``Sec. 277.19'' and adding in its place a reference to ``Sec. 277.18 
and Appendix A to Part 277''.
    b. Paragraph (e)(2) is amended by removing from the first sentence 
the words ``, as outlined in Sec. 277.19(e)''.

PART 274--ISSUANCE AND USE OF COUPONS


Sec. 274.12  [Amended]

    5. In Sec. 274.12:
    a. Paragraph (k)(2) is removed and paragraphs (k)(3) through (k)(6) 
are redesignated as paragraphs (k)(2) through (k)(5) respectively.
    b. Newly redesignated paragraph (k)(2) is amended by removing the 
words ``and the enhanced funding provided in accordance with this

[[Page 33440]]

paragraph for development of an EBT system''.

PART 277--PAYMENTS OF CERTAIN ADMINISTRATIVE COSTS OF STATE 
AGENCIES

    6. In Sec. 277.4:
    a. Paragraphs (b)(1), (b)(10), (b)(11), and (b)(12) are removed;
    b. Paragraphs (b)(2) through (b)(9) are redesignated as paragraphs 
(b)(1) through (b)(8) respectively;
    c. The second sentence in newly redesignated paragraph (b)(7) is 
revised; and
    d. New paragraph (g) is added.
    The revision and addition reads as follows:


Sec. 277.4  Funding.

* * * * *
    (b) * * *
    (7) * * * The rates of Federal funding for the activities 
identified in paragraphs (b)(2) and (b)(3) of this section shall not be 
reduced based upon the agency's payment error rate.
* * * * *
    (g) Investigations of authorized retail or wholesale food concerns 
when performed in coordination with the USDA Office of Inspector 
General and FNS shall be funded at the 50 percent Federal reimbursement 
rate.
    7. In Sec. 277.9, paragraph (b) is revised to read as follows:


Sec. 277.9  Administrative costs principles.

* * * * *
    (b) The incremental cost of certifying TANF households for Food 
Stamp Program benefits are allowable costs for FNS reimbursement.
* * * * *

    8. In Sec. 277.11, a new paragraph (d) is added to read as follows:


Sec. 277.11  Financial reporting requirements.

* * * * *
    (d) Time limit for State agencies to file claims. (1) After the 
deadline in paragraph (c)(4) of this section for the final SF-269 
report, State agencies shall use the form specified by FNS as needed 
within three years of the end of the Federal fiscal year to amend a 
prior expenditure report pertaining to such Federal fiscal year. The 
three-year reporting deadline may be extended by FNS if litigation, an 
audit, or a claim is unresolved at the end of the three-year period. 
The reporting form shall be used to amend prior expenditure reports, 
and to request reimbursement for any additional funding due, or to pay 
back to FNS any inadvertent prior overclaim. Requests for reimbursement 
will only be honored if the claim is filed within the timeframe in 
paragraph (d)(2) of this section. FNS reserves the right to bill State 
agencies for amounts due FNS resulting from an overclaim, even if no 
reporting form has been submitted.
    (2) Subject to the availability of funds from the appropriation for 
the year in which the expenditure was incurred, FNS may reimburse State 
agencies for an allowable expenditure only if the State agency files a 
claim with FNS for that expenditure within two years after the calendar 
quarter in which the State agency (or local agency) incurred the cost. 
FNS will consider non-cash expenditures such as depreciation to have 
been made in the quarter the expenditure was recorded in the accounting 
records of the State agency in accordance with generally accepted 
accounting principles.
    (3) For Automated Data Processing (ADP) expenditures approved under 
Sec. 277.18(c), subject to the availability of funds and required FNS 
approval related to the Advance Planning Document, FNS may reimburse 
State agencies for allowable expenditures at the appropriate rate in 
effect at the time the equipment or service was received only if the 
State agency files for a claim with FNS within two years after the 
calendar quarter in which the cost was incurred. FNS will consider non-
cash expenditures such as depreciation to have been made in the quarter 
the expenditure was recorded in the accounting records of the State 
agency in accordance with generally accepted accounting principles.
    (4) States wishing to request an extension of the deadline in 
paragraphs (d)(2) and (d)(3) of this section must submit the request in 
writing to FNS prior to the applicable deadline. The State agency's 
request for an extension must include a specific explanation, 
justification, and documentation of why the claim will be late and when 
the claim will be filed.
    (5) The time limits in paragraphs (d)(2) and (d)(3) of this section 
will not apply to any of the following:
    (i) Any claim for an adjustment to prior year costs previously 
claimed under an interim rate concept;
    (ii) Any claim arising from an audit exception as defined in this 
section. An audit exception means a proposed adjustment by the 
Department to any expenditure claimed by a State agency by virtue of a 
Federal-or State-initiated audit. The audit must comply with the 
requirements of Sec. 277.17 and 7 CFR part 3015, and must have been 
started within 3 years of the date of submission of the final SF-269 of 
the relevant Federal fiscal year to which it applies.
    (iii) Any claim resulting from a court-ordered retroactive payment. 
However, this provision does not bind FNS to a State or Federal court 
decision when FNS was not a party to the action;
    (iv) Any claim for which FNS determines there was good cause for 
the State agency's not filing it within the time limit. Good cause is 
lateness due to circumstances beyond the State agency's control such as 
Acts of God or documented action or inaction of the Federal Government. 
It does not include neglect or administrative inadequacy on the part of 
the State, State agency, legislature, or any of their offices or 
employees.


Sec. 277.15  [Removed and Reserved]

    9. Section 277.15 is removed and reserved.

    10. In Sec. 277.18:
    a. Paragraph (b) is amended by removing the definition of Enhanced 
funding or enhanced FFP rate, and by revising the definition of Regular 
funding or regular FFP rate;
    b. The introductory text of paragraphs (d)(1) and (d)(2) are 
amended by removing the words ``at the regular or enhanced funding 
rate'' in the first sentence;
    c. Paragraph (d)(1)(ii) is amended by removing the last sentence;
    d. The third sentence of paragraph (d)(1)(v) is amended by removing 
the words ``thresholds of Sec. 277.18(c)(1) are met'' and adding the 
words ``threshold of Sec. 277.18(c)(1) is met'' in their place;
    e. The first sentence of paragraph (e)(1) is revised;
    f. Paragraph (g) is revised; and
    g. Paragraph (p)(5) is revised.
    The revisions read as follows:


Sec. 277.18  Establishment of an Automated Data Processing (ADP) and 
Information Retrieval System.

* * * * *
    (b) * * *
    Regular funding or regular FFP rate means any Federal reimbursement 
rate authorized by Sec. 277.4(b).
* * * * *
    (e) APD Update.--(1) General submission requirements. The State 
agency shall submit an APD Update for FNS approval for all approved 
Planning and Implementation APD's when total acquisition costs exceed 
$5 million. * * *
* * * * *
    (g) Conditions for receiving FFP.--(1) A State agency may receive 
FFP at the 50 percent reimbursement rate for the costs of planning, 
design, development or installation of ADP and information retrieval 
systems if the proposed system will:

[[Page 33441]]

    (i) Assist the State agency in meeting the requirements of the Food 
Stamp Act;
    (ii) Meet the program standards specified in Sec. 272.10(b)(1), 
(b)(2), and (b)(3) of this chapter, except for the requirements in 
Sec. 272.10(b)(2)(vi), (b)(2)(vii), and (b)(3)(ix) of this chapter to 
eventually transmit data directly to FCS;
    (iii) Be likely to provide more efficient and effective 
administration of the program; and
    (iv) Be compatible with such other systems utilized in the 
administration of State agency plans under the program of Temporary 
Assistance for Needy Families (TANF).
    (2) State agencies seeking FFP for the planning, design, 
development or installation of automated data processing and 
information retrieval systems shall develop Statewide systems which are 
integrated with TANF. In cases where a State agency can demonstrate 
that a local, dedicated, or single function (issuance or certification 
only) system will provide for more efficient and effective 
administration of the program, FNS may grant an exception to the 
Statewide integrated requirement. These exceptions will be based on an 
assessment of the proposed system's ability to meet the State agency's 
need for automation. Systems funded as exceptions to this rule, 
however, should be capable to the extent necessary, of an automated 
data exchange with the State agency system used to administer TANF. In 
no circumstances will funding be available for systems which duplicate 
other State agency systems, whether presently operational or planned 
for future development.
* * * * *
    (p) * * *
    (5) Costs. Costs incurred for complying with the provisions of 
paragraphs (p)(1) through (p)(3) of this section are considered regular 
administrative costs which are funded at the regular FFP level.


Sec. 277.19  [Removed]

    11. Section 277.19 is removed.
    12. In part 277, Appendix A, in the section titled ``Standards for 
Selected Items of Cost'':
    a. Paragraphs A.(25) through A.(28) are redesignated as paragraphs 
A.(26) through A.(29) respectively;
    b. A new paragraph A.(25) is added;
    c. Paragraph B.(1) is amended by removing from the second sentence 
the words ``to be funded at the 63 percent rate or''.
    The addition reads as follows:

Appendix A to Part 277--Principles for Determining Costs Applicable 
to Administration of the Food Stamp Program by State Agencies

* * * * *
    Standards for Selected Items of Cost
    A. * * *
    (25) Prosecution activities. The costs of investigations and 
prosecutions of intentional Food Stamp Program violations are 
allowable. Costs of investigation, prosecution, or claims collection 
which are performed by agencies other than the State agency shall be 
based on a formal agreement between the State or local agency and 
provider agency. These interagency agreements shall meet the 
requirements of this part in regard to allowable charges. Funding under 
these interagency agreements shall be provided by the State agency from 
their funds and funds made available by FNS.
* * * * *

    Dated: May 17, 2000.
Shirley R. Watkins,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 00-13005 Filed 5-23-00; 8:45 am]
BILLING CODE 3410-30-P